Elite Group Inc (OTCMKTS:ELTZ) In The Midst Of A Turnaround

Our editorial team has identified Elite Group Inc (OTCMKTS:ELTZ) as our next stock to take a look at. Elite Group has started paying down its debt. We identified a transaction, hidden in one of the company's communications, which we will assess in this article. This document indicates that the company found the way to reduce its current liabilities. This is great news and may mean a major turnaround is in the works.SourceElite GroupElite Group Inc. was formed on May 21, 2013. The initial business objective of the company was the sale of unique editions of books online. On January 26, 2016, the company was acquired by another shareholder, who acquired full control of ELTZ, changed the business model and also changed the name. All the previous directors resigned and the new business owner appointed new ones. The market seemed to appreciate the new corporate changes, because the volume increased after they were released.What is the new activity? The company is focused on recycling water for the oil industry. At the moment, the management's objective is to acquire and consolidate water processing assets in prolific oil and gas exploration areas, mainly in the Eagle Ford, and the Permian Basin.Why do we need to recycle water in this industry? For those who are not familiar with the water issue that oil and gas engineers face in their daily work, we will explain this issue. Oil companies need to store millions of gallons produced due to the hydraulically fracture system used. Additionally, this water usually contains chemicals that are extremely dangerous for the ecosystem. Obviously, in every country, there are mandatory recycling policies that oil and gas operators need to respect. ELTZ will be monetizing these needs. Does ELTZ own any property or has commenced its operations? Yes, we found out that the company owns one Salt Water Disposal property on oil and gas land located in Carrizo Springs, Texas, acquired on August 17, 2015.The company is working on its debtOn April 21, 2017, the company noted the following transaction:

"$41,000 of accounts payable were extinguished in exchange for the issuance of 14,300,000 shares of common stock of the Company which have been sold into the market." Source

What does it mean? It means that the company successfully concluded an exchange of shares for debt. This transaction usually happens when the company is about to exit from a restructuring phase, and it usually comes along with upwards trend. Why? Very simple, because the company is able to reduce its debt, and will be able to continue with its operations. Have a look at the reaction of the share price after the new information was released.

Source

In our opinion, the company may release more press releases like this one, because the company has other liabilities. The share price may see a similar spike every time the debt is reduced in this way. In addition, the last quarterly report was released on February, 2017. Investors can have access to it here. We found other deals like the one noted earlier, but this time signed with other companies. This is an example, but there are many other agreements mentioned in the document:

"On November 11, 2016, the Company entered into a Settlement Agreement and Stipulation with Rockwell pursuant to which the Company agreed to issue common stock to Rockwell in exchange for the settlement of $49,500 (the “November 2016 Settlement Amount”) of past-due obligations and accounts payable of the Company." Source

Additionally, in this 10-Q, we saw that the company still has a long way to go for reducing its debt. The company has $1,460,856 in total liabilities.The fact that the company is reducing its debt is good news. The financial risk supported by shareholders will be less important, thus the risk of bankruptcy is also reduced. However, shareholders need to be alert since ELTZ is using shares to pay down its debt, which increases another dangerous risk; the dilution risk. However, if the company can grow its business, it will offset the dilution.ConclusionAs it was highlighted in the press release, the company just signed a deal to reduce its debt by paying via shares. The market appreciated the transaction and the share price increased the following day. In our opinion, given the amount of liabilities of the company, more debt reduction deals will happen. Consequently, the share price may increase again if this process continues and may do it even more if the company is able to pay by cash without issuing new shares. We encourage investors to check the company's site from time to time, or subscribe to our email alerts in order to obtain fast news about the company. We will be updating our subscribers as soon as we know more. For the latest updates on ELTZ, sign up below!Disclosure: We have no position in ELTZ and have not been compensated for this article.