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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-20034
ELITE INFORMATION GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1522214
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 WEST GOLDLEAF CIRCLE
LOS ANGELES, CALIFORNIA 90056
----------------------- -----
(Address of principal executive (Zip code)
offices)
(323) 642-5200
--------------
(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 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 .
As of July 31, 2000 there were 9,416,623 shares of Common Stock, $.01
par value, outstanding.
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ELITE INFORMATION GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statement of Operations -
Three and six months ended June 30, 2000
and June 30, 1999 3
Consolidated Balance Sheet -
June 30, 2000 and December 31, 1999 4
Consolidated Statement of Cash Flows -
Six months ended June 30, 2000 and
June 30, 1999 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 11 - 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
</TABLE>
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PRODUCTS MENTIONED IN THIS REPORT ARE USED FOR IDENTIFICATION PURPOSES ONLY AND
MAY BE TRADE NAMES OR TRADEMARKS OF ELITE INFORMATION GROUP, INC., ITS
SUBSIDIARIES OR THIRD PARTIES.
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PART I - FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
ELITE INFORMATION GROUP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 13,741 $ 15,401 $ 27,075 $ 28,389
-------- -------- -------- --------
Operating expenses:
Cost of revenue 7,868 8,430 15,591 16,356
Research and development 1,450 1,008 2,771 2,015
Sales and marketing 2,908 2,407 5,141 4,830
General and administrative 1,646 2,386 3,346 3,760
-------- -------- -------- --------
Total operating expenses 13,872 14,231 26,849 26,961
-------- -------- -------- --------
Operating income (loss) (131) 1,170 226 1,428
Loss on disposition of non-strategic business unit (295)
Interest income, net 418 260 863 423
-------- -------- -------- --------
Income from continuing operations before income taxes 287 1,430 1,089 1,556
Income tax provision for continuing operations (181) (710) (546) (769)
-------- -------- -------- --------
Income from continuing operations 106 720 543 787
-------- -------- -------- --------
Discontinued Operations:
Loss from discontinued operations, net of income tax (333) (382)
Gain on sale of discontinued operations, net of income tax 4,919 4,919
-------- -------- -------- --------
Net income $ 106 $ 5,306 $ 543 $ 5,324
======== ======== ======== ========
Net income per share - continuing operations
- Basic $ 0.01 $ 0.09 $ 0.06 $ 0.10
- Diluted $ 0.01 $ 0.08 $ 0.06 $ 0.09
Net income per share - discontinued operations
- Basic $ -- ($ 0.04) $ -- ($ 0.05)
- Diluted $ -- ($ 0.04) $ -- ($ 0.04)
Net income per share - gain on sale of discontinued operations
- Basic $ -- $ 0.59 $ -- $ 0.60
- Diluted $ -- $ 0.57 $ -- $ 0.58
Net income per share
- Basic $ 0.01 $ 0.64 $ 0.06 $ 0.64
- Diluted $ 0.01 $ 0.62 $ 0.06 $ 0.63
Weighted average shares outstanding
- Basic 8,536 8,289 8,502 8,263
- Diluted 8,712 8,595 8,796 8,496
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
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ELITE INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 30,956 $ 31,152
Receivables 19,068 23,669
Deferred income taxes 3,836 3,321
Other current assets 777 972
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Total current assets 54,637 59,114
Property and equipment 2,862 2,503
Software costs 509 718
Intangible assets 3,155 3,557
Other assets 181 224
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$ 61,344 $ 66,116
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 4,216 $ 5,260
Accrued compensation 2,782 2,860
Other accrued liabilities 3,601 5,042
Deferred revenue 13,011 16,871
Income taxes payable 1,265 414
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Total current liabilities 24,875 30,447
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Deferred income taxes 801 804
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Other liabilities 7 2
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Stockholders' equity:
Common stock, $.01 par value; Authorized 20,000,000 shares; Issued shares
were 9,416,623 and 9,355,373, respectively
94 94
Paid-in capital 39,254 39,384
Less treasury stock, at cost, 876,286
and 950,743 shares, respectively (4,219) (4,604)
Accumulated earnings (deficit) 532 (11)
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Total Stockholders' Equity 35,661 34,863
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$ 61,344 $ 66,116
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
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ELITE INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-----------------------
June 30, June 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 543 $ 5,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,076 2,125
Deferred income taxes (518) 660
Loss on sale of non-strategic business unit -- 295
(Gain) on sale of discontinued operations -- (4,919)
Changes in assets and liabilities excluding
effects of
disposition of non-strategic business unit
Receivables 4,601 539
Accounts payable - trade (1,044) 989
Deferred revenue and customer deposits (3,860) (2,350)
Income taxes 851 (632)
Other, net (1,169) 349
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Net cash provided by operating activities 480 2,380
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Cash flows from investing activities:
Purchase of property and equipment (789) (391)
Net proceeds from sale of discontinued operations -- 11,717
Cash used in disposition of non-strategic business -- (714)
unit
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Net cash provided (used) by investing activities (789) 10,612
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 113 --
-------- --------
Net cash provided by financing activities 113 --
-------- --------
Net increase (decrease) in cash and cash equivalents (196) 12,992
Cash and cash equivalents, beginning of period 31,152 15,273
-------- --------
Cash and cash equivalents, end of period $ 30,956 $ 28,265
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
For the periods presented, the consolidated financial statements of
Elite Information Group, Inc. ("Elite" or the "Company") reflect as continuing
operations the results of operations and financial position of the Company's
wholly owned subsidiary Elite Information Systems, Inc. Additionally, during the
third quarter of 1999, the Company began start-up operations of its new
Elite.com subsidiary, the results for which are reflected in the Company's
financial statements beginning in the second half of last year. During the
second quarter of 1999 the Company sold its Customer Relationship Management
business ("CRM") (see Note 2). The operating results for CRM are presented in
the Consolidated Statement of Operations as discontinued operations and prior
periods have been restated to reflect the Company's continuing operations. Also,
on March 5, 1999 the Company sold all of the outstanding shares of The
Minicomputer Company of Maryland, Inc. ("TMC") to a holding company owned by TMC
management.
The consolidated financial statements of the Company include all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary for a fair presentation of financial position as of June 30, 2000
and results of operations and cash flows for the interim periods presented. The
results of operations for the three and six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnotes required by
generally accepted accounting principles are not included herein. These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1999 as
reported by the Company in its Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform with
current year presentation.
NOTE 2 - DISCONTINUED OPERATIONS
On May 19, 1999 the Company sold its Customer Relationship Management
business, based in Charlotte, North Carolina, to Science Applications
International Corporation ("SAIC"). During the second quarter ended June 30,
1999, the Company recorded a gain on sale of discontinued operations of $4.9
million, after an income tax provision of $2.9 million, related to this
disposition. The gain on sale included certain transaction costs and reserve
provisions associated with the sale. The Company received approximately $14.3
million in cash proceeds from the transaction.
Operating results for CRM are classified as discontinued operations on
the Company's Consolidated Statement of Operations. Revenue applicable to
discontinued operations was $4,203,000 for the second quarter and $10,911,000
for the six months ended June 30, 1999. The losses from discontinued operations
for the second quarter and six months ended June 30, 1999 are net of income tax
benefits of $175,000 and $222,000, respectively.
NOTE 3 - SIGNIFICANT TRANSACTIONS
On December 14, 1999 the Company entered into a merger agreement to be
acquired by Solution 6 Holdings Limited ("Solution 6") (ASX:SOH), which is based
in Sydney, Australia. As contemplated in the merger agreement, on December 21,
1999 Solution 6 initiated an all cash tender offer to purchase 100% of the
outstanding shares of Elite common stock. The tender offer was conditioned upon,
among other things, obtaining necessary regulatory approvals including clearance
of the transaction from the Federal Trade Commission ("FTC"). On May 11, 2000,
the Company announced that it had terminated its merger agreement with Solution
6 because of the FTC's opposition to the merger.
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NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") that provides the staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company is currently required to adopt SAB 101 for the
fourth quarter of 2000. Management is in the process of analyzing the effect, if
any, that the provisions of SAB 101 will have on the Company's consolidated
results of operations, financial condition or cash flows.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation". FIN 44 provides guidance for issues arising in applying APB
25, "Accounting for Stock Issued to Employees". FIN 44 applies to new awards,
exchanges of awards in a business combination, modification of outstanding
awards and changes in grantee status on or after July 1, 2000, other than
provisions regarding re-pricing and the definition of an employee, which are
effective after December 15, 1998. Application of FIN 44 did not affect the
Company's financial reporting.
NOTE 5 - CREDIT FACILITY
On May 16, 2000, the Company entered into two-year, $10 million
revolving credit agreement with Mellon Bank, N.A. No borrowings were outstanding
under the credit facility at June 30, 2000. Borrowings under the credit facility
will bear interest at the Company's choice of an adjusted LIBOR or prime rate,
as defined in the credit agreement. The credit facility is secured by
substantially all of the Company's tangible and intangible assets. Additionally,
the credit agreement contains customary covenants that require compliance with
certain financial ratios and targets, and restricts the incurrence of additional
indebtedness, payment of dividends and acquisitions or dispositions of assets,
among other things. The credit facility expires in April 2002.
NOTE 6 - SUBSEQUENT EVENT
On July 11, 2000, the Company acquired all of the outstanding capital
stock of Law Manager, Inc. The aggregate consideration paid or to be paid by the
Company consists of an initial closing payment of $10.9 million, plus certain
working capital payments to be determined after closing and payment of an
additional $4 million over a three year period commencing on the first
anniversary of closing, subject to certain conditions. The consideration paid to
date by the Company was funded by its existing cash reserves.
Law Manager, Inc., is a software company that specializes in providing
advanced case management, docketing, records management and e-commerce systems,
as well as a full range of implementation services, to large law firms,
corporate legal departments and government agencies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The consolidated financial statements of Elite Information Group, Inc.
("Elite" or the "Company") reflect the results of operations and financial
position of the Company's wholly owned subsidiary Elite Information Systems,
Inc. Additionally, during the third quarter of 1999, the Company began start-up
operations of its new Elite.com subsidiary, the results of which are reflected
in the Company's financial statements beginning in the second half of 1999.
Elite.com began offering its services to customers in the first quarter of 2000.
During the second quarter of 1999, the Company sold its Customer
Relationship Management business ("CRM") (see Note 2 of Notes to Consolidated
Financial Statements included in Item 1). The operating results for CRM are
presented on the Consolidated Statement of Operations as discontinued operations
and prior periods have been restated to reflect the Company's continuing
operations. Also, on March 5, 1999 the Company sold all of the outstanding
shares of The Minicomputer Company of Maryland, Inc. ("TMC") to a holding
company owned by TMC management.
7
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Based in Los Angeles, California, Elite Information Systems is an
international software product and services company that provides a
comprehensive suite of financial and practice management software applications
for law firms and other professional services organizations of all sizes.
Elite's software products are often sold with related services to aid the
customer in implementation, data conversion and user training efforts. The
company's products can be licensed outright and installed onsite at the
customer's location or rented through an ASP hosting solution where Elite
maintains the software.
Elite.com provides Internet-based time tracking and billing services to
smaller professional services companies including legal, management consulting,
computer systems consulting and integration, accounting and engineering.
Elite.com utilizes hosted, Internet-based applications and services delivered
through its various partners and alliances.
The Company's revenue for the second quarter ended June 30, 2000
totaled $13.7 million, which is down 11% from the $15.4 million reported for the
second quarter of 1999. Revenue for the first six months of 2000 of $27.1
million compares to revenue for the first half of 1999 of $28.4 million.
Compared to the prior year, revenue for the first six months of 2000 includes
significantly lower new contract and related implementation services revenues,
partially offset by increased maintenance revenues and higher revenues generated
from additional sales to existing customers. The increase in maintenance
revenues for the current year reflects the continued expansion of the Company's
customer base.
The reduction in new contract revenues for the Company in the second
quarter and first half of 2000 versus the prior year can be attributed to a
lower level of new business and a resulting reduction in beginning of year
backlog, which represents the amount of unearned software license and
implementation services revenue on signed customer contracts. Such backlog
totaled $11.6 million at December 31, 1999, compared to $26.4 million at the end
of 1998. The Company's backlog as of December 31, 1998 reflected exceptional new
contract signing levels in the second half of 1998 due in part to customers' Y2K
planning. However, correspondingly lower new business levels in the second half
of 1999 contributed to a significant reduction in backlog.
New sales for the Company during the second quarter and first six
months of 2000 continued relatively weak. The Company believes that new business
levels in the first half of the year were affected by softness in the market
associated with Y2K and also reflects prospective customers delaying purchase
decisions over uncertainty surrounding the Company's pending merger with
Solution 6, which has now been terminated. At June 30, 2000 the Company's
backlog of booked business stood at $9 million. Based on the rising volume of
customer quote activity, the Company currently anticipates new contract signing
levels to increase. However, because of its reduced backlog levels, the Company
expects its operating results for the third quarter to be below those achieved
in the prior year.
Gross profit, which represents net revenue less cost of revenue, for
the three months ended June 30, 2000 was $5.9 million, down from $7.0 million in
the same period of 1999. The Company's gross margin percent was 42.7% for this
year's second quarter compared to 45.3% for the same period last year. For the
six months ended June 30, 2000, gross profit was $11.5 million (or 42.4% of
revenue) versus $12.0 million (or 42.4% of revenue) for the same period of 1999.
The Company's cost of revenue consists primarily of expenses for deployable
resources such as implementation personnel and contract labor, salaries and
related expenses for the Company's customer support department, and amounts paid
to third party software vendors. The Company's gross margin percent compared to
the prior year reflects costs related to the Company's new Elite.com service,
which began operations in the second half of 1999, along with the impact of
recording lower software license revenues which typically provide higher
margins.
Research and development expenses for this year's second quarter of
$1.5 million (or 10.6% of revenue) increased from $1.0 million (or 6.5% of
revenue) in 1999. Such expenses for the first half of 2000 totaled $2.8 million
(or 10.2% of revenue) compared to $2.0 million (or 7.1% of revenue) for the
first six months of the prior year. Research and development expenses consist
primarily of salaries and expenses of the Company's research and development
personnel and outside consultants. The higher expenses in 2000 over the same
period last year can be attributed primarily to costs related to Elite.com. The
increased expenses for 2000 also reflect ongoing efforts to develop new versions
of the Elite suite of products, along with new Web-based products, to allow the
Company to continue to provide innovative software solutions as the needs of its
customer base and target markets change. No software development costs were
capitalized in either 2000 or 1999.
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Sales and marketing expenses totaled $2.9 million (or 21.2% of revenue) for the
second quarter of 2000 compared to $2.4 million (or 15.6% of revenue) in same
period of 1999. Year-to-date expenses of $5.1 million (or 19.0% of revenue) were
up from $4.8 million (or 17.0% of revenue) in the same period last year. Sales
and marketing expenses consist primarily of salaries, commissions, travel and
promotional expense. Excluding costs for Elite.com, sales and marketing expenses
for 2000 are actually down from the prior year, primarily due to lower
commissions and incentives related in part to lower contract signing volume.
General and administrative expenses of $1.6 million (or 12.0% of
revenue) for the second quarter of 2000 were down from $2.4 million (or 15.5% of
revenue) in the second quarter of 1999. These expenses totaled $3.3 million (or
12.4% of revenue) for the first half of this year compared to $3.8 million (or
13.2% of revenue) in the first six months of last year. General and
administrative expenses consist mainly of salaries of corporate executive,
legal, financial and human resources personnel, as well as professional fees and
insurance costs. General and administrative expenses for the first half of 1999
included certain overhead costs related to the Company's former corporate
structure, which included its CRM operations that were sold in the prior year
(See Note 2 of Notes to Consolidated Financial Statements included in Item 1),
along with expenses related to transferring its corporate headquarters location.
Expenses for the current year include approximately $600,000 of costs incurred
for outside legal and consulting services related to Elite's terminated merger
transaction with Solution 6 (See Note 3 of Notes to Consolidated Financial
Statements included in Item 1).
The Company reported net interest income of $418,000 and $863,000 for
the second quarter and first half of 2000, respectively. Interest income for the
same periods last year totaled $260,000 and $423,000, respectively. The
increased interest income in the current year reflects the Company's investment
return on its higher cash and cash equivalent balances. The Company's improved
cash position can be attributed to its positive cash flow from operations for
1999 and proceeds received from the sale of its CRM business (See Note 2 of
Notes to Consolidated Financial Statements included in Item 1).
The income tax provision for continuing operations in the second
quarter of 2000 was $181,000 (or 63.1% of pre-tax income) and for the first half
of the year was $546,000 (or 50.1% of pre-tax income). The Company's income tax
provision for the year exceeds the income tax expense at the statutory rates for
this period primarily due to the permanent difference of non-deductible goodwill
amortization and state income taxes. The Company believes that the effective tax
rate in 2000 will remain higher than the statutory rate due to the ongoing
non-deductible goodwill amortization.
YEAR 2000 COMPLIANCE
Overview: Many software products, custom-developed software, and
products embedded with microprocessor chips were designed to store, process or
perform calculations using only the last two digits of a four-digit year date,
for example, "98" rather than "1998". These software systems and embedded
products may assume the first two digits of the year date to be "19" and as such
they may not be able to process dates with years following 1999. For example,
"00" may be treated by certain software systems as the year 1900 rather than the
year 2000.
Results of this failure to process the date correctly could include
miscalculations, unpredictable or inconsistent results or complete system
failures. As a software vendor, the so-called "Year 2000 compliance" or "Y2K"
issue is an issue that the Company has had to address with respect to its
products as well as software and systems provided by others that the Company
uses internally.
During the Year 2000 date transition, the Company did not experience
any failure of mission critical systems nor has it experienced any significant
problem with regard to third party suppliers. Similarly, to management's
knowledge, the Company's customers have not experienced any significant Year
2000 problems with the Company's software products and services. The Company
does not anticipate any material adverse effect to its business or its customers
in the future as a result of Year 2000 related problems; however, it is possible
that such problems might still arise.
Proprietary Software Products and Custom Developed Software: The
Company recognized the need to address the Year 2000 compliance issue and in
1997 established a Year 2000 compliance committee to supervise and monitor the
planning, performance and assessment of the Company's Year 2000 compliance
efforts.
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In May 1998, following a period of assessment and testing, the Company
issued its Year 2000 readiness statement, which specifically identified the
current versions of each of the Company's proprietary products that met the
adopted standard. The Company believes that its current versions of proprietary
software products are Year 2000 compliant; however, no assurance can be given
that additional modifications for Year 2000 compliance will not be necessary.
The Company's software products are integrated with its customers' software and
hardware systems and have, in many cases, been uniquely customized to the
customers' specifications. The Company has generally not tested its products as
integrated in its customers' operating environments. The customers' systems with
which the Company's products interoperate may not be Year 2000 compliant, which
may affect the operation of the Company's products.
Some of the Company's former customers and current customers presently
use earlier versions of the Company's software products and/or associated custom
code that are not Year 2000 compliant. The Company has made efforts to
communicate with these customers to advise them that they will need to upgrade
to a Year 2000 compliant version of the Company's software product, revise
custom code or implement other alternatives to meet their business needs.
Third Party Products and Products Used Internally: Third party products
integrated within the Company's products are included in the test plans and
compliance efforts that the Company has for its own products. In addition, the
Company has obtained certification of Year 2000 compliance from most third party
vendors whose products are integrated in the Company's products or that are
resold by the Company.
The Company has obtained certification of Year 2000 compliance from
each of the vendors of its internal use information technology systems. The
Company developed test plans for all critical internal use technology systems
and the testing of these was completed in 1999.
Risks and Costs: Because of the nature of the Company's business, the
Company may be subject to Year 2000 claims or litigation by: its customers;
customers of divested businesses where the Company retained potential product
liabilities, including the CRM business; or other parties. Although the ultimate
outcome of any litigation is uncertain, the Company does not believe that the
ultimate amount of liability, if any, from such actions would have a material
adverse effect on the Company. To date, the Company has not been subject to any
such claims or litigation.
As the Company did not, nor does it expect to, experience any
significant Year 2000 problems at or after the turn of the millennium, the
Company does not currently expect to incur any significant additional costs
related to its Year 2000 compliance efforts. All incremental costs associated
with the Year 2000 compliance issue will continue to be expensed as incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $31.0 million at June
30, 2000 compared to $31.2 million at December 31, 1999. Working capital at June
30, 2000 was $29.8 million compared to $28.7 million at December 31, 1999. On
July 11, 2000 the Company made a $10.9 million cash payment associated with the
acquisition of Law Manager, Inc. (See Note 6 of Notes to Consolidated Financial
Statements included in Item 1).
On May 16, 2000, the Company entered into two-year, $10 million
revolving credit agreement with Mellon Bank, N.A. No borrowings were outstanding
under the credit facility at June 30, 2000. Borrowings under the credit facility
will bear interest at the Company's choice of an adjusted LIBOR or prime rate,
as defined in the credit agreement. The credit facility is secured by
substantially all of the Company's tangible and intangible assets. Additionally,
the credit agreement contains customary covenants that require compliance with
certain financial ratios and targets, and restricts the incurrence of additional
indebtedness, payment of dividends and acquisitions or dispositions of assets,
among other things. The credit facility expires in April 2002. Management
believes that the Company's cash and cash equivalent balances, anticipated cash
flow from operations and other external sources of available credit will be
sufficient to meet the Company's future cash requirements.
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NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") that provides the staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company is currently required to adopt SAB 101 for the
fourth quarter of 2000. Management is in the process of analyzing the effect, if
any, that the provisions of SAB 101 will have on the Company's consolidated
results of operations, financial condition or cash flows.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation". FIN 44 provides guidance for issues arising in applying APB
25, "Accounting for Stock Issued to Employees". FIN 44 applies to new awards,
exchanges of awards in a business combination, modification of outstanding
awards and changes in grantee status on or after July 1, 2000, other than
provisions regarding re-pricing and the definition of an employee, which are
effective after December 15, 1998. Application of FIN 44 did not affect the
Company's financial reporting.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain certain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
that represent the Company's expectations or beliefs concerning future events or
projected financial results. Such forward-looking statements are about matters
that are inherently subject to risks and uncertainties. Factors that could
influence the matters discussed in certain forward-looking statements include
the timing and amount of revenue that may be recognized by the Company,
continuation of current expense trends, absence of unforeseen changes in the
Company's markets, continued acceptance of the Company's existing services and
products in the Company's existing markets and the acceptance of these services
and products in new markets, the ability to timely complete the development of
new products and services, customer acceptance of new products and services and
general changes in the economy, Year 2000 risks discussed in the "Year 2000
Compliance" section of this quarterly report on Form 10-Q, as well as matters
discussed in "Risks and Uncertainties" in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. There can be no assurance that such
future events or projected results will be achieved, and actual results could
differ materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has limited exposure to market risk for changes in interest
rates related to the Company's cash and cash equivalents. The Company maintains
an investment policy designed to ensure the safety and preservation of its cash
and cash equivalents by limiting default risk, market risk and reinvestment risk
by depositing its cash and cash equivalents in major financial institutions.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of Elite Information Group, Inc.,
was convened and adjourned on June 22, 2000, and was reconvened on June 30,
2000. The matters voted on and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes as to each
such matter, were as follows:
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1. Christopher K. Poole and Roger Noall were elected at the annual
meeting as Class I directors. Listed below are the names of the two
nominees elected to serve as directors and the four other continuing
directors:
Class I Class II Class III
------- -------- ---------
Christopher K. Poole David A. Finley Alan Rich
Roger Noall William G. Seymour Arthur G. Epker III
The following is a separate tabulation with respect to each
nominee elected:
Against or Broker
For Withheld Non-Votes
--------- ---------- ---------
Christopher K. Poole 4,841,695 722,975 0
Roger Noall 4,815,895 748,775 0
2. With respect to the proposal to approve the Company's 2000 Employee
Stock Purchase Plan, 3,002,974 shares were voted for and 381,760 were
voted against, with 6,580 abstentions, and 2,173,356 broker non-votes.
3. With respect to the proposal to approve an amendment to the
Company's 1996 Stock Option Plan, 2,513,327 shares were voted for and
868,908 were voted against, with 10,580 abstentions, and 2,171,855
broker non-votes.
4. With respect to the proposal to ratify the appointment of
independent public accountants, 5,555,969 shares were voted for and
5,401 were voted against, with 3,300 abstentions, and no broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Description
Exhibit No. ---------------
----------------
10.1 Credit Agreement by and between Elite Information Systems,
Inc., Elite Information Group, Inc., and Mellon Bank, N.A.
dated May 16, 2000
10.2 General Security Agreement by and between Elite Information
Systems, Inc., and Mellon Bank, N.A. dated May 16, 2000
10.3 Guarantor Security Agreement by and between Elite
Information Group, Inc., and Mellon Bank, N.A. dated May 16,
2000
10.4 Continuing Guaranty of Elite Information Group, Inc. (for
the benefit of Mellon Bank, N.A.), dated May 16, 2000
11 Computation of earnings per share
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
(b) REPORTS ON FORM 8-K:
None.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ELITE INFORMATION GROUP, INC.
Date: August 14, 2000 By: /s/ Barry D. Emerson
--------------- ---------------------------------
Barry D. Emerson, Vice President,
Treasurer, Chief Financial Officer
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