SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 26, 2002
----------------
RETURN ASSURED INCORPORATED
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3896069
---------------- ------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5962 LA PLACE COURT
SUITE 230
CARLSBAD, CALIFORNIA 92008
(Address of principal executive offices) (Zip Code)
(760) 438-7245
-------------------------------------------------------------
(Registrant=s Telephone Number, Including Area Code)
----------------------------------------------------------------------
(Former Name or Former Address, If Changed since Last Report.)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of EliteJet, Inc., which we acquired on April 26, 2002,
are filed with this report.
Page 2
[Letterhead of Rogoff & Company, P.C.]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
ELITEJET, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of EliteJet, Inc. (a
Nevada corporation) and Subsidiary as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years then ended. 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
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EliteJet, Inc. and Subsidiary as of December 31, 2001, and the consolidated
results of their operations and their cash flows for each of the two years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Rogoff & Company, P.C.
NEW YORK, NEW YORK
JULY 10, 2002
Page F-1
ELITEJET, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2001
------------
ASSETS
Current assets:
- ---------------
Cash $ 341,899
Accounts receivable 220,053
Prepaid expenses 2,194
------------
TOTAL CURRENT ASSETS 564,146
Other assets:
- -------------
Fixed assets 2,562,211
------------
TOTAL OTHER ASSETS 2,562,211
------------
TOTAL ASSETS $ 3,126,357
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
- --------------------
Accounts payable and accrued expenses 243,893
Current portion of long-term debt 242,967
Customer deposits 50,000
------------
TOTAL CURRENT LIABILITIES 536,860
------------
Other liabilities:
- ------------------
Long-term debt, net of current portion 2,151,155
Commitments and contingencies ---
------------
TOTAL OTHER LIABILITIES 2,151,155
------------
TOTAL LIABILITIES 2,688,015
------------
Minority interest in equity of subsidiary 299,258
Stockholders' equity:
- ---------------------
Common stock, $1.00 par value, 25,000 shares
authorized, 500 shares issued and outstanding 500
Additional paid-in capital 2,114,382
Retained earning (deficit) (1,975,798)
------------
TOTAL STOCKHOLDERS' EQUITY 139,084
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . $ 3,126,357
===============
SEE NOTES TO FINANCIAL STATEMENTS
Page F-2
ELITEJET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
Operating income:
- ------------------
Revenue $ 1,328,980 $ ---
Cost of revenue 901,688 87,048
------------ ------------
MARGIN 427,292 (87,048)
Operating expenses:
- --------------------
Selling expenses 78,851 110,647
General and administrative expenses 258,791 174,236
Depreciation expense 785,232 581,261
------------ ------------
TOTAL OPERATING EXPENSES 1,122,874 866,144
INCOME (LOSS) FROM OPERATIONS (695,582) (953,192)
Other income and (expenses):
- -------------------------------
Interest income --- 3,368
Other income and (expenses) (176,172) (154,512)
------------ ------------
TOTAL OTHER INCOME AND (EXPENSES) (176,172) (151,144)
------------ ------------
LOSS BEFORE MINORITY INTEREST $ (871,754) $ (1,104,336)
Minority Interest in Loss of Subsidiary 292 ---
- -------------------------------------------- ------------ ------------
NET INCOME (LOSS) $ (871,462) $ (1,104,336)
========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 500 500
=== ===
EARNINGS (LOSS) PER SHARE $ (1,742.92) $(2,208.67)
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS
Page F-3
ELITEJET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
ADDITIONAL RETAINED
NUMBER COMMON PAID-IN EARNINGS
OF SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------ ---------- ------------- -----------
BALANCE, JANUARY 1, 2000 --- $ --- $ --- $ --- $ ---
Net proceeds from the issuance
of common stock-Founder 500 500 2,114,382 --- 2,114,882
Net income (loss) for the year
ended December 31, 2000 --- --- --- (1,104,336) (1,104,336)
--------- ------ ---------- ------------- -----------
BALANCE, DECEMBER
31, 2000. . . . . . . . . . . 500 $ 500 $2,114,382 ($1,104,336) $ 1,010,546
Net income (loss) for the year
ended December 31, 2001 --- --- --- (871,462) (871,462)
--------- ------ ---------- ------------- -----------
BALANCE, DECEMBER
31, 2001. . . . . . . . . . . 500 $ 500 $2,114,382 ($1,975,798) $ 139,084
========= ====== ========== ============= ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page F-4
ELITEJET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
CASH FLOWS FROM:
OPERATING ACTIVITIES:
- ---------------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ (871,462) $ (1,104,336)
Non-cash transaction -
Professional services 25,000 ---
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . 785,232 581,261
Minority interest (292) ---
Change in:
Accounts receivable (220,053) ---
Prepaid expenses. . . . . . . . . . . . . . . . . 7,500 (9,694)
Accounts payable and
accrued expenses. . . . . . . . . . . . . . . 231,743 12,152
Customer deposits 50,000 ---
-------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES . . . . . . . . . . . . . . . 7,668 (520,617)
-------------- -------------
FINANCING ACTIVITIES:
- ---------------------------------------------------
Issuance of common stock --- 2,114,882
Sale of LLC Units 274,550 ---
Aircraft acquisition loan --- 2,449,073
Repayment of long-term debt . . . . . . . . . . . (24,366) (30,586)
-------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES . . . . . . . . . $ 250,184 $ 4,533,369
-------------- -------------
(CONTINUED)
Page F-5
ELITEJET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
CASH FLOWS FROM:
INVESTING ACTIVITIES:
- ---------------------
Acquisition of property, plant
and equipment . . . . . . . . . . . . ($54,188) $ (3,874,517)
-------------- -------------
NET CASH (USED IN)
INVESTING ACTIVITIES . . . . . . . . . (54,188) (3,874,517)
-------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 203,664 138,235
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $ 138,235 ---
-------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD . . . . . . . . . . . . . . . . . $ 341,899 $ 138,235
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
- ---------------------------------------------------
Interest . . . . . . . . . . . . . . . . . . . . $ 176,238 $ 151,143
============== =============
Income taxes $ --- $ ---
============== =============
Non-cash transactions:
- ---------------------------------------------------
Consulting services for LLC Units $ 25,000 $ ---
============== =============
SEE NOTES TO FINANCIAL STATEMENTS
Page F-6
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1: ORGANIZATION AND BUSINESS
ELITEJET, INC. (the "Parent") was organized on November 16, 1999, pursuant to
the corporation laws of the State of Nevada as EXEC JET, INC. On September 28,
2001, the Parent amended its Articles of Incorporation and Corporate Charter to
change its name to EliteJet, Inc. On May 16, 2001, the Parent was qualified and
authorized to transact intrastate business in the State of California. The
Company was formed to acquire, own and operate jet air transportation. Its
current operations are to provide certain management services to Elite Jet
Partners, LLC. The company provides charter services throughout North America
and the Caribbean.
ELITE JET PARTNERS, LLC (the "Subsidiary") was organized on May 2, 2001,
pursuant to the Beverly-Lillea Limited Liability Company Act of the State of
California as EXECJET PARTNERS, LLC. On July 25, 2001, the Company amended its
Articles of Organization to change its name to Elite Jet Partners, LLC. The
Company was formed to acquire, own and provide jet air transportation for the
cooperative use of its members.
The Company's ability to remain operational is dependent upon its ability to
raise additional funds and have positive cash flows from operations. The
Company's future capital requirements will depend on numerous factors including,
but not limited to, continued progress in its selling capabilities and
implementing its marketing strategies. The Company plans to engage in such
ongoing financing efforts on a continuing basis.
NOTE 2: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Parent,
EliteJet, Inc., and its majority-owned Subsidiary, Elite Jet Partners, LLC
(collectively referred to herein as the "Company", from their respective dates
of incorporation/organization). All significant inter-company transactions and
account balances have been eliminated in consolidation.
Page F-7
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 3: PRIVATE PLACEMENT OFFERING
During the year ended December 31, 2001, the Managing Member of the Subsidiary
passed a resolution authorizing the management to initiate steps to make a
private placement of the Subsidiary's Member Interests or "Units" in order to
raise capital. The Subsidiary initiated an offering of securities under an
exemption pursuant to Rule 506 of Regulation D, "Rules Governing the Limited
Offer and Sale of Securities Without Registration Under the Securities Act of
1933 (as amended)" (the "Offering"). The Offering includes the sale of up to six
hundred (600) Units, including rights in the Subsidiary consisting of the
Member's Economic Interest, any right to vote or participate in management, and
any right to information concerning the business and affairs of the Subsidiary,
at the offering price of $25,000.00 per Unit, for an aggregate of $15,000,000.00
on a best efforts, twelve (12) Unit minimum investment basis.
The Offering was commenced on August 31, 2001, with the first and only sale to
date of twelve (12) Units of the Subsidiary that raised an aggregate of
$300,000. Offering costs of $31,732, for legal fees, registration fees, printing
fees and other related expenses, were charged to the proceeds of the offering.
NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
- ----------------------------
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
Accounts receivable
- --------------------
Accounts receivable is stated at its gross amount. No allowance for doubtful
accounts has been provided for. Based upon its past history, the Company has not
experienced bad debt and does not expect to. The Company evaluates accounts
receivable as part of its determination of profit and loss.
In addition the Balance Sheet includes the value attributed to the minority
interest of the subsidiary. As a result of operations, the minority interest of
the subsidiary has been charged with their share of the subsidiary's loss.
Page F-8
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed assets
- -------------
The Company's policy is to capitalize the cost of the acquisition and
significant improvements to its aircraft, as well as significant furniture and
fixtures, equipment and leasehold improvements. Purchased assets are capitalized
and stated at cost. Normal repairs and maintenance are expensed as incurred.
Expenditures, such as improvements, which materially increase values, change
capacities or extend useful lives are capitalized. Furniture, fixtures and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets for financial statement reporting purposes. For
federal income tax purposes, depreciation is provided for under the guidelines
in the Internal Revenue Code. Gains or losses on disposals of fixed assets are
recorded as current activities. The Company assesses at least annually the
recovery of its long-lived and intangible assets. If an impairment exists, the
carrying amount of the related asset is reduced to fair value. The estimated
useful lives of fixed assets are as follows:
Aircraft 5 years
Computer equipment 5 years
Furniture & fixtures 7 years
Organization costs
- -------------------
Organization costs incurred in conjunction with the formation of the Company
have been expensed to operations.
Year-end
- --------
The Company has adopted a year-end of December 31 for financial statement and
income tax reporting purposes.
Revenue Recognition
- --------------------
The company recognizes revenue from the rental of its aircraft. Revenue is
recorded at the time the services are rendered.
Page F-9
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Major customers
- ----------------
The Company has a concentration risk as defined by American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 94-6,
Disclosure of Certain Risks and Uncertainties in that the Company conducts
virtually all of its business with a relatively small number of customers, the
loss of any of which may have a materially negative effect on the Company's
financial position and/or results of operations. During the year ended December
31,2001 two customers accounted for approximately 28% and 26% respectively of
company revenues.
Income taxes
- -------------
The Company reports income (loss) for income tax reporting purposes on a
calendar year basis. The results of operations for the years ended December 31,
2001 and 2000 do not contain a substantial provision for income taxes because of
the Company's S Corporation election under the Internal Revenue Code, which was
involuntarily terminated on April 26, 2002 upon a business combination. Income
taxes on earnings of the Company are payable by the Stockholder individually
under the Internal Revenue Code and, accordingly, are not reflected in the
historical financial statements. State income taxes were immaterial.
Earnings (loss) per share
- ----------------------------
Earnings (loss) per share has been computed by dividing the net (loss) by the
weighted average number of common stock outstanding.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Page F-10
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 5: FIXED ASSETS
Fixed assets includes aircraft and improvements, furniture, fixtures and
computer equipment at December 31, 2001 and consists of the following:
Aircraft and improvements $ 3,923,642
Furniture and fixtures 1,671
Computer equipment 3,391
---------------
TOTAL FIXED ASSETS 3,928,704
Accumulated depreciation and amortization (1,366,493)
------------
TOTAL FIXED ASSETS, NET $ 2,562,211
=========
NOTE 6: NOTE PAYABLE
The Company has a note payable outstanding at December 31, 2001, in the amount
of $2,394,122, for the acquisition and upgrade of an aircraft. The note bears
interest at the rate of two-and-a-quarter percent (2.25%) above the Governing
Rate ("The Wall Street Journal One Year Treasury Bill Rate" 2.22% at December
31, 2001), is due May 1, 2010, and is payable in monthly principal installments
of $23,975.
Page F-11
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 6: NOTE PAYABLE (CONTINUED)
FUTURE PRINCIPAL PAYMENTS OF LONG-TERM DEBT - The future principal payments for
long-term debt as of December 31, 2001 are as follows:
DECEMBER 31,
2001
--------------
2002 $ 242,967
2003 242,967
2004 242,967
2005 242,967
2006 242,967
2007 and thereafter 1,179,287
-----------
TOTAL FUTURE MINIMUM PRINCIPAL PAYMENTS $ 2,394,122
=========
NOTE 7: REAL ESTATE LEASE
The Company leases its executive offices and operating facilities under a
non-cancelable agreement accounted for as an operating lease that expires on
January 31, 2003. The terms of the agreement require the Company to make
minimum fixed rental payments plus pay amounts as additional rent for 3.85% of
the Landlord's share of real estate taxes, water charges, sewer rent, sprinkler
charges vault taxes and assessments apportioned on a pro rata basis.
Minimum lease payments for the years ended December 31
2002 $ 32,538
2003 2,958
Page F-12
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 8: OPERATING LEASE
On November 19, 2001 the Company entered into an agreement accounted for as an
operating lease for a Dassault 10 aircraft. Minimum monthly payments are
$10,938. Additional lease payments may be due under certain conditions pursuant
to the agreement.
Schedule of future lease payments at December 31, 2001 are as follows:
DECEMBER 31,
2001
--------------
2002 $ 131,250
2003 131,250
2004 131,250
2005 131,250
2006 131,250
2007 and thereafter 1,301,563
---------
TOTAL FUTURE MINIMUM LEASE PAYMENTS $ 1,957,813
=========
NOTE 9: ISSUANCE OF UNITS
On May 2, 2001 the Subsidiary issued 1 LLC Unit to Bruce Jenner in exchange for
marketing and promotion services. The transaction has been valued at the
offering price of $25,000 per Unit for financial statement reporting purposes at
December 31, 2001 since this was more readily determinable than the value of the
services. Accordingly, the Company charged $25,000 to operations (general and
administrative expenses).
NOTE 10: RELATED PARTY TRANSACTIONS
Issuance of Units
- -------------------
On May 2, 2001, the Subsidiary issued 612 LLC Units to its managing member,
EliteJet, Inc., the Parent, a Nevada corporation authorized to do business in
the State of California in exchange for cash payments of the Company's costs,
including legal and filing fees for the establishment of the Subsidiary and the
preparation of the Private Placement Offering.
Page F-13
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 10: RELATED PARTY TRANSACTIONS (CONTINUED)
Loan to Managing Member
- --------------------------
The Subsidiary has made an advance to its managing member, EliteJet, Inc., the
Parent. The advance, which is non-interest bearing, amounted to $300,000 at
December 31, 2001. The proceeds were utilized to upgrade and refurbish the
managing member's aircraft.
Real estate leases
- --------------------
The Subsidiary occupies space at the office of its managing member, EliteJet,
Inc., the Parent, located at 5962 La Place Court, Carlsbad, California 92008 on
a month-to-month basis, at no charge, pursuant to an informal verbal agreement.
This lease is accounted for as an operating lease.
NOTE 11: SUBSEQUENT EVENTS
On April 26, 2002 the Company entered into a transaction whereby the
Shareholders exchanged all of their common stock for 7,000,000 shares of common
stock of Return Assured Incorporated.
NOTE 12: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
Business Combinations and Statement No. 142, Goodwill and Other Intangible
Assets. These statements become effective to the Company on July 1, 2001 for
Statement No. 141 and August 1, 2002 for Statement No. 142. The Company has not
completed any business combinations as of December 31, 2001 and management
cannot currently assess what effect the future adoption of these pronouncements
will have on the Company's financial statements.
In June 15, 2001, the Financial Accounting Standards Board also issued Statement
No. 143 Accounting For Asset Retirement Obligations and in August 15, 2001,
Statement No. 144 Accounting For Impairment and Disposal of Long Lived Assets.
Page F-14
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE 12: RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Statement No. 143 will change the accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs in four significant ways. First, Statement 143 requires
that the amount initially recognized for an asset retirement obligation be
measured at fair market value and not under the current practice of using a
cost-accumulation measurement approach. Second, Statement 143 requires that the
retirement obligation liability is discounted and accretion expense is
recognized using the credit-adjusted risk-free interest rate in effect when the
liability was initially recognized.
Prior practice did not require discounting of the retirement obligation
liability and therefore no accretion was recorded in periods subsequent to the
initial recognition period. Third, under prior practice, dismantlement and
restoration costs were taken into account in determining amortization and
depreciation rates and often the recognized asset retirement obligation was
recorded as a contra-asset. Under Statement 143, recognized asset retirement
obligations are recognized as a liability. Fourth, under prior practice, the
asset retirement obligation was recognized over that useful life of the related
asset and under Statement 143 the obligation is recognized over that useful life
of the related asset and under Statement 143 the obligation is recognized when
the liability is incurred. The effective date for Statement No. 143 is for
fiscal years beginning after June 15, 2002.
Statement No. 144, changes the accounting for long lived assets to be held and
used by eliminating the requirement to allocate goodwill to long-lived assets to
be tested for impairment, by providing a probability-weighted cash flow
estimation approach to deal with situations in which alternative courses of
action to recover the carrying amount of possible future cash flows and
establishing a "primary-asset" approach to determine the cash flow estimation
period for a group of assets and liabilities that represents the unit of
accounting for a long-lived asset to be held and used. Statement No. 144 changes
the accounting for long-lived assets to be disposed of other than the sale by
requiring that the depreciable life of a long lived asset to be abandoned, be
revised to reflect a shortened useful life and by requiring that an impairment
loss be recognized at the date a long-lived asset is exchanged for a similar
productive asset or distributed to owners in a spin-off if the carrying amount
of the asset exceeds its fair value. Statement No. 144 changes the accounting
for long lived assets to be disposed of by sale by requiring that discontinued
operations no longer be measured on a net realizable value basis (but at the
lower of carrying amount or fair value less costs to sell), by eliminating the
recognition of future operating losses of discontinued components before they
occur and by broadening the presentation of discontinued operations in the
income statement to include a component of an entity rather than a segment of a
business. A component of an entity comprises operations and cash flows that can
be clearly distinguished, operationally, and for financial reporting purposes,
from the rest of the entity. The effective date for Statement No. 144 is for
fiscal years beginning after December 15, 2001.
Page F-15
ELITEJET, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 2001 AND 2000
NOTE 12: RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
The Company expects that the adoption of the new statements will not have a
significant impact on its financial statements. It is not possible to quantify
the impact until the newly issued statements have been studied.
Page F-16
FINANCIAL STATEMENTS
Independent Accountant's Report .................................... G-2
Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001 ..G-3
Consolidated Statements of Operations for the three months
ended June 30, 2002 and June 30, 2001 and for the
six months ended June 30, 2002 and June 30, 2001 ....................G-4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and June 30, 2001 ...................................G-5
Notes to Consolidated Financial Statements .................G-6 to G-8
Page G-1
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of
EliteJet Holdings, Inc. and Subsidiaries,
The accompanying consolidated financial statements have been prepared giving
effect to the acquisition of Return Assured Incorporated and Subsidiaries by
EliteJet Inc., an increase in the number of authorized shares, a 1 for 60
reverse stock split, and the change of the name of Return Assured Incorporated
to EliteJet Holdings, Inc. These transactions are described in Note 1 to the
consolidated financial statements.
We have reviewed the accompanying consolidated balance sheet of EliteJet
Holdings, Inc.and Subsidiaries as of June 30, 2002, and the related consolidated
statements of operations, and cash flows for the six-month periods ended June
30, 2002 and 2001, and the related consolidated statements of operations for the
three-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our reviews 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 reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements reported upon, the Company has sustained recurring net
operating losses and has a shareholders' deficit. In addition, the holders of
the preferred stock currently have the right to redeem their shares for cash in
an amount which exceeds currently available funds. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
this uncertainty.
The information set forth in the accompanying consolidated balance sheet has
been derived from the financial statements of EliteJet, Inc. and subsidiary as
of December 31, 2001, which were audited by other auditors whose report, dated
July 10, 2002, expressed an unqualified opinion on those statements.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 22, 2002
Page G-2
ELITEJET HOLDINGS, INC. AND SUBSIDIARIES
(SEE NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS)
CONSOLIDATED BALANCE SHEET
JUNE 30 DECEMBER 31
2002 2001
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,060 $ 341,899
Cash in escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,791,752
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,481 220,053
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . 1,883 2,194
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,022,176 564,146
Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,575,981 2,562,211
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,960
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,610,117 $ 3,126,357
=============================================================================== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . . $ 1,756,008 $ 243,893
Current portion of long term debt . . . . . . . . . . . . . . . . . . . . . . . 96,781 242,967
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Due to shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,198 105,798
Secured convertible note. . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,300,987 642,658
Long Term Debt, net of current portion. . . . . . . . . . . . . . . . . . . . . 2,236,598 2,045,357
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,537,585 2,688,015
- ------------------------------------------------------------------------------- ------------ ------------
Commitments and Contingencies
Minority interest in equity of subsidiary . . . . . . . . . . . . . . . . . . . 255,000 299,258
- ------------------------------------------------------------------------------- ------------ ------------
Redeemable Preferred Stock, 5,000,000 authorized, 6,000 designated as series A,
$1,000 stated value; issued 5,000 shares, and outstanding 3,829 shares;
no liquidation preference. . . . . . . . . . . . . . . . . . . . . . . . . . 3,828,873
- ------------------------------------------------------------------------------- ------------ ------------
Shareholders' Equity (Deficit):
Common stock - $.001 par value; authorized 100,000,000, issued
and outstanding 7,697,234 and 7,000,000 shares, respectively. 7,697 7,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . (123,333) 2,107,882
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,895,705) (1,975,798)
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT). . . . .. . . . . . . . . . . . . . (3,011,341) 139,084
- ------------------------------------------------------------------------------- ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) . . . . . . . . . . . . . $ 5,610,117 $ 3,126,357
=============================================================================== ============ ============
Page G-3
ELITEJET HOLDINGS, INC. AND SUBSIDIARIES
(SEE NOTE 1 TO THE CONSOLIDATED FINANCIAL
STATEMENTS)
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
---------------------------------------------------
THREE-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
------------------------ -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
Charter revenue. .. . . . . . . . . . . . . . $ 877,349 $ 132,990 $1,324,316 $ 132,990
Cost of revenue . . . . . . . . . . . . . . . 461,266 99,548 1,128,663 169,413
- --------------------------------------------- ---------- ---------- ---------- ----------
Margin. . . . . . . . . . . . . . . . . . . . 416,083 33,442 195,653 (36,423)
Selling, General and administrative expenses. 625,403 537,484 1,007,959 782,830
- --------------------------------------------- ---------- ---------- ---------- ----------
Loss from operations. . . . . . . . . . . . . (209,320) (504,042) (812,306) (819,253)
Other expense:
Interest expense . . . . . . . . . . . . 56,567 48,962 100,831 91,492
- --------------------------------------------- ---------- ---------- ---------- ----------
Net loss before minority interest . . . . . . (265,887) (553,004) (913,137) (910,745)
Minority interest in loss of subsidiary . . . - - 49 -
- --------------------------------------------- ---------- ---------- ---------- ----------
Net Loss. . . . . . . . . . . . . . . . . . . (265,887) (553,004) (913,088) (910,745)
Dividends on preferred stock. . . . . . . . . 6,819 - 6,819 -
- --------------------------------------------- ---------- ---------- ---------- ----------
Net loss attributable to common shareholders. $ (272,706) $ (553,004) $ (919,907) $ (910,745)
============================================= =========== =========== =========== ===========
Net loss per share - basic and diluted. . . . $ (0.04) $ (0.08) $ (0.12) $ (0.13)
============================================= =========== =========== =========== ===========
Weighted-average number of shares outstanding 7,597,234 7,000,000 7,472,406 7,000,000
============================================= =========== =========== =========== ===========
Page G-4
ELITEJET HOLDINGS, INC. AND SUBSIDIARIES
(SEE NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS)
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
-----------------
SIX-MONTH PERIOD ENDED JUNE 30, 2002 2001
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (913,088) $(910,745)
Items not involving cash:
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 414,136 677,915
Legal services rendered in exchange for shares. . . . . . . . . . . . . 1,000
Non cash interest expense . . . . . . . . . . . . . . . . . . . . . . . 18,164
(Increase) decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 40,572 (60,229)
Prepaid expenses and other current assets . . . . . . . . . . . . . 311
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,874) -
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities. . . . . . . . . . . . . . 244,506 31,319
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . (50,000)
- ----------------------------------------------------------------------- ----------- ----------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . (253,224) (261,740)
- ----------------------------------------------------------------------- ----------- ----------
Investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . . . (427,906)
Net cash received on merger . . . . . . . . . . . . . . . . . . . . . . 2,792,588
- ----------------------------------------------------------------------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . 2,364,682
- ----------------------------------------------------------------------- -----------
Financing activities:
Principal payments on long term debt. . . . . . . . . . . . . . . . . . (493,143) (55,235)
Repayments to shareholder . . . . . . . . . . . . . . . . . . . . . . . (7,600)
Cash received from loans. . . . . . . . . . . . . . . . . . . . . . 888,198 185,098
- ----------------------------------------------------------------------- ----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . 387,455 129,863
- ----------------------------------------------------------------------- ----------- ----------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . 2,498,913 (131,877)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 341,899 138,235
- ----------------------------------------------------------------------- ----------- ----------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $2,840,812 $ 6,358
======================================================================= =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for Interest. . . . . . . . . . . . . . . . $ 82,667 $ 91,492
======================================================================= =========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Net Assets received in acquisition. . . . . . . . . . . . . . . . . . $1,574,369
======================================================================= ===========
Accrual of dividends on preferred stock . . . . . . . . . . . . . . . $ 6,819
======================================================================= ===========
Page G-5
ELITEJET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
EliteJet, Inc. ("EliteJet Nevada") was incorporated under the laws of the
State of Nevada on November 16, 1999. The Company was formed to acquire,
own, and operate jet air transportation. The company and its subsidiary,
Elite Jet Partners, LLC ("Elite Jet Partners"), provide charter services
throughout North America and the Caribbean.
These financial statements have been prepared giving effect to the
acquisition of Return Assured Incorporated, a Delaware Corporation
("Return Assured Delaware") and Subsidiaries by EliteJet Nevada, an
increase in the number of authorized shares from 51,000,000 (50,000,000
common and 1,000,000 preferred) to 105,000,000 shares (100,000,000 common
and 5,000,000 preferred), a 1 for 60 reverse stock split, and the change of
the name of Return Assured Delaware to EliteJet Holdings, Inc. ("The Merger
Transaction") The board of directors of Return Assured Delaware and its
majority stockholders approved these corporate actions on April 25, 2002
and prior. The approval by Return Assured Delaware's board of directors and
the majority stockholders is adequate under Delaware law to effect these
corporate actions. The corporate actions will not become effective until 20
days after Return Assured Delaware has mailed an information statement to
its stockholders. Stockholders of Return Assured Delaware have no right
under Delaware Law or Return Assured Delaware's certificate of
incorporation or bylaws to dissent these corporate actions. To date, the
information statement has not been declared effective by the Securities and
Exchange Commission and as such, has not been mailed to Return Assured
Delaware's stockholders. However, since no further decisions by the Company
need to be made regarding these corporate actions, the Company has
accounted for them effective April 26, 2002.
On April 26, 2002, EliteJet Nevada, through a reverse triangular merger,
became the accounting parent and the legal subsidiary of Return Assured
Delaware. Return Assured Delaware issued 7,000,000 shares of its stock to
the shareholder of EliteJet Nevada in exchange for his shares of EliteJet
Nevada in the Merger Transaction. On April 25, 2002, Return Assured
Delaware's assets amounted to $2,795,724, liabilities amounted to
$1,221,355 and Redeemable Preferred Stock amounted to $2,828,873. Return
Assured Delaware's name will now be EliteJet, Inc. ("EliteJet Delaware"), a
Delaware corporation. As a result, the former subsidiaries of Return
Assured Delaware became wholly owned subsidiaries of EliteJet Delaware. The
merger was accounted for as a capital transaction, accompanied by a
recapitalization. The consolidated statements of operations and cash flows
include the activity of Return Assured Delaware and its subsidiaries only
since the date of the merger. The consolidated financial statements include
the following companies, EliteJet Nevada, EliteJet Delaware, Elite Jet
Partners, Return Assured Incorporated (a Nevada Corporation) ("Return
Assured Nevada"), and Edutec Computer Education Institute, Inc. ("Edutec")
(collectively, the "Company"). At the date of the merger, Return Assured
Nevada and Edutec were inactive companies.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements, the Company has sustained
recurring net losses, and has a shareholders' deficit. In addition, the
holders of the preferred stock currently have the right to redeem their
shares for cash in an amount which exceeds currently available funds.
Page G-6
For comparability, certain 2001 amounts have been reclassified, where
appropriate, to conform to the financial statement presentation used in
2002.
The consolidated financial statements have been prepared without audit
pursuant to the rules and regulations of the SEC. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed of omitted pursuant to such rules and
regulations.
The interim financial statements include all adjustments consisting only of
normal recurring accruals which, in the opinion of management, are
necessary to ensure that the financial statements are not misleading.
Cash in escrow denotes cash being held by an attorney. These amounts are
not considered restricted because these funds are subject to withdrawal by
the Company at the Company's option.
Amounts due to shareholder represents funds advanced to the Company from
the Company's majority shareholder, who is also an officer of the Company.
These amounts are non-interest bearing and have no specific repayment
terms.
2. CONTINGENCIES:
The Company was named in a lawsuit against Internet Business International,
Inc. by Michael Rose, et al, in Orange County California Superior Court.
The lawsuit alleges that the Company breached a contract to pay a finder's
fee on the merger transaction. It is the Company's position that no
liability exists, and the Company intends to vigorously defend the suit. If
the Company is unsuccessful in defending this suit, the Company could incur
a loss of $750,000.
A legal proceeding is pending against the Company and two former officers,
by a former officer of a subsidiary of Return Assured Delaware. This former
officer of the Company's subsidiary is claiming that he is entitled to
receive shares from the Company for contributions he made in founding
Return Assured Delaware. It is the Company's position that its defense has
merit. The two former officers of the Company have escrowed 780,000 shares
of the Company's common stock they own to secure the claim if it is
successful.
Several other lawsuits have been asserted against the Company for amounts
which are not material to the Company's results of operations or financial
position. The Company believes that its defense of such suits have merit.
The aggregate of the amount claimed against the Company under these other
lawsuits is approximately $60,000.
Since, in the opinion of management, estimated losses under legal
proceedings were not probable, no accrual is required in accordance with
Statement of Financial Accounting Standards No. 5.
Page G-7
3. PRO FORMA INFORMATION:
The following pro forma information assumes that the acquisition had
occurred at the beginning of the periods presented:
Six-Months Period Ended Three-Months Period Ended
--------------------------- -------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Sales $ 1,324,316 $ 132,990 $ 877,349 $ 132,990
Loss from continuing
operations (1,362,377) (2,932,183) (332,224) (1,390,256)
Loss per share - basic
and diluted (0.18) (0.41) (0.04) (0.19)
Weighted average number
of shares 7,472,406 7,140,566 7,597,234 7,145,368
4. SECURED CONVERTIBLE NOTE:
On April 23, 2002, the Company received $350,000 in exchange for a secured
convertible note. The holder of the note is entitled to 50 hours of private
flying service valued at $100,000 in lieu of interest which equates to an
interest rate of approximately 29% and is being recorded as interest
expense over the term of the loan. The note is due on April 23, 2003. On
the due date of the loan, the holders have the option to convert the note
into shares of the Company. The conversion price shall be the lesser of
$3.00 or the average of the three lowest closing price of the Company's
common stock for the 40 days immediately preceding the conversion date. The
loan is secured by substantially all of the assets of the Company subject
to the security on the long-term debt.
5. MINORITY INTEREST:
During 2001, the Company sold a 2% interest in Elite Jet Partners to a
previously unrelated third party (the "client") in return for the use of
private aircraft for 50 hours per year valued at $300,000. The client can
sell its ownership percentage to the Company at any time after two years
for 85% of its initial investment. As such, the company records minority
interest for this investment at 85% of the client's initial investment,
which is $255,000.
6. REDEEMABLE PREFERRED STOCK
The Company's redeemable preferred stock ("The Preferred Shares") carry a
dividend rate of 1%, of which approximately $61,000 is accrued and in
arrears at June 30, 2002. The Preferred Shares are convertible at the
lesser of the three lowest per share market value prices for the previous
45-day period preceding the conversion date or $3.00. Per share market
price is defined as the closing bid prices of the Company's common shares.
The preferred shares are redeemable based on factors outside the Company's
control. At June 30, 2002, these factors had been met and as such, the
preferred shares can be redeemed at any time for cash at the holder's
option.
Page G-8
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited consolidated pro forma financial statements give effect
to the acquisition by Return Assured Incorporated ("Return Assured") of
EliteJet, Inc. ("EliteJet"). This transaction has been accounted for as a
reverse acquisition with EliteJet as the accounting acquiror. The annual
unaudited pro forma consolidated statements of operations give effect to this
transaction between Return Assured and EliteJet by combining the results of
operations of Return Assured for the twelve months ended November 30, 2001 with
the results of EliteJet for the year ended December 31, 2001. Due to the
difference in year ends, the results of operations for the three months ended
November 30, 2000 of Return Assured have been removed from and the results of
operations for the three months ended November 30, 2001 have been added to
Return Assured's results of operations for their fiscal year ended August 31,
2001 in order to present twelve month results. The effective date of this
acquisition was deemed to be April 26, 2002. Therefore, the results of
operations of Return Assured from April 26, 2002 have been included in the
consolidated results of operations of EliteJet. The interim unaudited pro forma
consolidated statements of operations give effect to this transaction between
Return Assured and EliteJet by combining the results of operations of EliteJet
for the six months ended June 30, 2002 and the results of operations of Return
Assured for the period December 1, 2001 to April 25, 2002 as if the transactions
had occurred on January 1, 2002. Due to the difference in year ends, the results
of operations of Return Assured are shown for a seven month period while the
results of EliteJet are shown for a six month period. The additional month of
operations of Return Assured shown is immaterial to the financial statements
taken as a whole. During the year ended December 31, 2001 and the six months
ended June 30, 2002, the consolidated pro forma statements of operations also
give effect to a reverse split of Return Assured common stock, on a 1 for 60
basis, which will be effective prior to the closing of the acquisition.
The unaudited pro forma consolidated financial statements are based on the
estimates and assumptions set forth in the notes to these financial statements,
which have been made solely for purposes of developing this pro forma
information. The unaudited pro forma consolidated financial statements are not
necessarily an indication of the results that would have been achieved had such
transactions been consummated as of the dates indicated or that may be achieved
in the future.
These unaudited pro forma combined consolidated financial statements should be
read in conjunction with the historical financial statements and related notes
of Return Assured and EliteJet.
Page H-1
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED JUNE 30, 2002 (ELITEJET)
AND THE SEVEN MONTHS ENDED JUNE 30, 2002 (RETURN ASSURED)
(UNAUDITED)
Historical
-------------------------------------
EliteJet and
Return Assured Subsidiaries
and Subsidiaries (including Return
(through April 25, Assured from
2002) April 26, 2002) Pro Forma
----------------- ---------------- ------------
Revenue . . . . . . . . . . . . . . . . $1,324,316 $ 1,324,316
Cost of Revenue . . . . . . . . . . . . 1,128,663 1,128,663
---------------- ------------
Margin. . . . . . . . . . . . . . . . . 195,653 195,653
General and administrative expenses . . $ 411,234 1,007,959 1,419,193
----------- ---------------- ------------
Operating loss. . . . . . . . . . . . . (411,234) (812,306) (1,223,540)
Interest expense. . . . . . . . . . . . 31,187 100,831 132,018
----------- ---------------- ------------
Loss before minority interest . . . . . (442,421) (913,137) (1,355,558)
Minority interest in loss of subsidiary 49 49
---------------- ------------
Net Loss. . . . . . . . . . . . . . . . (442,421) (913,088) (1,355,509)
Dividends on preferred stock. . . . . . (5,979) (6,819) (12,798)
----------- ---------------- ------------
Net loss attributable to common
shareholders. . . . . . . . . . . . . $ (448,400) $ (919,907) $(1,368,307)
=========== ================ ============
Net Loss per share, basic and diluted . $ (0.15) $ (0.12) $ (0.18)
=========== ================ ============
Weighted Average number of shares
outstanding . . . . . . . . . . . . 1 3,000,184 7,472,406 2 7,472,406
= =========== ================ = ===========
Page H-2
Return Assured Incorporated and Subsidiaries
Notes to unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2001
The pro forma consolidated statement of operations of Return Assured and
EliteJet gives effect to the issuance of Return Assured common stock in exchange
for all the outstanding stock of EliteJet as if it had occurred on January 1,
2001.
1. Adjustment to the historical financial statements of Return Assured to
reflect the one for sixty reverse stock split.
2. Pro forma net income per share is computed by dividing the pro forma net
income by Return Assured's weighted average number of shares and the
issuance of 7,000,000 shares of common stock to the shareholders of
EliteJet in exchange for all the outstanding common stock of EliteJet.
Incremental shares from the effect of options, warrants and convertible
preferred stock have not been included in the weighted average shares
calculation on a diluted basis as the effect would have been anti-dilutive.
Page H-3
RETURN ASSURED INCORPORATED AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED NOVEMBER 30, 2001 (RETURN ASSURED) AND
THE YEAR ENDED DECEMBER 31, 2001 (ELITEJET)
(UNAUDITED)
Historical
---------------------------
Return EliteJet
Assured and and
Subsidiaries Subsidiary Pro Forma
-------------- ------------ ------------
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,851 $ 1,328,980 $ 1,339,831
Cost of Revenue . . . . . . . . . . . . . . . . . . . . . . . . 32,177 901,688 933,865
-------------- ------------ ------------
Margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,326) 427,292 405,966
Selling, general and administrative expenses. . . . . . . . . . 3,016,778 1,122,874 4,139,652
-------------- ------------ ------------
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . (3,038,104) (695,582) (3,733,686)
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . 561,097 176,172 737,269
-------------- ------------ ------------
Loss from continuing operations before minority interest. . . . (3,599,201) (871,754) (4,470,955)
Minority interest in loss of subsidiary . . . . . . . . . . . . 292 292
------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,599,201) (871,462) (4,470,663)
Dividends on preferred stock. . . . . . . . . . . . . . . . . . (51,980) (51,980)
-------------- ------------
Net loss attributable to common shareholders. . . . . . . . . . $ (3,651,181) $ (871,462) $(4,522,643)
============== ============ ============
Net Loss per share, basic and diluted . . . . . . . . . . . . . $ (17.33) $ (1,742.92) $ (0.63)
============== ============ ============
Weighted Average number of shares outstanding . . . . . . . . 1 210,684 500 2 7,210,684
= ============== ============ = ===========
Page H-4
Return Assured Incorporated and Subsidiaries
Notes to unaudited Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2002
The pro forma consolidated statement of operations of Return Assured and
EliteJet gives effect to the issuance of Return Assured common stock in
exchange for all the outstanding stock of EliteJet as if it had occurred on
January 1, 2002. The one for sixty reverse stock split and the issuance of
7,000,000 shares of common stock to the shareholders of EliteJet in
exchange for all the outstanding common stock of EliteJet have been
accounted for in the historical consolidated financial statements for the
six months ended June 30, 2002 and therefore no additional pro forma
adjustments were necessary.
Page H-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ELITEJET, INC. FOR THE PERIOD ENDED DECEMBER 31, 2001
OVERVIEW
We are in the business of operating a fractional aircraft ownership program. We
sell ownership interests in a limited liability company which entitles the
purchaser to utilize our aircraft for a specified number of flight hours per
annum. In addition, we provide management, ground support and flight operation
services to customers after the sale. Our revenues derive from the sale of
management and usage fees charged to clients in connection with flight
operations. We also derive revenues from our sky club program in which
customers prepay for flight time on an hourly basis. We place great emphasis on
customer service. Our programs are designed to offer customers guaranteed
availability of aircraft, lower and predictable operating costs and liquidity.
We were incorporated during the fourth quarter of 1999 and commenced operations
in 2000. We did not realize operating income from our charter services during
calendar year 2000. We began to realize income from our charter services during
2001. This transaction is accounted for as a reverse acquisition with EliteJet,
Inc. being the accounting acquirer. We derive our revenue primarily from the
charter of our aircraft. Interests in our controlled LLC are sold to customers
who pay our management and hourly fees.
We derive revenue from charging our owner-customers three types of fees:
- Monthly management fees which are a portion of monthly shared fixed
expenses;
- Hourly fees for actual flight time; and
- Miscellaneous fees, such as catering.
Our management fees were $92,500 during calendar year 2001 and $135,675 during
the first quarter of 2002. Hourly flight charges were $1,181,778 during
calendar year 2001 and $307,454 during the first quarter of 2002. Miscellaneous
fees were not significant during these periods.
We have low operating expenses because we operate a single type of aircraft,
have a highly productive workforce and use advanced technologies. The largest
components of our cost of sales are aircraft fuel and pilot costs. The largest
components of our operating expenses are salaries, wages and benefits provided
to our employees. Sales and marketing expenses include advertising, promotion
and client entertainment. Maintenance materials and repairs are expensed when
incurred. Because the average age of our aircraft is about twenty-two years,
all of our aircraft require less maintenance now than they will in the future.
Our maintenance costs will increase, both on an absolute basis and as a
percentage of our unit costs, as our fleet ages. Other costs of sale and
operating expenses consist of depreciation, certain purchased services,
insurance, passenger refreshments, personnel expenses, communication costs,
supplies and taxes other than payroll taxes.
Page 3
RECENT DEVELOPMENTS
On April 26, 2002 Return Assured Incorporated, agreed to acquire all of the
stock of EliteJet, Inc. This transaction gave us access to all of the cash on
hand of Return Assured to continue our aircraft charter business.
RESULTS OF OPERATIONS
The following discussion of our results of operations, and liquidity and capital
resources, concerns our fractional aircraft ownership program. Our discussion
of liquidity and capital resources relates to our financial condition following
the acquisition of all of the outstanding shares of EliteJet by Return Assured.
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
OPERATING INCOME
Operating income increased from $0 during the year ended December 31, 2000 to
$1,328,980 during the year ended December 31, 2001. The increase was due to the
commencement of charter operations during 2001 while 2000 was devoted to gearing
up the business for future operations. Cost of revenue increased from $87,048
in the period ending December 31, 2000 to $901,688 in the period ending December
31, 2001. This increase corresponded to our commencement of charter operations
during 2001. Cost of revenues during the 2000 period related to income that was
not realized until the 2001 period.
OPERATING EXPENSES
Operating expenses consist of selling expenses, general and administrative
expenses, and depreciation expense. Selling expenses were $110,647 during the
year ended December 31, 2000 and $78,851 during the year ended December 31,
2001. The slight decrease was based on a decision to conserve cash for
equipment and other hard costs. General and administrative expenses increased
from $174,236 during the 2000 period to $258,791 during the 2001 period. This
increase of approximately 64% was due to the increased hiring of staff and
professional development, and the establishment of our executive offices during
the 2001 period. Depreciation expenses increased from $581,261 during the 2000
period to $785,232 during the 2001 period. This increase was due to the
inclusion of a full year of depreciation expense for our aircraft during the
2001 period and only a partial year of depreciation during 2000.
LOSS FROM OPERATIONS
During the years ended December 31, 2000 and 2001, our losses from operations
were $953,192 and $695,582, respectively. The loss in the 2000 period was due
to our start-up of operations during that period without any corresponding
income from charter services. During 2001, we realized income from operations
of approximately $1,329,000 but corresponding increases in cost of sales and
operating expenses resulted in our loss during this period.
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OTHER EXPENSES
During the year ended December 31, 2001, other expenses increased slightly to
$176,172 from $151,143 during the period ended December 31, 2000. These other
expenses consist primarily of interest, and remained relatively constant as
there was more borrowing at lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
As of December 31, 2001, we had cash of $341,899 and accounts receivable of
$220,053. At the end of our first quarter during our current fiscal year, on
March 31, 2002, we had a cash overdraft of $1,882 and accounts receivable of
$42,116. We recognized the need for immediate capital in order to continue
operations. After exploring all of our alternatives, we entered into the
transaction with Return Assured under which Return Assured acquired all of our
outstanding stock. On a pro forma basis, combining our assets with those of
Return Assured as of March 31, 2002, our cash was $2,808,056 and our accounts
receivable were $42,116. These amounts represented substantially all of our
current assets. Our current liabilities were $917,326 and $536,860 as of the
quarter ended March 31, 2002 and the year ended December 31, 2001, respectively.
Our cash on hand should be adequate to pay all current liabilities as they
become due.
Cash will be used to pay all of our operating expenses. Aircraft will in all
likelihood not be acquired unless they can be leased or obtained with seller or
third party financing. Acquisition of aircraft by these methods, as compared to
being purchased for cash, allows us to pay for the cost of aircraft over time as
income from charter operations is earned.
INVESTING ACTIVITIES
During the fiscal years ended December 31, 2000 and 2001 our income from
investing activities was negligible. Commencing with the completion of the
transaction with Return Assured we intend to invest our cash in certificates of
deposit, money market funds and other insured investments paying a fixed rate of
interest. We do not intend to use our cash to make investments in other
businesses.
FINANCING ACTIVITIES
Our financing activities have consisted primarily of issuances of common stock,
sale of limited liability company interests in our controlled limited liability
company and long term debt.
During the year ended December 31, 2000, we received $2,114,882 from the
issuance of common stock and $2,449,073 from long term loans. All of the stock
issuances and loans came from our founder, Scott Walker. We do not anticipate
that Mr. Walker will purchase any more of our stock or make any loans to the
company in the next two years.
During the year ended December 31, 2001, we received $300,000 from the sale of
limited liability company units. We expect to realize substantial financing
from the sale of these units in the remainder of 2002 and thereafter. It is
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through the sale of these units that customers join our fractional share
ownership program.
CAPITAL RESOURCES
Our primary capital resource is our cash on hand. Additional aircraft will not
be obtained unless they are available on terms which will allow us to finance
their acquisition. If necessary we believe we can raise additional funds
through the sale of common or preferred stock in one or more private placements.
We do not anticipate that we will be able to obtain debt financing except for
secured debt incurred in acquiring aircraft.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ELITEJET HOLDINGS, INC. FOR THE PERIOD ENDED JUNE 30, 2002.
OVERVIEW
We are in the business of operating a fractional aircraft ownership program. We
sell ownership interests in a limited liability company which entitles the
purchaser to utilize our aircraft for a specified number of flight hours per
annum. In addition, we provide management, ground support and flight operation
services to customers after the sale. Our revenues derive from management and
usage fees charged to clients in connection with flight operations. We also
derive revenues from our sky club program in which customers prepay for flight
time on an hourly basis. We place great emphasis on customer service. Our
programs are designed to offer customers guaranteed availability of aircraft,
lower and predictable operating costs and liquidity.
We were incorporated during the fourth quarter of 1999 and commenced
operations in 2000. We did not realize operating income from our charter
services during calendar year 2000. We began to realize income from our charter
services during 2001.
We derive our revenue primarily from the charter of our aircraft. Interests
in our controlled LLC are sold to customers who pay our management and hourly
fees.
We derive revenue from charging our owner-customers three types of fees:
- Monthly management fees which are a portion of monthly shared
fixed expenses;
- Hourly fees for actual flight time; and
- Miscellaneous fees, such as catering.
We have low operating expenses because we operate a single type of aircraft,
have a highly productive workforce and use advanced technologies. The largest
components of our cost of sales are aircraft fuel and pilot costs. The largest
components of our operating expenses are salaries, wages and benefits provided
to our employees. Sales and marketing expenses include advertising, promotion
and client entertainment. Maintenance materials and repairs are expensed when
incurred. Because the average age of our aircraft is about twenty-two years,
all of our aircraft require less maintenance now than they will in the future.
Our maintenance costs will increase, both on an absolute basis and as a
percentage of our unit costs, as our fleet ages. Other costs of sale and
operating expenses consist of depreciation, certain purchased services,
insurance, passenger refreshments, personnel expenses, communication costs,
supplies and taxes other than payroll taxes.
RECENT DEVELOPMENTS
On April 26, 2002, our predecessor company, Return Assured Incorporated,
agreed to acquire all of the stock of EliteJet, Inc. This transaction gave us
access to all of the cash on hand of Return Assured to continue our aircraft
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charter business. This transaction is accounted for as a reverse acquisition
with EliteJet, Inc. being the accounting acquirer.
RESULTS OF OPERATIONS
The following discussion of our results of operations, and liquidity and
capital resources, concerns our fractional aircraft ownership program. We have
not discussed any of the results of our discontinued operations. Our discussion
of liquidity and capital resources relates to our financial condition following
the acquisition of all of the outstanding shares of EliteJet by our predecessor
company.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Charter Revenue
Charter revenue increased from $132,990 during the three months ended June
30, 2001 to $877,349 during the three months ended June 30, 2002. The increase
was due to the commencement of charter operations during 2001 while during 2002
we were fully operational during the entire three month period. Cost of sales
increased from $99,548 during the three months ended June 30, 2001 to $461,266
during the three months ended June 30, 2002. This increase corresponded to our
becoming fully operational during 2002.
Operating Expenses
Operating expenses consist of selling expenses, general and administrative
expenses, and depreciation expense. Operating expenses were $537,484 during the
three months ended June 30, 2001 and $625,403 during the three months ended June
30, 2002. The slight increase was based on increased operations offset by a
decision to conserve cash for equipment and other hard costs.
Loss From Operations
During the three month periods ended June 30, 2001 and June 30, 2002, our losses
from operations were $504,042 and $209,320, respectively. The loss in the 2001
period was due to our start-up of operations during that period without any
corresponding income from charter services. During the 2002 period we realized
income from operations of approximately $877,000 but corresponding increases in
cost of sales and operating expenses resulted in our loss during this period.
Other Expenses
Other expenses were $38,790 during the three months ended June 30, 2001 and $979
during the three months ended June 30, 2002. These other expenses consist
primarily of interest, and reflect a reduced level of borrowing.
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Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Charter Revenue
Charter Revenue increased from $132,990 during the six months ended June
30, 2001 to $1,324,316 during the six months ended June 30, 2002. The increase
was due to the commencement of charter operations during 2001 while during 2002
we were fully operational during the entire six month period. Cost of sales
increased from $169,413 during the six months ended June 30, 2001 to $1,128,663
during the six months ended June 30, 2002. This increase corresponded to our
becoming fully operational during 2002.
Operating Expenses
Operating expenses consist of selling expenses, general and administrative
expenses, and depreciation expense. Operating expenses were $782,830 during the
six months ended June 30, 2001 and $1,128,668 during the six months ended June
30, 2002. The increase was based on increased operations offset by a decision
to conserve cash for equipment and other hard costs.
Loss From Operations
During the six month periods ended June 30, 2001 and June 30, 2002, our
Losses from operations were $819,253 and $812,306, respectively. The loss in the
2001 period was due to our start-up of operations during that period without any
corresponding income from charter services. During the 2002 period we realized
income from operations of $1,324,316 but corresponding increases in cost of
sales and operating expenses resulted in our loss during this period.
Other Expenses
Other expenses were $91,492 during the six months ended June 30, 2001 and
$100,831 during the six months ended June 30, 2002. These other expenses
consist primarily of interest, and reflect an increased level of borrowing.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
As of December 31, 2001, we had cash of $341,899 and accounts receivable of
$220,053. At the end of our first quarter, on March 31, 2002, we had a cash
overdraft of $1,882 and accounts receivable of $42,116. We recognized the need
for immediate capital in order to continue operations. After exploring all of
our alternatives, we entered into the transaction with Return Assured under
which Return Assured acquired all of our outstanding stock. As of June 30,
2002, we had cash of $49,060 and unrestricted cash held by an attorney of
$2,791,752.
As of June 30, 2002, our current assets on a consolidated basis consisted
primarily of cash of approximately $2,841,000 and accounts receivable of
approximately $179,000, a total of approximately $3,020,000. Our current trade
payables and accrued liabilities as of June 30, 2002 were approximately
$1,756,000. Our working capital of approximately $1,264,000 and charter revenue
will be our primary capital resources.
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Cash will be used to pay all of our operating expenses. Aircraft will in
all likelihood not be acquired unless they can be leased or obtained with seller
or third party financing. Acquisition of aircraft by these methods, as compared
to being purchased for cash, allows us to pay for the cost of aircraft over time
as income from charter operations is received.
Financing Activities
Our financing activities have consisted primarily of issuances of common
stock, sale of limited liability company interests in our controlled limited
liability company and long term debt.
During the six months ended June 30, 2002, we borrowed $340,000 from a
third party lender and $100,000 from the Small Business Administration.
During the year ended December 31, 2001, we received $300,000 from the sale of
limited liability company units. We did not receive any amounts from the sale
of limited liability company units during the six months ended June 30, 2002.
We expect to realize substantial financing from the sale of these units in the
remainder of 2002 and thereafter. It is through the sale of these units that
customers join our fractional share ownership program.
Capital Resources
Our primary capital resource is our cash on hand. Additional aircraft will
not be obtained unless they are available on terms that will allow us to finance
their acquisition. If necessary we believe we can raise additional funds
through the sale of common or preferred stock in one or more private placements.
We do not anticipate that we will be able to obtain debt financing except for
secured debt incurred in acquiring aircraft.
Going Concern Qualification
In its review of our financial statements for the period ended June 30,
2002 included in this report, our independent accountant's have noted factors
which raise substantial doubt about our ability to continue as a going concern.
These factors include that we have sustained recurring net operating losses and
have a shareholders' deficit. In addition, holders of preferred stock have the
right to redeem their shares for cash in an amount which exceeds available
funds.
Management believes that our access to the cash on hand of Return Assured
will provide us with the working capital to continue our aircraft charter
business. Management also believes that our preferred shareholders will not seek
to redeem their shares out of funds needed for our continued operation.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" and Statement No. 142, "Goodwill and Other Intangible
Assets". These statements become effective for us on July 1, 2001 for Statement
No. 141 and January 1, 2002 for Statement No. 142.
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In June 2001, the Financial Accounting Standards Board also issued Statement No.
143 "Accounting For Asset Retirement Obligations" and in August, 2001, Statement
No. 144 "Accounting For Impairment and Disposal of Long Lived Assets".
Statement No. 143 will change the accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs.
In August 2001, the FASB issued SFAS No. 144 Accounting for the Impairment of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early application encouraged.
In May 2002, the Financial Accounting Standards Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and
Technical Corrections (SFAS No. 145). SFAS No. 145 eliminates Statement 4 (and
Statement 64, as it amends Statement 4, which requires gains and losses from the
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. The criteria in APB
Opinion No. 30 will now be used to classify those gains and losses. SFAS No.
145 amends FASB Statement No. 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions.
We are in the process of analyzing SFAS No. 141 through 145. Management
cannot currently assess what effect the adoption of these pronouncements will
have on our financial position or results of operations.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RETURN ASSURED INCORPORATED
Date: September 18, 2002 By: /s/ Scott Walker
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Scott Walker
President
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