Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the transition period from ___________ to _________.

Commission file number 0-20034

ELITE INFORMATION GROUP, INC.

(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 October 31, 2002 there were 7,829,492 shares of Common Stock, $.01 par value, outstanding.

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Table of Contents

____________________________

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.

____________________________

2

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Part I — Financial Information:

Item 1. Financial Statements

Elite Information Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

3

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements

4

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

5

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 – Basis of Presentation

The consolidated financial statements of Elite Information Group, Inc. (“Elite” or the “Company”) for the periods presented reflect the results of operations and financial position of the Company’s wholly owned subsidiaries, Elite Information Systems, Inc. (“EIS”) and Law Manager Inc. (“LMI”). All significant inter-company balances and transactions have been eliminated in consolidation.

The unaudited 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 September 30, 2002 and results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2002 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. Certain information and footnotes required by generally accepted accounting principles (“GAAP”) in annual financial statements have been omitted or condensed in accordance with quarterly requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim consolidated financial statements and footnotes are adequate to make the information not misleading but should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2001 as reported by the Company in its Annual Report on Form 10-K.

Certain prior year amounts have been reclassified to conform to current year presentation.

NOTE 2 – Segment Information and Customer Concentration

The Company’s two reportable segments are the businesses of its operating subsidiaries, EIS and LMI. EIS customers are primarily comprised of law firms and other professional services firms. LMI customers primarily include large corporate legal departments and government agencies. The table below presents revenue, gross profit and total assets for these reportable segments for the interim periods presented:

6

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

The Company evaluates performance of its segments based on revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA is a non-GAAP disclosure but is presented for informational purposes and is reconciled to income before income taxes below.

No customers accounted for more than 10% of consolidated revenues for the three and nine months ended September 30, 2002 and 2001.

NOTE 3 – Earnings per Share

The Company computes earnings per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings per Share.” SFAS No. 128 requires the presentation of basic and diluted earnings per share for all periods presented. Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding, reflecting the reduction of weighted average treasury shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding combined with any outstanding common stock equivalents (principally stock options) required to be included under the “treasury stock” method. Options with exercise prices greater than the average market price of common shares (or “anti-dilutive options”), which were not included in the computation of diluted earnings per share, totaled 306,000 and 1.0 million for the nine-month periods ended September 30, 2002 and 2001, respectively. Anti-dilutive options totaled 454,000 and 1.0 million for the three-month periods ending September 30, 2002 and 2001, respectively.

The following is a reconciliation of the denominator for the basic and diluted earnings per share (“EPS”) computations:

NOTE 4 – New Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations,” which establishes new standards for accounting and reporting requirements for business combinations and requires that the “purchase” method of accounting be used for all business combinations initiated after June 30, 2001.

7

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

In November 2001, the Emerging Issues Task Force (“EITF”) released Issue No. 01-14 regarding “Income Statement Characterization of Reimbursements Received for “Out-Of-Pocket” Expenses Incurred.” This pronouncement requires that reimbursements received from customers for out-of-pocket expenses incurred be characterized as revenue in the Company’s statement of operations. The Company incurs incidental expenses in the delivery of services to its clients that are commonly referred to as “out-of-pocket” expenses. These expenses include but are not limited to travel and related charges. Accordingly, the Company has classified reimbursable expenses billed to clients as revenue, which are offset by a corresponding charge to cost of revenue, for all periods presented. This change in classification had no effect on current or previously reported net income or income per share.

On January 1, 2002, the Company adopted SFAS No. 142 and No. 144. SFAS No. 142, “Goodwill and Other Intangible Assets,” addresses how intangible assets should be accounted for in the financial statements. This new standard eliminates amortization for goodwill and intangible assets that have indefinite useful lives and requires such assets to be tested annually for impairment, or more frequently if events or changes in circumstances indicate that the related assets might be impaired. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are subject to impairment testing in accordance with current accounting standards. In accordance with adoption of SFAS No.142, on January 1, 2002, the Company ceased to amortize goodwill. In addition, the Company completed an impairment assessment of goodwill upon implementation of SFAS No. 142 and no impairment was indicated. Following is a reconciliation of the reported net income and net income per diluted share for 2001 on a pro forma basis to exclude charges for goodwill amortization:

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, this statement retains the fundamental provisions of SFAS No. 121 for recognizing and measuring the impairment of long-lived assets to be held and used, as well as measuring long-lived assets to be disposed of by sale. Adoption of this statement on January 1, 2002 did not have a material impact on the Company’s consolidated results of operations and financial condition.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 supercedes the existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” Under SFAS No. 146, a liability for exit or disposal costs will be recognized and measured initially at its fair value in the period in which the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002 with earlier application encouraged. The Company will adopt this standard on future exit or disposal activities.

8

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

NOTE 5 – Intangible Assets and Goodwill

         At September 30, 2002 and December 31, 2001, goodwill and intangible asset balances consisted of the following:

Intangible asset amortization expense for the three and nine months ended September 30, 2002 was approximately $190,000 and $570,000, respectively. Estimated amortization expense for the next five years is as follows:

At September 30, 2002, goodwill associated with the Company’s reporting units, EIS and LMI, totaled $1,252,000 and $8,097,000, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Elite is an international provider of a comprehensive suite of financial and practice management software to professional services firms, based in Los Angeles, California. The Company’s customers include legal and other professional services organizations of all sizes such as accounting, consulting, public relations, financial services, actuarial, software, security, insurance, market research and systems integration firms, as well as corporations and government. EIS 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 are available through an Application Service Provider (“ASP”) or “hosted” solution (“e-Connect from Elite”) where EIS maintains hardware and software that is accessed remotely by the customer. Additionally, Internet-based applications and services are available to smaller professional services companies. LMI provides software products including advanced case management, calendar and docketing, records management and resource management, as well as a full range of related customization and implementation services to large corporate legal departments, law firms and government agencies.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses Elite’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management believes the critical

9

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements relate to revenue recognition, reserves for uncollectible receivables and realization of long-lived assets.

Revenue from the licensing of software along with related services is generally recognized as work is performed under the percentage of completion method of accounting, with progress measured using labor hours incurred to date compared to total estimated labor hours to be incurred. The Company’s revenue recognition may be affected when estimated labor hours to complete a project change. Losses may be incurred on contracts, which are recognized in the period that they are determined to be probable and estimable.

The Company maintains an allowance for doubtful accounts and reserves for the issuance of credit memos based on an estimate of losses expected to result from its customers not making required payments. If the financial condition of Elite’s customers were to deteriorate, resulting in a greater than expected aggregate impairment of their ability to make payments, additional allowances may be required. The Company’s software products and their related implementation services are complex and receivable reserves are necessary in the event of disputed customer billings.

The Company monitors conditions that may affect the carrying value of its property and equipment, software costs and intangible assets. When conditions indicate potential impairment of such assets, the Company undertakes necessary market and technology studies and evaluates projected future earnings associated with these assets. Future adverse changes in market or technological conditions or poor operating results could result in losses or an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future.

Segment Information

The Company’s two reportable segments are the businesses of its operating subsidiaries, EIS and LMI. EIS customers are primarily comprised of law firms and other professional services firms. LMI customers primarily include large corporate legal departments and government agencies. See operating results by segment in Note 2 of Notes to the Consolidated Financial Statements.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2002 and 2001

The Company’s revenue before expense reimbursements for the third quarter ended September 30, 2002 totaled $19.3 million, which was up 4.2% from the $18.5 million reported for the third quarter of 2001. Revenue for the first nine months of 2002 of $56.8 million increased 13.1% compared to revenue of $50.2 million for the same period last year. Elite’s revenue growth for 2002 compared to last year is due mainly to higher EIS consulting services billings and increased maintenance support revenue reflecting its growing customer base. EIS revenues before expense reimbursements for the first nine months of 2002 totaled $50.0 million, a 10.1% increase compared to the first nine months of 2001. During the first half of this year, EIS experienced a shift in sales mix towards a higher proportion of services content, resulting in lower software license revenue compared to 2001. LMI revenues for the first nine months of 2002 totaled $6.9 million, up 40.4% from the same period in 2001, supported by the growth in its consulting and implementation services backlog.

The Company’s consolidated backlog of unearned revenue from signed customer orders totaled $30.6 million at September 30, 2002, compared to $25.5 million at December 31, 2001.

Gross profit for the three months ended September 30, 2002 was $10.0 million, up from $9.4 million in the same quarter of 2001. The Company’s gross margin percent, excluding the effect of expense reimbursements, was 51.9% for this year’s third quarter compared to 50.6% for the same period last year. For the nine months ended September 30, 2002, gross profit was $29.3 million (or 51.7% of revenue before expense reimbursements) versus $24.3 million (or 48.4% of revenue before expense reimbursements) for the same period of 2001. 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 higher gross margin percentage compared to the prior year mainly reflects a lower level of software vendor royalty costs for the reporting periods, along with reduced expenses incurred for outside contractor implementation services for the first nine months. The gross margin percentage for 2002 is also higher compared to 2001 due to the reclassification of certain personnel related costs to research and development or general and administrative categories.

10

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Research and development (“R&D”) expenses for this year’s third quarter of $2.6 million (or 12.6% of total revenue) increased from $1.7 million (or 8.9% of total revenue) in 2001. Such expenses for the first nine months of 2002 totaled $7.9 million (or 13.3% of total revenue) compared to $5.0 million (or 9.5% of total revenue) for the first nine months of the prior year. The Company capitalizes certain software development costs incurred subsequent to achieving technological feasibility and prior to when the product is available for general release to customers as prescribed by FASB No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.” The Company’s capitalized software development costs for the three and nine months ended September 30, 2001 amounted to $320,000 and $900,000, respectively. Including capitalized costs, R&D expenses for the third quarter and first nine months of 2001 represented 10.5% and 11.2% of total revenues, respectively. The Company did not capitalize any significant software development costs during the first nine months of 2002 and expects that the costs that qualify for capitalization will be substantially lower in 2002 compared to 2001.

The increase in R&D spending for 2002 is due primarily to costs for the further enhancement of Elite’s existing product lines, combined with the development of new products designed to broaden the Company’s product suite to meet the needs of the Professional Services Automation (or PSA) markets. R&D expenses for 2002 are also higher compared to 2001 due to the reclassification of certain personnel related costs previously reflected in cost of revenue. Research and development expenses consist primarily of salaries and expenses of the Company’s research and development personnel and outside consultants.

Sales and marketing expenses for the third quarter of 2002 increased to $3.5 million (or 16.9% of total revenue) compared to $2.7 million (or 13.8% of total revenue) in the same period of 2001. Sales and marketing expenses for the first nine months of 2002 of $10.6 million (or 17.8% of total revenue) were up from $8.5 million (or 16.1% of total revenue) in the same period last year. Sales and marketing expenses consist primarily of salaries, commissions, travel, advertising and promotional expense. The increase in expense for the year is primarily a reflection of added sales personnel costs, along with higher marketing and advertising costs, due in part to promotion of the Company’s new products.

General and administrative expenses of $2.2 million (or 10.6% of revenue) for the third quarter of 2002 were up from $2.0 million (or 10.1% of total revenue) in the third quarter of 2001. These expenses totaled $6.7 million (or 11.3% of total revenue) for the first nine months of this year compared to $5.6 million (or 10.6% of revenue) in the first nine months of last year. General and administrative expenses consist mainly of salaries of corporate executive, legal, financial, information systems and human resources personnel, as well as professional fees and insurance costs.

Amortization expense for goodwill and other acquired intangibles in the third quarter of 2002 decreased to $190,000 (or about 1.0% of total revenue) from $552,000 (or 2.8% of total revenue) in the third quarter of 2001. These expenses declined to $570,000 (or 1.0% of total revenue) for the first nine months of 2002 from $1.6 million (or 3.0% of total revenue) for the same period of 2001. The lower amortization expense for 2002 is a reflection of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002, at which time the Company ceased to amortize goodwill.

The Company reported net interest income of $96,000 and $299,000 for the third quarter and first nine months of 2002, respectively. Interest income for the same periods last year totaled $180,000 and $702,000, respectively. The reduced interest income in the current year primarily reflects lower interest rates on the balances available for investment.

The Company’s income tax provision for the third quarter of 2002 was $341,000 (or 20% of pre-tax income) and for the first nine months of the year was $1.1 million (or 30% of pre-tax income), compared to $651,000 (or 25% of pre-tax income) for the third quarter of 2001 and $1.3 million (or 31% of pre-tax income) for the first nine months of 2001. The Company’s tax provision for 2002 reflects a benefit from research and engineering tax credits that reduced its effective tax rate from 38% in the second quarter to 20% for the third quarter.

Risks and Uncertainties

The Company’s business is subject to certain risks and uncertainties that can have a significant impact on its financial performance. The Company’s personnel and other operating expenses are based in part on its expectations for work efforts needed to generate future revenue and are relatively fixed in the short-term. If the Company is unable to generate significant new engagements, or if there is any delay or cancellation of engagements in a particular period, there could be a material adverse affect on the Company’s consolidated results of operations and financial condition. During the second quarter of 2002 an unanticipated contract dispute occurred with a significant customer for which the Company reversed revenue for the year and reserved against the collection of related accounts receivable. The Company has reached a tentative agreement to

11

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

resolve this dispute with no further financial impact to the Company, but until a final agreement is signed, the ultimate outcome of this matter cannot be determined and further reserves could be necessary.

The Company’s implementation personnel require significant advanced training prior to servicing customers. Therefore, the Company could face the short-term risk of having a shortage of experienced implementation personnel capable of generating revenues in the event of a rapid ramp up in new customer orders.

Management believes that the Company could experience significant fluctuations in future operating results caused by several factors, which include variations in the timing and amount of revenue that may be recognized by the Company, including customer project delays or cancellations, changes in current expense trends, unforeseen changes in the Company’s markets including competitive conditions, the degree of 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, particularly the challenging PSA markets during 2002, changes in the profitability of the Company’s sales mix including the proportion of software licenses to services, the ability of the Company to timely complete the development of new products and services at reasonable cost, the degree of customer acceptance of new products and services, technological changes in computer systems and environments, the loss of key personnel, general changes in the economy and in particular markets served by the Company.

Liquidity and Capital Resources

The Company’s cash and cash equivalents totaled $24.6 million at September 30, 2002 compared to $24.7 million at December 31, 2001. Working capital at September 30, 2002 was $21.9 million compared to $22.1 million at December 31, 2001. The change in cash and cash equivalents during the year primarily reflects positive cash flow from operations, offset by amounts paid to re-purchase the Company’s stock, amounts paid under the LMI purchase agreement and cash used to acquire capital equipment and software. 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 cash requirements for the foreseeable future.

Net cash provided by operating activities for the first nine months of 2002 was $4.4 million compared to $2.9 million for the first nine months of 2001. This increase is primarily attributable to higher cash collections from customers. Net cash flows used by investing activities were down significantly to $2.2 million for the first nine months of 2002 compared to $5.1 million for the same period of 2002 due to lower required purchase agreement payments for LMI in 2002. Net cash used in financing activities of $2.3 million for the first nine months of 2002 compares to net cash used in financing activities of $20,000 for the same period of 2001, reflecting $3 million of cash used to re-purchase the Company’s stock under its stock buy-back program.

On June 26, 2002, the Company entered into a two-year, $10 million revolving credit agreement with Mellon 1st Business Bank (successor in interest to Mellon Bank, N.A.). No borrowings were outstanding under the credit facility at September 30, 2002. 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 collateralized 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 May 2004.

New Accounting Standards

In November 2001, the Emerging Issues Task Force (“EITF”) released Issue No. 01-14 regarding “Income Statement Characterization of Reimbursements Received for “Out-Of-Pocket” Expenses Incurred.” This pronouncement requires that reimbursements received from customers for out-of-pocket expenses incurred be characterized as revenue in the Company’s statement of operations. The Company incurs incidental expenses in the delivery of services to its clients that are commonly referred to as “out-of-pocket” expenses. These expenses include, but are not limited to, travel and related charges. Accordingly, the Company has classified reimbursable expenses billed to clients as revenue, which are offset by a corresponding charge to cost of revenue, for all periods presented. This change in classification had no effect on current or previously reported net income or income per share.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” which establishes new standards for accounting and reporting requirements for

12

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

business combinations and requires that the “purchase” method of accounting be used for all business combinations initiated after June 30, 2001.

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which addresses how intangible assets should be accounted for in the financial statements. This new standard eliminates amortization for goodwill and intangible assets that have indefinite useful lives and requires such assets to be tested annually for impairment, or more frequently if events or changes in circumstances indicate that the related assets might be impaired. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are subject to impairment testing in accordance with current accounting standards.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” that supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, this statement retains the fundamental provisions of SFAS No. 121 for recognizing and measuring the impairment of long-lived assets to be held and used, as well as measuring long-lived assets to be disposed of by sale.

The Company adopted SFAS No. 142 and SFAS No. 144 on January 1, 2002. The adoption of these statements did not have a material adverse impact on the Company’s consolidated results of operations, financial condition and cash flows.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 supercedes the existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” Under SFAS No. 146, a liability for exit or disposal costs will be recognized and measured initially at its fair value in the period in which the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002 with earlier application encouraged. The Company will adopt this standard on future exit or disposal activities.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain statements that are, or may be, “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, including the Company’s future product initiatives, sales and financial performance. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties.

Certain factors that could influence the matters discussed in, and cause actual results to vary materially from any results expressed or implied by, such forward-looking statements include the matters discussed under “Risks and Uncertainties” in this Form 10-Q and from time to time in the Company’s SEC reports, including the Report on Form 10-K for the year ended December 31, 2001 and the annual report to shareholders. There can be no assurance that such future events or projected results will be achieved and actual results could differ materially. The Company does not undertake any obligation to update any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

A portion of the Company’s business is transacted in foreign currencies and the Company may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. The Company monitors the volatility of foreign currencies and may utilize hedging programs or other derivative financial instruments commonly used to reduce financial market risks if deemed appropriate. To date the Company has not utilized any derivative financial instruments.

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 and market risk by depositing its cash and cash equivalents with major financial institutions in high-quality instruments with maturities of twelve months or less.

13

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Item 4. Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 15d-14.

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

In the Company’s evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, the Company sought to determine whether there were any significant deficiencies or material weaknesses in such controls and procedures, or whether the Company had identified any acts of fraud involving personnel who have a significant role in the Company’s disclosure controls and procedures. Based upon the foregoing evaluation, the Company’s CEO and CFO have concluded that, subject to the limitations noted above, the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act reports. In addition, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of evaluation, including any corrective actions with regard to significant deficiencies or material weaknesses.

Part II – Other Information

Item 1. Legal Proceedings

From time to time the Company is involved in certain claims and litigation arising out of its operations in the ordinary course of business. Further, the Company periodically is subject to government audits and inspections. In the opinion of the Company’s management, any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Company’s results of operations or financial condition.

Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits:
		None.
(b)		Reports on Form 8-K:
		The Company filed a Form 8-K dated August 13, 2002 to furnish the forms of certifications of its Chief Executive Officer and Chief Financial Officer with respect to the Company’s report on Form 10-Q for the quarter ended June 30, 2002, which certifications were submitted to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14

Table of Contents

Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

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.

15

Table of Contents

CERTIFICATIONS

I, Barry D. Emerson, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Elite Information Group, Inc. (the “registrant”);
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

16

Table of Contents

I, Christopher K. Poole, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Elite Information Group, Inc. (the “registrant”);
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize, and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

17