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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________TO____________
COMMISSION FILE NUMBER: 0-17597
ELITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0252296
(State or other Jurisdiction ( I.R.S. Employer Identification No.)
of incorporation or organization)
3700 CRESTWOOD PARKWAY 30096
SUITE 1000 (Zip Code)
DULUTH, GA
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(770) 381-8089
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares of the issuer's class of capital stock as of October 1,
1999, the latest practicable date, is as follows: 18,730,170 shares of Common
Stock $.0001 par value.
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<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet
Income Statement
Statement of Cash Flow
1. ELITE TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999 (UNAUDITED)
Organization
Elite Technologies, Inc., formerly CONCAP, Inc., (the "Company") was
established in 1988 in the State of Texas. Elite Technologies, Inc. is a full
service technology company providing information technology ("IT") services to
medium and large enterprises. IT services involve the facilitation of the flow
of information within a company or between a company and external sources. These
services typically involve computer hardware, software and "integration" efforts
to allow diverse systems to communicate with one another.
Elite is organized in three branded divisions: Elite Integration,
Elitetech.com, and Workstream Staffing. Elite Integration serves as the
outsource, integration and software VAR for clients and software partners;
Elitetech.com provides Internet Development and Internet Solutions and houses
the Internet Incubator Lab; and Workstream Staffing is the full service IT
Staffing entity. The divisions work closely together, cross-selling and acting
as client and internal support.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash or cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost and are depreciated primarily
using straight line depreciation over three to seven years.
Revenue Recognition
The Company's revenue results are of the revenue received by Elite
Technologies, Inc. and its subsidiary corporations. Revenue from subsidiary
corporations is recognized upon signing of a contract for services, provided
that amounts are due within one year and collection is considered probable. If
significant delays are expected in collecting more than 50% of the contract
<PAGE>
value, the revenue from the sale of the contract is recognized using contract
accounting.
Deferred Revenues
Revenue may be deferred due to installation, delivery or fulfillment not
yet performed.
Deferred Liabilities
Liabilities may be deferred due to expected expenditure of labor costs.
Payroll Taxes Payable
Payroll Taxes payable includes a liability of approximately $754,000.00,
the assumption of which was part of the agreement to acquire Intuitive
Technology Consultants, Inc. Management has entered into an installment
agreement with the Internal Revenue Service to satisfy this Liability and has
been funding payments from the cash generated by operations. Management believes
it can continue to reduce the liability accordingly without adversely affecting
the continuing operations of the company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this filing. Certain
statements made in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. The
forward-looking statements contained herein are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking statements.
Overview
Elite Technologies, Inc. is a full service technology company seeking to
grow internally and to acquire corporations whose primary focus is technical,
including software development, staffing and consulting. It should be noted,
however, that the Company is not limiting itself to these areas. The Company's
revenue consists of revenue as results of operations of its subsidiary
corporations. The financial results referred to herein reflect the historical
results of the Company. The Company has recently entered into definitive
agreements with three companies, the closings of which are scheduled to take
place in second quarter Fiscal Year 2000.
Prior to June 8, 1998, the Company had no material assets or operations.
On July 8, 1998, the Company acquired all of the issued and outstanding capital
stock of Intuitive Technology Consultants, Inc. ("ITC"). On November 15, 1998,
ITC was merged with Elite Technologies, Inc., with Elite becoming the surviving
member. Elite is composed of three branded operating divisions: Elite
Integration, Workstream Staffing and Elitetech.com.
Elite Integration
The Elite Integration division is the "outsource services group" of Elite.
Elite Integration provides custom software development, including Client/Server
applications, design and development to Fortune 1000 companies, government
<PAGE>
agencies, public institutions and other medium to large enterprises. Most
recently, Elite Integration has focused on assisting companies in managing the
transition to Microsoft-centric platforms. A recent report by Computer
Intelligence shows that 86 percent of all Fortune 1000 firms have already
deployed a Windows NT Server. This represents a 200 percent increase in Windows
NT deployments in the past 12 months alone. Windows NT is emerging as the
platform of choice for departmental and enterprise applications as it decreases
the cost of deploying and managing enterprise solutions, and has the added
benefit of integrated Web, application and communication services. To date,
Elite Integration has focused on Internet and Client / Server development (which
are deployed using Windows NT) for clients in the Southeast region and is
seeking currently to expand into new markets. Recent clients include Ernst &
Young, Quest Group Telecommunications, and AT&T.
Elite Integration targets companies for potential partnerships that are
developing technologies which it believes will be important to, and likely to be
widely deployed by, its current and potential customers. Through these
partnerships, Elite Integration often gains an early and comprehensive
understanding of critical emerging technologies, and is therefore well
positioned to service the continued needs of these technology vendors, as well
as the needs of their customer base. Elite Integration incorporates the
knowledge and expertise derived from each of its client projects into its own
implementation methodology, which allows Elite Integration to retain and
distribute the techniques and knowledge it gains through work on client projects
throughout the organization at Elite. As a result, Elite has decreased costs and
increased the quality and speed of delivery of business solutions.
Workstream Staffing
Workstream Staffing is the IT staffing augmentation division of Elite
Technologies that locates and offers permanent employees, temporary contractors
and temp-to-perm (try before you hire) employees to the Workstream customer
base. Workstream has developed proprietary software, the "RMS" Recruiting
Management System, to manage the client-contractor relationship from
pre-screening to renewal. The result is improved customer service and reduced
collection times. Marketing efforts are centered in the Atlanta area, which was
recently named by USA Today as the number one IT job market in the United States
for the next 25 years. However, Workstream also fills staffing requirements for
clients throughout the country.
Recent clients include Gulfstream, Quest Communications, Lanier Worldwide,
Shop n' Check and Crawford & Company. Workstream also assists the Company's
other divisions with staffing needs for internal projects and actively
cross-sells Integration and Elitetech.com products and services.
Elitetech.com
The Internet Development division, Elitetech.com, specializes in full
service web development projects and Internet based server applications.
Services include web site design, Internet deployment and strategies, web
enabled applications, network solutions, e-commerce solutions, search engine
placement services, multimedia creation, and an Internet Incubator Lab for
Internet start-up ventures with strong growth potential.
Elitetech.com provides scalable solutions ranging from static web site
development to network solutions that use the Internet to add functionality and
efficiency to our clients' web existence. The Integration division provides
<PAGE>
programming and database development support to the Internet division for
network applications.
Elitetech.com currently includes, "Virtualbride.com." The Virtual Bride is
a full service on-line wedding planner and bridal registry targeted at 30 US
markets. Additional strategic relationships are under development with leading
merchandise and service vendors in each market.
RESULTS OF OPERATIONS
Three Months Ended August 31, 1999 Compared to Three Months Ended May 31,
1999.
Revenue
Total revenue decreased between fourth quarter 1999 and first quarter 2000
due to reorganization of the staffing division, whereby emphasis is now being
placed on the more profitable contract placements. In addition, the Company's
subsidiary, Scanlan Music, realized a temporary reduction in revenue during the
opening of their second location. It is anticipated that revenue will quickly
return to projected levels. Total revenue of the subsidiary companies consists
of software programming, permanent and temporary placement fees and consulting
fees, as well as retail sales by the Company's Scanlan Music subsidiary.
Software Programming Fees. Software programming fee revenue accounted for
less than 10% of the revenue of Elite Technologies.
Temporary and Permanent Placement Fees. Billings remained at the same
level as fourth quarter 1999, but disputes with American Factors corporation
have temporarily effected collections and growth. Management anticipates a
successful resolution with American Factors and a return to the growth
objectives set forth by Management.
Cost of Revenue
The cost of revenue consists primarily of consultant and employee salaries
and other personnel expenses incurred in the implementation of projects and
placements. Costs of revenue increased proportionately primarily due to the
increase of obligations under contracts for services.
Operating Expenses
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel related costs, travel expenses, advertising
programs and other promotional activities.
General and Administrative.
General and administrative expenses consist primarily of salaries and
other personnel related costs of executive, financial and secretarial personnel,
as well as facilities, legal, insurance, accounting and other administrative
expenses. The increase in general and administrative expenses was principally
due to increased legal fees as a result of the acquisition of the subsidiaries
Elevations Strategic Partners, Inc. and Virtual Enterprise, Inc. and
investigation of the possible acquisition targets for the Company.
<PAGE>
The Company's operations and related revenue and operating results could
vary substantially from quarter to quarter. Among the factors causing these
potential variations are fluctuations in the demand for the Company's services,
price competition in the Company's markets, the length of the Company's sales
process, the Company's success in expanding its services as well as its direct
sales force, commercial strategies adopted by competitors and general economic
conditions. A substantial portion of the Company's operating expenses,
particularly personnel and facilities costs, are relatively fixed in advance of
any particular operating results in any particular quarter.
Elite's ability to undertake new projects and increase revenue is
substantially dependant on the availability of consultants/personnel in the
marketplace.
As a result of the foregoing and other factors, the Company believes that
Quarter to Quarter comparisons of results are not necessarily meaningful, and
such comparisons should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Elite has funded its operations to date primarily through
cash generated form operations. In addition, Elite has received approximately
$1,300,000.00 from outside sources.
The Company has in pervious quarters utilized line of credit for Accounts
Receivable financing from American Factors Corporation of Dallas, Texas for a
maximum of up to $1,000,000.00. Due to irregularities in the funding practices
of American Factors, the Company has elected not to renew the agreement for the
period starting November, 1999. As part of the ongoing dispute, American Factors
has withheld funding to the Company, with the corresponding amounts moved
temporarily to the "Allowance for Doubtful Accounts" on the Balance Sheet.
In order to fuel internal growth and acquisitions, the Company has entered
into an agreement for $10,000,000 in equity financing. The Company believes that
its existing liquidity and capital resources, combined with the capital raise,
and the cash generated from operations during fiscal 1999 are sufficient to
satisfy its cash requirements for the next twenty-four months. To the extent
that such amounts are insufficient, the Company will be required to raise
additional funds through equity or debt financing. There can be no assurance
that the Company will be successful in raising additional funds on favorable
terms or at all.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
When the Company assessed its internal computer systems it was determined
that modification, replacement or deletion of certain software and hardware
systems was needed so that those systems will properly recognize dates beyond
<PAGE>
December 31, 1999. The Company currently believes that with the modifications to
its existing software and hardware, the Year 2000 issue can be mitigated.
The Company's plan to resolve the Year 2000 issue involved the following
four phases: assessment, remediation, testing and implementation. To date, the
Company has completed its assessment of all critical systems that could be
significantly affected by the Year 2000. Based on this assessment, the Company
has selected Year 2000 compliant software and hardware to replace systems that
are not Year 2000 compliant.
With respect to its information technology exposures, the Company has
completed 100% on the remediation phase and the reprogramming and replacement.
These phases ran concurrently for different systems. To date, the Company has
completed 100% of its testing and has implemented 100% of its remedied systems.
The Company has completed its assessment of key vendors, customers and
other parties. The Company has not incurred and does not expect to incur
significant costs related to Year 2000 issues other than the time required by
internal personnel to complete the Company's Year 2000 plans.
Management believes the Company's program will be effective to resolve the
Year 2000 issued in a timely manner. As noted above, the Company has completed
all phases of the Year 2000 program. The Company has contingency plans for most
of its critical applications and is developing contingency plans for the
remaining applications. These contingency plans involve, among other actions,
manual workarounds and staffing strategy adjustments. Manual workarounds would
consist of preparing billings and cash disbursements from hard copy source
documents, which the Company currently maintains.
FORWARD LOOKING STATEMENTS
This Annual Report contains various forward-looking statements that are
based on management's belief as well as assumptions made by management based on
information currently available to management. In some cases, you can identify
forward-looking statements by the use of certain terminology, such as "may,"
"will," "should," "would," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of such terms
or other comparable terminology. Any expectations based on these forward-looking
statements are subject to risks and uncertainties. These risks and uncertainties
could affect the Company's future financial and operating results and cause
actual results to differ materially from expectations based on forward-looking
statements made in this document or elsewhere by or on behalf of the Company.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, both on its own and through its subsidiaries is subject to
legal proceedings and claims which arise in the ordinary course of business. In
the opinion of management, the amount of potential liability with respect to
these potential actions would not materially affect the financial position or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES. NONE
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
ITEM 5. OTHER INFORMATION.
In connection with the foregoing acquisition the Registrant effectuated a
1-for-100 reverse stock split. As a result of the reverse stock split, and other
issuance of stock in connection with the acquisitions, the Registrant now has
outstanding 18,730,170 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 20, 1999 By: /s/ Scott Schuster, President
----------------------------------
Scott Schuster, President
<PAGE>
Elite Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Q1/2000 Q4/1999
31-Aug-99 31-May-99
ASSETS
Current Assets
Accounts Receivable $ 199,327 285,309
Loans to Officers 215,583 215,583
Other Current Assets 53,619 53,619
----------- -----------
Total Current Assets 468,529 554,511
Property and Equipment
Furniture, Fixtures and Equip. 66,304 66,304
Other Depreciable Property 21,968 21,968
----------- -----------
Total Property and Equipment 88,272 88,272
Other Assets
Organization Costs 1,688,415 1,688,415
----------- -----------
Total Other Assets 1,688,415 1,688,415
Total Assets $ 2,245,216 2,331,198
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable $ 473,211 245,811
N/P - American Factors Corp. 177,124 177,124
Accrued Expenses 33,942 33,942
Federal Payroll Taxes Payable 654,463 629,415
GA State Payroll Taxes Payable 271,597 251,177
Medical Withheld Payable 1,538
Medical Company Portion 405
Current Portion of Long-Term Debt 88,504 88,504
Other Current Liabilities 210,713 210,713
----------- -----------
Total Current Liabilities 1,911,497 1,636,686
Long-Term Liabilities
Notes Payable-Noncurrent 37,399 37,399
Other Long-Term Liabilities 97,496 97,496
----------- -----------
Total Long-Term Liabilities 134,895 134,895
Total Liabilities $ 2,046,392 1,771,581
=========== ===========
Stockholders' equity (deficit):
Common Stock 1,257 1,257
Additional Paid-in Capital 3,908,205 3,995,318
Accumulated deficit (3,710,639) (3,436,958)
Total Stockholders' equity 198,823
----------- -----------
Commitments and contingencies 559,617
Total Liabilities and Stockholders' equity $ 2,245,216 2,331,198
=========== ===========
<PAGE>
Unaudited - For Management Purposes Only
Elite Technologies, Inc. and Subsidiaries
Consolidated Income Statement
For the Three Months Ending August 31, 1999
8/31/99 Year to Date
Revenues
Programming Fees 377,997 754,075
------------ ------------
Total Revenues 377,997 754,075
Cost of Sales
------------ ------------
Total Cost of Sales 0 0
------------ ------------
Gross Profit 377,997 125,682
------------ ------------
Expenses
Advertising Expense 20,613 20,613
Auto Expenses 343 343
Computer Equipment Expenses 11,704 11,704
Dues and Subscriptions Exp 1,393 1,393
Gifts and Donations Expense 15 15
Insurance Expense 10,824 10,824
Legal and Professional Expense 53,119 53,119
Meals and Entertainment Exp 32 32
Office Expense 2,953 2,953
Payroll Tax Expense 33,553 33,553
Penalties and Fines Exp 2,249 2,249
Postage and Delivery Expense 25 25
Rent or Lease Expense 59,649 59,649
Lease on Automobiles 5,157 5,157
Lease on Furniture & Equipment 5,458 5,458
Salaries Expense 299,895 299,895
Medical Company Paid 8,198 8,198
Commissions Paid 6,125 6,125
Contract Labor 3,219 3,219
Supplies Expense 8,699 8,699
Telecommunications Expense 3,441 3,441
Telephone Expense 11,733 11,733
Travel Expense 2,703 2,703
Temporary Labor Fees 9,424 9,424
Employee Reimbursed Expense 1,214 1,214
Utilities Expense 206 206
Wages Expense 85,650 85,650
Other Expense 3,776 3,776
Late Fees 306 306
------------ ------------
Total Expenses 651,677 651,677
Net Income $ (273,680) $ (273,680)
============ ============
<PAGE>
For Management Purposes Only
Elite Technologies, Inc. and Subsidiaries
Consolidated Statement of Changes in Financial Position
For the three months ended August 31, 1999
8/31/99 Year To Date
Sources of Working Capital
Net Income $ (273,680) $ (273,680)
Add back items not requiring working capital
------------ ------------
Working capital from operations (273,680) (273,680)
Other sources
Additional Paid in Capital 841,404 841,404
------------ ------------
Total sources 567,724 567,724
------------ ------------
Uses of Working Capital
Additional Paid in Capital (1,028,517) (1,028,517)
------------ ------------
Total uses (1,028,517) (1,028,517)
------------ ------------
Net change $ (460,793) $ (460,793)
============ ============
Analysis of components of changes
Increase (Decrease) in Current Assets
Accounts Receivable $ (85,982) $ (85,982)
(Increase) Decrease in Current Liabilities
Accounts Payable (227,400) (189,898)
Federal Payroll Taxes Payable (125,047) (125,047)
GA State Payroll Taxes Payable (20,420) (20,420)
Medical Withheld Payable (1,538) (1,538)
Medical Company Portion (405) (405)
Net change $ (460,793) $ (460,793)
============ ============
<PAGE>
For Management Purposes Only
Elite Technologies, Inc. and Subsidiaries
Consolidated Statement of Cash Flow
For the three Months Ended August 31, 1999
<TABLE>
<CAPTION>
8/31/99 5/31/99
<S> <C> <C>
Cash Flows from operating activities
Net Loss $ (273,680) $ (2,888,364)
Adjustments to reconcile net
income to net cash provided
by operating activities
Stockbased Compensation 827,431
Accounts Receivable 85,981
Other Assets (38,312)
Commitment to issue stock for investment banking services 126,667
Accounts Payable 227,400 195,327
Deferred Rent Expense 55,910
Federal Payroll Taxes Payable 125,048 186,842
GA State Payroll Taxes Payable 20,420 161,367
Accrued expenses and other current liabilities 33,942
Medical Withheld Payable 1,538
Medical Company Portion 405
------------
Net Cash provided by Operations 187,113 (1,339,190)
Cash Flows from investing activities
Purchases of Property and equipment (7,922)
Acquisitions of businesses (15,000)
Notes Receivable to officers (130,584)
------------ ------------
Net cash used in investing 0 (153,506)
------------ ------------
Cash Flows from financing activities
Proceeds From issuance of common stock 852,500
(Payments to) advances from factoring company, net (43,434)
(Payments of) proceeds from notes
Additional Paid In Capital 841,404
Other capital contributions 114,700
Contributed capital from THC 289,277
Increase in cash overdraft 190,855
(Decrease) increase in related party advances (22,073)
------------
Additional Paid In Capital (1,028,517) 1,381,825
------------
Net cash used in financing (187,113)
------------
Net increase (decrease) in cash $ 0 $
============ ============
Summary
Cash Balance at End of Period $ 0 $
Cash Balance at Beginning of Period 119,921
Net Increase (Decrease) in Cash $ 119,921 $
============ ============
</TABLE>
Unaudited - For Internal Use Only.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 199,327
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 468,529
<PP&E> 88,272
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,245,216
<CURRENT-LIABILITIES> 1,911,497
<BONDS> 0
0
0
<COMMON> 1,257
<OTHER-SE> 558,360
<TOTAL-LIABILITY-AND-EQUITY> 2,245,216
<SALES> 377,997
<TOTAL-REVENUES> 377,997
<CGS> 0
<TOTAL-COSTS> 767,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (273,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (273,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (273,680)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
