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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999
Commission File Number: 0-17597
ELITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
CONCAP, INC.
(Former name of registrant if changed since last report)
Texas 76-0252296
(State or other Jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3700 Crestwood Parkway 30096
Suite 1000 (Zip Code)
Duluth, GA
(Address of principal executive offices)
(770) 381-8089
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant computed as of July 15, 1999 is $65,287,510.
The number of issued and outstanding shares of the issuer's class of capital
stock as of September 8, 1999, the latest practicable date, is as follows:
16,987,670(1) shares of Common Stock $.0001 par value.
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(1) Excludes 1,250,000 shares issued to Randy Troxtel in connection with the
acquisition of Temporary Help Connection. These shares are being held in escrow
pending disposition of the Company's attempt to reverse the acquisition. (See
Legal Proceedings).
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ELITE TECHNOLOGIES, INC.
MAY 1999 Annual Report
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
General Information
The IT Industry
Elite Service Offerings
Partnerships with Elite
Recent Developments and Acquisitions
Integration of Acquisitions
Sales and Marketing
Competition
Intellectual Property Rights
Government Regulation
Research and Development
Employees
Executive Officers
Risk Factors
ITEM 2. PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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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 I
ITEM 1. BUSINESS GENERAL
General Information
Elite Technologies, Inc. (referred to herein as "Elite" or the "Company")
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.
To satisfy the requirements of its customers, which differ greatly
depending on the customers' installed systems, Elite offers a wide range of
information technology services through three branded divisions: Elite
Integration, Elitetech.com and Elite Workstream Staffing. Elite delivers full
service technology solutions through a combined effort of its three divisions,
software and hardware partnerships and outsourced IT professionals.
Elite was founded as a Georgia corporation in 1996 under the name
Intuitive Technology Consultants, Inc. ("ITC"). In July, 1998, management of ITC
acquired a majority interest, through a reverse merger, in CONCAP, Inc.
("CONCAP"), a public Texas corporation founded in 1988, thereby allowing the
Company to achieve its growth objectives via the access provided to it by the
public capital markets. In April of 1999, CONCAP, Inc. changed its name to Elite
Technologies, Inc.
The Company's principal executive offices are located at 3700 Crestwood
Parkway, Suite 1000, Duluth, Georgia 30092 (Telephone: (770)381-8089).
THE INFORMATION TECHNOLOGY (IT) SERVICES INDUSTRY
Many businesses today need ongoing technology improvement. Sole
proprietorships and Fortune 1000 companies alike need to examine their IT
processes regularly in order to maintain growth. The fast pace associated with
the development of new technologies has created increased demand for IT solution
services. Companies are often forced to rely on external experts for direction
with respect to IT solution services and to lower their internal costs of
implementation of new and upgraded systems.
Corporations face increasing pressures to improve the quality of products,
facilitate implementation of their products and reduce the cost in delivering
"end to end" solutions, solutions which ensure the systems in place function
correctly from start to finish. As a result, companies are using value added
integrators to implement solutions that streamline business processes with their
end users and customers, which improves the flow of critical data within the
company, and outside the organization. These trends, with rapid advances in
technology, are driving organizations from traditional "host-based" legacy
computing systems to more flexible and functional technologies, including the
Internet, Web-based user interfaces, Client / Server architectures, distributed
database management systems and the latest networking and communications
technologies.
In an effort to prosper in today's market, more and more companies are
deploying custom designed software applications. These custom applications are
designed specifically for the business needs and goals of each company, and may
be composed of multiple operating systems, databases, programming languages and
networking protocols throughout the corporate enterprise.
In addition to the increasing demand for more responsive technologies,
technology vendors are becoming more complex and individual product life-cycles
are shortening at a faster rate. As a result, IT vendors are under increasing
pressure to bring new products and new versions of proven technology to market
faster and simultaneously to ensure that those products
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are implemented in a timely fashion. Thus, these software vendors are
outsourcing their services to value added integrators with experience with
multiple platform, application, integration, and networking support. The
convergence of these trends has resulted in (i) an increasing need within the
research and development departments of key technology vendors to outsource to
software service firms a portion of the development, deployment and testing of
their existing and new products and (ii) an increasing movement of companies
toward joint projects with software service firms that have a high level of
expertise in market leading technologies. Since many are already under-staffed,
software vendors often prefer not to rely on their internal resources for the
design and implementation of enterprise business systems. Accordingly, a growing
number of corporations and IT vendors are seeking the help of value added
integrators with strong technical expertise in critical emerging technologies to
implement high value "end to end" solutions using a successful and
cost-effective approach which utilizes available resources to complete specific
technology plans.
Industry Background
Internet solutions have been introduced to corporations over the last 10
years. These Internet solutions (Intranet, Extranet and Corporate Web Sites)
have provided organizations with a completely new set of tools to market,
distribute and offer additional value to their end users who use their products
and services. This new set of tools provides customers with more and improved
ways to communicate, transmit critical data from organization to organization or
organization to customer, create better methods for marketing and provide higher
levels of customer service. The Intranet technology allows a company's employees
to access corporate proprietary information more easily, obtain training on
line, access corporate business applications from their own PC, and communicate
via email. The Extranet is an even more powerful tool. The Extranet allows
corporations to securely distribute critical data outside its corporate Intranet
to customers and business partners.
On the consumer side, Web sites offer a total "end to end" solution. Web
sites allow customers to access product and service offerings more easily and
allow businesses to present advertising, market new and improved products and
services, offer products and services for sale on line, process transactions,
complete orders on line, provide customers with rapid, accurate response time to
their most important issues and ultimately, provide customers with a high level
of customer interaction and support via the Web. Additionally, a business has
the ability to increase its sales and marketing via e-commerce solutions on
their Corporate Web Sites, virtually placing a "24 hour" sales ability within
the company.
ELITE SERVICE OFFERINGS
Elite is a full service technology corporation with divisions in IT
Staffing, Custom Software Development and Integration, and Internet Hosting and
Development. The Company also serves as an authorized solution provider and
application developer for leading enterprise-level software products and
maintains an "Internet Incubator Lab" for Internet related start-ups with
promising growth potential, which may provide spin-offs for the Company in the
future. The Company, through direct advertising, a network of Sales
Representatives and Value Added Reseller ("VAR") relationships, markets its
products and services to Fortune 1000 companies, government agencies, public
institutions, and other medium to large enterprises. In addition to expanding
market share in key areas, the Company's growth strategy includes the pursuit of
strategic partnerships, mergers and acquisitions, increased sales force and
e-commerce.
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.
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
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.
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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.
Services Specifically for IT Vendor Clients
Elite Integration provides software implementation and deployment services
that enable its IT vendor clients to improve the quality and speed to market of
their products. Elite Integration's services also enable these clients to focus
on their core competencies, limit their permanent headcount and relieve
temporary workload crises, lowering their overall costs.
Elite's experience and knowledge of technology vendors' products often
leads to significant follow-up work and partnerships in related projects with
vendors and their customers. At the same time, Elite's experience with IT users
allows it to assist its IT vendor clients as they seek to achieve wide-spread
adoption of their technologies and enables Elite Integration to give valuable
feedback to such IT vendors regarding the most appropriate business use for
their respective technologies. Elite Integration offers the following services
to its IT vendor clients:
Development Services
Elite Integration assists clients in the development of products,
the addition of new functionality to existing products and the
development of customized software solutions so customers can meet
their business goals. Elite's experience in system architecture,
system performance, operating systems, device drivers, custom
applications and middleware, as well as its software development
methodology, position Elite Integration to enable its clients to
deliver critical software solutions to their customer base in a
timely fashion.
Microsoft Migration Services
Elite's Microsoft Certified Software Engineers ("MCSE") develop
applications and products on the latest Microsoft platforms
including Windows NT and Windows 98. These platforms provide two
types of opportunities for companies: upsizing desktop / network
applications and downsizing / migrating network applications.
Testing Services
Elite Integration assists customers in test planning, test suite
development and test execution in system verification testing,
compatibility testing and standards compliance testing. System
verification testing involves the design of tests to ensure that
integrated products adhere to their current environment and the
specifications and standards demanded by the client's statement of
work and needs analysis. Compatibility testing verifies that
specific applications and programs work with new operating software
applications. Standards compliance testing involves the development
of test suites to verify binary or source code compatibility with
published standards.
Site Analysis Services
Elite Integration provides site analysis services to assess
development, migration, testing and support of contracted projects
from a technical and project management standpoint. Elite
Integration utilizes its implementation methodology and project
management experience to identify areas of improvement and make
recommendations for additional methods to approach IT initiatives.
In addition, site analysis services are often used to allow for the
necessary research and evaluation to develop a more accurate
proposal which meets the customers timeframe and business
initiatives.
Product Re-engineering Services
As part of the Company's Product Re-engineering Service, Elite
Integration re-engineers existing applications from platforms like
DOS, UNIX, and AS/400 to Windows 98/NT. This service is marketed to
companies with non-Windows compliant software which needs conversion
and for MIS departments
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wishing to convert legacy applications to the Windows platform. The
re-engineering service also assists software companies develop new
releases of their products to expand their capabilities or to
integrate new functions, such as Internet compatibility, thereby
freeing up resources for in-house development teams.
Enterprise Work Management
Elite Integration is a first tier integration and application
developer partner of Eastman Software (partnered with Microsoft and
Hewlett-Packard), a provider of the leading Microsoft Exchange
compatible enterprise work management software. The Eastman Software
products include tools for workflow, document management, imaging,
Computer Output to Laser Disk ("COLD") and storage management. These
tools are fully scalable, meaning that the target market is expanded
beyond the upper tier of companies.
Internet Related Services
Elite Technologies is a professional, strategic and enterprise
service oriented company with high levels of expertise in Internet
technology solutions. Elite has developed a high level consulting
organization that specializes in software integration, Intranet /
Internet site solutions and open architecture technologies.
By utilizing our expertise with a variety of Internet technologies we are
able to provide our customer base with a wide range of "end to end" solutions
that allow them to meet their business initiatives, including:
o Adding greater value to their products and services in comparison to
the competition;
o Improving business processes and becoming more efficient;
o Increasing customer response times and enhancing customer
relationships;
o Utilizing and maximizing corporate employee overhead.
Elite Integration's Internet technology consulting organization provides
services to our customer base and partners which include: analysis and design,
implementation and integration, custom web application design and development
and e-commerce solutions.
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
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.
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.
PARTNERSHIPS WITH ELITE
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Eastman / Elite Overview
Elite and Eastman Software formed a strategic partnership in late 1998.
Eastman Software selected Elite as one of twelve authorized integrators
worldwide to implement their COLD (ERM), Imaging and Workflow Management product
line. Working closely with Eastman has allowed Elite's divisions to provide a
total "end to end" solution, rather than a single point solution, for its
customers. Elite and Eastman have been successful in opening up opportunities in
several business vertical hierarchies such as: finance, government, healthcare,
education and manufacturing. Elite understands that the need for document
management and imaging is growing quickly among businesses today. 25% of all
labor costs today are associated with document management, imaging, electronic
storage and retrieval of documents. Management believes that this percentage
will continue to increase over the next five years, and will attempt to position
itself as a premier integrator of these leading technologies. Below is a brief
synopsis of these products that Eastman Software offers.
An Overview of Eastman Software Products
Eastman Software provides award-winning work management and desktop
imaging solutions to thousands of customers in many industries worldwide. Read
abstracts about these products below.
Enterprise Work Management
Eastman Software Enterprise Work Management products are designed to help
businesses automate and improve their mission-critical business processes.
Eastman Software Imaging, Eastman Software COLD and Eastman Software Workflow,
are designed to be used individually or together to create sophisticated,
powerful solutions to business challenges.
Eastman Software Imaging helps businesses manage their paper documents by
turning a page of information into an electronic image, letting businesses
capture data, store data efficiently and find it fast.
Eastman Software COLD (ERM) indexes and stores the information which
critical business applications would normally send to print, letting users
find, display and use the data at their desktops.
Eastman Software Workflow electronically moves work through an
organization, helping define and streamline structured processes while
providing the information necessary to effectively manage procedures.
Scanlan Music / Elitetech.com. Retail - Internet Hybrid Program
Scanlan Music, Inc. ("Scanlan"), acquired by Elite in 1998, sells, rents
and repairs musical instruments and accessories from its original location in
Michigan and its recently opened location in Gainesville, Georgia. An additional
store is scheduled for opening in the second quarter of fiscal year 2000, in the
rapidly developing Buford, Georgia area. While the physical locations provide
for the foundation of the business, the Company is currently developing an
Internet / e-commerce presence for Scanlan that will not only sell their goods
and services via the internet, but will also serve as a portal for musicians and
the industry in general. The web portal will offer a venue for up and coming
groups for self-promotion, auditioning of other musicians, access to production
and distribution facilities and participation in Scanlan-promoted concert
series. A nationwide launch of the Internet portal is currently scheduled for
the third quarter of fiscal year 2000, although no assurance can be given that
such a launch will occur on schedule.
RECENT DEVELOPMENTS - ACQUISITIONS
The growth experienced by Elite since it took control of CONCAP has
occurred through internal growth and acquisitions. The Company signed with
Coleman and Company Securities as its investment banker in April, 1999. At the
same time, most operations were reduced, or halted at Elite to allow the Company
to restructure its divisional presence, corporate identity, marketing, and
internal organization. This caused a dramatic reduction in the growth rate and
an increase in corporate expenditures to complete the restructure. The
restructure was completed July, 1999. Management plans to maximize the Company's
new structure and growth through the acquisition of profitable companies.
Management expects that the Company will begin to expand its revenue base
significantly in the next fiscal year.
Prior to the Company's relationship with Coleman and Company, all sales
and marketing efforts of the Company were coordinated through a centralized
system under the single entity, Elite. Management separated the Company into
three branded divisions to allow it to present itself as a full service
technology company with specialized service offerings. Management believes that
the result is a higher perceived value to customers and a work environment
conducive to cross selling of services among the divisions. Subsequently, the
sales and marketing staff of the Company have been retrained to approach its
existing and potential clients in a more consultative and partnership based
relationship, thereby reducing client
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turnover and downward pressure on profit margins. Prior to the implementation of
the new structure, management had determined that the adjustment period needed
would be approximately three to six months and it anticipated a downturn in
growth during this phase. As of July of 1999, all such changes were successfully
implemented by the Company.
In addition to creating an environment positioned for internal growth, the
new structure allows for easier integration of acquired companies (see
"Integration of Acquired Companies"). The Company is now able to refocus on
revenue generation and growth and anticipates an expedited return to its planned
growth schedule for the coming fiscal year.
Completed Acquisitions
Virtual Enterprise, Inc. Effective April 1, 1999, the Company
acquired 100% of the equity interest of Virtual Enterprise, Inc., an
Internet development company whose on-line wedding portal,
virtualbride.com, is being positioned by the Company for a national
rollout.
Elevation Strategic Partners, Inc. Effective March 31, 1999, the
Company acquired 100% of the equity interest in Elevation Strategic
Partners, Inc., an Internet incubator and business development solutions
provider.
Temporary Help Connection. Effective November 15, 1998, Elite
acquired a 100% interest in Temporary Help Connection, a light industrial
temporary staffing agency located in Detroit, Michigan. Since the
acquisition, Elite discovered what it believes to be improprieties in the
corporate books and records submitted to Elite, as well as other alleged
improprieties, and elected to reverse the transaction according to the
terms and conditions of the Purchase Agreement by and between Temporary
Help Connection (Mr. Randy Troxtel) and Elite. Mr. Troxtel has brought a
claim against Elite disputing the reversal. Elite has filed a
counterclaim against Mr. Troxtel alleging the above-stated improprieties
(see "Legal Proceedings").
Scanlan Music, Inc. Effective November 9, 1998, the Company acquired
a 100% ownership of the stock of Scanlan Music Inc. ("Scanlan") from Scott
Schuster.
INTEGRATION OF ACQUIRED COMPANIES
Elite is pursuing its yearly growth targets through internal growth and
acquisitions. To date, the acquisitions completed by the Company have been
strategic in nature, whereby human resources and Internet concepts have been
assimilated into the Company's divisions. The companies acquired to date were
not large revenue centers, but have provided a foundation on which the Company
intends to build its structure. Future acquisitions will focus primarily on
revenue generation, targeting candidates with a growing and predictable revenue
stream. In that light, management has developed an "Acquisition Integration and
Assimilation Protocol" ("AIAP"), a comprehensive standard operating procedures
manual and software program to allow for efficient growth.
Management believes that the market offers abundant acquisition candidates
in each of the three areas of interest to the Company. The acquired companies
will operate with the standardized sales and marketing procedures of Elite, with
senior level personnel heading an individual task force for each operations
function. In most cases, acquisitions are merged into one of the Company's three
divisions. The Company has signed letters of intent to acquire three additional
companies, representing $17 million in revenues subsequent to fiscal year end
1999. Management expects to close these acquisitions in second quarter, fiscal
year 2000.
Management is aware that additional funding will be required to complete
its acquisition plans and that such additional funding may result in dilution of
the Company's stock. While management believes it will obtain the first portion
of funds required to complete its acquisition plans in the second quarter of
fiscal year 2000, no assurances can be made that additional funding will be
available on terms acceptable to the Company.
SALES AND MARKETING
The sales and marketing strategy of the Company begins with a consultative
approach to the target market, whereby partnership relationships are preferred
over vendor relationships. Elite sales representatives and those of our software
partners are encouraged to sell the services of each division of the Company.
Sales
Elite's sales force consists of division vice presidents, regional
account executives, inside sales / lead generators, project
managers, presales technical support and executive level management
to help assist with
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the sale of services and solutions. The inside sales team identifies
and qualifies target business opportunities and begins uncovering
the customer requirements. Senior level account executives are then
introduced into the account to begin the sales cycle. Senior level
presales / technical support members are introduced to the customer
to evaluate and gather a critical site analysis, which involves the
customer's key decision makers, in order to present an accurate and
tailored solution. In many presales engagements, the client pays for
a site analysis in order to develop the customer's requirements for
the stated project, and to present an accurate and detailed
proposal. Large project proposals typically involve divisional vice
presidents, project managers and other technical professionals.
Elite's sales force is responsible for creating referencable
accounts and high level customer satisfaction. The sales team is
also given the task of uncovering additional sales opportunities
within their assigned accounts. Elite's account executives are
assigned quarterly revenue quotas, and are paid commissions based on
the percentage level of attained quota. Project plans and
implementation costs are prepared by the project managers and the
account executive. All project pricing is approved by the divisional
vice president, whose performance and compensation is based solely
on the division's total generated revenue.
Marketing
Elite strategically markets its products and services through its
executive staff and premier business partners. Elite relies upon the
guidance and input of Elite clients, senior level technical staff
members, marketing and sales personnel and numerous executive
contacts throughout the industry to optimize its marketing efforts
through partner / executive planning sessions. Senior technical
staff members meet quarterly to develop a strategic approach for new
business opportunities with market leading technologies.
Elite models its marketing strategy to be consistent with that of
its strategic partners and enterprise level customers. Elite
promotes its corporate image through the use of customer
testimonials and partner alliances.
COMPETITION
The information technology services industry is highly competitive with
limited barriers to entry and rapid change. The industry is served by many
national, regional and local companies, including full service agencies and
specialized temporary services agencies. Elite's primary competitors include a
variety of market segments, including:
o "Big Five" accounting firms;
o medium to large sized systems consulting and implementation firms;
and
o medium to large sized management consulting firms.
Many of Elite's competitors have significantly greater financial,
technical and marketing resources and greater name recognition. In addition,
Elite competes with its clients' internal resources, particularly where such
resources represent a fixed cost to the client. Such competition may impose
additional pricing pressures. Elite expects that the level of competition will
remain high in the future.
IT technical resources (staff) are difficult to find. Increased
competition due to lack of available talent in the marketplace is expected to
continue. Management intends to circumvent its competition by providing (1)
better customer support, (2) thorough screening of potential employees, and (3)
by attracting skilled, experienced marketing and support staff. Management
believes that offering higher compensation rates, including stock options, a
better work environment and a lucrative reward structure for higher performance
will allow Elite to seek and retain quality employees, which in turn will give
Elite a potential market edge. However, no assurance can be given that quality
employees will be available or that the Company will be able to retain such
employees if hired.
Although competition in the IT industry is fierce, Management believes it
can obtain and retain a substantial market segment through both internal growth
and acquisition.
INTELLECTUAL PROPERTY RIGHTS
Elite's success in the information technology services business depends
upon its software deployment and methodology and other proprietary intellectual
property rights. Elite does not hold any patents or registered copyrights.
Instead, Elite relies on a combination of trade secret, nondisclosure and other
contractual arrangements and technical measures, and
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copyright and trademark laws, to protect its proprietary rights. Elite generally
enters into confidentiality agreements with its employees, consultants, clients
and potential clients and limits access to and distribution of its proprietary
information.
Elite's businesses include the development of custom software applications
in connection with specific client engagements. Ownership of such software is
typically assigned to the client. In addition, Elite develops object-oriented
software components that can be reused in software application development and
certain foundation and application software products, or software "tools." Most
of the object-oriented software developed by Elite remains Elite's property.
Although Elite believes that its services and products do not infringe on
the intellectual property rights of others, other parties may nevertheless make
infringement claims against the Company in the future.
GOVERNMENT REGULATION
As of May 31, 1999, approximately 10% of Elite's workforce were
information technology consultants who are foreign nationals working in the
United States under H-1B permits. That percentage is expected to rise in the
coming months and years. Accordingly, Elite must comply with United States
immigration laws. Due to the limited number of H-1B permits approved each year,
Elite may not be able to recruit or retain enough information technology
professionals to meet its personnel requirements. Furthermore, Congress and
administrative agencies with jurisdiction over immigration matters periodically
express concerns over the levels of legal and illegal immigration into the U.S.
These concerns often result in proposed legislation, rules and regulations aimed
at reducing the number of work permits that may be issued. Any reduction in the
number of work permits that may be issued or change in immigration laws which
impede the hiring or retention of foreign nationals could cause Elite to incur
additional unexpected labor costs and expenses.
RESEARCH AND DEVELOPMENT
Elite has developed custom software products which it uses in its day to
day operations. The cost of development of these products is limited to salary
expense for the employees used to developed the software.
EMPLOYEES
As of May 31, 1999, Elite employed approximately 40 full-time employees
and consultants. Elite is not a party to any collective bargaining agreements
and considers its relationships with its employees to be satisfactory.
EXECUTIVE OFFICERS
The following table provides a summary of the Company's executive officers
as of May 31, 1999:
- --------------------------------------------------------------------------------
Name Age Position Held
- --------------------------------------------------------------------------------
Scott Schuster 35 Chairman of the Board and CEO
- --------------------------------------------------------------------------------
David Aksoy 35 Senior Vice President and CFO
- --------------------------------------------------------------------------------
Lee Davis 32 Senior Vice President of Acquisitions
- --------------------------------------------------------------------------------
Jason Kiszonak 27 Senior Vice President of Public Relations
- --------------------------------------------------------------------------------
Scott A. Schuster, age 35, has served as Chairman of the Board, Chief
Executive Officer and President of Elite since its formation. Prior to the
formation of the Company, Mr. Schuster ran an IT consulting practice and music
production facility. Mr. Schuster has over 12 years experience in the IT
industry. He has worked on, or designed IT solutions for the United States
Postal Service, Delta Airlines, the Southern Company (for the Atlanta Olympic
Games of 1996), and many other Fortune 500 companies. He has been featured on
CBS, NBC, ABC, Success Magazine, POV, The New York Post, and many other
publications.
David Aksoy, M.D., age 35, has served as Senior Vice President and Chief
Financial Officer of Elite since 1998. Dr. Aksoy also retains his physician's
office where he serves as a general practitioner.
Lee Davis, age 32, has served as Senior Vice President of Acquisitions
since he joined the Company in March of 1999 through the acquisition of
Elevation Strategic Partners. Prior to joining Elite, Mr. Davis owned a golf
course design and management firm.
Jason Kiszonak, age 27, has served as Senior Vice President of Public
Relations since he joined the Company in March of 1999 through the acquisition
of Elevation Strategic Partners. Prior to joining Elite, Mr. Kiszonak worked as
a
8
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television programming consultant in the US and abroad. Mr. Kiszonak is a
graduate of Georgia Tech with a degree in marketing.
RISK FACTORS
The Company's business operations and financial results are subject to
various uncertainties and future developments that cannot be predicted. The
principal risks and uncertainties are identified below.
Changes in Quarterly Operating Results
The Company has experienced fluctuations in its quarterly results.
Revenues and gross margins in a particular quarter will vary depending upon a
number of factors, including:
o general economic conditions;
o the number and requirements of client engagements;
o employee hiring, utilization and turnover rates;
o changes in billing rates;
o the amount of billing days, consultant vacation days and paid time off;
and
o the number, terms and size of acquisitions, if any, during a period.
Demand for services in the IT services industry fluctuates quarterly. In
addition, Year 2000 issues have slowed spending for non-Y2K IT programs. Many
companies has decided to wait until after the new year before addressing new
projects.
Volatility of Stock Price
The Company's stock price has been volatile. Future revenues, earnings and
stock prices may be subject to wide swings due to variations in operating and
financial results, anticipated revenue and/or earnings growth rates, competitive
pressures, market place conditions and other factors. The Company's stock price
is predominantly based on current expectations of sustainable future revenue and
earnings growth rates. Any failure to meet anticipated revenue and earnings
levels in a period or any negative change in the Company's perceived long-term
growth prospects would likely have a significant adverse effect on the Company's
stock price.
Termination of Client Contracts
Fees from project-based contracts are a fundamental component of the Elite
Integration division revenues. If client information technology requirements or
budgets were to decrease or their initiatives delayed and/or if such clients
were to seek alternatives to relying upon the Company's current service
offerings, the Company's revenues would be adversely impacted. Many of the
Company's engagements are terminable without client penalty. An unanticipated
termination of a major project could result in an increase in underutilized
employees and a decrease in revenues and profits.
Inability of Company to Retain Qualified Information Technology Consultants
The Company's continued success will depend in large part on its ability
to attract, retain and motivate highly-skilled employees, particularly project
managers and other senior technical personnel. Qualified IT professionals are in
high demand and are likely to remain in demand.
Liability for Employee and Client Actions
The Company may incur liability through its placement of consultants in
client workplaces. Potential liability includes:
o errors and omissions;
o misuse of client proprietary information;
o misappropriation of funds;
o discrimination and harassment;
o theft of client property; or
o other criminal activity.
9
<PAGE>
Although the Company has not experienced any such material claims, it
cannot be certain that it will not experience such claims in the future. To
reduce its exposure, the Company maintains insurance covering general liability
and errors and omissions. However, insurance may not cover all such claims, and
insurance coverage may not continue to be available in an amount adequate to
cover the above liabilities.
Dependence on a Successful Acquisition Strategy
In the past year, the Company has grown through acquisitions. Management
expects the future growth of the Company may be based in part on further
acquisitions. Competition for acquisition candidates may result in fewer
potential acquisitions, as well as less advantageous acquisition terms,
including, but not limited to, less advantageous price terms.
Maintenance of Rapid Growth
The Company cannot guarantee that it will be able to continue to expand and
successfully manage its growth. The Company's ability to continue to grow will
depend on a number of factors, including the following:
o competition;
o availability of capital;
o ability to maintain margins;
o ability to recruit and train additional qualified personnel; and
o management of costs in a changing technological environment.
Year 2000 Compliance
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
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.
ITEM 2. PROPERTIES
The Company occupies approximately 11,000 square feet of "Class `A'"
office space in Duluth, Georgia under a renewable seven year lease. The current
lease is scheduled for renewal in February, 2005.
ITEM 3. LEGAL PROCEEDINGS
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<PAGE>
The Company is currently involved in litigation arising from the
reversal of its acquisition of Temporary Help Connection ("THC") and has
asserted claims against THC's former owner for, among other things, fraud and
breach of contract. Elite anticipates that THC's former owner will return all
stock issued as part of this transaction, as required by Elite's exercise of its
contractual right to reverse this transaction. THC claims in its complaint that
although Mr. Troxtel, the then President and sole owner of THC, signed the
Agreement conveying his interest in THC to Elite, he signed on behalf of the
corporation, and not personally, therefore he did not properly execute the
Agreement. Management believes the Company will prevail in its counterclaim, in
which Elite has asserted that Mr. Troxtel falsified financial information,
withheld critical information regarding undisclosed liabilities not accounted
for in the submitted financials, usurped funds from the Company for personal
use, and breached the purchase agreement. Both parties claims are unliquidated.
The Company is currently the defendant in an ongoing litigation with
Phoenix International, former owners of ITC, which later merged with Elite.
Phoenix has filed suit for payment on a $290,000 note, plus fees and interest.
The Company has filed a cross-claim against Phoenix asserting that Phoenix
improperly used Company funds, misdirecting Company funds from payables,
including tax obligations, to the personal use of Phoenix executives. The
Company is claiming the entire $290,000 amount of the note be set-off, in
damages, plus fees and interest.
The Company is, from time to time, a party to routine litigation
incidental to operating a business, including claims of discrimination, wrongful
termination, and other similar claims.
In the opinion of management, the ultimate resolution of all pending legal
proceedings will not have a material adverse effect on the Company's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Elite's Common Stock is traded on the OTC Bulletin Board Market under the
symbol "ETCH" (OTC: BB ETCH). (Formerly, under the name CONCAP, Inc., the
Company's securities traded under the symbol "CNCG" on the OTC Bulletin Board
Market until May, 1999). The Company's stock was not traded actively until the
Second quarter of the fiscal year ended May 31, 1999. As a result, price
information available for the fiscal year ended May 31, 1998 is only available
from the third quarter, is incomplete for the periods for which it is provided
and may not reflect all transactions effected in Elite stock during such period.
The following table sets forth the range of the low and high closing
prices of the Common Stock as reported on the OTC Bulletin Board Market for the
last two fiscal years.
FISCAL YEAR ENDING MAY 31, 1999
- --------------------------------------------------------------------------------
Quarter Low High
- --------------------------------------------------------------------------------
First Quarter $1 $5.937
- --------------------------------------------------------------------------------
Second Quarter $3 $5.937
- --------------------------------------------------------------------------------
Third Quarter $6 $10.25
- --------------------------------------------------------------------------------
Fourth Quarter $4.75 $10
- --------------------------------------------------------------------------------
FISCAL YEAR ENDING MAY 31, 1998
- --------------------------------------------------------------------------------
Quarter Low High
- --------------------------------------------------------------------------------
First Quarter N/A N/A
- --------------------------------------------------------------------------------
Second Quarter N/A N/A
- --------------------------------------------------------------------------------
Third Quarter* $.016 $.125
- --------------------------------------------------------------------------------
Fourth Quarter* $.016 $.125
- --------------------------------------------------------------------------------
* Price information is not available for the full period.
11
<PAGE>
There were 465 holders of record of Common Stock as of September 8, 1999.
The Company has not paid any cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. The decision to pay dividends
will be made at the discretion of the Board of Directors of the Company and will
depend upon the Company's operating results and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial data presented below were
derived from the Company's consolidated financial statements, which as of and
for the years ended May 31, 1999 and 1998 were audited by KPMG LLP and as of and
for the year ended May 31, 1997 were audited by Leon P. Wilde, CPA.
The selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the consolidated financial statements, the related notes, and the
independent auditors' report for the years ended May 31, 1999 and 1998, which
contains an explanatory paragraph that states the Company's recurring losses
from operations and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern, appearing elsewhere in this
Form 10-K. The consolidated financial statements and the selected data do not
include any adjustments that might result from the outcome of that uncertainty.
Years Ended May 31, 1999, 1998 and 1997
Statement of Operations Data
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue From Services(1) $1,937,317 $1,516,088 $238,107
- --------------------------------------------------------------------------------
Salaries, Wages and Benefits $2,136,613 $1,190,609 $221,609
- --------------------------------------------------------------------------------
Other Operating Expenses $1,654,167 $681,335 $111,623
- --------------------------------------------------------------------------------
Depreciation and Ammor. $116,846 $27,562 $9,895
- --------------------------------------------------------------------------------
Stock Based Compensation $827,431 $0 $0
- --------------------------------------------------------------------------------
Operating Loss $(2,797,740) $(383,418) $(105,020)
- --------------------------------------------------------------------------------
Other Expenses, Net $90,624 $54,704 $5,452
- --------------------------------------------------------------------------------
Loss Before Income Taxes $(2,888,364) $(438,122) $(110,472)
- --------------------------------------------------------------------------------
Income Taxes $0 $0 $0
- --------------------------------------------------------------------------------
Net Loss Per Share
Common Stock: Basic and Diluted(2) $(0.26) $(0.04) $(0.01)
- --------------------------------------------------------------------------------
Number of Shares Used in Computing
Diluted Earnings per Share 11,150,355 10,619,170 10,619,170
- --------------------------------------------------------------------------------
BALANCE SHEET DATA: May 31, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Total Assets $2,331,198 $474,348
- --------------------------------------------------------------------------------
Total Liabilities $1,771,581 $886,942
- --------------------------------------------------------------------------------
Stockholders' Equity (Deficit) $559,617 $(412,594)
- --------------------------------------------------------------------------------
(1) Revenues shown include only revenue since date of acquisition of the
subsidiaries, and do not reflect any revenue related to Temporary Help
Connection which were accounted for on previous filings by the Company
because of the rescission of the acquisition. (See "Legal Proceedings;"
Note 3(a) to "Notes to Consolidated Financial Statements.")
(2) Since inception, the Company has not declared or paid any cash dividends
on its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Company's Consolidated Financial Statements included
elsewhere herein.
INTRODUCTION
From its inception in June of 1988 as CONCAP, a Texas corporation, until
July, 1998, the Company existed primarily as a development stage company created
to seek, investigate, and if warranted, acquire domestic and foreign business
12
<PAGE>
opportunities. The Company intended to seek long-term growth potential as
opposed to short-term earnings. In July of 1998, CONCAP acquired ITC. Following
the transaction, former ITC shareholders held 72 percent of the shares of
CONCAP. Subsequently, ITC merged with Elite Technologies, Inc., a Delaware
corporation distinct from the Company. CONCAP changed its name to Elite
Technologies, Inc. on April 22, 1999. All subsidiaries and holding companies
were then merged into Elite, the Texas corporation.
Through May 31, 1999, the Company completed four acquisitions in the IT
and retail sectors, though the Company later reversed the acquisition of THC.
The reversal is being contested by the owner of THC. (See "Legal Proceedings.")
All acquisitions have been accounted for as purchases in this filing and are
reflected as such on the Consolidated Financial Statements. This does not take
into account the year to date financial information of these acquisitions, but
only provides for results of operations since the date of acquisition of the
individual companies.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1999 COMPARED WITH YEAR ENDED MAY 31, 1998
Revenues. Revenues from operations for 1999 increased 27.78% from 1998.
The increase in revenues related to (i) the internal growth of the business and
(ii) inclusion of the operating results from the date of acquisition of the
three businesses acquired in 1998 and 1999.
The Company signed with Coleman and Company Securities as its investment
banker in April, 1999. Accordingly, most operations were reduced or halted at
Elite to allow the Company to restructure its divisional presence, corporate
identity, marketing, and internal organization. This caused a dramatic reduction
in the growth rate and an increase in corporate expenditures to complete the
restructure. Management plans to maximize the new Company's new structure and
growth through the acquisition of profitable companies. Management expects that
the Company will begin to expand its revenue base significantly in the next
fiscal year.
Management expects to complete additional acquisitions in fiscal year
2000, which will increase revenue to over $15,000,000. However, there is no
assurance that the contemplated acquisitions will be consummated or, if
consummated, will increase revenue as estimated.
Subsequent to the end of fiscal year 1999, the Company has signed letters
of intent for acquisition with three additional companies, which collectively
potentially represent $17,000,000 in annual revenue for Elite. Two of the
acquisitions are expected to be completed in a stock for stock basis, the third
will be for stock and cash. Management expects to complete these acquisitions
and close on the necessary financing in the second quarter of fiscal year 2000.
Salaries, Wages and Benefits. Salaries, Wages and Benefits increased
79.46% from 1998. The increase is due to (i) increases in cost of employees,
insurance and benefit programs, (ii) continued investment in internal
infrastructure employees supporting operations of the Company, (iii) increased
management roles as a result of the acquisitions, and (iv) higher costs to
support growth.
With increased product lines, additional salaries are incurred while
expanding divisional based selling, including retention of technical staff
internally for R&D, as well as expanding resources for available project sales.
Management expects the return on salary and benefit expenditures in fiscal
year 2000 to exceed the investment made in fiscal year 1999, although there is
no assurance that it will do so.
Other Operating Expenses. Other Operating Expenses grew by 142.78% to
$1,654,167, attributed to increased costs of legal, accounting, leases of
equipment and property, advertising and other necessary expenditures. Management
expects to recoup the majority of this expenditure in fiscal year 2000 as the
acquired companies continue their operations and growth. The increase in other
operating expenses was the result of one-time expenses incurred in connection
with the restructuring of the Company and the implementation of new
infrastructure to complement the restructuring. As a result, management believes
the rate of increase in other operating expenses will be reduced in fiscal year
2000.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization increased by 323.94% over 1998. This is attributed to the
amortization of goodwill recorded in connection with the acquisitions completed
in 1999.
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<PAGE>
Stock Based Compensation. Elite recorded $827,431 worth of stock based
compensation during the fiscal year 1999 in connection with options granted to
certain officers of the Company. Management expects to continue with a stock
based compensation bonus plan to attract and retain new talent for the Company.
Operating Loss. Operating losses increased from $438,122 to $2,888,364,
representing a 559.26% increase in the loss due to increased levels of salary
and increased operating expenses as result of the completion of those
acquisitions, as well as the investment of the restructure of the company into
three "branded" divisions.
Other Expenses Net. Other Expenses net increased 65.66% to $90,624 in 1999
from $54,704 in 1998.
Loss Before Income Taxes (Net Loss). Net Loss increased 559.26% due to
reasons mentioned above.
YEAR ENDED MAY 31, 1998 COMPARED WITH YEAR ENDED MAY 31, 1997
Revenues. Revenues from continuing operations for 1998 increased 536.73%
from 1997. The increase in revenues and gross profit related to the internal
growth of the business resulting from the investment in sales and marketing
staff.
Salaries, Wages and Benefits. Salaries, Wages and Benefits increased
437.26% from 1997. This is due to (i) increases in cost of employees, insurance
and benefit programs, (ii) continued investment in internal infrastructure
employees supporting operations of the Company and (iii) higher costs to support
growth.
Other Operating Expenses. Other Operating Expenses grew by 510.39% to
$681,335, attributed to increased costs of legal, accounting, leases of
equipment and property, advertising and other necessary expenditures.
Depreciation and Amortization. Elite depreciates its assets on a
straight-line basis over three to five years. Depreciation and amortization
increased by 178.54% over 1997. The increase is attributed to the acquisition of
additional equipment deemed necessary to support the Company's internal growth.
Operating Loss. Operating losses increased from $110,472 to $438,122,
representing a 296.59% increase. The expanded levels of employees, salary
levels, equipment and corporate infrastructure contributed to the increase.
Other Expenses Net. Other Expenses net increased 903.34% to $54,704 in
1998 from $5,452 in 1997. This increase was a result of the rapid internal
growth of the Company and the expenditures needed to support it.
Loss Before Income Taxes (Net Loss). Net Loss increased 296.59% due to
expenditures in growth, salaries and benefits, increased operating expenses and
costs associated with positioning the Company for possible acquisitions or a
public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to the
acquisition of businesses, working capital needs and capital expenditures for
growth. These requirements have been met through a combination of private
placements and internally generated funds. Although the Company incurred direct
costs for acquisitions, the Company completed these acquisitions in stock for
stock transactions.
The report of KPMG LLP on the financial statements of Elite as of and for
the years ended May 31, 1999 and 1998, contained an explanatory paragraph
referring to an uncertainty as to the Company's ability to continue as a going
concern. The Company currently lacks the working capital required to continue as
a going concern and to achieve its acquisition program and internal growth
objectives. Management expects to enter into agreements for debt or equity
funding in second quarter, fiscal year 2000 in order to meet the needs of the
Company's internal growth and acquisition program. Management believes that such
agreements for debt or equity funding will be sufficient to enable the Company
to continue operating as a going concern. However, there is no assurance that
agreement for such additional funding will be consummated.
14
<PAGE>
The Company's operating cash flows and working capital requirements are
significantly affected by the timing of payroll and the receipt of payment from
the customer. Generally, the Company pays its consultants weekly and receives
payments from its receivables factor on average within 60 to 90 days from the
date of invoice. Management has questioned the timeliness of receipt of funds
from its factoring company, and has decided that upon receipt of the expected
funding as discussed above, they will terminate the Company's relationship with
its factoring company by repurchasing the Company's accounts receivables, and
begin direct billing the Company's clientele. Management believes that this, in
combination with its acquisition and growth strategy, will result in the needed
level of liquidity and capital resources necessary for the expansion of Elite's
business.
Prior to May 31, 1999 the Company completed a private placement of
securities for a total of $852,500, net of issuance costs. Additional placements
and the exercising of warrants available to private placement investors were
completed subsequent to year-end.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement will be effective for the Company beginning June 15,
2000. The new Statement requires all derivatives to be recorded on the balance
sheet at fair value and establishes accounting treatment for three types of
hedges: hedges of the variable cash flows of forecasted transactions; and hedges
of foreign currency exposures of net investments in foreign operations. The
Company has not invested in derivative instruments nor participated in hedging
activities and therefore does not anticipate there will be a material impact on
the results of operations or financial position from Statement No. 133.
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP No.
97-2, Software Revenue Recognition, with Respect to Certain Transactions. This
SOP amends SOP No. 97-2 to, among other matters, require recognition of revenue
using the "residual method" in circumstances outlined in the SOP. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP No. 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related to
the delivered elements. SOP No. 98-9 is effective for fiscal years beginning
after March 15, 1999. Management does not believe that the adoption of SOP No.
98-9 will have a material effect on the Company's revenue recognition.
ITEM 7a. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes its
exposure to interest rate risk and other relevant market risk is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Management filed a Current Report on Form 8-K on August 17, 1999, as
amended, which describes a change in the Company's accountants. On July 15,
1999, the Company dismissed its independent accountant, Rachlin Cohen & Holtz
LLP, and engaged a new independent accountant, KPMG LLP, to audit the financial
statements for the fiscal year ended May 31, 1999. The decision to change
accountants was approved by the Company's board of directors. No disagreement
with the former accountants precipitated this action.
PART III
Items 10 (except for Executive Officers which is included in Part I of
this Annual Report), 11, 12 and 13 of Part III will be filed by amendment within
120 days of the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
15
<PAGE>
1. Financial Statements
See the Index to Financial Statements on page F-1 of this Annual
Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
included in the consolidated financial statements or are
inapplicable, and therefore have been omitted.
16
<PAGE>
3. Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
2.1 Agreement dated June 24, 1998 by and among CONCAP, Inc. and
Intuitive Technology Consultants, Inc.(1)
2.2 Purchase Agreement dated November 15, 1998, by and among CONCAP,
Inc. and Troxtel Holding Company d/b/a Temporary Help Connection(2)
2.3 Purchase Agreement dated March 31, 1999 by and between CONCAP, Inc.
and Elevation Strategic Partners, Inc.(3)
2.4 Agreement dated November 5, 1998 by and between Scott Schuster and
Scanlan Music, Inc.(4)
2.5 Assignment Agreement dated November 9, 1998 by and between Scott
Schuster and CONCAP, Inc.(4)
2.6 Agreement dated April 1, 1999 by and between CONCAP, Inc. and
Virtual Enterprise, Inc.(4)
3* Amendment to Articles of Incorporation of CONCAP, Inc., dated April
22, 1999
10.1 Employment Agreement dated July 15, 1998 by and between CONCAP, Inc.
and Scott Schuster(4)
10.2 Employment Agreement dated March 15, 1999 by and between CONCAP,
Inc. and Jason Kiszonak(4)
21* Subsidiaries of Registrant
23 Power of Attorney(5)
27* Financial Data Schedule
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 27, 1999
regarding the April 12, 1999 unwinding of the acquisition of Troxtel
Holding Company.
- ----------
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated July 8, 1998
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 15, 1998
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated April 16, 1999
(4) To be filed by amendment.
(5) Included on the signature page of this Annual Report.
* Filed with this Annual Report.
17
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
May 31, 1999, 1998, and 1997
With Independent Auditors' Report Thereon
Report of Independent Auditors - KPMG F-2
Report of Independent Auditors - Leon P. Wilde F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Elite Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Elite
Technologies, Inc. and subsidiaries (the "Company") as of May 31, 1999 and 1998
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the two-year period ended May
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The accompanying
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended May 31, 1997 were audited by other auditors whose report thereon
dated October 2, 1997, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elite Technologies,
Inc. and subsidiaries as of May 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended May 31, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described in
note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Atlanta, Georgia
August 25, 1999
F-2
<PAGE>
LEON P. WILDE, CPA, INC.
3452 W. Boynton Beach Blvd., St. 10 Telephone # (561) 732-8822
Boynton Beach, FL 33436 Fax # (561) 732-5328
Independent Auditors' Report
The Board of Directors and Stockholders
Intuitive Technology Consultants, Inc.
We have audited the accompanying statements of operations and stockholders'
equity (deficit), and cash flows of Intuitive Technology Consultants, Inc. for
the year ended May 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and the cash flows of Intuitive
Technology Consultants, Inc. for the year ended May 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Leon P. Wilde
----------------------------------------
Leon P. Wilde, CPA
Lake Worth, Florida
October 2, 1997
F-3
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Accounts receivable, less allowances for doubtful
accounts of $26,000 and $13,000 at May 31,
1999 and 1998, respectively $ 285,309 279,334
Notes receivable from officers 215,583 84,999
Other current assets 53,619 --
----------- -----------
Total current assets 554,511 364,333
----------- -----------
Property and equipment, net 66,304 88,047
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $87,181 and $0 at
May 31, 1999 and 1998, respectively 1,688,415 --
Other assets 21,968 21,968
=========== ===========
$ 2,331,198 474,348
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 245,811 50,484
Cash overdrafts 210,713 19,858
Accrued expenses 33,942 --
Federal payroll taxes payable 629,415 442,573
State payroll taxes payable 251,177 89,810
Payable to factoring company 177,124 220,558
Related party advances -- 22,073
Current installments of notes payable 88,504 --
----------- -----------
Total current liabilities 1,636,686 845,356
Long-term liabilities:
Notes payable, excluding current installments 37,399 --
Deferred rent expense 97,496 41,586
Total liabilities 1,771,581 886,942
Stockholders' equity (deficit):
Common stock, $.0001 par value; 500,000,000 shares
authorized; 12,571,670 and 10,619,170 shares issued and
outstanding at May 31, 1999 and 1998, respectively 1,257 1,062
Additional paid-in capital 3,995,318 134,938
Accumulated deficit (3,436,958) (548,594)
----------- -----------
Commitments and contingencies (notes 6 and 10) 559,617 (412,594)
----------- -----------
$ 2,331,198 474,348
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended May 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 1,937,317 1,516,088 238,107
Salaries, wages and benefits 2,136,613 1,190,609 221,609
Stock-based compensation 827,431 -- --
Depreciation and amortization 116,846 27,562 9,895
Other operating expenses 1,654,167 681,335 111,623
------------ ------------ ------------
Operating loss (2,797,740) (383,418) (105,020)
Other expense, net 90,624 54,704 5,452
------------ ------------ ------------
Loss before income taxes (2,888,364) (438,122) (110,472)
Income taxes -- -- --
============ ============ ============
Net loss $ (2,888,364) (438,122) (110,472)
============ ============ ============
Net loss per share of common stock:
Basic and Diluted $ (0.26) (0.04) (0.01)
============ ============ ============
Weighted average number of common shares
used in calculating net loss per share of
common stock
Basic and Diluted 11,150,355 10,619,170 10,619,170
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended May 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders
------------------------- Paid-in Accumulated equity
Shares Amount Capital deficit (deficit)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1996 -- -- -- -- --
Incorporation of the Company 10,619,170 $ 1,062 134,938 -- 136,000
Net loss -- -- -- (110,472) (110,472)
---------- ---------- ---------- ---------- ----------
Balance at May 31, 1997 10,619,170 1,062 134,938 (110,472) 25,528
Net loss -- -- -- (438,122) (438,122)
---------- ---------- ---------- ---------- ----------
Balance at May 31, 1998 10,619,170 1,062 134,938 (548,594) (412,594)
Issuance of common stock in acquisitions 850,000 85 1,649,915 -- 1,650,000
Stock option compensation expense -- -- 827,431 -- 827,431
Issuance of common stock in private placements, net
of issuance costs of approximately 50,000 shares
to investment banker and $352,000 1,102,500 110 852,390 -- 852,500
Accrued expense relating to commitment to issue common
stock for investment banking services -- -- 126,667 -- 126,667
Contributed capital from THC -- -- 289,277 -- 289,277
Other capital contributions -- -- 114,700 -- 114,700
Net loss -- -- -- (2,888,364) (2,888,364)
---------- ---------- ---------- ---------- ----------
Balance at May 31, 1999 12,571,670 $ 1,257 3,995,318 (3,436,958) 559,617
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
=========== =========== ===========
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,888,364) (438,122) (110,472)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 116,846 27,562 9,895
Stock-based compensation 827,431 -- --
Commitment to issue stock for investment
banking services 126,667 -- --
Decrease (increase) in:
Accounts receivable (5,975) (247,359) (31,975)
Unbilled revenue -- 66,562 (66,562)
Other assets (38,312) (20,480) (1,488)
Increase (decrease) in:
Accounts payable 195,327 44,141 6,343
Federal payroll taxes payable 186,842 381,945 60,628
State payroll taxes payable 161,367 89,810 --
Deferred rent expense 55,910 41,586 --
Accrued expenses and other current
liabilities 33,942 (5,452) 5,452
----------- ----------- -----------
Net cash used in operating activities (1,228,319) (59,807) (128,179)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (7,922) (17,552) (107,952)
Acquisition of businesses (15,000) -- --
Notes receivable issued to officers (130,584) (70,602) (14,397)
----------- ----------- -----------
Net cash used in investing activities (153,506) (88,154) (122,349)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 852,500 -- 136,000
(Payments to) advances from factoring company, net (43,434) 220,558 --
(Payment of) proceeds from notes -- (101,250) 101,250
Other capital contributions 114,700 -- --
Contributed capital from THC 289,277 -- --
Increase in cash overdraft 190,855 19,858
(Decrease) increase in related party advances (22,073) 2,100 19,973
----------- ----------- -----------
Net cash provided by financing
activities 1,381,825 141,266 257,223
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents -- (6,695) 6,695
Cash and cash equivalents at beginning of year -- 6,695 --
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- -- 6,695
=========== =========== ===========
Supplemental disclosure of cash flow information -
cash paid during the year for:
Interest $ 34,669 9,280 --
=========== =========== ===========
Income taxes $ -- -- --
=========== =========== ===========
Acquisitions of businesses:
Fair value of assets acquired, including
goodwill $ 1,790,903 -- --
Fair value of liabilities assumed (90,903) -- --
Promissory note issued (35,000) -- --
Fair value of common stock issued (1,650,000) -- --
----------- ----------- -----------
Net cash paid for acquisitions $ 15,000 -- --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Description of Business
Elite Technologies, Inc. (the "Company") is composed of three
operating divisions. The integration division offers outsourcing
services to companies seeking software development and integration
on a contract basis. The internet division offers web site
development and consulting services. The staffing division provides
temporary and permanent staffing services of information technology
("IT") personnel to companies across the United States. All revenues
are derived from customers located in the United States, and all
long-lived assets are located in the United States.
The Company has incurred cumulative losses of approximately
$3,400,000 since its inception and its cash flows from operations
are not adequate to pay current obligations as they become due.
Management has relied on private placement equity to partially fund
operations in the current year. The Company plans to raise
additional capital through additional equity offerings; however,
there is no assurance that additional capital can be raised. Due to
these circumstances, there is substantial doubt whether the Company
will have the ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
(b) Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Elite
Technologies, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance
sheet, income and expenses for the period, and disclosure of
contingent assets and liabilities. Actual results could differ from
those estimates.
Business combinations which have been accounted for under the
purchase method of accounting include the results of operations of
the acquired business from the date of acquisition. Net assets of
the companies acquired are recorded at their fair value at the date
of acquisition.
(c) Revenue Recognition
Revenue from the placement of temporary and permanent employees is
recognized upon the delivery of the service. Contract revenue from
software development and implementation is recognized under the
percentage of completion method. Web site development and consulting
services are generally performed on a time and materials basis and
are recognized as the services are performed.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-8
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
(e) Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line
method based upon estimated useful lives of three to five years.
(f) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill)
is being amortized using the straight-line method over five years.
The amortization period is based on, among other things, the nature
of the products and markets, the competitive position of the
acquired companies, and the adaptability to changing market
conditions of the acquired companies. At each balance sheet date,
the Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal
to the rate of return that would be required by the Company for a
similar investment with like risks. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options. As
such, compensation expense would generally be recorded on the date
of grant only if the current market price of the underlying stock
exceeds the exercise price.
(i) Fair Value of Financial Instruments
Based on their short maturities and interest rates estimated to be
available to the Company, management has determined that the
carrying values of all financial instruments approximate fair value
at May 31, 1999 and 1998.
(j) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair
(Continued)
F-9
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(k) Comprehensive Income
On June 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), Reporting
Comprehensive Income. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its
components in a full set of financial statements. The Company has no
"other comprehensive income" to report for the years ended May 31,
1999, 1998 and 1997.
(l) Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common
stockholders is based on the weighted-average number of common
shares outstanding. Diluted earnings (loss) per common share
available to common stockholders is based on the weighted-average
number of common shares outstanding and dilutive potential common
shares, such as dilutive stock options. Options to purchase
2,250,000 shares of common stock at May 31, 1999 were excluded from
the computation of diluted earnings per share because they were
antidilutive.
(m) Industry Segments
On June 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. Through May 31, 1999, the
Company has operated and has been managed as one segment since the
majority of its revenue has been from its staffing division.
Revenues and results of operations by division have historically not
been segregated within the Company's internal financial and
accounting systems.
(2) Formation of the Company
Intuitive Technology Consultants, Inc. ("ITC") was incorporated on August
9, 1996. On June 2, 1997, Phoenix International Industries, Inc.
("Phoenix") acquired 100% of the outstanding shares of ITC by issuing
1,500,000 shares of restricted common stock valued at $320,000. During the
period that ITC was owned by Phoenix, the former owner of ITC was an
employee and director of Phoenix. Effective June 1, 1998, Phoenix and the
former owner of ITC agreed to reverse the transaction. As a result of the
reversal, 100% of the common stock of ITC was returned to its former owner
in exchange for the return of the Phoenix common shares, a cash payment of
$60,000, and notes payable of $290,000 to Phoenix. The notes payable were
to reimburse Phoenix for intercompany amounts receivable from the Company.
Under provisions of the reversal, the notes payable have been reduced to
$-0- due to misrepresentations, breaches of contract and alleged
misappropriations of funds on the part of Phoenix. Phoenix is currently
disputing the reduction of the note payable, but Management, based in part
on advice from counsel, believes the Company will prevail. Purchase and
push-down accounting has not been applied to the acquisition of ITC by
Phoenix due to its ultimate reversal.
On July 8, 1998, ITC merged with CONCAP, Inc. ("CONCAP"), a public "shell"
company. Former ITC stockholders received 7,200,000 shares of CONCAP
common stock in exchange for all outstanding shares of ITC. The former
stockholders of ITC gained control of CONCAP in the merger; therefore, the
merger was accounted for as if ITC was the acquirer (see note 9(a)). On
April 30, 1999, the Company changed its name to Elite Technologies, Inc.
(Continued)
F-10
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
(3) Business Acquisitions
(a) Temporary Help Connection, Inc. ("THC")
Effective November 15, 1998, the Company acquired a one hundred
percent (100%) membership interest in Troxtel Holding Company, LLC
d/b/a/ Temporary Help Connection ("THC"), a Michigan company, in
exchange for 1,250,000 shares of the Company's common stock. In
addition, the Company agreed to provide to THC accounts receivable
financing of up to 75% for approved accounts. THC is engaged in the
business of light industrial temporary staffing.
Due to misrepresentations and breaches of provisions of the purchase
agreement on the part of THC, on April 12, 1999, the Company
"unwound" the acquisition of THC as provided for in the purchase
agreement. The Company is currently involved in litigation arising
out of this transaction and has asserted claims against THC's former
owner, for among other things, fraud and breach of contract. The
Company anticipates that THC's former owner will return all stock
issued as part of this transaction which is currently being held in
escrow, as required by the Company's exercise of its contractual
right to unwind the transaction.
Since the acquisition of THC was unwound, no assets, liabilities, or
results of operations of THC are included in the accompanying
consolidated financial statements. THC's cash receipts which were
remitted to ITC in excess of cash disbursements made by ITC on
behalf of THC during the period of THC's control by the Company have
been credited to additional paid-in capital.
(b) Scanlan Music, Inc. ("Scanlan")
Effective November 5, 1998, the Chairman of the Company acquired all
of the issued and outstanding shares of Scanlan, a retail seller of
musical instruments, in exchange for a promissory note of $35,000.
On November 9, 1998, the Chairman assigned all rights, titles and
inventory of Scanlan as well as the promissory note to the Company.
The acquisition was treated as being made by the Company using the
purchase method of accounting and, accordingly, the net assets
acquired have been recorded at their estimated fair market value at
the date of acquisition. The purchase price consisted of the
issuance of a promissory note of $35,000 which has been included in
current installments of notes payable at May 31, 1999 as it is
payable by May 31, 2000. The excess of cost over net assets acquired
("goodwill") is approximately $35,000, which is being amortized over
five years.
(c) Elevation Strategic Partners, Inc. ("Elevation")
Effective March 31, 1999, the Company acquired all of the issued and
outstanding shares of Elevation Strategic Partners, Inc., a Delaware
company, in exchange for 1,000,000 shares of the Company's common
stock. The Company delivered 750,000 shares on the date of the
transaction and will deliver the remaining 250,000 shares on the one
year anniversary date of the acquisition. The issuance of the
250,000 shares is not contingent upon future events or performance.
Elevation is engaged in the business of incubating and growing
technology and internet based companies. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the net assets acquired have been recorded at their
estimated fair market value at the date of acquisition. The purchase
price consisted of 1,000,000 shares of the Company's common stock
valued at $1.50 per share, approximately $15,000 of cash paid for
costs directly related to the acquisition and the assumption of debt
of approximately $50,000. The fair value of the Company's stock
issued in connection with the acquisition was based upon the price
of shares sold in private placements that
(Continued)
F-11
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
occurred around the time of the acquisition. Goodwill of
approximately $1,550,000 resulted from this transaction and is being
amortized over a period of five years.
(d) Virtual Enterprise, Inc. ("Virtual")
Effective April 1, 1999, the Company acquired all of the issued and
outstanding shares of Virtual, an internet portal that allows users
to plan a wedding with links to various vendors in the industry, in
exchange for 100,000 shares of the Company's common stock. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the net assets acquired have been
recorded at their estimated fair market value on the date of
acquisition. The purchase price consisted of 100,000 shares of the
Company's common stock valued at $1.50 per share and the assumption
of debt of approximately $41,000. The fair value of the Company's
stock issued in connection with the acquisition was based upon the
price of shares sold in private placements that occurred around the
time of the acquisition. Goodwill of approximately $190,000 resulted
from this transaction and is being amortized over a period of five
years. The debt assumed is payable in monthly installments,
including interest and principal, of approximately $860. At May 31,
1999, approximately $3,500 is included as current installments of
notes payable with the remaining $37,399 included as long-term notes
payable.
(e) Pro Forma Financial Information
The results of operations of the acquired companies have been
included in the Company's consolidated statements of operations
beginning on the following dates: Scanlan - November 5, 1998;
Elevation - March 31, 1999; Virtual - April 1, 1999.
The unaudited pro forma results of operations of the Company for the
years ended May 31, 1999 and 1998 as if the acquisitions described
above had been effected on June 1, 1998 and 1997, respectively, are
summarized as follows:
Years ended May 31,
-------------------------
1999 1998
------------ ----------
Revenues $ 2,130,560 1,866,984
============ ==========
Net loss applicable to common
shareholders $ (3,316,950) (907,778)
============ ==========
Net loss per share applicable to
common shareholders $ (.28) (.08)
============ ==========
Weighted average number of common
shares outstanding $ 11,857,399 11,469,170
============ ==========
The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisitions had taken place on the
dates indicated nor are they necessarily indicative of the results
of future operations.
(4) Accounts Receivable
The Company factors substantially all of its accounts receivable, with
recourse as to credit risk, with American Factors Corporation ("AFC")
under a factoring agreement entered into on November 17, 1997.
(Continued)
F-12
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
The agreement provides for financing up to a maximum of $500,000. AFC may
at its discretion choose to purchase any or all of the accounts
receivable. For each invoice purchased, the Company is initially advanced
80% of the gross invoice amount. AFC has the right to maintain a reserve
fund out of any payments or credits received by AFC in an amount equal to
20% of the aggregate unpaid gross amount of all receivables purchased in
order to cover any amounts that the Company may become obligated to AFC.
The Company is required to pay a commission to AFC representing a
percentage of each invoice purchased. If the invoice is collected within
30 days of the invoice date, the commission is 2.5%, if collected within
31 to 50 days of the invoice date, the commission is 4.0 %, and the
commission increases an additional 1.0% for each additional ten days
that the invoice is outstanding. The Company also pays administrative fees
to AFC. For the years ended May 31, 1999, 1998 and 1997, total expenses
related to this arrangement were approximately $106,000, $47,000, and
$-0-, respectively.
The Company records the gross account receivable when the invoice is sent
and records all amounts advanced by AFC as a liability. The liability to
AFC is increased by fees payable under the arrangement. When payments on
invoices are received by AFC, the Company reduces both accounts receivable
and the payable to AFC. An allowance for doubtful accounts is maintained
at a level which management believes is sufficient to cover all potential
credit losses including potential losses on receivables sold. The activity
in the allowance for doubtful accounts for the three years ended May 31,
1999, 1998, and 1997 is as follows:
Reductions
Allowance for Balance at taken against
doubtful beginning Charged to the Balance at
accounts of period expense allowance end of period
------------- ---------- ---------- ------------- -------------
1997 $ -- -- -- --
1998 -- 90,791 (77,791) 13,000
1999 13,000 106,559 (93,559) 26,000
(5) Property and Equipment
Property and equipment consists of the following at May 31, 1999 and 1998:
1999 1998
-------- --------
Computer equipment $ 74,416 69,188
Purchased software 32,430 30,022
Furniture and fixtures 26,579 26,293
-------- --------
133,425 125,503
Less accumulated depreciation 67,121 37,456
-------- --------
$ 66,304 88,047
======== ========
(6) Leases
The Company leases office space and office equipment under various
operating leases. Rental expense was approximately $282,000, $103,000, and
$7,000 for the years ended May 31, 1999, 1998, and 1997, respectively. The
following schedule summarizes the future minimum lease payments on
operating leases having initial or remaining noncancelable lease terms in
excess of one year as of May 31, 1999:
(Continued)
F-13
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
Amount
------------
Year ending May 31:
2000 $ 241,000
2001 233,564
2002 239,072
2003 245,418
2004 252,616
Thereafter 171,744
------------
Total future minimum lease payments $ 1,383,414
============
(7) Related Party Transactions
(a) Notes Receivable from Officers
The Company has made loans to certain officers of the Company. These
loans are evidenced by a promissory note payable in not more than 60
monthly principal and interest installments starting with the first
day of the month following the month in which the loan is made, with
interest at the rate of 3% per year on the unpaid balance of the
loan outstanding. In the event of default of any installment of
principal and interest when due, the entire balance of principal and
accrued interest becomes payable on demand. As of May 31, 1999, no
repayments have been made on these loans and, accordingly, notes
receivable from officers were classified as current assets.
(b) Advances
As of May 31, 1998, related parties had advanced $22,073 to the
Company to fund operations. These advances were repaid during the
year ended May 31, 1999.
(8) Taxes
The Company operated as an S-Corporation for the year ended May 31, 1997
and, accordingly, no provision for income taxes is provided as all income
and losses of the Company are reported by the stockholders on their
individual income tax returns. The Company's effective tax rate differs
from the "expected" income tax benefit calculated by applying the Federal
statutory rate of 34% to loss before income taxes as follows:
<TABLE>
<CAPTION>
Years ended May 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Computed "expected" income tax benefit $ (982,044) (148,961)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect (134,132) (17,162)
Change in the valuation allowance for deferred tax
assets, net of change of $320,653 due to fully
reserved net operating losses acquired from CONCAP 1,034,206 173,356
Nondeductible expenses 151,069 1,609
Other, net (69,099) (8,842)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
(Continued)
F-14
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at May 31, 1999 and 1998 are presented as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 10,399 5,196
Stock compensation and accrued payroll 408,516 --
Net operating loss carryforwards 1,106,238 162,907
Other, net 6,974 7,923
----------- -----------
Total gross deferred income tax assets 1,532,127 176,026
Less valuation allowance 1,528,215 173,356
----------- -----------
Net deferred income tax assets 3,912 2,670
Deferred income tax liability - property and equipment,
primarily due to differences in depreciation (3,912) (2,670)
----------- -----------
Net deferred income tax asset (liability) $ -- --
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of May 31, 1999 and
1998 was $1,528,215 and $173,356, respectively. The increase in the
valuation allowance for the years ended May 31, 1999 and 1998 was
$1,354,859 and $173,356, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. The Company
continually reviews the adequacy of the valuation allowance and recognizes
these benefits as reassessment indicates that it is more likely than not
that the benefits will be realized.
At May 31, 1999, the Company had net operating loss carryforwards for
Federal and state income tax purposes of approximately $2,766,000 which
are available to offset future Federal and state taxable income, if any,
through 2019. Due to the separate return limitation year rules of the
consolidated return regulations, it is estimated that the use of
approximately $943,000 of Federal loss carryforwards is restricted. In
addition, due to changes in the ownership of various members of the
consolidated group, the use of an additional $344,517 of Federal loss
carryforwards is restricted by virtue of Internal Revenue Code Section 382
limitations.
(9) Stockholders' Equity
(a) Completion of Reverse Merger
As a result of the reverse merger completed on July 8, 1998 (see
note 2), the equity of the Company reflects the historical equity of
ITC, retroactively restated to reflect the 7,200,000 CONCAP shares
issued in the merger. In addition, the common stock and additional
paid-in capital accounts have been adjusted to reflect the par value
of the outstanding stock of CONCAP after giving effect to the shares
issued in the merger.
(b) Private Placements
(Continued)
F-15
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
In June and July 1998, a former officer of CONCAP purchased 400,000
shares of common stock of the Company for $200,000.
In November 1998, the Company issued 1,250,000 shares of common
stock in connection with the acquisition of THC; however, these
shares have not been reflected as outstanding since the Company
unwound this acquisition in April 1999 (see note 3(a)).
On March 31, 1999 and April 1, 1999, the Company issued 750,000 and
100,000 shares of common stock in connection with the acquisitions
of Elevation and Virtual, respectively.
In April 1999, the Company commenced the sale of its common stock in
a private placement offering. As of May 31, 1999, 652,500 shares of
common stock had been sold for $652,500, net of issuance costs of
approximately $352,000 and 50,000 shares of common stock issued to
the investment banker.
(c) Other Capital Contribution
For the year ended May 31, 1999, an officer of the Company
contributed $114,700 to the Company to fund operations. This
contribution has been reflected as additional paid-in capital since
it is required to be repaid in common stock of the Company based on
the fair value of the stock on the date of the contribution,
commencing two years from the date that the contribution was made.
(d) Stock Compensation
On July 15, 1998, as part of an employment agreement, an officer of
the Company was granted the option to purchase 2,000,000 shares of
common stock at an exercise price of $.10 per share. Of the stock
options, 1,000,000 vest on August 31, 2000 and the remaining options
vest on August 31, 2001. The options expire one year from the
vesting date. As of May 31, 1999, none of these options were
exerciseable.
On March 15, 1999, as part of an employment agreement, another
officer of the Company was granted the option to purchase 250,000
shares of common stock at an exercise price of $.10 per share. Of
the stock options, 125,000 vest on August 31, 2000 and the remaining
options vest on August 31, 2001. The options expire one year from
the vesting date. As of May 31, 1999, none of these options were
exercisable.
The per share weighted-average fair value of options granted during
the year ended May 31, 1999 was $1.38 on the date of grant using the
Black Scholes option-pricing model with the following weighted
average assumptions: expected volatility of 58.65%, expected
dividend yield of 0%, risk-free interest rate of 5.5%, and an
expected option life of 3.25 years.
A summary of the stock options as of May 31, 1999 and changes during
the year then ended is presented below:
Weighted-
average
exercise
Shares price
--------- ---------
Outstanding at May 31, 1998 -- $ --
Granted 2,250,000 .10
Forfeited/canceled -- --
--------- ---------
Outstanding at May 31, 1999 2,250,000 $ .10
========= =========
Weighted-average fair value of options
granted during 1999 $ 1.38
=========
(Continued)
F-16
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
The Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for stock options. The Company
recognized compensation expense of approximately $827,000 in
connection with options granted during the year ended May 31, 1999
as the exercise price was less than the market price of the stock on
the date of grant. The Company will recognize additional
compensation expense of approximately $2,273,000 over the remaining
vesting period of these options.
(e) Commitment to Issue Common Stock for Investment Banking Services
In April 1999, the Company entered an agreement to issue 610,000
shares of the Company's common stock in exchange for investment
banking services; however, the shares were not issued until after
May 31, 1999. The Company recorded expense and additional paid-in
capital for the pro rata share of the fair value of the total
agreement related to the services performed in the year ended May
31, 1999.
(10) Major Customers
For the year ended May 31, 1999, two customers accounted for approximately
62% and 71% of total revenues and accounts receivable, respectively. For
the year ended May 31, 1998, two different customers accounted for
approximately 47% and 27% of total revenues and accounts receivable,
respectively.
(11) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot
be determined, management does not expect that the ultimate disposition of
these matters will have a material adverse effect on the Company's results
of operations or financial position.
(12) Subsequent Events
In June and July 1999, the Company sold additional shares of its common
stock in private placement offerings. Approximately 550,500 shares of
common stock were sold resulting in proceeds of $550,500, net of issuance
costs.
In June 1999, the Company issued 612,500 shares of restricted common stock
to six employees as an incentive for these employees to continue
employment. This will result in stock-based Compensation to the Company in
the year ending May 31, 2000.
In June 1999, the Company issued 300,000 shares of common stock to a
consultant for future consulting services and issued 250,000 shares of
common stock to a former ITC Shareholder. This will result in stock-based
Compensation to the Company in the year ending May 31, 2000.
(Continued)
F-17
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
In August 1999, the Company entered into stock purchase/repurchase
agreement for the sale of 9,250,000 shares of common stock at
approximately $1.625 per share. In exchange for the stock, the Company
received a promissory note in the amount of $15,000,000. Interest accrues
on the note at a rate of 8% per annum, and all principal and accrued
interest is payable three years from the date of the note. The agreement
allows for the Company to repurchase the stock and likewise, the purchaser
to return the stock to the Company during the term of the agreement. In
addition, the Company entered into a security and pledge financing
arrangement with the purchaser, whereby the Company would obtian a loan of
$10,000,000 from the purchaser while pledging 9,250,000 shares of common
stock to the purchaser.
In July and August 1999 the Company signed letters of intent to acquire
three companies. The Company intends to issue common stock as
consideration for two of the acquisitions and a combination of cash and
common stock for the third. Managment expects to close these acquisitions
in the second quater, fiscal year 2000.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ELITE TECHNOLOGIES, INC.
(Registrant)
By: /s/ SCOTT A. SCHUSTER
- -------------------------
Scott A. Schuster
Chief Executive Officer
September 10, 1999
The undersigned directors and officers of Elite Technologies, Inc. hereby
constitute and appoint Scott A. Schuster, David Aksoy, and each of them, with
full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact and agents, for him and in
his name, place, and stead, in any and all capacities, to sign on his behalf any
and all amendments to this Annual Report, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Commission granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he or she might or could do in person, and hereby ratify
and confirm that all such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Scott A. Schuster /s/ David Aksoy /s/ Jason Kiszonak /s/ Lee Davis
- --------------------- --------------- ------------------ ---------------
Scott A. Schuster David Aksoy, M.D. Jason Kiszonak Lee Davis
Chairman of the Board Sr. VP and CFO Sr. VP for PR VP Acquisitions
and Chief Executive August 31, 1999 August 31, 1999 August 31, 1999
Officer
August 31, 1999
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
2.1 Agreement dated June 24, 1998 by and among CONCAP, Inc. and
Intuitive Technology Consultants, Inc.(1)
2.2 Purchase Agreement dated November 15, 1998, by and among CONCAP,
Inc. and Troxtel Holding Company d/b/a Temporary Help Connection(2)
2.3 Purchase Agreement dated March 31, 1999 by and between CONCAP, Inc.
and Elevation Strategic Partners, Inc.(3)
2.4 Agreement dated November 5, 1998 by and between Scott Schuster and
Scanlan Music, Inc.
2.4.1 Assignment Agreement dated November 9, 1998 by and between Scott
Schuster and CONCAP, Inc.(4)
2.5 Agreement dated April 1, 1999 by and between CONCAP, Inc. and
Virtual Enterprise, Inc.
3* Amendment to Articles of Incorporation of CONCAP, Inc. dated April
22, 1999
10.1 Employment Agreement dated July 15, 1998 by and between CONCAP, Inc.
and Scott Schuster(4)
10.2 Employment Agreement dated March 15, 1999 by and between CONCAP,
Inc. and Jason Kiszonak(4)
21* Subsidiaries of Registrant
24 Power of Attorney(5)
27* Financial Data Schedule
c. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 27, 1999
regarding the April 12, 1999 unwinding of the acquisition of Troxtel
Holding Company.
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated July 8, 1998
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated November 15, 1998
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K, dated April 16, 1999
(4) To be filed by amendment.
(5) Included on the signature page of this Annual Report.
* Filed with this Annual Report.
---------------------------
FILED
in the Office of the
Secretary of State of Texas
APR 22 1999
Corporations Section
---------------------------
ARTICLES OF AMENDMENT
OF
CONCAP, INC.
The undersigned hereby submits these Articles of Amendment for the purpose
of amending its Articles of Incorporation:
1.
The name of the corporation is CONCAP, INC. (the "Company");
2.
The name of the Company shall be changed to ELITE TECHNOLOGIES, INC.
3.
12,619,000 shares of the Company's common stock are issued and
outstanding. All of the issued and outstanding shares of the Company's common
stock are entitled to vote on the above amendment.
4.
The above amendment to the Articles of Incorporation of the Company was
duly adopted by the holders of 72% of the issued and outstanding shares of
common stock of the Company in accordance with Section 4.02 of the Texas
Business Corporation Act on April 20, 1999.
These Articles of Amendment shall be effective upon filing.
Dated this 20th day of April, 1999.
CONCAP, INC.
/s/ Scott Schuster
--------------------
Name: Scott Schuster
Title: Chairman
EXHIBIT 21
SUBSIDIARIES OF ELITE JURISDICTION OF
TECHNOLOGIES, INC. INCORPORATION
- --------------------- ---------------
Scanlan Music Michigan
Temporary Help Connection* Michigan
Virtual Enterprise Georgia
Elevation Strategic Partners Georgia
* The Company is involved in litigation with the former owner of Temporary Help
Connection regarding the rescission of the acquisition of Temporary Help
Connection. Management expects to prevail in the litigation. (See Part I, Item 3
- - Legal Proceedings).
(Continued)
<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> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 311,309
<ALLOWANCES> 26,000
<INVENTORY> 38,763
<CURRENT-ASSETS> 554,511
<PP&E> 133,425
<DEPRECIATION> 67,121
<TOTAL-ASSETS> 2,331,198
<CURRENT-LIABILITIES> 1,636,686
<BONDS> 0
0
0
<COMMON> 1,257
<OTHER-SE> 558,360
<TOTAL-LIABILITY-AND-EQUITY> 2,331,198
<SALES> 1,937,317
<TOTAL-REVENUES> 1,937,317
<CGS> 0
<TOTAL-COSTS> 4,735,057
<OTHER-EXPENSES> 90,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,888,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,888,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,888,364)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
