SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ELITE COMPUTER SERVICES, INC.
-----------------------------
(Name of Small Business Issuer in its Charter)
GEORGIA 58-1704846
- ---------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
3545 CRUSE ROAD, SUITE 301, LAWRENCEVILLE, GA 30244
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(Address of principal executive offices)
Issuer's telephone number: (770) 923-9291.
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
---- ----
Securities to be registered under Section 12(g) of the Act:
COMMON
(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY:
The principal business address of the Company is 3545 Cruse Road, Suite
301, Lawrenceville, Georgia 30244. The Company's telephone number is (770)
923-9291.
The predecessor of the Company (called "Elite Computer Services, Inc.")
was formed as a Georgia corporation in 1986. The Company was incorporated in
Georgia in January 1996. In April 1996 the Company (then called "Abcor Computer
Services, Inc.") was merged with its predecessor corporation. Following the
Merger, the Company changed its name to "Elite Computer Services, Inc." and
continued unchanged the business operations and management of the predecessor
corporation.
GENERAL BUSINESS DESCRIPTION:
The Company is a diversified computer products and services company that
proposes to combine five key segments of computer sales and services to create
what Management believes to be a total business automation solution for its
customers. These five segments are: (i) computer hardware, software and
accessory sales; (ii) computer, monitor and printer repair and upgrade services;
(iii) networking sales, installation and support services; (iv) vertical market
sales and support services; and (v) Internet services. The Company offers
products and services ranging from off-the-shelf hardware and software to
advanced networking and vertical market solutions, including point-of-sale and
back-office accounting systems.
Of the above categories, the first three are fully operational, while
the fourth, vertical market sales and support, has partial operations, but no
personnel committed to that area. The Internet segment has not yet begun
operations as such and will require capital funding. No assurance can be given,
however, that sufficient capital will be raised for this purpose.
If the Internet segment is funded, the Company expects to provide to its
business customers full access to the Internet, including e-mail, facsimile,
on-line order entry systems, voice transmission and televideo conferencing
services from any workstation on the customer's network. Over the same Internet
connections, the Company plans to offer Systems Management Services (SMS), a
service that Management anticipates will separate the Company from its
competitors. Through SMS, the Company will be able to offer its customers
complete systems administration services such as software installation and
upgrades, end-user configurations, shared printer configurations, preventive
maintenance, system diagnostics and other services - all from the Company's
office.
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PRODUCTS AND SERVICES:
The Company offers a wide variety of computer products and services.
Products range from miscellaneous accessories and supplies to high-end computer
network solutions. To enhance the sale of these products, the Company provides a
fully staffed service department which handles on-site installations, depot and
on-site computer repair services, printer and monitor repair services, extended
warranty contract services and network support contracts. A toll-free technical
support number is provided for the Company's out of state customers.
The Company is an authorized reseller for, among others, Compaq, IBM,
Hewlett-Packard, Epson, Okidata, AST, DTK Computer, Packard Bell, Panasonic,
Armor Systems, Microsoft, Novell, Lotus, and WordPerfect. The Company has access
to many large distributors and over fifty thousand products through its network.
With increased capital to sustain larger open accounts, the Company expects to
be in a position to deliver most computer products to customers in the United
States within two days of receipt of order. Most of the Company's products are
resold by extending short-term credit to customers, which necessitates access to
capital and credit when purchasing products for resale. Historically, a shortage
of cash and substantial trade debt have hampered the Company's ability to
purchase products on credit. Following the Company's initial private placement,
these conditions have improved, but there remains no assurance there will be
funds sufficient to fully correct this problem.
The Company offers a broad selection of network solutions. The
installation and maintenance of these networks, which range from simple
five-user networks to large multi-server networks, are performed by Company
personnel. The networks may include communication servers, facsimile servers,
CD-ROM servers and print servers, along with commercial and vertical market
software that is capable of satisfying a broad range of customer networking
requirements.
The Company proposes to offer a line of Internet products and services,
including web-server hardware and software, T1 and ISDN phone line connections
to the Internet and SMS. The web-server will provide the Company's existing and
future customers access to the Internet through new and existing computer
networks. Internet access will provide the Company's customers with enhanced
services ranging from national and international e-mail and facsimile
transmission to advertising and order processing over the Internet. By providing
the hardware, T1 and ISDN connections and services, the Company will supply all
of the components necessary for a total Internet connectivity solution.
The Company also proposes to offer a service which Management believes
competitors are not currently offering over the Internet connection - Systems
Management Services, or SMS. SMS, which can be administered through remote
access as well as through the Internet, will allow the Company to offer its
network and Internet customers complete remote support ranging from preventive
maintenance and troubleshooting to software installations and upgrades. The
Company would be able to fully administer all network servers and workstations
from its main office. Management believes this function has the potential for
saving customers thousands of dollars
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annually in salaries for network administrators, support contracts and on-site
service calls.
MARKET INFORMATION:
The Company serves all customer markets ranging from Fortune 500
companies and governmental agencies to small businesses and individuals by
matching target markets with the appropriate products and services. The Company
serves the larger corporate market by providing high end computer systems and
computer product solutions such as multi-processor based Pentium Systems, high
capacity data storage and high capacity data backup systems. Medium-sized
businesses (approximately 100 to 1000 employees), which are expected to provide
the Company with its largest base of Internet customers, are provided with
mid-range highly reliable solutions such as networks, point of sale systems,
network based accounting systems, inexpensive image storage and retrieval
database systems, desktop publishing systems and stand alone systems.
Medium-sized businesses tend to be more attracted to the Company than larger
firms would be because they often need knowledgeable assistance in the decision
making process, assistance that typically is not available at larger computer
and mass merchant superstores. The Company caters to the individual market by
offering multi-media education systems and accessories.
COMPETITION:
The computer industry in the Atlanta area has recently attracted
numerous corporate retail "superstores" such as CompUSA, MicroCenter and
Computerland Express. As a result, an advertising war has developed to see who
can acquire the largest market share of retail and business shoppers. It is
Management's belief that the Company does not directly compete to a great extent
with these superstores because the superstores tend to emphasize price and
volume, rather than overall customer satisfaction, whereas the Company
emphasizes customer service and value-added solutions. To maximize customer
satisfaction, the Company must understand the customers' needs, provide both
pre-sale and post-sale support, and have expert personnel who can effectively
service sophisticated products. Unlike the superstores, the Company is able to
emphasize customer satisfaction because of its relatively small size and because
of its emphasis on maintaining a knowledgeable and well trained staff.
To combat low profit margins on computer product sales, the Company
places more emphasis on vertical market applications, value-added solutions and
service, and support. An effort is being made to expand the Company's service
related revenues to more than fifty percent of its total gross profits by the
end of 1997. These services include the installation of low and high-end
networks, installation of vertical market solutions, upgrade and repair of
computer systems and peripherals, custom software development and
Internet-related services. The Company's success in achieving higher gross
profit margins is evidenced by an increase in gross profit margins from 11.2% in
1994, to 14.1% in 1995 and to 28% for the first seven months of 1996.
In addition to retail outlets, numerous other companies and individuals
compete with the
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Company in one or more of its strategic segments. Management is not aware of any
competitor, however, that offers the broad range of services offered by the
Company with comparable emphasis on customer service and satisfaction.
CUSTOMERS:
The Company's customer base ranges from Fortune 500 companies and
government agencies to small businesses and individuals. A few of the Company's
significant customers include Lucent Technologies (a former AT&T company), Bell
Laboratories, Gwinnett County Government, Gwinnett Hospital Systems, The William
Carter Company, H.C. Brill Corporation, Alabama Electric Cooperative, The
Greater Atlanta Christian School, CBI, Inc. and Yamaha Motor Company.
The Greater Atlanta Christian School is the only customer that has
accounted for over 5% of the Company's gross revenues during 1995 and 1996 year
to date, primarily due to several large projects. It is not anticipated that
this customer necessarily will remain at the 5% level in future years as these
projects are completed. Businesses which employ 10 to 500 individuals are the
largest revenue generators for the Company, accounting for approximately 50% of
the Company's total revenues during this period. Approximately 45% of the
revenue during this period was derived from large corporate customers, while
individuals accounted for approximately 5% of the gross revenues of the Company.
SUPPLIERS:
The Company currently has approximately 40 large suppliers and relies on
8 to 9 of these to supply most of the products it offers. Management does not
envision needing additional suppliers in the future, as Management expects that
the current suppliers will adapt to market trends and provide the Company with
all the products it now needs and will need in the future. The Company has
entered into written non-exclusive agreements with most of its suppliers with
typical payment terms of net 30 or 30/60 days.
ITEM 2. MANAGEMENT'S DISCUSSION OF AND ANALYSIS OR PLAN OF OPERATION
HISTORICAL OPERATING SUMMARY:
The predecessor of the Company ("Old Elite") was formed in 1986,
primarily as a computer services organization. Old Elite operated profitably in
the Atlanta Metropolitan area for approximately its first six years. It provided
computer hardware, software, related equipment and services to end-user
customers, with slightly higher-than-market prices being offset by superior
service and expertise. In the early 1990's, as more high volume computer
super-stores and mass merchandisers crowded the Atlanta market, Old Elite
focused its efforts increasingly on value-added sales and services. This
transition led to changes in cost structure and cash flow, resulting in losses
and reduced-liquidity position in recent years.
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RESULTS OF OPERATIONS
REVENUES:
In analyzing the revenue of the Company (including Old Elite),
Management has divided revenues between (a) hardware and software sales and (b)
services. Services includes network and vertical market services, as well as
repairs, upgrades and configurations.
Hardware and software revenues declined from $3,373,863 in fiscal 1994
to $2,888,919 in fiscal 1995, a reduction of 14.4%. This decline was due
primarily to the change in focus from retail-oriented sales to sales of larger
and higher priced computer equipment to business customers. A decision was made
in 1994 that refocusing sales efforts in this direction would result in lower
volume, at least initially, but would result in sales of higher margin products.
An additional cause of this reduction in volume was the re-education of the
sales force in this direction. Further, authorization for certain high-end
products was not obtained until the latter part of 1995. Comparing 1995 to the
seven-month period in 1996 on an annualized basis, hardware and software sales
will decline to $2,276,179 in 1996, a 21.2% reduction from 1995. This is a
further indication of the changing focus of the Company, with fewer sales, but a
focus on higher priced, higher margin equipment, and with greater emphasis on
services as opposed to hardware and software sales.
Services revenues increased from $109,084 in fiscal 1994 to $164,660 in
fiscal 1995, a 50.9% increase. This increase resulted from the decision to place
greater emphasis on services rather than hardware and software sales. Services
revenues in fiscal 1996 will be $425,000, based upon annualized figures for the
first seven months. This would represent a 158.1% increase from fiscal 1995 and
reflects the increased emphasis on services and the addition of new services
categories offered.
OPERATING EXPENSES:
Operating Expenses related to sale of hardware and software are divided
between cost of goods sold and cost of sales. In 1994, cost of revenue was
$3,094,333, yielding a 9.17% gross margin on sales of hardware and software.
Cost of revenue for fiscal 1995 was $2,624,309, resulting in a 9.2% gross profit
margin. The stable gross profit margins reflect the fact that in 1995, sales of
higher-end computer equipment and software increased, but the Company was not
able to increase its prices to reflect that product change until it completed
its shift away from the retail marketplace, which did not occur until the latter
half of fiscal 1995. Cost of goods sold in 1996, on an annualized basis, is
expected to be $1,484,878, with a 14.5% gross margin on hardware and software
sales. This substantially increased margin reflects the change in strategy
toward the more expensive, higher margin hardware and software products marketed
to businesses rather than retail purchasers.
Selling expenses related to hardware and software sales were $82,445 in
fiscal 1994,
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declining to $72,836 in fiscal 1995, an 11.7% reduction, which substantially
corresponds to the 14.4% decline in hardware and software sales from 1994 to
1995. In 1996, selling expenses related to hardware and software sales declined
to $27,581, on an annualized basis, a 62.1% reduction from fiscal 1995, which is
far greater than the reduction in sales volume. Thus, selling expenses related
to hardware and software sales, as a percentage of hardware and software sales,
were 2.4% in 1994, 2.5% in 1995 and 1.2% in 1996. The substantial reduction in
1996 year to date has resulted primarily from the Company's ability to
concentrate its sales efforts on fewer, higher margin transactions, so that the
time spent by Company salespersons is being used more efficiently.
Selling expenses relating to services totaled $11,717 in fiscal 1994,
increasing 73.5% to $20,331 in fiscal 1995, reflecting primarily the increase in
services revenue. Additional reasons for increased services-related selling
expenses in fiscal 1995 were the additional training needed to educate the sales
force in the different services - primarily network services, being offered at
that time, with selling expenses representing 10.7% of services revenue in
fiscal 1994 and 12.3% in fiscal 1995. Annualized selling expenses increased
280.8% to $77,421 in fiscal 1996, representing 18.2% of services revenues. This
percentage increase was a result of pay increases, additional personnel and
further re-training of existing services personnel.
General and administrative expenses were $268,062 in fiscal 1994,
increasing by 18% to $316,948 in fiscal 1995. This increase primarily resulted
from pay raises and the cost of moving the Company's offices, which more than
offset a slightly reduced number of general and administrative personnel.
General and administrative expenses remained substantially unchanged in the
annualized fiscal 1996 numbers, with $314,429 projected for fiscal 1996, a
slight decrease from fiscal 1995. This reflects the reduction in rent from
fiscal 1995, substantially offset by increased pay rates and one additional
general and administrative employee.
LIQUIDITY AND CAPITAL RESOURCES:
As of July 31, 1996, the Company's capital resources were extremely
limited, with current liabilities exceeding current assets by approximately
$220,000.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company leases its office/warehouse facility, which includes its
executive, administrative, warehouse and workshop operations, consisting of
approximately 5,500 square feet. The lease extends through October 31, 2000.
This property is located at 3545 Cruse Road, Suite 301, Lawrenceville, GA 30244.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 1, 1996, the beneficial
ownership of the Company's Common Stock (I) by the only persons who are known by
the Company to own
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beneficially more than 5% of the Company's Common Stock; (ii) and by each
director of the Company:
NUMBER OF
NAME SHARES OWNED PERCENTAGE OWNED
- ---- ------------ ----------------
Michael S. Seling 558,000 28.7%
George F. Seling, Sr. 535,500 27.5%
Patricia A. Seling 256,500 13.8%
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information concerning executive
officers and key employees of the Company, each of whom is a member of the Board
of Directors.
NAME AGE POSITION
---- --- --------
George F. Seling, Sr. 54 President
Patricia A. Seling 52 Treasurer
Michael S. Seling 32 Vice President & Secretary
George F. Seling, Sr. is the husband of Patricia Seling and the father
of Michael Seling.
Set forth below is a summary description of the business experience of
each director and officer of the Company, for at least the past five years.
George F. Seling, Sr. is co-founder of the Company and has been employed
by the Company since its inception in 1986. Prior to joining the Company on a
full time basis, Mr. Seling spent 24 years with AT&T (now Lucent Technologies)
working on a wide range of computer systems including programming and installing
small system applications, cost tracking systems and manufacturing control
systems. Mr. Seling's last project at AT&T involved developing concepts for the
AT&T Lightguide manufacturing "Factory-of-the-Future". Mr. Seling was part of a
six man group which helped determine the role computers will play at AT&T in the
future, from its main operations to the factory floor. The plan Mr. Seling
helped to develop was implemented by AT&T in 1987. Mr. Seling currently serves
as President, General Manager and Sales Manager of the Company and oversees the
accounting and administrative support personnel. Mr. Seling is also actively
involved in developing the customer base and selling computer related products.
Mr. Seling received a B.S.M.E. from Johns Hopkins University Evening College in
1980 and a M.S.M.E. with an emphasis on computer science from Georgia Institute
of Technology in 1987.
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Michael S. Seling is co-founder of the Company and has been employed by
the Company since its inception in 1986. Prior to joining the Company on a full
time basis, Mr. Seling spent approximately two years with AT&T Technologies as
an Information Systems Consultant. In this capacity he designed and developed
several engineering software applications which are still used by AT&T. Mr.
Seling currently serves as Vice President and Secretary of the Company and is
responsible for financial operations of the Company and purchasing and inventory
control. Mr. Seling is also actively involved in servicing and configuring
computer hardware and software and selling computer related products. Mr. Seling
attended DeKalb College prior to joining the Company on a full-time basis.
Patricia A. Seling has been employed by the Company since 1986. Prior to
that time, she was employed as a head teller with financial institutions in
Baltimore, Maryland and in customer credit with Macy's in Duluth, Georgia. Ms.
Seling currently serves as Treasurer and Office Manager of the Company and is
responsible for accounts payable and accounts receivable. She also oversees
employee payroll and benefits and general administrative functions.
ITEM 6. EXECUTIVE COMPENSATION
The following sets forth the compensation of all the Company's executive
officers. The Company does have a stock option plan and as such, the
compensation set forth below represents the total compensation received by these
individuals.
NAME CASH COMPENSATION
- ---- -----------------
George F. Seling, Sr. $22,900
Patricia A. Seling $36,000(1)
Michael S. Seling $44,200(2)
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(1) Does not include the one vehicle leased by the Company for her personal
use at an annual cost of $4,860.
(2) Does not include the one vehicle leased by the Company for his personal
use at an annual cost of $4,840 or the family health insurance coverage
at an annual cost of $3,200 to the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
George F. Seling, Sr. and Patricia A. Seling have made two loans to the
Company. The first loan was in the amount of $48,000 made on August 3, 1989. The
principal balance of this loan as of July 31, 1996 was $48,000. This loan bears
interest at 10.5% and is payable on demand. The second loan is in the amount of
$40,338, made on December 13, 1994. This note bears an interest rate of 8% and
also is payable upon demand. This loan has a principal balance due of $40,338 as
of July 31, 1996. Accrued interest on these loans aggregated $2,067 as of July
31, 1996.
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ITEM 8. LEGAL PROCEEDINGS
The Company is a defendant in a collection suit pending in State Court
of Gwinnett County, brought by a former supplier, Tech Data Corporation. The
amount sought to be collected is $48,000. The Company is attempting to negotiate
a schedule under which this account can be paid, and in the meanwhile is
defending the suit. If a settlement is not successfully negotiated, a judgment
against the Company will be issued within two to three months from the date of
this Memorandum. A judgment against the Company in this suit could seriously
impair the cash position, and financial condition generally, of the Company.
Neither the Company, nor any of its officers or directors is a party to
any other material pending litigation or any government investigation, nor is
there any material threatened litigation.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the Company's common stock. As of
December 1, 1996, the Company had 527 shareholders.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In 1996, the Company completed a sale of 117,500 shares of its common
stock pursuant to Rule 504 as promulgated under Regulation D of the Securities
Act of 1933. The stock was sold by the Company without an underwriter and was
sold at a price of $2.00 per share.
ITEM 11. DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, $.001 par value. Holders of the Common Stock do not have
preemptive rights to purchase additional shares of Common Stock or other
subscription fights. The Common Stock carries no conversion fights and is not
subject to redemption or to any sinking fund provisions. All shares of Common
Stock are entitled to share equally in dividends from sources legally available
therefor when, as and if declared by the Board of Directors and, upon
liquidation or dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company available for distribution to
stockholders. All outstanding shares of Common Stock are validly authorized and
issued, fully paid and nonassessable, and all shares to be sold and issued as
contemplated hereby, will be validly authorized and issued, fully paid and
nonassessable. The Board of Directors is authorized to issue additional shares
of Common Stock, not to exceed the amount authorized by the Company's
Certificate of Incorporation, on such terms and conditions and for such
consideration as the Board may deem appropriate without further stockholder
action. The above description concerning the Common Stock of the Company does
not purport to be complete. Reference is made to the Company's Certificate of
Incorporation and Bylaws which are available for inspection upon proper notice
at the Company's offices, as well as to the applicable statutes of the State of
Georgia for a more complete description concerning the rights and liabilities of
stockholders.
Each holder of Common Stock is entitled to one vote per share on all
matters on which such stockholders are entitled to vote. Since the shares of
Common Stock do not have cumulative voting rights, the holders of more than 50
percent of the shares voting for the election of directors can elect all the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any person to the Board of Directors.
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ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify its officers and directors to the fullest extent
permitted by Georgia law, including some instances in which indemnification is
otherwise discretionary under Georgia law. The Company will also advance
expenses of defending against such claims if the officers and directors acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interest of the Company. The Company believes that indemnification
under its Articles of Incorporation and Bylaws covers at least negligence and
gross negligence by such directors and officers, and requires the Company to
advance litigation expenses in case of actions, including shareholder derivative
actions, against an undertaking by the officer or director to repay such
advances if it is ultimately determined that the officer or director is not
entitled to indemnification. The Company believes that these provisions are
essential to attracting and retaining qualified persons as directors and
officers.
The Company's Articles of Incorporation provide that, pursuant to
Georgia law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to the Company and its shareholders.
This provision in the Articles of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Georgia law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company, for any appropriation, in
violation of his duty, of a business opportunity of the Company, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Georgia law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
ITEM 13. FINANCIAL STATEMENTS
See attached financial statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in and disagreements with accountants on
accounting and financial disclosures.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Index to Financial Statements
Report of Independent auditors of the period ending July 31, 1996.
Statement of Financial Position as of July 31 and April 18, 1996
Statement of Earnings and Retained Earnings for the period beginning
April 18, 1996 and ending July 31, 1996.
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Statement of Cash Flows for the period beginning April 18, 1996 and
ending July 31, 1996.
Notes to Financial Statements for period ending July 31, 1996.
Report of Independent auditors of the period ending April 18, 1996.
Statement of Financial Position as of April 18, 1996
Statement of Earnings and Retained Earnings for the period beginning
January 1, 1996 and ending April 18, 1996.
Statement of Cash Flows for the period beginning January 1, 1996 and
ending April 18, 1996
Notes to Financial Statements for period ending April 18, 1996.
Report of Independent auditors of the fiscal years ending December 31,
1995 and 1994.
Statement of Financial Position as of December 31, 1995 and 1994.
Statement of Earnings and Retained Earnings for the fiscal years ending
December 31, 1995 and December 31, 1994.
Statement of Cash Flows for the fiscal years ending December 31, 1995
and 1994.
Notes to Financial Statements for the fiscal years ending December 31,
1995 and 1994.
(b) Other Exhibits
(3)(i) Articles of Incorporation
(3)(ii) By-Laws
(23) Consents of experts and counsel
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SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DATE: December 2, 1996.
ELITE COMPUTER SERVICES, INC.
By: /s/ GEORGE F. SELING
------------------------------------
George F. Seling, Sr. President
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(a) Financial Statements
Report of Independent auditors of the period ending July 31, 1996.
Statement of Financial Position as of July 31 and April 18, 1996
Statement of Earnings and Retained Earnings for the period beginning
April 18, 1996 and ending July 31, 1996.
Statement of Cash Flows for the period beginning April 18, 1996 and
ending July 31, 1996.
Notes to Financial Statements for period ending July 31, 1996.
Report of Independent auditors of the period ending April 18, 1996.
Statement of Financial Position as of April 18, 1996
Statement of Earnings and Retained Earnings for the period beginning
January 1, 1996 and ending April 18, 1996.
Statement of Cash Flows for the period beginning January 1, 1996 and
ending April 18, 1996
Notes to Financial Statements for period ending April 18, 1996.
Report of Independent auditors of the fiscal years ending December 31,
1995 and 1994.
Statement of Financial Position as of December 31, 1995 and 1994.
Statement of Earnings and Retained Earnings for the fiscal years ending
December 31, 1995 and December 31, 1994.
Statement of Cash Flows for the fiscal years ending December 31, 1995
and 1994.
Notes to Financial Statements for the fiscal years ending December 31,
1995 and 1994.
3(i) Articles of Incorporation
3(ii) By-Laws
23 Consents of experts and counsel
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A.C. KNORR & COMPANY, CPA, PC
Accounting - Reporting - Taxation
[LETTERHEAD]
ACCOUNTANT'S REVIEW REPORT
--------------------------
Stockholders and Board of Directors
Elite Computer Services, Inc. (formerly Abcor Computer Services, Inc.)
We have reviewed the accompanying balance sheet of Elite Computer Services,
Inc., formerly Abcor Computer Services, Inc., as of July 31, and April 18, 1996,
and the related statements of income, retained earnings, and cash flows for the
period beginning April 18, 1996 and ended July 31, 1996, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of Elite
Computer Services, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit 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, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ A.C. KNORR & COMPANY
- ------------------------------
A.C. Knorr & Company, CPA, PC
Lilburn, Georgia
September 26, 1996
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ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
STATEMENT OF FINANCIAL POSITION
JULY 31, 1996 AND APRIL 18, 1996 (MERGER DATE)
ASSETS
JULY 31, 1996 April 18, 1996
------------- --------------
CURRENT ASSETS
Cash and cash equivalents (Note 1-j) $ 7,624 $ 27,308
Accounts receivable, net of allowance for 148,280 68,635
doubtful accounts
Inventory (Note 1-i) 129,767 74,916
------------------------------------------------------- --------------
Total current assets $285,671 $170,859
------------- --------------
OTHER CURRENT ASSETS
Prepaid expenses $ 1,823 $ 3,162
Employee advances 0 20
Refundable deposits 8,855 4,855
------------------------------------------------------- --------------
Total other current assets $ 10,678 $ 8,037
------------- --------------
FIXED ASSETS
Furniture and office equipment (Note 1-f) $ 44,309 44,309
Leasehold improvements (Note 1-f) 11,900 11,900
Less: accumulated depreciation (Note 1-f) (2,093)
------------------------------------------------------- --------------
Net fixed assets $ 54,116 $ 56,209
------------- --------------
OTHER ASSETS
Offering expense (Note 1-l) $ 90,422 25,971
Goodwill (Note 1-m) 378,754 378,754
Less: accumulated amortization (Notes 1-1
and 1-m) (6,313) 0
------------------------------------------------------- --------------
Net other assets $462,863 $404,725
------------- --------------
Total assets $813,328 $639,830
============= ==============
The notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
STATEMENT OF FINANCIAL POSITION
JULY 31, 1996 AND APRIL 18, 1996 (MERGER DATE)
LIABILITIES AND STOCKHOLDERS' EQUITY
JULY 31, 1996 April 18, 1996
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $351,302 $313,154
Withheld and accrued payroll taxes 14,611 2,806
Sales tax payable 18,335 9,162
Short term notes payable 105,938 16,991
Accrued interest 14,378 12,311
Current income taxes (Note 1-h) 2,162 0
Current portion of long-term debt (Note 7) 9,729 15,994
------------------------------------------------------------------ --------------
Total current liabilities $516,455 $370,418
------------- --------------
LONG TERM LIABILITIES
Loans from shareholders (Note 7) $ 88,338 $ 88,338
Long-term debt (Note 7) 179,058 179,058
------------------------------------------------------------------ --------------
Total long-term liabilities $267,396 $267,396
------------- --------------
STOCKHOLDERS' EQUITY
Common stock, 20,000,000 shares authorized, $ 2,022 $ 2,016
$.001 par value, 2,021,875 shares issued and
outstanding at July 31, 1996, and 2,015,625
issued and outstanding at April 18, 1996
Paid in capital 9,995
Retained earnings $ 17,460 0
------------------------------------------------------------------ --------------
Net Stockholders' Equity $ 29,477 $ 2,016
------------- --------------
Total Liabilities and Stockholders' Equity $813,328 $639,830
============= ==============
Book value per share (Note l-g) $0.01 $0.00
</TABLE>
The notes are an integral part of these financial statements
F-3
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE PERIOD BEGINNING APRIL 18, 1996 (MERGER DATE) AND ENDING JULY 31, 1996
JULY 31, 1996
-------------
Revenue (Note 2) $563,675
Cost of revenue (Note 3) 365,239
-------------
Gross margin 198,436
-------------
Selling expense (Note 4) 76,994
General and administrative expense (Note 5) 92,991
-------------
Operating income $28,451
-------------
Interest expense 9,643
Other (income) expense (814)
-------------
Income (loss) before taxes $ 19,622
Provision for income tax (Note 1-h) 2,162
-------------
Net income $ 17,460
Retained earnings - April 18, 1996 0
-------------
Retained earnings - July 31, 1996 $ 17,460
=============
Net income (loss) per share (Note l-k) $0.01
The notes are an integral part of these financial statements
F-4
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
STATEMENT OF CASH FLOWS
FOR THE PERIOD BEGINNING APRIL 18, 1996 (MERGER DATE) AND ENDING JULY 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,460
-------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Depreciation and amortization 8,406
Provisions for losses on accounts receivable
----------------------------------------------- -------------
Total adjustments $ 8,406
-------------
CHANGE IN CURRENT ASSETS AND LIABILITIES
(Increase) decrease in accounts receivable (79,645)
(Increase) decrease in refundable deposits (4,000)
(Increase) decrease in employee advances 20
(Increase) decrease in prepaid expenses 1,339
(Increase) decrease in inventory (54,891)
Increase (decrease) in accounts payable 38,148
Increase (decrease) in payroll taxes payable 11,805
Increase (decrease) in sales tax payable 9,173
Increase (decrease) in accrued interest 2,067
Increase (decrease) in current income taxes 2,162
----------------------------------------------- -------------
Total change in current assets and liabilities (73,782)
-------------
Net cash provided (used) by operating
activities $(47,916)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Offering expense $(64,451)
---------------------------------------------- -------------
Net cash provided (used) by investing $(64,451)
activities -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock $ 10,000
Net borrowings - short term 82,683
Net borrowings - long term 0
---------------------------------------------- -------------
Net cash provided (used) by financing $ 92,683
activities -------------
The notes are an integral part of these financial statements
F-5
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE PERIOD BEGINNING APRIL 18, 1996 (MERGER DATE) AND ENDING JULY 31, 1996
Net increase (decrease) in cash and $(19,684)
equivalents -------------
Cash at date of Merger (April 18, 1996) $ 27,308
-------------
Cash at July 31, 1996 $ 7,624
=============
The notes are an integral part of these financial statements
F-6
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
SUPPORTING SCHEDULE TO CASH FLOW
FOR THE PERIOD BEGINNING APRIL 18, 1996 (MERGER DATE) AND ENDING JULY 31, 1996
REVENUE RECEIVED
Revenue earned (Note 2) $563,675
Accounts receivable - Date of Merger (April 18, 1996) 68,635
Accounts receivable - July 31, 1996 (146,950)
(Increase) decrease in inventory (54,851)
----------------------------------------------- -------------
Total adjustments $430,509
-------------
REVENUE PAID OUT
Cash paid to suppliers and employees $537,791
Increase (decrease) in refundable deposits 4,000
Increase (decrease) in employee advances (20)
Increase (decrease) in prepaid expenses (1,339)
(Increase) decrease in accounts payable (38,148)
(Increase) decrease in payroll taxes payable (11,805)
(Increase) decrease in sales tax payable (9,173)
(Increase) decrease in accrued interest (2,067)
----------------------------------------------- -------------
Total change in current assets and liabilities $479,239)
-------------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenue received $430,509
Revenue paid out (479,239)
Other (income) expense 814
---------------------------------------------- -------------
Net cash provided (used) by operating $(47,916)
activities -------------
The notes are an integral part of these financial statements
F-7
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES TO FINANCIAL STATEMENT
JULY 31, 1996
NOTE 1 - ACCOUNTING POLICIES
a) OPERATIONS AND ORGANIZATION: Elite Computer Services, Inc. (formerly Abcor
Computer Services, Inc.) was organized in January of 1996 under the laws of
the state of Georgia as a wholly owned subsidiary of Abcor Products, Inc.,
a Florida corporation with in excess of 500 shareholders. On January 26,
1996, the company entered into an Agreement and Plan of Merger with elite
Computer Services, Inc. (the "Predecessor"), a Georgia corporation,
organized in 1986 as a full service computer sales and service company
providing hardware and software and professional computer consultation and
repair services to individual, commercial, industrial ad governmental
customers. The closing of such merger was held on April 18, 1996 (the
"Merger Date"). As a result of the merger, which for accounting purposes
has been classed as a purchase, the following events, among other things,
occurred:
1) The company, acquired all existing rights and assets of Predecessor at
April 18, 1996;
2) The Company assumed all existing obligations and liabilities of
Predecessor at April 18, 1996;
3) The Company issued Predecessor's shareholders as of April 18, 1996,
one share of its common stock for each share of the Company's common
stock owned by the shareholder (1,612,500 shares).
4) Abcor Products, Inc., the Company's parent company, approved the
distribution of its shares (201,563 shares) in the company to its
individual shareholders on a pro-rata basis;
5) The Company issued 201,562 shares of the Company's common stock to
Corporate Investor Relations, Inc. as consideration for consulting
services.
6) the sole director and officer of the Company elected Predecessor's
directors and officers to similar positions within the Company, and
resigned effective immediately after such action;
7) The Company began taking the steps to have its common stock listed on
the National Association of Securities Dealers (NASD) Automated
Bulletin Board;
8) The Company began taking steps to cause it to be listed with either
Standard and Poor's or Moody's in their Accelerated Corporate Report;
9) The Company began taking steps to file a form 10 Registration
Statement with the Securities and Exchange Commission of the United
States;
10) The Company filed a name change with the Georgia Secretary of State's
office to legally change its name to Elite Computer Services, Inc.,
which was approved upon filing; and
11) Predecessor ceased to exist as a separate entity.
On July 16, 1996, the company sold 5,000 shares of its common stock to an
individual investor for $10,000 in cash and paid $1,300 in commissions and
expense reimbursements on the sale. At that time, the Company also issued
625 shares of its common stock to Corporate Investor Relations, Inc. for
consulting services and, pursuant to anti-dilution provisions of the merger
agreement, 625 shares of its common stock to the shareholders of the
Company's former parent.
The notes are an integral part of these financial statements
F-8
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES OF FINANCIAL STATEMENTS
JULY 31, 1996
b) OPERATING CYCLE: Assets and liabilities related to sales, if they remain
incomplete, uncollected or unpaid at year end, are included in the current
assets (accounts receivable and inventory) and current liabilities
(accounts payable and customer deposits) in the accompanying statement of
financial position. All other assets and liabilities related to sales are
not included in the current assets and current liabilities in the
accompanying statement of financial position as they are liquidated in the
normal course of contract completion, which is less than one year
c) ADVERTISING COSTS: Advertising costs are expensed as incurred with prepaid
advertising costs (if any) being reported as assets in the balance sheet.
d) ALLOWANCES: Allowances for doubtful accounts have been estimated and are
reported as a reduction in revenue (Note 2).
e) CAPITALIZED INTEREST: No interest has been capitalized by the company
during the period ending July 31, 1996. All interest incurred has been
charged to interest expense.
f) PROPERTY AND EQUIPMENT: Property and equipment is carried at cost.
Expenditures for maintenance and repairs that do not significantly extend
the useful lives of the assets are expenses as incurred, while major
replacements and betterments are capitalized. Leasehold improvements, if
any, are depreciated over the life of the lease. Depreciation of equipment
and leasehold improvements is computed by the straight-line method over
estimated useful lives as follows:
CLASSIFICATION METHOD DEPRECIATION PERIOD
------------------------------ ------------- -------------------
Office furniture and equipment straight-line 7 years
Leasehold improvements straight-line 2.5 years
g) BOOK VALUE PER SHARE: Book value per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into stockholder's equity.
h) INCOME TAXES: For income tax purposes, the Company uses the accrual method
of accounting. The Company follows the flow-through method of accounting
for tax credits and records the credits as a reduction in provision for
income taxes for the period in which the qualifying assets are placed in
service. At July 31, 1996, there are no operating loss or tax credit
carryforwards for tax purposes
i) INVENTORIES: Inventories are valued at the lower of cost or market. Cost of
inventories is measured on the FIFO (First In, First Out) method.
j) CASH AND CASH EQUIVALENTS: Short-term highly-liquid investments with
current maturities of 90 days or less are treated as cash equivalents.
The notes are an integral part of these financial statements
F-9
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES OF FINANCIAL STATEMENTS
JULY 31, 1996
k) NET INCOME PER SHARE: Net income per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into net income.
l) OFFERING EXPENSE: The Company has incurred expenses (primarily commissions,
legal and accounting fees) in connection with its offering, through a
Private Placement Memorandum, of 500,000 shares of the Company's $.001 par
value common stock. These expenses are being amortized equally over 180
months (15 years).
m) GOODWILL: In connection with the Company's purchase of the assets and
assumption of the liabilities of Elite Computer Services, Inc. (see
Note 1-a), the Company assigned a value to Goodwill. The assigned value is
equal to the difference between the net assets acquired and the net
liabilities assumed by the Company. Goodwill is being amortized equally
over 180 months (15 years).
NOTE 2 - REVENUE EARNED
Sales 565,572
Less: discounts and allowances (1,897)
-----------------------------------------------------
Net earned revenue $563,675
NOTE 3 - COST OF REVENUE EARNED
Purchases 359,021
Delivery and freight charges 4,130
Credit card fees 2,088
-----------------------------------------------------
Total cost of revenue $365,239
NOTE 4 - SELLING EXPENSE
Salaries, wages and payroll taxes $ 56,121
Advertising 18,650
Expendable tools and service supplies 864
Travel and entertainment 1,359
-----------------------------------------------------
Total cost of revenue $ 76,994
The notes are an integral part of these financial statements
F-10
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES OF FINANCIAL STATEMENTS
JULY 31, 1996
NOTE 5 - GENERAL AND ADMINISTRATIVE EXPENSE
Salaries, wages and payroll taxes 45,917
Vehicle expense 1,250
Office expense 2,597
Taxes and licenses 0
Employee benefits 3,423
Insurance 2,610
Lease payments and equipment rentals 6,663
Legal and accounting fees 2,958
Maintenance and repair 0
Rent 10,094
Utilities and telephone 9,073
Amortization 6,313
Depreciation 2,093
-----------------------------------------------------
Total general and administrative expense $ 92,991
NOTE 6 - LEASE OBLIGATIONS
The Company leases retail and office space, various pieces of equipment and
vehicles used by the company in its operations. All leases are operating
leases. The following chart illustrates the minimum future rental payments.
OPERATING LEASES
SCHEDULE OF MINIMUM FUTURE RENTAL PAYMENTS
-----------------------------------------------------
YEAR ENDED DECEMBER 31 AMOUNT
-----------------------------------------------------
1996 161,987
1997 112,480
1998 66,321
1999 28,840
After 1999 0
-----------------------------------------------------
Total $369,628
The notes are an integral part of these financial statements
F-11
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES OF FINANCIAL STATEMENTS
JULY 31, 1996
NOTE 7 - LOANS FROM SHAREHOLDERS AND LONG TERM OBLIGATIONS
As part of the merger (See Note 1-a), The Company has assumed
responsibility for two loans made by George and Patricia Seling to its
predecessor. The loans are demand notes, bear no convertibility options,
and are reported on the balance sheet as a long-term liability. Interest
expense on the notes is reported as interest expense in the financial
statements and accrued as a current liability if not paid during the year.
Details regarding these loans are illustrated in the following chart.
<TABLE>
<CAPTION>
LOANS MADE TO PREDECESSOR COMPANY BY GEORGE AND PATRICIA SELING
----------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT INTEREST EXPENSE
DATE MADE AMOUNT MATURITY INTEREST RATE 4/18/96 7/31/96 AT JULY 31, 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/3/89 $48,000 On demand 10.50% $48,000 $48,000 $1,260
12/13/94 40,338 On demand 8.00% 40,338 40,338 800
----------------------------------------------------------------------------------------------------------
Total $88,338 $88,338 $2,067
</TABLE>
As part of the merger (see Note 1-a), The Company has assumed
responsibility for a loan from Commercial Bank of Georgia in the original
amount of $278,000 on March 3, 1992 that carries an interest rate of 8.50%.
The interest rate is adjusted up or down on a monthly basis to a rate equal
to the "Prime Rate" as published in the Wall Street Journal on the first
day of the each calendar month, plus two percent. The principal and
interest payments are due in installments of $3,447.20 per month with the
final installment being due on April 2, 2002. The debt is collaterized by
real estate (personal residence) owned by George and Patricia Seling and is
reported as:
Current portion of long-term debt $ 9,729
Long-term debt 179,058
-----------------------------------------------------
Total $188,787
Scheduled maturities during the years 1996 to 2000 on the above referenced
long-term debt is summarized as follows:
YEAR MATURITY
-----------------------------------------------------
1996 9,729
1997 24,703
1998 27,957
1999 31,640
2000 35,809
-----------------------------------------------------
Total $129,838
The notes are an integral part of these financial statements
F-12
<PAGE>
ELITE COMPUTER SERVICES, INC.
(FORMERLY ABCOR COMPUTER SERVICES, INC.)
NOTES OF FINANCIAL STATEMENTS
JULY 31, 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time related parties, primarily employees, stockholders,
directors and officers, make purchases of computer products from the
Company, and the Company may extend credit for such purchases. These
transactions may not be consummated on terms equivalent to those that
prevail on arm's-length transactions. At July 31, 1996, there were no
accounts receivable due from stockholders, directors, officers or employees
of the Company.
From time to time the Company makes advances and loans to its employees,
officers and directors. These amounts, totaling $20 at July 31, 1996, are
reported as separate items in the Company's financial statements.
George and Patricia Seling, who are employees, stockholders, officers and
directors of the Company, have made personal loans to, and have personally
guaranteed or provided personally owned collateral to guarantee obligations
of, the Company (see Note 5).
NOTE 9 - SUBSEQUENT EVENTS
The Company is preparing a new Private Placement Memorandum and plans to
utilize it to sell additional shares of the Company's common stock.
The notes are an integral part of these financial statements
F-13
<PAGE>
A.C. KNORR & COMPANY, CPA, PC
Accounting - Reporting - Taxation
[LETTERHEAD]
ACCOUNTANT'S REVIEW REPORT
--------------------------
Stockholders and Board of Directors
Elite Computer Services, Inc.
We have complied the accompanying balance sheet of Elite Computer Services, Inc.
as of April 18, 1996, and the related statements of income, retained earnings,
and cash flows for the period beginning January 1, 1996 and ended April 18,
1996, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ A.C. KNORR & COMPANY
- ------------------------------
A.C. Knorr & Company, CPA, PC
Lilburn, Georgia
September 26, 1996
F-14
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF FINANCIAL POSITION
APRIL 18, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 1-j) $ 27,308
Accounts receivable, net of allowance for 68,635
doubtful accounts
Inventory (Note 1-i) 74,916
----------------------------------------------------------
Total current assets $170,859
--------------
OTHER CURRENT ASSETS
Prepaid expenses $ 3,162
Employee advances 20
Refundable deposits 4,855
----------------------------------------------------------
Total other current assets $ 8,037
--------------
FIXED ASSETS
Furniture and office equipment (Note 1-f) 89,294
Leasehold improvements (Note 1-f) 14,000
Less: accumulated depreciation (Note 1-f) (47,085)
----------------------------------------------------------
Net fixed assets $ 56,209
--------------
OTHER ASSETS
Offering expense (Note 1-l) 23,955
Less: accumulated amortization 0
----------------------------------------------------------
Net other assets $ 23,955
--------------
Total assets $259,060
==============
The notes are an integral part of these financial statements
F-15
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF FINANCIAL POSITION
APRIL 18, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
April 18, 1996
--------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $313,154
Withheld and accrued payroll taxes 2,806
Sales tax payable 9,162
Short term notes payable 16,991
Accrued interest 12,311
Current portion of long-term debt (Note 7) 15,994
-----------------------------------------------------------------
Total current liabilities $370,418
--------------
LONG TERM LIABILITIES
Loans from shareholders (Note 7) $ 88,338
Long-term debt (Note 7) 179,058
Deferred income taxes (Note 1-h) 0
-----------------------------------------------------------------
Total long-term liabilities $267,396
--------------
STOCKHOLDERS' EQUITY
Common stock, 20,000,000 shares authorized, $231,230
no par value, 1,625,000 shares issued and
outstanding
Paid in capital 0
Retained earnings (609,984)
-----------------------------------------------------------------
Net Stockholders' Equity $(378,754)
--------------
Total Liabilities and Stockholders' Equity $259,060
==============
Book value per share (Note l-g) $(0.23)
</TABLE>
The notes are an integral part of these financial statements
F-16
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE PERIOD BEGINNING JANUARY 1, 1996 AND ENDING APRIL 18, 1996
(UNAUDITED)
Revenue (Note 2) $676,110
Cost of revenue (Note 3) 500,940
-------------
Gross margin $175,170
-------------
Selling expense (Note 4) 64,138
General and administrative expense (Note 5) 90,426
-------------
Operating income $20,606
-------------
Interest expense 13,447
Other (income) expense (467)
-------------
Income (loss) before taxes $ 7,626
Provision for income tax (Note 1-h) 0
-------------
Net income $ 7,626
Retained earnings - January 1, 1996 (617,610)
-------------
Retained earnings - April 18, 1996 $(609,984)
=============
Net income (loss) per share (Note l-k) $0.00
The notes are an integral part of these financial statements
F-17
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD BEGINNING JANUARY 1, 1996 AND ENDING APRIL 18, 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,626
-------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Depreciation and amortization 3,258
Provisions for losses on accounts receivable
----------------------------------------------- -------------
Total adjustments $ 3,258
-------------
CHANGE IN CURRENT ASSETS AND LIABILITIES
(Increase) decrease in accounts receivable 16,397
(Increase) decrease in refundable deposits 0
(Increase) decrease in employee advances (20)
(Increase) decrease in prepaid expenses 0
(Increase) decrease in inventory 36,454)
Increase (decrease) in accounts payable (257,183)
Increase (decrease) in payroll taxes payable 142
Increase (decrease) in sales tax payable 1,127
Increase (decrease) in accrued interest 2,756
Increase (decrease) in current income taxes 0
----------------------------------------------- -------------
Total change in current assets and liabilities (200,327)
-------------
Net cash provided (used) by operating
activities $(189,443)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Offering expense $(23,955)
---------------------------------------------- -------------
Net cash provided (used) by investing $(23,955)
activities -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of common stock $225,000
Net borrowings - short term 6,533
Net borrowings - long term 0
---------------------------------------------- -------------
Net cash provided (used) by financing $231,533
activities -------------
The notes are an integral part of these financial statements
F-18
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE PERIOD BEGINNING JANUARY 1, 1996 AND ENDING APRIL 18, 1996
(UNAUDITED)
Net increase (decrease) in cash and $ 18,135
equivalents -------------
Cash at January 1, 1996 $ 9,173
-------------
Cash at April 18, 1996 $ 27,308
=============
The notes are an integral part of these financial statements
F-19
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
SUPPORTING SCHEDULE TO CASH FLOW
FOR THE PERIOD BEGINNING JANUARY 1, 1996 AND ENDING APRIL 18, 1996
(UNAUDITED)
REVENUE RECEIVED
Revenue earned (Note 2) $676,110
Accounts receivable - January 1, 1996 85,032
Accounts receivable - April 18, 1996 (68,635)
(Increase) decrease in inventory 36,454
----------------------------------------------- -------------
$728,961
-------------
REVENUE PAID OUT
Cash paid to suppliers and employees $665,693
Increase (decrease) in refundable deposits 0
Increase (decrease) in employee advances 20
Increase (decrease) in prepaid expenses 0
(Increase) decrease in accounts payable 257,183
(Increase) decrease in payroll taxes payable (142)
(Increase) decrease in sales tax payable (1,127)
(Increase) decrease in accrued interest (2,756)
----------------------------------------------- -------------
Total change in current assets and liabilities $918,871
-------------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenue received $728,961
Revenue paid out (918,871)
Other (income) expense 467
---------------------------------------------- -------------
Net cash provided (used) by operating $(189,443)
activities -------------
The notes are an integral part of these financial statements
F-20
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
NOTE 1 - ACCOUNTING POLICIES
a) OPERATIONS AND ORGANIZATION: Elite Computer Services, Inc. was organized in
November of 1986 under the laws of the state of Georgia as a full service
computer sales and service company providing hardware and software and
professional computer consultation and repair services to individual,
commercial, industrial and governmental customers.
b) OPERATING CYCLE: Assets and liabilities related to sales, if they remain
incomplete, uncollected or unpaid at year end, are included in the current
assets (accounts receivable and inventory) and current liabilities
(accounts payable and customer deposits) in the accompanying statement of
financial position. All other assets and liabilities related to sales are
not included in the current assets and current liabilities in the
accompanying statement of financial position as they are liquidated in the
normal course of contract completion, which is less than one year
c) ADVERTISING COSTS: Advertising costs are expensed as incurred with prepaid
advertising costs (if any) being reported as assets in the balance sheet.
d) ALLOWANCES: Allowances for doubtful accounts have been estimated and are
reported as a reduction in revenue (Note 2).
e) CAPITALIZED INTEREST: No interest has been capitalized by the company
during the period ending April 17, 1996. All interest incurred has been
charged to interest expense.
f) PROPERTY AND EQUIPMENT: Property and equipment is 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. Leasehold improvements, if
any, are depreciated over the life of the lease. Depreciation of equipment
and leasehold improvements is computed by the straight-line method over
estimated useful lives as follows:
CLASSIFICATION METHOD DEPRECIATION PERIOD
------------------------------ ------------- -------------------
Office furniture and equipment straight-line 7 years
Leasehold improvements straight-line 3 years
g) BOOK VALUE PER SHARE: Book value per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into stockholder's equity.
h) INCOME TAXES: The company is a subchapter-S corporation and all gains and
loses are passed through to the individual stockholders. There are no
operating loss or tax credit carryforwards for tax purposes.
The notes are an integral part of these financial statements
F-21
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
i) INVENTORIES: Inventories are valued at the lower of cost or market. Cost of
inventories is measured on the FIFO (First In, First Out) method.
j) CASH AND CASH EQUIVALENTS: Short-term highly-liquid investments with
current maturities of 90 days or less are treated as cash equivalents.
k) NET INCOME PER SHARE: Net income per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into net income.
l) OFFERING EXPENSE: The Company has incurred expenses (primarily commissions,
legal and accounting fees) in connection with its offering, through a
Private Placement Memorandum, of 500,000 shares of the Company's no par
value common stock. These expenses are being amortized equally over 180
months (15 years).
NOTE 2 - REVENUE EARNED
Sales $677,440
Less: discounts and allowances (1,330)
-----------------------------------------------------
Net earned revenue $676,110
NOTE 3 - COST OF REVENUE EARNED
Purchases $496,914
Delivery and freight charges 2,659
Credit card fees 1,367
-----------------------------------------------------
Total cost of revenue $500,940
NOTE 4 - SELLING EXPENSE
Salaries, wages and payroll taxes $ 49,256
Advertising 13,456
Expendable tools and service supplies 295
Travel and entertainment 1,131
-----------------------------------------------------
Total selling expense $ 64,138
The notes are an integral part of these financial statements
F-22
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
NOTE 5 - GENERAL AND ADMINISTRATIVE EXPENSE
Salaries, wages and payroll taxes $ 40,301
Vehicle expense 1,197
Office expense 2,195
Taxes and licenses 1,445
Employee benefits 4,183
Insurance 3,972
Lease payments and equipment rentals 6,772
Legal and accounting fees 11,131
Maintenance and repair 0
Rent 10,300
Utilities and telephone 5,672
Amortization 0
Depreciation 3,258
-----------------------------------------------------
Total general and administrative expense $ 90,426
NOTE 6 - LEASE OBLIGATIONS
The Company leases retail and office space, various pieces of equipment and
vehicles used by the company in its operations. All leases are operating
leases. The following chart illustrates the minimum future rental payments.
OPERATING LEASES
SCHEDULE OF MINIMUM FUTURE RENTAL PAYMENTS
-----------------------------------------------------
YEAR ENDED DECEMBER 31 AMOUNT
-----------------------------------------------------
1996 $161,987
1997 112,480
1998 66,321
1999 28,840
After 1999 0
-----------------------------------------------------
Total $369,628
The notes are an integral part of these financial statements
F-23
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
NOTE 7 - LOANS FROM SHAREHOLDERS AND LONG TERM OBLIGATIONS
The Company has received a series of loans from George and Patricia Seling
who are employees, stockholders, officers and directors of the Company. The
loans are demand notes, bear no convertibility options, and are reported on
the balance sheet as a long-term liability. Interest expense on the notes
is reported as interest expense in the financial statements and accrued as
a current liability if not paid during the year. Details regarding these
loans are illustrated in the following chart.
LOANS MADE TO THE COMPANY BY GEORGE AND PATRICIA SELING
---------------------------------------------------------------------------
BALANCE AT
DATE MADE AMOUNT MATURITY INTEREST RATE 4/17/96
---------------------------------------------------------------------------
8/3/89 $48,000 On demand 10.50% $48,000
12/13/94 40,338 On demand 8.00% 40,338
---------------------------------------------------------------------------
Total $88,338
The Company received a loan from Commercial Bank of Georgia in the amount
of $278,000 on March 3, 1992 that carries an interest rate of 8.50%. The
interest rate is adjusted up or down on a monthly basis to a rate equal to
the "Prime Rate" as published in the Wall Street Journal on the first day
of the each calendar month, plus two percent. The principal and interest
payments are due in installments of $3,447.20 per month with the final
installment being due on April 2, 2002. The debt is collaterized by real
estate (personal residence) owned by George and Patricia Seling and is
reported as:
Current portion of long-term debt $ 15,994
Long-term debt 179,058
-----------------------------------------------------
Total $195,052
Scheduled maturities during the years 1996 to 2000 on the above referenced
long-term debt is summarized as follows:
YEAR MATURITY
-----------------------------------------------------
1996 $ 15,994
1997 24,703
1998 27,957
1999 31,640
2000 35,809
-----------------------------------------------------
Total $136,103
The notes are an integral part of these financial statements
F-24
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time related parties, primarily employees, stockholders,
directors and officers, make purchases of computer products from the
Company, and the Company may extend credit for such purchases. These
transactions may not be consummated on terms equivalent to those that
prevail on arm's-length transactions. At April 18, 1996, there were no
accounts receivable due from stockholders, directors, officers or employees
of the Company.
From time to time the Company makes advances and loans to its employees,
officers and directors. These amounts, totaling $20 at April 18, 1996, are
reported as separate items in the Company's financial statements.
George and Patricia Seling, who are employees, stockholders, officers and
directors of the Company, have made personal loans to, and have personally
guaranteed or provided personally owned collateral to guarantee obligations
of the Company (see Note 5).
NOTE 9 - SUBSEQUENT EVENTS
At December 31, 1995, all of the issued and outstanding shares of the
Company's common stock belonged to members of the Seling family. On January
5, 1996, the Company's Articles of Incorporation were amended to raise the
authorized number of shares of common stock from 1,000 shares of common
stock with no par value per share to 20,000,000 shares of common stick with
no par value per share. On that same date, a stock dividend was declared of
12,037.523 shares of the Company's common stock for each share of the
Company's common stock then owned by the Company's shareholders. This
raised the number of issued and outstanding shares of the Company's common
stock to 1,500,000 shares of common stick with no par value per share. On
January 26, 1996, 75,000 shares of the Company's common stock were
transferred from current shareholders to Timothy Tisdale, a key employee.
On January 26, 1996, the Company issued a Private Placement Memorandum
offering for sale, in private transactions, up to 500,000 shares of the
Company's common stock with no par value per share at an offering price of
$2.00 per share. On April 18, 1996, the Company completed the sale of
112,500 shares of its common stock to KOM International Incorporated for
$225,000 in cash and paid $29,250 in commissions and expense reimbursements
on the sale.
On January 26, 1996, the Company entered in an Agreement and Plan of Merger
with Abcor Computer Services, Inc., a Georgia corporation and a wholly
owned subsidiary of Abcor Products, Inc., a Florida corporation with in
excess of 500 shareholders. Abcor Computer Services, Inc's Articles of
Incorporation authorize 20,000,000 shares of common stock with a par value
of $.001, of which 201,563 had been issued and outstanding at January 25,
1996. As a
The notes are an integral part of these financial statements
F-25
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
result of the merger, which for accounting purposes has been classed as a
purchase, the following events, among other things, occurred:
1) Abcor Computer services, Inc. acquired all existing rights and assets
of the Company at April 18, 1996;
2) Abcor Computer Services, Inc. assumed all existing obligations and
liabilities of the Company at April 18, 1996.
3) Abcor Computer Services, Inc. issued the Company's shareholders as of
April 18, 1996, one share of its common stock for each share of the
Company's common stock owned by the shareholder;
4) Abcor Products, Inc., the parent company of Abcor Computer Products,
Inc., approved the distribution of its shares in Abcor Computer
Services, Inc. to its individual shareholders on a pro-rata basis;
5) Abcor Computer Services, Inc. issued 201,562 shares of the
newly-merged corporation's common stock to Corporate Investor
Relations, Inc. as consideration for consulting services;
6) The sole director and officer of Abcor Computer Services, Inc. elected
the Company's directors and officers to similar positions within Abcor
Computer Services, Inc., and resigned effective immediately after such
action.
7) Abcor Computer Services, Inc. began taking the steps to have its
common stock listed on the National Association of Securities Dealers
(NASD) Automated Bulletin Board;
8) Abcor Computer Services, Inc. began taking steps to cause it to be
listed with either Standard and Poor's and Moody's in their
Accelerated Corporate Report;
9) Abcor Computer Services, Inc. began taking steps to file a Form 10
Registration Statement with the Securities and Exchange Commission of
the United States;
10) Abcor Computer Services, Inc. filed a name change with the Georgia
Secretary of State's office to legally change its name to Elite
Computer Services, Inc., which was approved due course; and
11) the Company ceased to exist as a separate entity.
On July 16, 1996, under the Company's Private Placement Memorandum dated
January 26, 1996, the newly merged corporation sold 5,000 shares of its
common stock to an individual investor for $10,000 in cash and paid $1,300
in commissions and expense reimbursements on the sale. At that time, the
newly merged corporation also issued 625 shares of its common stock to
Corporate Investor Relations, Inc. for consulting services, and, pursuant
to anti-dilution provisions of the merger agreement, 625 shares of its
common stock to the shareholders of Abcor Products, Inc.
The notes are an integral part of these financial statements
F-26
<PAGE>
A.C. KNORR & COMPANY, CPA, PC
Accounting - Reporting - Taxation
[LETTERHEAD]
ACCOUNTANT'S REVIEW REPORT
--------------------------
Stockholders and Board of Directors
Elite Computer Services, Inc.
We have audited the accompanying balance sheet of Elite Computer Services, Inc.
as of December 31, 1995 and 1994, and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
Except as explained in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform our 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 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.
We did not observe the taking of the physical inventory as of December 31, 1993
or 1994, since those dates were prior to our appointment as auditors for the
company, and we were unable to satisfy ourselves regarding inventory quantities
at December 31, 1993, by means of other auditing procedures. Inventory amounts
on December 31, 1993 enter into the determination of net income and cash flows
for the year ended December 31, 1994.
Because of the matter discussed in the preceding paragraph, the scope of our
work was not sufficient to enable us to express, an opinion on the results of
operations and cash flows for the year ended December 31, 1994.
In our opinion, the balance sheets of Elite Computer Services, Inc. as of
December 31, 1995 and 1994, and the related statements of income, retained
earnings and cash flows for the year ended December 31, 1995, present fairly, in
all material respects, the financial position of Elite Computer Services, Inc.
as of December 31, 1995 and 1994, and the results of operations and its cash
flows for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ A.C. KNORR & COMPANY
- ------------------------------
A.C. Knorr & Company, CPA, PC
Lilburn, Georgia
August 19, 1996
F-27
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
------------- --------------
CURRENT ASSETS
Cash and cash equivalents (Note 1-j) $ 9,173 $ 34,751
Accounts receivable, net of allowance for 85,032 103,623
doubtful accounts
Inventory (Note 1-i) 111,370 66,619
------------------------------------------------------- --------------
Total current assets $205,575 $204,993
------------- --------------
OTHER CURRENT ASSETS
Prepaid expenses $ 3,162 $ 1,202
Refundable deposits 4,855 1,851
------------------------------------------------------- --------------
Total other current assets $ 8,017 $ 3,053
------------- --------------
FIXED ASSETS
Furniture and office equipment (Note 1-f) $ 89,294 76,911
Leasehold improvements (Note 1-f) 14,000 0
Less: accumulated depreciation (Note 1-f) (43,827) (30,792)
------------------------------------------------------- --------------
Net fixed assets $ 59,467 $ 46,119
------------- --------------
Total assets $273,059 $254,165
============= ==============
The notes are an integral part of these financial statements
F-28
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $570,337 $383,441
Withheld and accrued payroll taxes 2,664 0
Sales tax payable 8,035 17,490
Short term notes payable 4,625 7,351
Accrued interest 9,555 2,176
Current portion of long-term debt (Note 7) 21,827 21,828
------------------------------------------------------------------ --------------
Total current liabilities $617,043 $432,286
------------- --------------
LONG TERM LIABILITIES
Loans from shareholders (Note 7) $ 88,338 $ 88,338
Long-term debt (Note 7) 179,058 200,885
Deferred income taxes (Note 1-h) 0 0
------------------------------------------------------------------ --------------
Total long-term liabilities $267,396 $289,223
------------- --------------
STOCKHOLDERS' EQUITY
Common stock, 1,000 shares authorized, no par $ 6,230 $ 6,230
value, 124.6 shares issued and outstanding
Retained earnings (617,610) (473,574)
------------------------------------------------------------------ --------------
Net Stockholders' Equity $(611,380) $(467,344)
------------- --------------
Total Liabilities and Stockholders' Equity $273,059 $254,165
============= ==============
Book value per share (Note l-g) $ (4,907) $ (3,751)
</TABLE>
The notes are an integral part of these financial statements
F-29
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES INC.
(AN S CORPORATION)
STATEMENT OF EARNINGS AND RETAIN EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1995
1995 1994
------------- -------------
<S> <C> <C>
Revenue (Note 2) $3,053,579 $3,482,947
Cost of revenue (Note 3) 2,624,309 3,094,333
------------- -------------
Gross margin $ 429,270 $ 388,614
------------- -------------
Selling expense (Note 4) 226,423 212,830
General and administrative expense (Note 5) 316,948 268,062
------------- -------------
Operating income $ (114,101) $ (92,278)
------------- -------------
Interest expense 30,955 28,189
Other (income) expense (1,020) 954
------------- -------------
Income (loss) before taxes $ (144,036) $ (121,421)
Provision for income tax (Note 1-h) 0 0
------------- -------------
Net income $ (144,036) $ (121,421)
Retained earnings (deficit)- January 1 (473,574) (352,153)
------------- -------------
Retained earnings (deficit) December 31 $ (617,610) $ (473,574)
============= =============
Net income (loss) per share (Note l-k) $ (1,156) $ (974)
</TABLE>
The notes are an integral part of these financial statements
F-30
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1995
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $(144,036) $(121,421)
------------- -------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Depreciation and amortization $ 13,034 $ 17,497
Provisions for losses on accounts receivable 1,330 941
----------------------------------------------- ------------- -------------
Total adjustments $ 14,364 $ 18,438
------------- -------------
CHANGE IN CURRENT ASSETS AND LIABILITIES
(Increase) decrease in accounts receivable $ 17,261) $ 39,802
(Increase) decrease in prepaid expenses (4,964) 3,976
(Increase) decrease in inventory (44,751) 187,753
Increase (decrease) in accounts payable 186,896 (54,995)
Increase (decrease) in payroll taxes payable 2,664 (5,416)
Increase (decrease) in sales tax payable (9,455) 3,037
Increase (decrease) in accrued interest 7,379 2,176
----------------------------------------------- ------------- -------------
Total changes in current assets and liabilities $155,030 $ 176,333
------------- -------------
Net cash provided (used) by operating
activities $ 25,358 $ 73,350
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $(26,383) $ (36,852)
---------------------------------------------- ------------- -------------
Net cash provided (used) by investing $(26,383) $ (36,852)
activities ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings - short term $ (2,754) $ 6,498
Net borrowings - long term (21,800) 15,942
---------------------------------------------- ------------- -------------
Net cash provided (used) by financing $(24,554) $ 22,440
activities ------------- -------------
Net increase (decrease) in cash and $(25,579) $ 58,938
equivalents ------------- -------------
Cash at beginning of year - January 1 34,751 (24,187)
------------- -------------
Cash at end of year - December 31 $ 9,172 $ 34,751
============= =============
</TABLE>
The notes are an integral part of these financial statements
F-31
<PAGE>
<TABLE>
<CAPTION>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
SUPPORTING SCHEDULE TO CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------- -------------
<S> <C> <C>
REVENUE RECEIVED
Revenue earned (Note 2) $3,053,579 $3,482,947
Accounts receivable - January 1 106,623 144,366
Accounts receivable - December 31 (85,032) (103,623)
(Increase) decrease in inventory (44,751) 187,753
----------------------------------------------- ------------- -------------
Total adjustments $3,027,419 $3,711,443
------------- -------------
REVENUE PAID OUT
Cash paid to suppliers and employees $3,185,601 $3,585,917
Increase (decrease) in prepaid expenses 4,964 (3,976)
(Increase) decrease in accounts payable (186,896) 54,995
(Increase) decrease in payroll taxes payable (2,664) 5,416
(Increase) decrease in sales tax payable 9,455 (3,037)
(Increase) decrease in accrued interest (7,379) (2,176)
----------------------------------------------- ------------- -------------
Total changes in current assets and liabilities $3,003,081 $3,637,139
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Revenue received $3,027,419 $3,711,443
Revenue paid out (3,003,081) (3,637,139)
Other (income) expense 1,020 (954)
---------------------------------------------- ------------- -------------
Net cash provided (used) by operating $ 25,358 $ 73,350
activities ------------- -------------
</TABLE>
The notes are an integral part of these financial statements
F-32
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
APRIL 18, 1996
NOTE 1 - ACCOUNTING POLICIES
a) OPERATIONS AND ORGANIZATION: Elite Computer Services, Inc. was organized in
November of 1986 under the laws of the state of Georgia as a full service
computer sales and service company providing hardware and software and
professional computer consultation and repair services to individual,
commercial, industrial and governmental customers.
b) OPERATING CYCLE: Assets and liabilities related to sales, if they remain
incomplete, uncollected or unpaid at year end, are included in the current
assets (accounts receivable and inventory) and current liabilities
(accounts payable and customer deposits) in the accompanying statement of
financial position. All other assets and liabilities related to sales are
not included in the current assets and current liabilities in the
accompanying statement of financial position as they are liquidated in the
normal course of contract completion, which is less than one year
c) ADVERTISING COSTS: Advertising costs are expensed as incurred with prepaid
advertising costs (if any) being reported as assets in the balance sheet.
d) ALLOWANCES: Allowances for doubtful accounts have been estimated and are
reported as a reduction in revenue (Note 2).
e) CAPITALIZED INTEREST: No interest has been capitalized by the company
during the period ending December 31, 1995 and 1994. All interest incurred
has been charged to interest expense.
f) PROPERTY AND EQUIPMENT: Property and equipment is 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. Leasehold improvements, if
any, are depreciated over the life of the lease. Depreciation of equipment
and leasehold improvements is computed by the straight-line method over
estimated useful lives as follows:
CLASSIFICATION METHOD DEPRECIATION PERIOD
------------------------------ ------------- -------------------
Office furniture and equipment straight-line 7 years
Leasehold improvements straight-line 3 years
g) BOOK VALUE PER SHARE: Book value per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into stockholder's equity.
The notes are an integral part of these financial statements
F-33
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
h) INCOME TAXES: The company is a subchapter-S corporation and all gains and
loses are passed through to the individual stockholders. There are no
operating loss or tax credit carryforwards for tax purposes.
i) INVENTORIES: Inventories are valued at the lower of cost or market. Cost of
inventories is measured on the FIFO (First In, First Out) method.
j) CASH AND CASH EQUIVALENTS: Short-term highly-liquid investments with
current maturities of 90 days or less are treated as cash equivalents.
k) NET INCOME PER SHARE: Net income per share of common stock is determined by
dividing the weighted average number of shares of common stock outstanding
during the period into net income.
<TABLE>
NOTE 2 - REVENUE EARNED
1995 1994
----------- ------------
<S> <C> <C>
Sales $3,068,838 $3,495,175
Less: discounts and allowances (15,259) (12,228)
----------------------------------------------------- ------------
Net earned revenue $3,053,579 $3,482,947
NOTE 3 - COST OF REVENUE EARNED
1995 1994
----------- ------------
Purchases $2,600,046 3,072,937
Delivery and freight charges 18,491 14,585
Credit card fees 5,772 6,811
----------------------------------------------------- ------------
Total cost of revenue $2,624,309 $3,094,333
NOTE 4 - SELLING EXPENSE
1995 1994
----------- ------------
Salaries, wages and payroll taxes $ 179,651 $ 175,384
Advertising 45,413 32,198
Expendable tools and service supplies 486 3,224
Travel and entertainment 873 2,024
----------------------------------------------------- ------------
Total selling expense $ 226,423 $ 212,830
</TABLE>
The notes are an integral part of these financial statements
F-34
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
NOTE 5 - GENERAL AND ADMINISTRATIVE EXPENSE
1995 1994
-------- --------
Salaries, wages and payroll taxes $144,476 $ 89,703
Vehicle expense 10,678 7,637
Office expense 11,730 8,058
Taxes and licenses 9,477 15,604
Employee benefits 20,582 17,247
Insurance 9,546 8,007
Lease payments and equipment rentals 25,200 22,653
Legal and accounting fees 4,440 14,782
Maintenance and repair 1,362 35
Rent 43,186 46,045
Utilities and telephone 23,237 20,794
Depreciation 13,034 17,497
----------------------------------------------------- ---------
Total general and administrative expense $316,948 $268,062
NOTE 6 - LEASE OBLIGATIONS
The Company leases retail and office space, various pieces of equipment and
vehicles used by the company in its operations. All leases are operating
leases. The following chart illustrates the minimum future rental payments.
OPERATING LEASES
SCHEDULE OF MINIMUM FUTURE RENTAL PAYMENTS
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31 AT 12/31/95 AT 12/31/94
---------------------------------------------------- -----------
1994 N/A $18,921
1995 $215,755 16,430
1996 161,987 7,480
1997 112,480 2,066
1998 66,321 0
1999 28,840 0
After 1999 0 0
---------------------------------------------------- -----------
Total minimum future rental payments $585,383 $44,897
The notes are an integral part of these financial statements
F-35
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
NOTE 7 - LOANS FROM SHAREHOLDERS AND LONG TERM OBLIGATIONS
The Company has received a series of loans from George and Patricia Seling
who are employees, stockholders, officers and directors of the Company. The
loans are demand noted notes, bear no convertibility options, and are
reported on the balance sheet as a long-term liability. Interest expense on
the notes is reported as interest expense in the financial statements and
accrued as a current liability if not paid during the year. Details
regarding these loans are illustrated in the following chart.
<TABLE>
LOANS MADE TO THE COMPANY BY GEORGE AND PATRICIA SELING AT 12/31/94
-------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT 1994 INTEREST
DATE MADE AMOUNT MATURITY INTEREST RATE 1/01/94 12/31/94 EXPENSE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/15/89 $19,500 On demand 8.00% $ 2,568 $ 0 $ 16
8/3/89 48,000 On demand 10.50% 48,000 48,000 5,040
12/13/94 40,338 On demand 8.00% 0 40,338 0
-------------------------------------------------------------------------------------------------------
Total $50,568 $88,338 $ 5,056
LOANS MADE TO THE COMPANY BY GEORGE AND PATRICIA SELING AT 12/31/95
-------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT 1995 INTEREST
DATE MADE AMOUNT MATURITY INTEREST RATE 1/01/95 12/31/95 EXPENSE
-------------------------------------------------------------------------------------------------------
8/3/89 $48,000 On demand 10.50% $48,000 $48,000 $ 5,040
12/13/94 40,338 On demand 8.00% 40,338 40,338 3,227
-------------------------------------------------------------------------------------------------------
Total $88,338 $88,338 $ 8,267
</TABLE>
The Company received a loan from Commercial Bank of Georgia in the amount
of $278,000 on March 3, 1992 that carries an interest rate of 8.50%. The
interest rate is adjusted up or down on a monthly basis to a rate equal to
the "Prime Rate" as published in the Wall Street Journal on the first day
of the each calendar month, plus two percent. the principal and interest
payments are due in installments of $3,447.20 per month with the final
installment being due on April 2, 2002. The debt is collaterized by real
estate (personal residence) owned by George and Patricia Seling and is
reported as:
AT 12/31/95 AT 12/31/94
--------------- ---------------
Current portion of long-term debt $ 21,827 $ 21,828
Long-term debt 179,058 200,885
----------------------------------------------------- ---------------
Total $200,885 $222,713
The notes are an integral part of these financial statements
F-36
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
NOTE 7 - LOANS FROM SHAREHOLDERS AND LONG TERM OBLIGATIONS
Scheduled maturities during the years 1996 to 2000 on the above referenced
long-term debt is summarized as follows:
YEAR MATURITY
-----------------------------------------------------
1995 $ 21,828
1996 21,827
1997 24,703
1998 27,957
1999 31,640
2000 35,809
-----------------------------------------------------
Total $163,764
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time related parties, primarily employees, stockholders,
directors and officers, make purchases of computer products from the
Company, and the Company may extend credit for such purchases. These
transactions may not be consummated on terms equivalent to those that
prevail on arm's-length transactions. At December 31, 1995 and 1994, there
were no accounts receivable due from stockholders, directors, officers or
employees of the Company.
From time to time the Company makes advances and loans to its employees,
officers and directors. At December 31, 1995 and 1994, there were no notes
receivable from any employees, officers or directors of the Company.
George and Patricia Seling, who are employees, stockholders, officers and
directors of the Company, have made personal loans to, and have personally
guaranteed or provided personally owned collateral to guarantee obligations
of the Company (see Note 5).
NOTE 9 - SUBSEQUENT EVENTS
At December 31, 1995, all of the issued and outstanding shares of the
Company's common stock belonged to members of the Seling family. On January
5, 1996, the Company's Articles of Incorporation were amended to raise the
authorized number of shares of common stock from 1,000 shares of common
stock with no par value per share to 20,000,000 shares of common stick with
no par value per share. On that same date, a stock dividend was declared of
The notes are an integral part of these financial statements
F-37
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
12,037.523 shares of the Company's common stock for each share of the
Company's common stock then owned by the Company's shareholders. This
raised the number of issued and outstanding shares of the Company's common
stock to 1,500,000 shares of common stick with no par value per share. On
January 26, 1996, 75,000 shares of the Company's common stock were
transferred from current shareholders to Timothy Tisdale, a key employee.
On January 26, 1996, the Company issued a Private Placement Memorandum
offering for sale, in private transactions, up to 500,000 shares of the
Company's common stock with no par value per share at an offering price of
$2.00 per share. On April 18, 1996, the Company completed the sale of
112,500 shares of its common stock to KOM International Incorporated for
$225,000 in cash and paid $29,250 in commissions and expense reimbursements
on the sale.
On January 26, 1996, the Company entered in an Agreement and Plan of Merger
with Abcor Computer Services, Inc., a Georgia corporation and a wholly
owned subsidiary of Abcor Products, Inc., a Florida corporation with in
excess of 500 shareholders. Abcor Computer Services, Inc's Articles of
Incorporation authorize 20,000,000 shares of common stock with a par value
of $.001, of which 201,563 had been issued and outstanding at January 25,
1996. As a result of the merger, which for accounting purposes has been
classed as a purchase, the following events, among other things, occurred:
1) Abcor Computer services, Inc. acquired all existing rights and assets
of the Company at April 18, 1996;
2) Abcor Computer Services, Inc. assumed all existing obligations and
liabilities of the Company at April 18, 1996.
3) Abcor Computer Services, Inc. issued the Company's shareholders as of
April 18, 1996, one share of its common stock for each share of the
Company's common stock owned by the shareholder;
4) Abcor Products, Inc., the parent company of Abcor Computer Products,
Inc., approved the distribution of its shares in Abcor Computer
Services, Inc. to its individual shareholders on a pro-rata basis;
5) Abcor Computer Services, Inc. issued 201,562 shares of the
newly-merged corporation's common stock to Corporate Investor
Relations, Inc. as consideration for consulting services;
6) The sole director and officer of Abcor Computer Services, Inc. elected
the Company's directors and officers to similar positions within Abcor
Computer Services, Inc., and resigned effective immediately after such
action.
The notes are an integral part of these financial statements
F-38
<PAGE>
ELITE COMPUTER SERVICES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
7) Abcor Computer Services, Inc. began taking the steps to have its
common stock listed on the National Association of Securities Dealers
(NASD) Automated Bulletin Board;
8) Abcor Computer Services, Inc. began taking steps to cause it to be
listed with either Standard and Poor's or Moody's in their Acclerated
Corporate report;
9) Abcor Computer Services, Inc. began taking steps to file a Form 10
Registration Statement with the Securities and Exchange Commission of
the United States;
10) Abcor Computer Services, Inc. filed a name change with the Georgia
Secretary of State's office to legally change its name to Elite
Computer Services, Inc., which was approved due course; and
11) the Company ceased to exist as a separate entity.
On July 16, 1996, under the Company's Private Placement Memorandum dated
January 26, 1996, the newly merged corporation sold 5,000 shares of its
common stock to an individual investor for $10,000 in cash and paid $1,300
in commissions and expense reimbursements on the sale. At that time, the
newly merged corporation also issued 625 shares of its common stock to
Corporate Investor Relations, Inc. for consulting services, and, pursuant
to anti-dilution provisions of the merger agreement, 625 shares of its
common stock to the shareholders of Abcor Products, Inc.
The notes are an integral part of these financial statements
F-39
EXHIBIT 3(i)
[STAMPED]
SECRETARY OF STATE CONTROL NUMBER: 9602884
BUSINESS INFORMATION AND SERVICES EFFECTIVE DATE: 01/26/1996
SUITE 315, WEST TOWER COUNTY : FULTON
2 MARTIN LUTHER KING JR. DR. REFERENCE : 0086
ATLANTA, GEORGIA 30334-1530 PRINT DATE : 01/26/1996
FORM NUMBER : 0311
CORPORATE CREATIONS
JOSEPH P. MATA
1215 DREXEL AVENUE/#8
MIAMI BEACH, FL 33139
CERTIFICATE OF INCORPORATION
I, the Secretary of State and the Corporation Commissioner of the State of
Georgia, do hereby certify under the seal of my office that
ABCOR COMPUTER SERVICES, INC.
has been duly incorporated under the laws of the State of Georgia on the
effective date stated above by the filing of articles of incorporation in the
office of the Secretary of State and by the paying of fees as provided by Title
14 of the Official Code of Georgia Annotated.
WITNESS my hand and official seal in the City of Atlanta and the State of
Georgia on the date set forth above.
State of Georgia /s/ LEWIS A. MASSEY
Seal -------------------------
1776 LEWIS A. MASSEY
SECRETARY OF STATE
<PAGE>
ARTICLES OF INCORPORATION
OF
ABCOR COMPUTER SERVICES, INC.
I.
The name of this Georgia corporation is Abcor Computer Services, Inc.
II.
The number of shares the Corporation is authorized to issue is 20,000,000
shares of common stock, par value .001 per share.
III.
The street address of the initial registered office of the ?Corporation is:
Two Ravinia Drive, Suite 310
Atlanta, Georgia 30346
The initial registered agent of the Corporation at such address is:
Corporation Service Company.
IV.
The name and address of the incorporator is:
Joseph P. Mata
Corporate Creations International, Inc.
401 Ocean Drive, Suite 312
Miami Beach, FL 33139
V.
The mailing address of the initial principal office of the Corporation is:
Abcor Computer Services, Inc.
P.O. Box 669
Palm Beach, FL 33480
VI.
The directors shall be protected from personal liability to the fullest
extent permitted by law.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on January 24, 1996.
/s/ JOSEPH P. MATA
------------------------------------
Joseph P. Mata, Incorporator
<PAGE>
ARTICLES OF AMENDMENT
OF
ABCOR COMPUTER SERVICES, INC.
The Board of Directors of:
ABCOR COMPUTER SERVICES, INC.
a corporation organized and existing under the laws of the State of Georgia,
did as of the 18th day of April, 1996, adopt an amendment to the Restated
Articles of Incorporation of said corporation, as follows:
RESOLVED, that Article I of the Corporation's Articles of
Incorporation be amended by deleting the existing Article I and
inserting the following in lieu thereof:
"I.
The name of the Corporation is ELITE COMPUTER SERVICES,
INC."
Said amendment was adopted by unanimous written consent of the Board of
Directors pursuant to O.C.G.A. section 14-2-1002(6), with no shareholder vote
being required.
IN WITNESS WHEREOF, Abcor Computer Services, Inc. has caused these Articles
of Amendment to be executed and its corporate seal to be affixed and has caused
the foregoing to be attested, all by the duly authorized officers as of the 18th
day of April, 1996.
Attest: ABCOR COMPUTER SERVICES, INC.
ILLEGIBLE
- -----------------------------
Secretary By: /s/ GEORGE F. SELING
-----------------------------------
President
[CORPORATE SEAL]
<PAGE>
EXHIBIT A
RESTATED
ARTICLES OF INCORPORATION
OF
ABCOR COMPUTER SERVICES, INC.
Effective February _____, 1996, the Board of Directors of Abcor Computer
Services, Inc. approved and recommended to the sole shareholder of that
Corporation the adoption of the following Restated Articles of Incorporation:
I.
The name of the Corporation is" "Abcor Computer Services, Inc."
II.
The Corporation shall have perpetual duration.
III.
The Corporation is a corporation for profit and is organized pursuant to
the Georgia Business Corporation Code for the purpose of engaging in any lawful
act or activity for which corporations may be organized under the Georgia
Business Corporation Code.
IV.
The Corporation shall have authority to issue not more than twenty million
(20,000,000) shares of common voting stock with a par value of $.001 per share.
V.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of duty of care
or other duty as a director, except (i) liability for any appropriation, in
violation of his duties, of any business opportunity of the Corporation; (ii)
liability for acts or omissions which involve intentional misconduct or a
knowing violation of law; (iii) for the types of liabilities set forth in
O.C.G.A. section 14-2-831, as in effect from time to time; or (iv) liability for
any transaction from which the director derived an improper personal benefit.
If the Georgia Business Corporation Code hereafter is amended to
further eliminate or limit the liability of a director, then a director of the
Corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding paragraph,
<PAGE>
shall be not liable to the fullest extent permitted by the Georgia Business
Corporation Code, as it may be amended from time to time (the "Code").
(b) In discharging their duties and in determining what is believed to be
in the best interest of the Corporation, the directors of the Corporation may
consider all factors that they consider pertinent to the full extent permitted
by O.C.G.A. section 14-2-202(b)(5) or other applicable provisions of the Code.
(c) Any repeal or modification of this Article by the shareholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
VI.
Each person who is or was a director or officer of the Corporation, and
each person who is or was a director or officer of the Corporation who at the
request of the Corporation is serving or has served as an officer, director,
partner, joint venturer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall be indemnified by the Corporation against those expenses (including
attorneys' fees), judgements, fines, penalties and amounts paid in settlement
which are allowed to b paid or reimbursed by the Corporation under the laws of
the State of Georgia and which are actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, in which such person
may be involved by reason of his being or having been a director or officer of
this Corporation or of such other enterprises.
Notwithstanding anything contained herein to the contrary, this Article is
intended to provide indemnification to each director and officer of the
Corporation to the fullest extent authorized by the Code, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader rights
than said statute permitted the Corporation to provide prior thereto).
VII.
These Restated Articles of Incorporation include amendments to the original
Articles of Incorporation, requiring shareholder approval.
2
<PAGE>
There are ___________ shares of Common Stock of the Corporation outstanding
and entitled to vote. These Restated Articles of Incorporation were adopted by
affirmative vote of the holder of all outstanding shares. The vote of a majority
of the outstanding shares of Common stock was required to amend the
Corporation's Article of Incorporation.
These Restated Articles of Incorporation supersede the original Articles of
Incorporation.
IN WITNESS WHEREOF, the Corporation has caused these Restated Articles of
Incorporation to be executed and attested by its duly authorized officers as of
the ____ day of February, 1996:
ABCOR COMPUTER SERVICES, INC.
By:
-----------------------------------
President
ATTEST:
By:
----------------------=
Secretary
EXHIBIT 3(ii)
BY-LAWS
OF
ELITE COMPUTER SERVICES, INC.
A GEORGIA CORPORATION
AMENDED AND RESTATED AS OF APRIL 18, 1996
ARTICLE I
SEAL
The seal of the Corporation shall be in such form as the Board of
Directors may from time to time determine. The signature of the Corporation
followed by the word "Seal" enclosed in parentheses or scroll shall be deemed
the seal of the Corporation, if affixed by appropriate authority. The seal may
be affixed by the Secretary, or Assistant Secretary, or such other person or
persons as may be designated by the Board of Directors or the Chief Executive
Officer.
ARTICLE II
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be changed
from time to time, by the Board of Directors.
ARTICLE III
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting shall be held on a date
selected by the Board of Directors within 120 days following the end of the
Corporation's fiscal year,
<PAGE>
provided that if such meeting shall not be held at the appropriate time, such
meeting may be called, without statement of purpose, in accordance with the
provisions for calling a special meeting. The notice of such specially called
meeting shall state that it is to be held in lieu of the omitted meeting. At
the Annual Meeting, the shareholders shall elect a Board of Directors and
transact other business.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be held whenever and wherever called by the Chief Executive Officer, a majority
of the incumbent Directors, or by shareholders owning not less than 25% of the
outstanding voting shares.
SECTION 3. NOTICE OF MEETINGS. Written notice of each shareholders'
meeting, stating the place, day and hour of the meeting, and in the case of a
special meeting, the purpose or purposes of the meeting, shall be given by the
Secretary of the Corporation, or by persons authorized to call the meeting, to
each shareholder of record entitled to vote at the meeting. Such notice shall be
delivered not less than 10 nor more than 60 days before the date of the meeting,
either in hand, by telegram, by facsimile or by first class mail. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail with first class postage thereon prepaid, addressed to the shareholder at
his address as it appears on the stock transfer books of the Corporation.
SECTION 4. PLACE OF MEETINGS. Meetings of the shareholders may be held
at any place selected by the persons authorized to call the meeting, either
within or without the State of Georgia.
SECTION 5. RECORD DATES AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may fix, in advance, a date as the record date for the determination
of shareholders, such date
2
<PAGE>
in any case to be not more than 70 days and, in case of a meeting of
shareholders, not less than 10 days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken; and only
shareholders of record on such date shall be entitled to notice of and to vote
at such meeting or to receive such dividend or rights, as the case may be.
SECTION 6. QUORUM. At all meetings of shareholders, a majority of the
voting stock issued and outstanding, present in person or by proxy, shall
constitute a quorum for all purposes except as otherwise required by law. When a
quorum is once present to organize a meeting, the shareholders present may
continue to do business at the meeting, or at any adjournment thereof,
notwithstanding the withdrawal of shareholders so as to leave less than a quorum
present. A majority of the voting shares represented at a meeting, whether or
not a quorum is present, may adjourn such meeting from time to time, without
further notice than announcement at such meeting. The vote of a majority of the
shares entitled to a vote at any meeting, as represented in person or by proxy,
shall determine any action taken, except as otherwise provided in the Articles
of Incorporation, by these By-Laws, or by law.
SECTION 7. VOTING AND INSPECTORS. Unless otherwise provided in
the Articles of Incorporation or in a shareholder's agreement, each outstanding
share entitled to vote shall be entitled to one vote on each matter submitted to
a shareholders' meeting. Cumulative voting shall not be permitted except as
specifically provided for in the Articles of Incorporation. At any meeting at
which Directors are to be elected, the Board of Directors or the Chief Executive
Officer may, and upon the request of the holders of 25% of the shares entitled
to vote at such meeting shall, appoint three inspectors of election who shall
execute faithfully the duties of inspectors at such meeting with strict
impartiality and according to the best of their ability, and
3
<PAGE>
shall, after any vote taken at such meeting, make a certificate of the result
thereof. No candidate for the office of Director shall be appointed as such
inspector.
SECTION 8. PROXIES AND VOTING. At every meeting of the shareholders,
all proxies shall be received and held, and all ballots shall be received and
canvassed, by the Secretary of the meeting, who shall decide all questions
relating to the qualification of voters, the validity of proxies, and the
acceptance or rejection of votes, except that where inspectors of election have
been appointed as provided in the preceding Section, the duties set forth herein
shall be performed by such inspectors. Any voting shareholder may be
represented and vote at any regular or special meeting by proxy authorized in
writing, signed by the shareholder, and filed with the Secretary of the meeting
at or before the holding of such meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof, unless otherwise specifically
provided in the proxy.
ARTICLE IV
THE BOARD OF DIRECTORS
SECTION 1. NUMBER AND TENURE OF OFFICE. Except as may be otherwise
provided by an agreement among shareholders, the business and affairs of the
Corporation shall be conducted and managed by the Board of Directors, consisting
of not less than one individual. The number of Directors may be increased or
decreased as provided in Section 3 of this Article. Each Director shall hold
office until the Annual Meeting of shareholders next succeeding his election or
until his successor is duly elected and qualified, unless he is removed from
office or unless his resignation is accepted by a majority of the remaining
Directors. A Director may be
4
<PAGE>
removed without cause by vote of a majority of the shares entitled to vote at
an election of Directors. Directors need not be shareholders.
SECTION 2. VACANCIES. In case of any vacancy in the Board of
Directors, regardless of cause, a majority of the remaining Directors, by an
affirmative vote, may elect a successor to fill the vacancy until the next
meeting of shareholders of the Corporation, or the Board may permit such vacancy
to remain until the next Annual Meeting of shareholders.
SECTION 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by a vote of a majority of the entire Board, may increase the number
of Directors to a number not exceeding nine, and may elect Directors to fill the
vacancies created by any such increase or the shareholders may fill such
vacancies, and such Directors shall have tenure as if elected at the preceding
Annual Meeting. The Board of Directors, by the vote of a majority of the entire
Board, may likewise decrease the number of Directors to a number not less than
one, but the tenure of office of any Director then incumbent shall not be
affected by any such decrease made by the Board.
SECTION 4. PLACE OF MEETING. The Directors may hold the meetings of
the Board within or without the State of Georgia as they may, from time to time,
by resolution determine, or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
SECTION 5. REGULAR MEETINGS. The Annual Meeting of the Board of
Directors shall be held as soon as practicable after the Annual Meeting of
shareholders for the election of Directors, and may be without any notice to
members of the Board if convened at the place of the Annual Meeting of
shareholders on the same or on the next business day.
5
<PAGE>
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held from time to time upon call of the Chief Executive
Officer, the President, the Executive Committee, or a majority of the incumbent
Directors by oral, telegraphic, facsimile or written notice to each Director not
less than 2 days before such meeting, specifying the date, time and place of the
meeting.
SECTION 7. QUORUM. A majority of the members of the Board of Directors
in office immediately before a meeting begins shall constitute a quorum for the
transaction of business at such meeting, provided that a quorum shall in no case
be less than two Directors unless there is only one Director, as may be
permitted under Section 1 of this Article. If, at any meeting of the Board,
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time, without notice, other than an
announcement at the meeting, until the quorum shall be present. The action of a
majority of the Directors present at any meeting at which there is a quorum,
shall determine any action taken by the Directors except as may be otherwise
specifically provided by statute, by the Articles of Incorporation, by these
By-Laws, or by any contract or agreement to which the Corporation is a party.
SECTION 8. EXECUTIVE COMMITTEE. There may be an Executive
Committee of the Board of Directors, consisting of the Chief Executive Officer
and such number of members as elected by the Board. The members of this
Committee shall be elected at the Annual Meeting of the Board of Directors and
shall serve until the next organizational meeting of the Board and until their
successors shall be elected and qualify, unless sooner removed by a majority
vote of the entire Board of Directors. In the event of a vacancy in the
membership of the Executive Committee, the Board of Directors may fill such
vacancy by a majority vote of the entire Board.
6
<PAGE>
A majority of said Committee shall constitute a quorum for all purposes. The
Chief Executive Officer shall be Chairman of the Executive Committee, and the
Committee may, by resolution, fix its own rules of procedure, the time and place
of its meetings, and the method of call of its meetings. All actions of the
Executive Committee shall be reported to the Board of Directors at its meeting
next succeeding such action. The Executive Committee shall have only such powers
and authority as the Board of Directors shall, by resolution, provide.
SECTION 9. OTHER COMMITTEES. The Board of Directors, by a majority
vote of the entire Board, may create and appoint other committees which in each
case shall consist of such number of members and shall have and may exercise, to
the extent permitted by law, such powers, as the Board may determine by
resolution. A majority of all members of any such committee shall determine its
action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and, to the extent permitted by law, the powers
of any such committee, to fill vacancies, and to discharge any such committee.
SECTION 10. COMPENSATION. Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
SECTION 11. INDEMNITY.
(A) POWER TO INDEMNIFY - THIRD PARTY ACTIONS. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other than an action
by or in the right of the Corporation) by
7
<PAGE>
reason of the fact that he is or was a Director, officer, employee, or agent, or
is or was serving at the request of the Corporation as a Director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees), judgments,
penalties, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit, or proceeding, if he acted
in a manner he believed in good faith to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the person did no act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(B) POWER TO INDEMNIFY - ACTIONS BROUGHT IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any treatened, pending, or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a Director, officer, employee, or agent
of the Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the investigation,
defense or settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not
8
<PAGE>
opposed to the best interests of the Corporation, and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnify for such expenses which such court shall
deem proper.
(C) RIGHT TO INDEMNIFICATION. To the extent that a Director,
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in
clauses (a) and (b), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(D) DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Any
indemnification under (a) and (b) (unless ordered by a court) shal be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the Director, officer, employee, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in (a) and (b). Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit, or proceeding, or (2) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (3) by the
affirmative vote of a majority of the shareholders entitled to vote thereon, but
shares owned by or voted under the control of Directors, officers, employees or
agents who are
9
<PAGE>
at the time parties to the proceeding may not be voted on the determination and
thus shall be deemed not outstanding for purposes of determining the foregoing
majority.
(E) ADVANCEMENT OF EXPENSES. Expenses incurred in defending a
civil or criminal action, suit, or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of the Director, officer, employee or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Section and
he furnishes the Corporation a written affirmation of his good faith belief that
he has met the applicable standard of conduct.
(F) SAVINGS CLAUSE. The indemnification and advancement of
expenses provided by this Section shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, resolution, agreement, vote of shareholders, or
disinterested Directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer,
employee, or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person so long as such rights are consistent with the
Georgia Business Corporation Code.
(G) INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out
10
<PAGE>
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section.
(H) DEFINITION OF "CORPORATION". For purposes of this Article,
reference to the "Corporation" shall include, in addition to the surviving or
new corporation, any merging or consolidated corporation (including any merging
or consolidating corporation of a merging or consolidating corporation) absorbed
in a merger or consolidation so that any person who is or was a director,
officer, employee or agent of such merging or consolidating corporation, or who
is or was serving at the request of such employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article with respect to the
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity; provided no indemnification under
subsections (a) and (b) of this Section permitted by this subsection shall be
mandatory under this subsection or any by-law of the surviving or new
corporation without the approval of such indemnification by the board of
directors or shareholders of the surviving new corporation in the manner
provided in subsection (d) of this Section.
(I) SAVINGS CLAUSE AND SUBSEQUENT LEGISLATION. If this Section 11
or any portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless indemnify each
person referred to in subsections (a) and (b) of this Section as to any cost,
charge and expense (including attorneys' fees and related disbursements),
judgment, fine (including, without limitation, ERISA excise taxes and penalties)
and amount paid in settlement with respect to any action, suit or proceedings,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Corporation,
11
<PAGE>
to the full extent permitted by any applicable portion of this Section 11 that
shall not have been invalidated and to the full extent permitted by applicable
law. The Corporation shall indemnify the persons referred to in subsections (a)
and (b) of this Section to the fullest extent permitted by the Georgia Business
Corporation Code, as amended from time to time.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The Executive Officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the Annual Meeting of shareholders. The officers shall include a President, a
Secretary and a Treasurer, and may include one or more Vice Presidents and such
other officers and assistant officers, having such authority as the Board may
from time to time provide. One person may hold more than one of such offices.
Each officer shall hold his office during, and may be removed from office at,
the pleasure of the Board, unless a special contract, approved by the Board,
provides for tenure and compensation for a definite period of time.
SECTION 2. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the President, unless the Board of Directors shall specify otherwise.
The Chief Executive Officer shall have general and active management of the
operation of the Corporation, shall be responsible for the administration of the
Corporation and the execution of corporate policy, and shall have such other
authority and perform such other duties as shall be assigned to him by the Board
of Directors. He shall preside at shareholders' meetings and at meetings of the
Board of Directors, and shall prescribe the duties of all other officers when
not otherwise prescribed by
12
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these By-Laws or by the Board of Directors, and shall have authority to
institute or defend legal proceedings and to employ counsel with respect
thereto.
SECTION 3. PRESIDENT. The President shall have administrative
authority for the affairs of the Corporation, and shall have such further
authority and perform such other duties as may be provided for him by these
By-Laws and by the Board of Directors.
SECTION 4. VICE PRESIDENT. The Vice President shall have such
authority and perform such duties as shall be assigned to him by the Board of
Directors, and shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President. When more than one Vice
President is elected, the Board may specify an order of seniority among such
Vice Presidents.
SECTION 5. SECRETARY. The Secretary shall keep the Corporate
records and the Corporate seal, give due notice of meetings of shareholders and
Directors, have responsibility for preparing minutes of the Directors' and
shareholders' meetings and authenticating records of the Corporation, and
perform such other duties as shall be assigned to him by the Board of Directors.
If there is no Treasurer or Assistant Treasurer then in office, the Secretary
shall have the duties set forth in Section 6 as to the Treasurer.
SECTION 6. TREASURER. The Treasurer shall have custody of the
funds of the Corporation, which shall be kept in such banks or depositories as
the Baord may designate. He shall keep full and accurate records of receipts and
disbursements and perform all other duties pertaining to the office as may be
assigned to him by the Board of Directors.
13
<PAGE>
SECTION 7. SALARY. The Board of Directors shall fix the salaries
of the officers of the Corporation. The salaries of other agents and employees
of the Corporation may be fixed by the Board of Directors, or by the officer
employing such agent or employee.
ARTICLE VI
CAPITAL SHARES
SECTION 1. CERTIFICATE FOR SHARES. The interest of each
shareholder of the Corporation, upon payment in full for his shares, shall be
evidenced by certificates for shares in such form as the Board of Directors may
from time to time prescribe. No certificate shall be valid unless it is signed
by the President or a Vice President and countersigned by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation. The signatures may be either manual or facsimile signatures. In
case any officer who has signed any certificate ceases to be an officer of the
Corporation before the certificate is issued, the certificate may, nevertheless,
be issued by the Corporation with the same effect as if the officer had not
ceased to be such officer as of the date of its issue.
SECTION 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates for the same number of shares of the same class,
duly endorsed or accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the Corporation or its
agents may reasonably require.
14
<PAGE>
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors or the Executive Committee may determine the conditions upon which a
new share certificate of the Corporation of any class may be issued in place of
a certificate which is alleged to have been lost, stolen or destroyed; and may,
in its discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Corporation and the
Transfer Agent, if any, to indemnify it and such Transfer Agent against any and
all loss or claims which may arise by reason of the issue of a new certificate
in the place of the one so lost, stolen or destroyed. The Board shall have power
to determine what constitutes sufficient indemnity as to any lost certificate.
ARTICLE VII
EXECUTION OF DOCUMENTS
The Board of Directors may, by a proper resolution, provide for
the method of signing checks, notes, drafts, bills of exchange or other
instruments for the payment of money; for the transfer and sale of property; for
the endorsement and registration of securities; for the assumption of
liabilities; for the voting of stock held in other corporations; and for the
execution of all other legal documents.
ARTICLE VIII
WAIVER OF NOTICE, APPROVAL AND CONSENT
Any notice required by these By-Laws or by law to be given to any
shareholder, officer or Director, may be waived in writing, either before or
after the event to which it relates,
15
<PAGE>
and shall be deemed waived with respect to any meeting, along with any
objections to the time or place of such meeting, by appearance at such meeting,
except when such person attends a meeting solely for the purpose of stating at
the beginning of the meeting any objection to the transaction of business.
Written approval of the minutes of any meeting, either before or after the
meeting, shall be deemed a waiver of notice of such meeting and shall be deemed
an appearance at such meeting.
Any action to be taken or that may be taken at a meeting of
Directors, or of any committee thereof, or of the shareholders of the
Corporation, may be taken without a meeting if one or more consents in writing,
setting forth the action so taken, shall be signed by all of the persons
entitled to vote with respect to the subject matter thereof and such consent or
consents are delivered to the Corporation for inclusion in the minutes. This
paragraph is subject to any further provisions relating to action taken by
written consent as may be contained within the Corporation's Articles of
Incorporation.
ARTICLE IX
AMENDMENT OF BY-LAWS
These By-Laws may be amended, added to, or repealed, by action
taken by shareholders holding a majority of the outstanding shares, or by a vote
of the entire Board of Directors, but any such action by the Board of Directors
shall be reported to the shareholders in the notice of the next meeting of
shareholders.
16
<PAGE>
ARTICLE X
PLURALITY VOTES
Except as otherwise provided by applicable law, whenever pursuant
to these By-Laws action may be taken by a majority of shares represented at a
Shareholders meeting or by a majority of directors present at a meeting of the
Board of Directors, such action may be taken by a plurality vote, i.e., a vote
in which the number of shares voted or directors voting affirmatively exceeds
the number of shares voted or directors voting negatively.
ARTICLE XI
BRANCH OFFICES - BOOKS AND RECORDS
SECTION 1. BRANCH OFFICES. The Corporation shall have power to
have an office or offices and, subject to the provisions of the laws of the
State of Georgia, to keep the books of the Corporation outside of said State, at
such places as may from time to time be designated by the Board of Directors.
SECTION 2. BOOKS AND RECORDS. The Board of Directors shall have
power to determine which accounts and books of the Corporation, if any, shall be
open to the inspection of shareholders, except such as may , by law, be
specifically open to inspection, and shall have power to fix reasonable rules
and regulations, not in conflict with the applicable law, for the inspection of
accounts and books which, by law or by determination of the Board of Directors,
shall be open to inspection.
17
<PAGE>
ARTICLE XII
TRANSFERABILITY OF SHARES
SECTION 1. PERMITTED TRANSFERS. Holders of common stock may
freely sell or transfer their stock in the Corporation only to an individual who
(a) is sui juris and (b) is a citizen or resident of the United States. The
estate of any of the foregoing may continue to hold common stock in the
Corporation for so long as the estate remains open under the shorter of the
period allowed therefor under local law or the Internal Revenue Code as
interpreted by Treasury Regulations.
SECTION 2. RESALE OBLIGATION. If any shareholder ceases to be
either a citizen or resident of the United States, such shareholder shall be
deemed to have transferred all of this shares of stock, automatically, to the
Corporation. As payment therefor, the Corporation shall pay to such shareholder
an amount equal to 100% of the book value per share of his stock, based upon the
book value per share as of the end of the most recent fiscal quarter of the
Corporation, determined based upon the method of accounting then used by the
Corporation.
SECTION 3. PROHIBITION OF OTHER TRANSFERS. No other transfer of
the stock of the Corporation shall be of any force and effect.
SECTION 4. WAIVER BY BOARD OF DIRECTORS. By unanimous vote of the
Board of Directors, any provision of Sections 1, 2 and 3 of this Article XII may
be waived as to any particular transfer.
SECTION 5. LEGEND ON STOCK CERTIFICATES. Each certificate
representing a share of capital stock of the Corporation shall bear a legend
clearly referring to the restrictions on transfer provided in this Acticle XII.
18
EXHIBIT 23
December 2, 1996
Board of Directors
Elite Computers
3545 Cruse Road, Suite 301
Lawrenceville, GA 30244
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of or
our reports (and to all references to our Firm) included in or made a part of
this Registration Statement.
- -----------------------------------
A.C. Knorr and Company, CPA, Inc.
Lilburn, GA 30247
December 2, 1996.
BLOCK & HANDLEMAN
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<INCOME-CONTINUING> (240,371)
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