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Form 10-K

For the transition period from __________ to __________.

Commission file number 0-20034

ELITE INFORMATION GROUP, INC.

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $.01 par value

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 [  ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ].

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [  ] No [X].

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 28, 2002 computed by reference to the closing sale price on such date, was $64,672,154.

As of March 14, 2003, 7,864,620 shares of Common Stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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Elite Information Group, Inc.
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PART I

As used herein, unless the context requires otherwise, the terms “we,” “our,” “us,” (or similar terms) mean and include Elite Information Group, Inc. and its subsidiaries.

Item 1. Business

Overview

Elite Information Group, Inc. (“Elite” or the “Company”) is the parent company to Elite Information Systems, Inc. (“EIS”), and Law Manager, Inc. (“LMI”). Elite is an international provider of a comprehensive suite of business software to professional services firms. The Company’s customers include legal and other professional services organizations of all sizes such as accounting, consulting, advertising, public relations, financial services, actuarial, software, security, insurance, market research and systems integration firms, as well as corporate law departments and government agencies. 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 as hosted solutions (“Elite Online Solutions”) where EIS maintains hardware, software and database support that is accessed remotely by the customer. LMI provides software products including advanced case management, calendar and docketing, records management and resource management, as well as a full range of implementation services to large corporate legal departments and government agencies.

The Company’s two reportable segments are the businesses of its operating subsidiaries, EIS and LMI. See operating results by segment in Note 3 of Notes to the Consolidated Financial Statements.

General Development of the Business

EIS entered the legal software business with a proprietary timeshare accounting system in 1981, after the sale of a predecessor business engaged in office equipment and office automation activities since 1947. In 1994, EIS was acquired by Broadway & Seymour, Inc., a North Carolina based public company that had been engaged in the software product and services business since 1981, that was pursuing a strategy of growth through acquisition of products and businesses. By 1995, Broadway & Seymour had begun efforts to integrate its primary business units, which serviced financial institutions and law firms. To streamline its business, the Company began divesting certain of its non-core assets. On May 19, 1999, the Company sold its Customer Relationship Management business (“CRM”), based in Charlotte, North Carolina, to Science Applications International Corporation (“SAIC”). This divestiture left only Elite in the Broadway & Seymour portfolio. Following the sale of the CRM business, the Company changed its name from Broadway & Seymour, Inc., to Elite Information Group, Inc., to reflect the Company’s new single-purpose business. The Company also changed its NASDAQ trading symbol to ELTE and continues to be traded as a National Market Issue on the NASDAQ.

On July 11, 2000, the Company acquired all of the outstanding capital stock of Law Manager, Inc.

Business Strategy

The Company’s strategy is to develop and market industry-leading business software solutions for the professional services markets, both within the United States and internationally. The Company currently offers software and services to assist in financial, practice and knowledge management functions for legal, accounting, consulting, advertising, public relations and other professional services firms. Through its LMI subsidiary, the Company also provides sophisticated case management solutions to large corporate legal departments and government agencies.

The Company’s EIS subsidiary markets its suite of client-server and web-based financial and practice management products (see “Product and Services Based Solutions” below) primarily in the United States, Canada, the United Kingdom, Europe, Asia, Asia Pacific, South America and South Africa. The Company’s customer base is made up largely of law firms. The Company is focusing on expanding its presence in other segments of the professional services markets, including accounting, consulting, advertising, public relations and other professional services firms.

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The Company believes that the integration of a full range of applications that share a single database provides a significant competitive advantage. The Company continues to enhance and expand its product line, with products like a new CRM solution, a document management solution, advanced time tracking and reporting systems, a suite of business intelligence tools, and resource and project management products, all of which are designed to meet the needs of the professional services industry. Each of the new products integrates with the Company’s existing suite of products and shares a single database. The Company’s Globalization Release, featuring multi-language, multi-currency, taxation and localized capabilities, provides functionality required to service international markets.

LMI was acquired in July 2000 in order for the Company to take advantage of LMI’s case management technology and expertise, which includes advanced case tracking, calendar and docketing, records management and resource management solutions, as well as LMI’s full range of implementation services. The Company expects to achieve further advantages by extending its capabilities into the corporate legal and government sectors and by coordinating the development and marketing of its existing products along with products from LMI.

Product and Services Based Solutions

The extensive suite of products and services provided by Elite’s EIS and LMI business segments are discussed below. Products mentioned in this document are for identification purposes only and may be trademarks of Elite Information Group, Inc., its subsidiaries or third parties.

     Financial Management

	Billing Manager is a comprehensive accounting and information management application for legal and professional service firms. The Billing Manager responds to clients’ billing requirements with on line management information. Time entry is a built in feature of Billing Manager.
	Financial Management System is a general ledger, accounts payable, and collections software suite that supports multi-currency and simultaneous cash and accrual-based accounting, as well as budgeting features.
	Elite Document Studio is a document transformation solution that improves client satisfaction through low-overhead preparation of value-rich reports, billing packets, and other deliverables, using information from a variety of different formats.
	Elite Professional Time Entry Solutions help shorten the work-to-cash cycle. Timetrax is a time entry application for firms that require very sophisticated and flexible operation in the office and on the road. Elite also offers a wireless solution that enables handheld device users to enter and upload time and expense information into the Elite system. Elite provides time entry as a built-in feature of the Elite Billing Manager, in both client-server and web-based platforms.
	Image Processing Manager is a state-of-the-art imaging technology that allows clients to scan and view invoices and optionally to have the images printed with bills, without any additional steps.

     Practice Management

	Case Manager is a case-tracking software system and conflicts/related-party database. This system also includes calendar and docket functions, a case database, a related-party tracking system, on-line viewing of case information and personal calendars, and a user-defined reporting system.
	Conflicts Manager is an integrated software tool for checking conflicts of interest, based on a full-text search engine.
	Records Manager is a software tool for managing both internal and external records, with bar code support and integration with the Elite Conflicts Manager.

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     Engagement Management

	Project and Resource Manager is a web-based solution that allows team leaders to create project teams and then manage team progress with real-time, accurate project information. Project and Resource Manager uses the Microsoft® Project application as the desktop client for project design, and it integrates with Elite’s financial management system to display real-time costs to the project manager.

     Customer Relationship Management

	Apex is a firm-wide relationship management tool with advanced marketing automation capabilities. The firm’s collective client information is consolidated within the application and delivered directly to the desktops of users.

     Knowledge Management

	Encompass is a document management solution built on a portal platform that provides users with a straightforward web-based interface that delivers key document management functionality, a platform for collaboration, and integration with widely used desktop applications and the Elite application suite.
	Elite Dashboard consolidates information from multiple sources on a single Web page, readily available on a user’s desktop from email or a Web browser. This integrated portal can include data from various Elite systems and other sources.

     Business Intelligence

	Elite’s Business Intelligence suite provides analytical and reporting tools to measure the profitability and performance of a firm. Combining OLAP technology, real-time data warehousing, a rich collection of report templates, and useful tools like Elite Extend, Elite Business Intelligence enhances decision making through information distribution.

     Elite Online Solutions

	e-Connect from Elite enables firms to utilize Elite’s suite of applications through the Internet in a hosted, secure and reliable environment. This Internet-based system eliminates the need for hardware/software installation, upgrades and maintenance while delivering Elite’s existing applications from any Web browser.
	Timesolv and Worksolv provide Internet-based time tracking and invoicing solutions that are designed to address the specific needs of smaller fee-based businesses, including legal, accounting, management and computer consulting, and engineering firms. Using a standard Web browser and Internet connection, customers can track time and expenses, produce invoices, generate information reports, manage accounts receivable and streamline a variety of other practice management functions.

     Middleware and Other Utilities

	Elite Workflow is a software application designed to automate paper-intensive processes by using electronic forms, pre-defined routing of these forms, and password-based approval of the transactions represented by these forms.

	Web Services API maximizes the value of data stored across Elite applications and integrates Elite solutions with third-party applications. The first set of standardized integration points to the Elite system, Elite Web Services API is a major breakthrough for third-party providers and other organizations that want to share information across applications and platforms.

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     Elite Express

	Elite Express is a streamlined version of Elite’s practice and financial management solution, including billing, general ledger and accounts payable, and is designed for efficient and cost effective implementation.

     Law Manager Applications and Platforms

	Law Manager applications deliver comprehensive case and matter management solutions for legal departments and government agencies.

	LawManager.Pro incorporates new middle-tier technology, which allows clients to choose between web, three-tier and client/server deployments. Law Manager.Pro provides an intuitive Microsoft Outlook user interface. The software can be deployed as a standard Windows application or run within a browser. It can be deployed over the customer’s intranet or accessed securely over the Internet.
	LawManager.Net enables users to access complete LawManager solution functionality from a standard Internet browser. LawManager.Net reduces administrative overhead and speeds deployment across large user populations.
	LawManager.Mobile allows deployment of LawManager solutions using a wireless Palm Pilot or Pocket PC micro-browser interface.

     Professional Services

	The Company offers its customers a comprehensive array of professional services, including installation, implementation, data conversion, training and consulting, as well as customer support and maintenance. The Company views its customer services as a significant part of its strategy to establish and maintain strong customer relationships.
	The Company has an extensive field operations unit made up of industry-experienced employees that work with customers to design and execute an implementation plan based on the customer’s business systems and processes. The EIS Consulting Services unit also provides post-sale consulting and technical services to its client base on a fee-for-services basis. Such services include systems integration, process improvement, training, management reporting and other consulting.
	The majority of Elite’s clients contract with the Company for maintenance and support services at annual fees under agreements that are renewable on an annual basis. The degree of maintenance service provided to customers differs depending on the system being supported. Generally, support contracts entitle users to telephone support and regular product releases. In addition, the Company offers certain training classes and multi-media based instruction to customers that aid in the implementation and effective use of the Company’s solutions.

Research and Development

To meet the changing needs of the professional services industry, the Company expends resources to continually develop and enhance its proprietary software products. The Company believes that ongoing commitment to research and development is important to the long-term success of the business.

For the years ended December 31, 2002, 2001 and 2000, the Company’s total research and development expenses (excluding acquired in-process research and development) were $10.4 million, $6.7 million and $6.1 million, respectively. The Company capitalized external software development costs of approximately $275,000 in 2002. Research and development expenses for 2001 were reduced by internally developed software costs that qualified for capitalization totaling approximately $1.2 million.

There are inherent risks in the development and introduction of a new product. For example, new products may have quality or other defects in the early stages of introduction that were not anticipated in the design of those products. The Company cannot determine the effects on operating results of unanticipated complications in product introductions or transitions.

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Sales and Marketing

New customer contacts are generated by a variety of methods, including customer referrals, personal sales calls, attendance at trade shows and seminars, advertising in trade publications, direct mailings to targeted customers and telemarketing. These efforts are managed by a direct sales team. The Company also has dealer relationships to market and sell its products, primarily in international markets.

The Company maintains a direct sales force in which sales personnel are given sales responsibility within their targeted regional and customer markets. Additionally, senior management and technical subject matter experts within the Company are directly involved in obtaining and supporting customer relationships.

The Company’s business strategy also emphasizes sales to existing customers. Sales to existing customers include system upgrades, expansion of license rights, installation of new products, migrations to new database or operating system platforms, employee training, consulting services and maintenance and support services.

Customers

The Company serves a client base in professional services markets. Elite holds the highest market share for providers of practice management applications to the United States legal industry in its target market of the largest 1,000 law firms, maintaining a market share of over one-third of such firms. The Company is also one of the top providers to the largest 100 law firms in the United Kingdom. Many of the Company’s other customers are in such professional services markets as accounting, consulting, advertising, public relations, financial services, actuarial, software, security, insurance, market research and systems integration, as well as corporate law departments and government agencies. In addition, through Elite Online Solutions, the Company serves small and sole practitioner firms in similar professional services markets.

The Company provides software solutions under a variety of financial arrangements, including fixed fee contracts and billings on a time and materials basis. Additionally, through e-Connect, the Company’s Internet-based ASP hosting solution, clients can utilize Elite’s products via a hosting model with contractual payments on a monthly basis.

The majority of the Company’s revenue is concentrated in the legal services industry. However, no single customer accounted for 10% or more of the Company’s 2002 consolidated net revenue.

Geographic Information

The Company’s assets are principally located in North America. The Company’s revenue is principally generated in the United States; however for the years ending December 31, 2002, 2001 and 2000, the Company’s revenue before expense reimbursements generated outside the United States represented 15%, 12%, and 14% of consolidated revenue before expense reimbursements, respectively. For those same periods, revenue before expense reimbursements generated in the United Kingdom and Europe represented approximately 11%, 9%, and 11% of consolidated revenue before expense reimbursements, respectively. Since certain of the Company’s contracts with non-U.S. customers denominate the amount of payments to be received by the Company in local currencies, exchange rate fluctuations between such local currencies and the U.S. dollar will subject the Company to currency translation risks. Also, the Company may be subject to currency transaction risks when the Company’s contracts are denominated in a currency other than the currency in which the Company incurs expenses related to such contracts. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations and are not significant.

Competition

The Company’s markets are very competitive, due in part to the rapidly changing technology underlying the Company’s products and services. The Company produces a number of different software products and applies those products across the professional services markets. The Company has a number of competitors for each product and in each market. Some of these competitors compete with the Company with regard to a number of products or markets. Some of these competitors have greater financial, technical and marketing resources than the Company. The Company believes that no one single competitor is dominant across all markets in which the Company participates.

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The Company believes that competitive factors for engagements in the professional services markets include knowledge of the industry, capabilities of resources, technologies utilized, ease of use, ability to customize solutions and breadth of functionality of solutions and price. The Company believes it competes favorably on the basis of these factors.

Backlog

A significant portion of the Company’s revenue is derived from work to be performed under longer-term contracts entered into in the ordinary course of business. At December 31, 2002, 2001 and 2000, the Company’s EIS business had backlog of unearned revenue from signed contracts of approximately $29.2 million, $23.1 million and $15.9 million, respectively. Backlog for the Company’s LMI business at December 31, 2002, 2001 and 2000 totaled approximately $4.8 million, $2.4 million and $1.8 million, respectively. The Company expects that substantially all of its backlog at December 31, 2002 will be implemented during fiscal 2003, barring project delays or cancellations.

Seasonality

The Company’s business is somewhat seasonal, including the timing of its sales, revenues and hiring of personnel. Sales levels have historically been relatively high in the fourth quarter, as customers purchase to fulfill their annual budget requirements, which have helped support the Company’s year-end backlog balances. Elite has traditionally experienced increased personnel hiring during its first quarter as employees are recruited to implement new contracts signed the previous year and to staff the Company’s product development initiatives for the new year. Revenues in the second half of the year tend to be higher than in the first half as the added implementation resources provide increased revenue generating capacity. See “Note of Caution Regarding Forward Looking Statements” in Item 7.

Employees and Recruitment

The Company believes that its future success will depend in part on its continued ability to hire and retain qualified employees. The Company believes its relations with its employees are good. Competition for personnel in the Company’s industry is intense. Although it actively recruits personnel and provides professional employees with career path opportunities, there can be no assurance that the Company will be successful in attracting and retaining sufficient numbers of qualified personnel to conduct its business in the future. The Company seeks employees with expertise and experience in its chosen markets.

At February 28, 2003, the Company had 426 full-time employees. None of the Company’s employees are represented by a labor union.

Copyrights, Trademarks, Patents and Licenses

The Company currently markets several proprietary software products. Apart from a limited number of third party components, the bulk of the Company’s products consist of software and related documentation developed by the Company for which the Company holds the copyright. The Company distributes its software only subject to licenses which restrict the licensee’s rights to use and disclose the software so as to protect the Company’s rights. The Company believes that the nature of its customers, the importance of the Company’s products to them and their need for continuing product support reduce the risk of unauthorized reproduction. However, there can be no assurance that any such steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary rights or independent third-party development of functionally equivalent products.

The Company believes that its services and products do not infringe on the intellectual property rights of third parties. However, there can be no assurance that an infringement claim will not be asserted against the Company in the future. Any such claim, if resolved against the Company, could adversely affect the Company’s reputation, preclude it from offering certain products and services, and subject it to substantial liability.

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Website Access to Reports

The Company’s website is www.elite.com <http://www.elite.com>. The Company’s annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and amendments to those filings, as well as its other SEC filings, can be accessed free of charge on the Company’s website via hyperlink to a third party database of documents filed electronically with the SEC. These documents are available for access as soon as reasonably practicable after the Company electronically files these documents with the SEC.

Item 2. Properties

The Company’s corporate offices are located at 5100 West Goldleaf Circle in Los Angeles, California. The Company’s lease of those premises (approximately 40,000 square feet) expires July 2008. The Company leases 1,600 square feet of office space in London, United Kingdom for servicing its UK and European customer base. The Company leases approximately 12,500 square feet of office space in Conshohocken, Pennsylvania, which houses its LMI staff.

The Company also leases additional facilities, as needed, principally as sales offices in other cities in North America. The Company believes that its facilities are adequate for its current needs.

Item 3. Legal Proceedings

The Company is involved in litigation from time to time that is routine in nature and incidental to the conduct of its business. The Company believes that the outcome of any such pending litigation would not have a material adverse effect on its consolidated results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company’s stockholders during the fourth quarter of the fiscal year ended December 31, 2002.

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PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholders’ Matters

The Company’s common stock, $0.01 par value, trades on the National Association of Securities Dealers, Inc. Nasdaq National Market System (“NASDAQ”) under the symbol ELTE (formerly BSIS). The following table shows the price range of the Company’s common stock for the past two years:

Holders of Record

As of February 28, 2003, there were approximately 118 holders of record of the Company’s Common Stock.

Dividends

The Company has never declared or paid any cash dividends on its Common Stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying any cash dividends in the foreseeable future.

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Item 6. Selected Financial Data

The following table summarizes certain selected financial data and is qualified by reference to, and should be read in conjunction with, the Company’s consolidated financial statements and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below. The selected financial data is derived from consolidated financial statements that have been audited by PricewaterhouseCoopers LLP, independent public accountants.

(a)		The comparability of the results of operations for the periods presented is affected by dispositions of certain businesses as discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations. On May 19, 1999 the Company sold its Customer Relationship Management business (“CRM”). Therefore, 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. Historical operating results for continuing operations in 1999 and prior periods reflect higher levels of corporate headquarters related costs, which were incurred in support of both, continued and discontinued operations.
(b)		The Company adopted the Emerging Issues Task Force “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (EITF 01-14) in fiscal 2002. Adoption of the EITF resulted in an increase in both revenues and cost of revenues in the amount of reimbursable expenses billed for the periods presented. All prior periods presented have been restated to reflect this new EITF on a consistent basis.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read along with our consolidated financial statements, the notes to those statements, and other financial information appearing elsewhere in this document

Overview

Elite Information Group, Inc. (“Elite” or the “Company”) is the parent company to Elite Information Systems, Inc. (“EIS”), and Law Manager, Inc. (“LMI”). EIS is an international provider of a comprehensive suite of business software to professional services firms. The Company’s customers include legal and other professional services organizations of all sizes such as accounting, consulting, advertising, public relations, financial services, actuarial, software, security, insurance, market research and systems integration firms, as well as large corporate legal departments and government agencies. 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 as hosted solutions (“Elite Online Solutions”) where EIS maintains hardware, software and database support that is accessed remotely by the customer. LMI provides software products including advanced case management, calendar and docketing, records management and resource management, as well as a full range of implementation services to law firms, large corporate legal departments and government agencies.

Note of Caution Regarding Forward-Looking Statements

This report on Form 10-K 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. 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, but are not limited to, those discussed in the section entitled “Risks and Uncertainties” of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. There can be no assurance that such future events or results will be achieved, and actual results could differ materially. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this report on Form 10-K and in other documents we file from time to time with the Securities and Exchange Commission.

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 (“GAAP”). The presentation of financial statements in conformity with GAAP 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 accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements relate to revenue recognition, allowance for uncollectible receivables and realizability of long-lived assets. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Company’s Audit Committee. See the accompanying Notes to Consolidated Financial Statements, which contain additional information regarding our accounting policies and other disclosures required by GAAP.

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Revenue Recognition

The Company recognizes revenues in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, “Software Revenue Recognition,” as amended, and in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements.” Our specific revenue recognition policies are as follows:

Our software license arrangements generally include consulting implementation services and usually do not qualify for separate accounting of the license and service transactions. Accordingly, as permitted by SOP 97-2, we utilize contract accounting for these arrangements in accordance with the relevant guidance of SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” and Accounting Research Bulletin No. 45 “Long-Term Construction Type Contracts”. Therefore, license revenue is typically recognized together with the consulting services based on contract accounting using the percentage-of-completion method of accounting. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific acceptance criteria, which may affect collection of the license fees; (2) where the license payment is tied to the performance of implementation services; or (3) where services include significant modification or customization of the software.

The Company estimates the percentage of completion on contracts utilizing labor hours incurred to date as a percentage of total estimated hours to complete the project. The Company recognizes no more than 90% of the total contract amount for new contracts until contract completion and the final billed amounts have been collected. If total cost estimates exceed revenues, we accrue for the estimated losses immediately. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the percentage of completion method of accounting affect the amounts of revenue and related expenses reported in our Consolidated Financial Statements. A number of internal and external factors can affect our estimates, including software performance, utilization and efficiency variances and specification and testing requirement changes. Revenue from the licensing of software and the sale of hardware products having no significant ongoing obligations is generally recognized upon delivery of the product provided collection of the resulting receivable is probable. Maintenance revenue is recognized over the contract term.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts based on an estimate of losses expected to result from the inability of its customers to make 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.

Realizability of Long-Lived Assets

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. In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, the Company tests goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment testing consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Segment Information

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information", establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. 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 3 of Notes to the Consolidated Financial Statements.

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Significant Transactions

The following is a brief summary of the significant transactions that have had a material effect on the Company’s historical operating results and financial condition. See Note 2 of Notes to Consolidated Financial Statements, included herein, for additional discussion related to such transactions.

Acquisitions

On July 11, 2000, the Company acquired all of the outstanding capital stock of LMI. In each of July 2002 and 2001, the Company paid an additional $1.3 million to the sellers of LMI pursuant to the terms of the LMI purchase agreement, which was recorded as additional purchase price, bringing total consideration paid for this business to approximately $16.3 million, including acquisition costs. An aggregate of $1.3 million of additional purchase price may be payable during 2003 on the anniversary date of the acquisition, subject to certain conditions. The consideration paid to date by the Company was funded by its existing cash reserves.

Disposition

In May 1999, the Company sold its Customer Relationship Management business (“CRM”), based in Charlotte, North Carolina, to Science Applications International Corporation (“SAIC”). During the 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. During the year ended December 31, 2001, the Company recorded a gain of $271,000, net of income taxes, related to the sale of this discontinued operation.

Results of Operations

2002 Compared to 2001

The Company’s revenue before expense reimbursements for the year ended December 31, 2002 totaled $77.7 million, which was up 13% from the $68.8 million reported in the previous year. Elite’s revenue growth for 2002 compared to 2001 was due mainly to higher EIS consulting services billings, increased maintenance support revenue reflecting its growing customer base and higher revenue for LMI. EIS revenue before expense reimbursements for the year ended December 31, 2002 totaled $68.5 million, an 11% increase compared to 2001. During 2002, contract signings for EIS included substantially higher follow-on sales to its existing customer base. Such sales tend to include a lower software content compared to sales to new customers. As a result, EIS experienced a shift in sales mix towards a higher proportion of services content, resulting in lower software license revenue compared to 2001. LMI revenue before expense reimbursements for the year ended December 31, 2002 totaled $9.2 million, up 34% from 2001, supported by the growth in its consulting and implementation servic