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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
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FORM 10-SB/A-4
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
ELITE LOGISTICS, INC.
(Exact name of registrant as specific in its charter)
Idaho 91-0843203
(State of Incorporation) (I.R.S. Employer
Identification No.)
1201 North Avenue H
Freeport, Texas 77541
(Address of executive offices, including
zip code.)
Registrant's telephone number: (979) 230-0222
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Glossary of Terms
Two Way Pager A radio frequency communications device
containing a transmitter and receiver that is
operated on a Federal Communications
Commission assigned frequency for pager based
data transmissions. These devices are used to
transmit and receive small amounts of data
such as small text and, e-mail messages, short
news releases, as well as return phone call
numbers.
Paging Device A one way (receiver) or two way (receiver and
transmitter) radio frequency communications
device that is operated on a Federal
Communications Commission assigned frequency
for pager based data transmissions. These
devices are used to transmit and/or receive
small amounts of data such as small text and
e-mail messages, short news releases, as well
as return phone call numbers.
P. D. A. Personal Data Assistant, an electronic
personal data device designed to allow
individuals to electronically maintain
personal data such as schedules, notes and
recently have been improved to allow the
sending and receiving of data such as e-mail
through the use of built in radio frequency
transmitters and receivers.
Two way reflex telemetry Similar to a two way paging device but
operating over a different frequency
authorized by the Federal Communications
Commission. These devices are Personal Data
Assistants that have been designed with
messaging capabilities. G. P. S., Global
Positioning System A system designed by the
U.S. Government for locating assets worldwide
using satellites with radio frequency
transmitters that transmit specific location
calculations to any G. P. S. receiver, which
in turn converts the data into the location of
the receiver.
O. E. M. Original
Equipment Manufacturer A company that has an authorization or
agreement allowing the purchase of components
from another company and uses those components
inside of their own product for resale.
Normally the
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provider of the component part sets standards
that must be adhered to by the end product
manufacturer.
L. M. S. Location Management Systems are systems
designed to manage location specific data
either input manually or collected
electronically.
P. C. S. Packet Cellular Services, data transmissions
over analog cellular carrier service systems.
C. D. P. D. Cellular Digital Packet Data is the
transmission of data packages over digital
cellular carrier service systems.
Background
Elite Logistics Inc. (formerly Summit Silver Inc.) was incorporated
under the laws of Idaho on December 26, 1968 to engage in the business of
mining. Summit Silver, Inc. initiated its operations as an exploration company
in 1968 when it acquired Kimberly Mine in Idaho through a merger with Kimberly
Gold Mines, Inc., a Washington corporation. Summit Silver, Inc. conducted
sporadic exploration and development of the Kimberly Mine and, on several
occasions, leased the mine to junior mining companies. No production of minerals
of economic value occurred at the mine. The Kimberly Mine was the centerpiece of
the activities of Summit Silver, Inc. for over thirty years. Summit Silver, Inc.
also acquired a number of mining properties, each of which contained a number of
unpatented mining claims. The properties were located in the western United
States. Exploration of the properties indicated that they were not worthy of
development.
On November 17, 1999 Summit Silver, Inc. changed its business purpose
and acquired all of the issued and outstanding shares of common stock and
preferred stock of Elite Logistics Services Inc., a Texas corporation. On
November 5, 1999, Summit Silver, Inc. amended its articles of incorporation and
changed its name to Elite Logistics, Inc.
All reference to "the Company" refers to Elite Logistics, Inc.
(formerly Summit Silver, Inc.) and its wholly owned subsidiary, Elite Logistics
Services, Inc.
The Business
The Company is engaged in the business of designing, developing, and
marketing a wireless monitoring and tracking system that enables a user to
monitor the exact location of the subject mobile assets at any time. The Company
outsources the manufacturing of the product to third parties.
The System
The Company's PageTrack(TM) Intelligent Vehicle Management Systems (the
"System") allows the user to monitor, track, analyze, and direct the movement
of, objects, including ground vehicles, marine vessels, railway equipment and
valuable objects in transit. It also allows the monitoring or control of
functions on a vehicle including
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locking/unlocking doors, window up/down, disabling the vehicle etc. The vehicle
can be tracked controlled via 2-way pager, PDA (e.g. Palm Pilot), the Internet,
or by calling Elite's 24 hour per day call center.
The components of the System are:
A unit that integrates a two-way reflex telemetry unit and a Global
Positioning System ("GPS") installed in the monitored vehicle.
Web-enabled Geographic Information Systems ("GIS") technology that
allows customers to access the data collected through the Company's system,
including displaying the vehicle's location on a map, via the Internet.
A Network Operations Center ("NOC") where the system servers are
maintained and the network elements are monitored 24 hours per day, 7 days per
week.
A Customer Control Center ("CCC") where operators are available to
assist customers 24 hours per day, 7 days per week and to provide communications
services to customers that do not have Internet access.
A Web-enabled Logistics Satellite Operating System ("LSOS") Internet
based software.
Operation of the System
A GPS located in a vehicle transmits a signal to Elite's Server located
within its Network Operations Center via Skytel's reflex telemetry network.
Elite's customers can either monitor the information through their own computer
systems via the Internet via a 2-way pager or PDA, or in the event the customer
does not have Internet access, it may obtain the desired information directly
from the Company through its 24 hour Customer Support Center.
The System integrates proprietary technologies with technologies
licensed from MapInfo, Oracle and Microsoft. The Company licenses commercially
available technology whenever possible rather than acquiring internally
developed systems. The System runs on a Microsoft Windows NT 4.0 Server and
Oracle Database. Geographical information services and map data are maintained
on MapInfo software also running on Windows NT 4.0 Server.
The Company's web site is designed for fast downloads and compatibility
with most browsers. Pages are deliberately built with minimal graphics and do
not require client-side plug-ins or Java to view.
LSOS(TM) Fleet Management Software
LSOS(TM) is a proprietary fleet management software application that
provides fleet customers accurate fleet vehicle location through a detailed
digitized map displayed on a personal computer connected to the Company's
network operations center via the internet. LSOS(TM) operates in a Windows or
browser environment on a personal computer located in the customer's office. The
open client server architecture permits LSOS(TM) to operate on a variety of
hardware platforms and to
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be integrated with the customer's other management information systems (such as
billing, accounting and human resources), allowing the customer to use location
information to measure and improve productivity in the field.
The Internet interface allows customers to monitor vehicle locations on
a detailed map in near real-time. The Company defines "near real-time" as
between 40 seconds and four minutes of the time of the actual event. LSOS(TM)
updates and can display the position of all PageTrack(TM) equipped vehicles at
periodic intervals determined by the customer. Customers can adjust the level of
map detail through a zoom-in/zoom-out feature, allowing a customer to
simultaneously view the location of all fleet vehicles or to focus on a single
vehicle.
The Company believes that software solutions that must be customized to
the needs of individual fleet customers are too expensive and time-consuming to
be sold effectively to any but the largest fleets. That is because most
locations software systems on the market today are not Internet based and
require the customer to purchase a software license to reside on their
computers. After purchasing such software, the customer normally has to pay an
additional cost for the provider to modify the purchased software to better fit
the customer's requirements. By comparison, the Company's software is Internet
based and runs on virtually all of the common Internet browsers. As a result,
there is normally no additional software purchases required for the use of the
Company's system. LSOS(TM) is therefore designed to address a wide range of
customer requirements. By emphasizing its off-the-shelf, user-friendly software,
the Company believes it can attract a wide range of customers, many of whom
would otherwise use less sophisticated communication and management systems, if
any at all.
LSOS(TM) will automatically complete selection of the most economical
and available transport (one which not committed to another operation; has cargo
space available; is not in maintenance; and, is within an acceptable distance
from the pickup point) and select the most efficient and economical route for
review by the operator. LSOS(TM) also reports a driver's completed route, speed,
estimated fuel consumption, estimated time of arrival at next stop, the time of
each stop and provides documentation for customers who require verification of
deliveries.
LSOS(TM) provides a two-way messaging platform allowing alphanumeric
communications from the fleet operator to its drivers and numerous
pre-programmed messages from the drivers to the fleet operator. Customers can
send messages directly to drivers from the computer on which LSOS(TM) operates,
via the Internet or from a 2-way pager or PDA. Messages can be sent to a single
vehicle, several vehicles or broadcast to the entire fleet. The Company's
communication network service costs are generally lower than conventional near
real-time, two-way communication services, such as cellular, SMR and ESMR
services.
Hardware
The Company's PageTrack(TM) hardware integrates off the shelf GPS units
(available from a variety of sources) with Motorola's CreataLink reflex
telemetry unit to provide a means of determining and reporting the location and
status of a vehicle or other asset at any point in time.
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Manufacturing
Strategic relationships have been established with three out-source
manufacturers. The System consisting of software and hardware components is
designed, integrated and tested at the Company's facilities. The components
include circuit boards, enclosures and cables. The manufacturers then assemble
the components to produce the final product.
The Manufacturers are selected based on the following criteria:
* Ability to deliver product to functional specification
* Reputation for quality
* Ability to meet cost objectives
* Financial capability
* Ability to respond to rapid volume increases
The Company has written agreements with all of its manufactures and in
the event one of the Company's current manufactures were to cease doing business
with the Company for any reason, the other manufactures could support the
increase in manufacturing to support the loss for the other manufacturer. The
Company could suffer adverse effects even with this contingency.
Services
Commercial Fleet Management
The Company offers a range of fleet management solutions, depending on
the customer's budget and location and messaging needs. All of these solutions
involve the installation of the PageTrack(TM) IVS in each vehicle. In addition
to the IVS, commercial fleet customers may purchase LSOS software and a two-way
wireless carrier service to communicate with the Page Track units. A pager
messenger service is also available to be purchased by a customer.
The Company believes that the majority of its target customers'
vehicles are currently equipped with wireless communications devices that do not
provide automatic location features, such as two-way radio, specialized mobile
radio ("SMR"), pagers and cellular devices. The Company's products and services
allow commercial fleet operators to
* Increase drive productivity and fleet efficiency by monitoring a
driver's route and assuring that drivers are not deviating from
assigned jobs.
* Improve customer service by visually validating that a vehicle is
proceeding in a timely manner.
* Limit unauthorized vehicle use by monitoring the location of a
vehicle.
* Reduce driver overtime by furnishing the most direct and
efficient route to a job destination.
* Increase security for fleet drivers, vehicles and cargo by
constant monitoring vehicles.
The Company's potential customers include metropolitan commercial
fleets (such as trade service providers, delivery services, bus and taxi fleets,
ambulance companies, telecommunications companies, utility companies, municipal
government vehicles and law enforcement agencies) and long-haul trucking fleets.
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The cost of each product is as follows:
<TABLE>
<S> <C>
Page Track 1G $225.00
Page Track 1P $235.00
Page Track 2 $630.00
</TABLE>
The cost of carrier services range from $1.25 per month to $35.00 per
month, depending upon the number of notifications requested by the customer. In
addition to the foregoing monthly fees, there is a one-time activation fee of
$17.50.
The Company currently has sold only the Page Track 2 units. The Company
has approximately 1500 private customers who have purchased Page Track 2 units
together with one of the monthly carrier service plans. The Company also has
approximately 1000 commercial customers who have purchased Page Track 2 units
with one of the monthly carrier service plans. 89% of the Company's current
revenues are attributable to the sale of Page Track 2 units and 11% of the
current revenues are attributable to carrier services. The Page Track 2 units
and carrier services are used by customers to determine the location of a mobile
asset, such as cars, trucks, boats and airplanes, and are also used to notify a
customer if someone is tampering with the asset.
Security Services
The Company's commercial fleet customers can establish a "zone of
compliance" that activates the Company's security system when vehicles leave the
zone. Customers may also attach an IVS directly to valuable cargo or to
expensive equipment such as construction equipment.
PageTrack(TM) can be integrated with a vehicle's alarm system. If the
vehicle alarm is triggered, or the vehicle is moved, PageTrack(TM) automatically
emits an alert, notifying the Customer and the Company's Customer Control Center
of a potential vehicle theft. If the customer does not respond, the Elite
Customer Control Center will telephone the customer directly. If the customer
believes that the vehicle has been stolen or a driver is in danger, the Elite
Customer Control Center will assist the customer, and local law enforcement in
the recovery or assistance as needed. Our Customer Control Center is staffed
twenty-four hours a day, seven days a week with Company employees who can track
the location of the vehicle and, at the direction of the customer, can contact
local law enforcement authorities and provide them with the location of the
potentially stolen vehicle in near real-time.
The System when installed in conjunction with third party hardware
connected to the ignition system can also immobilize the vehicle and/or lock the
doors to facilitate recovery by law enforcement (or a lien holder).
The Company's ability to offer automated, reliable and near real-time
vehicle tracking at the time of theft differentiates its stolen vehicle recovery
assistance service from other available services. Other vehicle recovery
services, such as LoJack(R) require a subscriber to first realize, and then
report, a vehicle stolen in order to begin the tracking process.
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Information Services/Roadside Assistance
Customers can have a alert notification button installed with the
PageTrack(TM) unit that when activated will notify the Company's Customer
Control Center under the Company's Roadside Assistance Program, through which
the Company will have a tow truck sent to the caller's location. Under its
Automated Roadside Assistance Program, offered to its customers at a higher
monthly fee, the Company can direct a tow truck or other selected services
directly to a subscribing customer's location when the customer presses a
roadside assistance button installed in his or her vehicle.
Industry sources estimate that 25% of roadside assistance calls are for
keys locked in the vehicle. PageTrack(TM) can remotely lock/unlock the doors of
the vehicle by the customer calling the Customer Control Center or the customer
can unlock the doors by using their two way pager, Palm VII or Internet capable
cellular phone. In other situations Customers can use PageTrack(TM) to initiate
a vehicle location or immobilize the vehicle in an emergency.
PageTrack(TM) also has the ability to provide both consumer and
commercial customers a "mobile yellow pages" that provides the customer the
location of nearby prominent businesses or landmarks. The customer can call and
obtain information such as the location of the nearest fast food restaurant,
automatic teller machine, gas station, hospital, police station, or interstate
on-ramp.
The Company's proprietary Internet monitoring service also allows its
subscribers to locate their vehicle(s) in near real-time and report its location
for compliance, security and convenience purposes. Alternatively, the subscriber
could call the Elite Customer Control Center, provide the operator with a proper
User ID and Password for the vehicle to be located and within seconds receive an
automated voice response or live operator indicating the location of the vehicle
at that time.
Marketing
The Company currently markets the System to:
* Shipping and delivery companies
* Other Fleet Operators
* Rental car companies
* Railroad and transportation companies
* Private motor vehicle owners (via dealers and other indirect
channels)
The Company's marketing plan calls for the development of brand
recognition. The Company has retained the public relations firm of Vollmer
Communications to develop such a program. As of the date hereof, the Company's
plan has not been implemented. There is no assurance that the plan will be
implemented or that the plan as implemented will be successful. The Company
anticipates spending approximately 7.5% to 10% of its revenue on its marketing
program.
A variety of target marketing communications techniques will be
employed to achieve this such as public relations programs, advertising and
industry and consumer promotions.
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The Company intends to distribute its products to consumers and
commercial users through the following:
* Dealers selling directly to consumers.
* Value added resellers who will sell the Company's products in
conjunction with non-Company products and services marketed by
the reseller.
* Wholesale distributors who will market Company products to
dealers and value added resellers.
* Original equipment manufacturers who would incorporate the
Company's products into their products, such as an automobile
manufacturer.
The Company will similarly establish an installation, service and
support channel by establishing authorization criteria, standards of service,
quality monitoring and training to ensure customer satisfaction.
Patents and Trademarks
Both the Logistics Satellite Operating System software and the
PageTrack units are patent pending at this time.
The Company owns or has reserved the following URLs www.elitelog.com,
www.elitelogistics.com, www.pagetrack2.com. The Company intends to pursue
ownership of the URL for www.pagetrack.com
Competition
The main components of the Company's system are:
1. A unit that is installed in the monitored vehicle that utilizes
patent-pending proprietary technology that integrates a two-way paging unit
and a GPS (Global Positioning System) unit (which uses data received from
satellite to determine locations).
2. Geographic Information Systems (GIS) technology which is software that
allows customers to access the data collected by our system and display the
vehicle's location on a map, which is viewable via the Internet.
3. A Network Operations Center (NOC) where our computers are maintained and
the network elements (vehicles equipped with our PageTrack unit, our
Internet based systems and the telecommunications network) are monitored 24
hours per day, 7 days per week.
4. A Customer Control Center where operators are available to assist customers
24 hours per day, 7 days per week to provide communications services to
customers that do not have Internet access.
The Company's system comprises a combination of proprietary
technologies and off-the-shelf technologies licensed on standard terms from such
industry leaders as MapInfo, Oracle and Microsoft.
The Company's web site is designed for fast downloads and compatibility
with most browsers.
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The Company's competitors utilize various communication technologies
including:
1. Cellular telephone networks (mostly used for wireless voice
telephone communications, but can also be used for data)
2. RF (Radio Frequency) communication such as that commonly used for
fleet services such as Police, Taxi and Commercial Services
3. Paging networks (normally used for broadcasting of alpha-numeric
data to personal Paging units)
4. Satellite communication (Radio Frequency transmission which utilizes
satellite as a repeater to retransmit a signal to another location)
Some of the Company's competitors combine the above communications
networks with GPS location capabilities to communicate the position of a vehicle
to a control center, from which it is relayed to the customer. Very few to date
have utilized the Internet as a means of conveying location and other data to
their customers. A summary of the Company's major competitors' systems are as
follows:
Commercial Vehicle Market
HighwayMaster - Utilize cellular telephone systems and GPS to transmit
location information to a Dispatcher.
Geotek Communications, Inc. - Utilize RF communications and GPS to
determine location and transmit messages to and from vehicles to a Dispatcher.
Orbcomm and Qualcomm - Utilize Satellite-based communication and GPS to
determine location and transmit messages to and from vehicles to a Dispatcher.
ARDIS and RAM Utilize Pager communication and GPS to determine location
and transmit data from a vehicle to a Dispatcher.
Pinpoint, METS, INC., MobileVision, and ComTrak - Utilize cellular
telephone systems and GPS to determine location and transmit data to a
Dispatcher.
Consumer Vehicle Market
The Company believes that its principal competitor in the consumer
vehicle market is LoJack(R) - The LoJack(R) - system is based on a VHF
transponder (essentially a homing device) with a limited range. The LoJack(R) -
vehicle recovery system requires a customer to report a stolen vehicle to
LoJack(R) - in order to initiate the location process. Once a stolen vehicle
report is received, LoJack(R) - personnel activate the transponder unit located
in the stolen vehicle by transmitting a signal across the area in which the
vehicle was stolen. Police equipped with LoJack(R) equipment track the signal
from the stolen vehicle by the strength of the signal. The LoJack(R) - system is
not an automatic, real-time, screen-based tracking system, and it does not
provide the service features of the Company's PageTrack stolen vehicle recovery
and roadside assistance products.
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Several companies have begun to link GPS location technology with
cellular communications to create emergency location systems for consumer
vehicles. Carcop(R), Onstar(TM) and Lincoln Rescu(TM) all rely on this
technology to provide emergency roadside assistance and/or stolen car recovery.
Centraxx are still developing a system that will track, locate or
monitor vehicles, cargo, and equipment. The system requires a dedicated
infrastructure and will therefore be available initially in very few markets.
A number of products are currently sold for vehicle theft deterrence.
Consumer products range from The Club(R) to automatic alarm systems. While such
systems do not provide the location information or range of services of the
Company's products, they are often available at a significantly lower cost.
The advantages of the Company's products and services relative to its
competition are:
1. The Company's products automatically report when the vehicle alarm
is activated and furnish information regarding the condition of the vehicle.
2. The Company's products furnish wireless notification to personal
devises such as pagers and cellular phones.
3. The cost of the Company's services are approximately 50% less than
competing carrier services.
Cellular and PCS communications systems can cover larger geographical
areas and accordingly are able to cover remote areas that cannot be covered by
current Reflex networks. As such they are better suited for long-haul vehicles
traveling in remote areas.
Governmental Regulation
The Company is not aware of any governmental regulations that affect
the manufacture, development or sale of the System.
Company's Office
The Company's offices are located at 1201 North Avenue H, Freeport,
Texas 99202.
Employees
The Company has 15 full-time employees and one part-time employee. The
Company's Officers provide their services on a full-time basis. See
"Management."
Risk Factors
1. Limited Operating History and Revenues and Development Stage
Operation. Although the Company began operations in August 1997, The Company is
recently formed and is subject to all the risks inherent in the creation of a
new business. Since the Company is a new venture, it has no record of operations
and there is nothing at this time upon which to base an assumption that the
Company's plans will ultimately prove successful. The Company's Independent
Certified Public Accountant's report on the Company's December 31, 1999
financial statements contained an explanatory paragraph which expressed
substantial doubt about the Company's ability to continue as a going concern due
to the Company's loss from operations and lack of revenue.
2. Lack of Market Research. The Company has neither conducted nor has
the Company engaged other entities to conduct market research such that
management has assurance market demand exists for the business contemplated by
the Company. See "Business."
3. Year 2000. The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (year 2000)
approaches. The "year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two digit
year value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Since the Company has not acquired additional hardware or
software technology in support of its services at present, the year 2000 problem
is not anticipated to have a significant impact on the Company's operations.
However, it may have a significant impact on key suppliers and customers with
whom the Company may conduct business in the future.
4. Possible Inability to Service Customers. The Company may be unable
to deliver its products to the market and provide a high level of technical,
installation, Internet and call center support. Failure to complement its
product with a high level of installation and post-sales service could have a
material detrimental impact on the Company.
5. Possible Inability to Establish Distribution Channels. The Company
has a fledgling dealer distribution channel. There can be no assurance that the
Company will be successful in building such a dealer network in the future. The
failure to establish a dealer distribution channel could adversely impact on the
results of our operations.
6. Dependence on Manufacturers. The Company relies on the efforts and
skills of the manufacturers of its products in significant volume. The absence
of qualified manufacturers could adversely affect the Company's operations.
7. Dependence on Key Suppliers. The Company relies on the products and
services of a small number of key suppliers. In particular the Company relies
upon Motorola for the supply of key components and SkyTel for the provision of a
reliable two-way reflex telemetry network. The failure of these key suppliers to
deliver reliable and competitively priced products or services could adversely
affect the Company's operations.
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8. Limited Coverage Area. The Company's System currently only
communicates via the SkyTel reflex telemetry network. Presently this network
covers most major metropolitan areas and several rural areas of the United
States. Coverage is not complete however. There can be no assurance that SkyTel
will expand their coverage areas. Furthermore there can be no assurance that the
Company will be able to successfully adapt its product to work with other
networks or that other network providers will be willing to provide service to
the Company.
9. GPS Antenna Obstruction. Position information depends on the ability
of the GPS antenna to receive signals from multiple GPS satellites. Certain
materials including concrete, metals and other dense substances can obstruct
these signals. The accuracy of the System can diminish if the antenna is unable
to pick up signals from three or more satellites. Furthermore criminals may be
able to defeat the vehicle recovery system if they were to become aware that a
stolen vehicle was equipped with the System.
10. Reliance on Key Distributors. The Company currently has only two
distributors for its System. The loss of either distributor would likely have a
material adverse effect on our business, financial condition and results of
operations.
11. Rapid Technological Change. Significant technological changes could
render the Company's existing technology obsolete. If the Company does not
respond to new technological developments, its financial condition and results
of operations will be materially adversely affected.
12. The System May Contain Technological or Manufacturing Flaws. The
Company's System may contain undetected errors or failures as new versions are
released. Despite testing, there may still be errors in new products, even after
commencement of commercial shipments. The occurrence of these errors could
result in delays in or failure to achieve market acceptance of the System, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, such flaw could give rise to
substantial product liability claims, which also could have a material adverse
effect the Company's business, financial condition and results of operations.
13. Possible Litigation To Protect Intellectual Property Rights.
Litigation may be necessary in order to enforce the Company's patents,
copyrights or other intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement. This type of litigation could
result in the expenditure of significant financial and managerial resources and
could result in injunctions preventing the Company from distributing certain
products. Such claims could materially adversely affect the Company's business,
financial condition and results of operations.
14. Failure To Protect Intellectual Property Rights May Impair the
Competitive Position. The Company will seek to protect its intellectual property
rights through patents, copyrights, trade secrets and other measures, however
the Company cannot be certain that:
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* It will be able to protect our technology adequately;
* Any issued patents will not be successfully challenged by one or
more third parties, which could result in the loss of the right
to prevent others from exploiting the technology claimed in the
patent or inventions claimed in any other issued patents;
* Competitors will not be able to develop similar technology
independently;
* Intellectual property laws will protect the Company's
intellectual property rights; and
* Third parties will not assert that the Company's products
infringe upon their patents, copyrights or trade secrets.
If the Company is unsuccessful in protecting its intellectual property, there
could be a material adverse effect on the Company's business, financial
condition and results of operations.
15. Securities are Subject to Penny Stock Rules. The Company's shares
are "penny stocks" consequently they are subject to Securities and Exchange
Commission regulations which impose sales practice requirements upon brokers and
dealers to make risk disclosures to customers before effecting any transactions
therein.
16. Lack of Key Personnel Insurance. The Company has not obtained key
personnel life insurance on the lives of any of the officers or directors of the
Company. The death or unavailability of one or all of the officers or directors
of the Company could have a material adverse impact on the operation of the
Company. See "Management."
17. No Insurance Coverage. The Company, like other companies in its
industry, is finding it difficult to obtain adequate insurance coverage against
possible liabilities that may be incurred in conducting its business activities.
At present, the Company has secured general liability insurance. The Company has
potential liability from its general business activities, and accordingly, it
could be rendered insolvent by a serious error or omission.
18. Uninsured Risks. The Company may not be insured against all losses
or liabilities that may arise from operations, either because such insurance is
unavailable or because the Company has elected not to purchase such insurance
due to high premium costs or other reasons.
19. Need for Subsequent Funding. The Company believes it will need to
raise approximately $10m additional funds in order to achieve profitable
operations and provide the working capital to support its growth. The Company's
continued operations therefore will depend upon the availability of cash flow,
if any, from its operations or its ability to raise additional funds through
bank borrowings or equity or debt financing. There is no assurance that the
Company will be able to obtain additional funding when needed, or that such
funding, if available, can be obtained on terms acceptable to the Company. If
the Company cannot obtain needed funds, it may be forced to curtail or cease its
activities. See "Business."
20. Need for Additional Key Personnel. The success of the Company's
proposed business will depend, in part, upon the ability to attract and retain
qualified employees. The Company believes that it will be able to attract
competent employees, but no assurance can be given that the Company will be
successful in this regard. If the Company is unable to engage and retain the
necessary personnel, its business would be materially and adversely affected.
See "Business."
12
<PAGE> 14
21. Issuance of Additional Shares. As of January 31, 2000,
approximately 38,232,120 shares of Common Stock or 76.74% of the 50,000,000
authorized shares of Common Stock of the Company remain unissued. The Board of
Directors has the power to issue such shares, subject to shareholder approval,
in some instances. Although the Company presently has no commitments, contracts
or intentions to issue any additional shares to other persons, the Company may
in the future attempt to issue shares to acquire products, equipment or
properties, or for other corporate purposes. See "Description of Securities -
Shares Eligible for Future Sale."
22. Non-Arms' Length Transaction. The number of shares of Common Stock
issued to a number of present shareholders of the Company for property and
services was arbitrarily determined and may not be considered the product of
arm's length transactions. See "Principal Shareholders."
23. Indemnification of Officers and Directors for Securities
Liabilities. The Articles of Incorporation of the Company provide that the
Company may indemnify any Director, Officer, agent and/or employee as to those
liabilities and on those terms and conditions as are specified in the Idaho
Business Corporation Act. Further, the Company may purchase and maintain
insurance on behalf of any such persons whether or not the corporation would
have the power to indemnify such person against the liability insured against.
The foregoing could result in substantial expenditures by the Company and
prevent any recovery from such Officers, Directors, agents and employees for
losses incurred by the Company as a result of their actions. Further, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable.
24. Competition. Competition in the vehicle location market is intense
and it can be expected to intensify as new competitors enter the market. There
are possibly other competitors who are developing products of which we the
Company is unaware. There are competitors that have substantially greater
financial, technical and marketing resources than the Company. There can be no
assurance that the Company will be able to compete effectively or successfully
implement its business plan.
25. Limited Public Market for Securities. At present, a limited public
market exists for the Company's securities and there is no assurance that the
trading market will continue in the future, or if it does continue that it will
be sustained. A shareholder of the Company's securities may, therefore, be
unable to resell the securities should he/she desire to do so. Furthermore, it
is unlikely that a lending institution will accept the Company's securities as
pledged collateral for loans unless a regular trading market develops.
26. Cumulative Voting, Preemptive Rights and Control. There are no
preemptive rights in connection with the Company's Common Stock. Cumulative
voting in the election of Directors is not provided for. Accordingly, the
holders of a majority of the shares of Common Stock, present in person or by
proxy, will be able to elect all of the Company's Board of Directors.
13
<PAGE> 15
27. No Dividends Anticipated. At the present time the Company does not
anticipate paying dividends, cash or otherwise, on its Common Stock in the
foreseeable future. Future dividends will depend on earnings, if any, of the
Company, its financial requirements and other factors. Investors who anticipate
the need of an immediate income from their investment in the Company's Common
Stock should refrain from the purchasing the Company's securities. See "Dividend
Policy."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
Elite Logistics Services, Inc., ("Elite") a corporation organized under
the laws of the State of Texas was acquired on November 17th, 1999, by the
Company. For accounting purposes, Elite, which became a wholly owned subsidiary
of the Company, is deemed to be the acquirer under a reverse takeover
transaction; accordingly, all figures including comparatives are those of the
legal subsidiary.
The Company's auditors have issued a going concern opinion. This means
that the Company's auditors believe there is substantial doubt that the Company
can continue as an on-going business for the next twelve months unless the
Company obtains additional capital to pay its bills. In order to meet its needs,
the Company will have to raise cash from sources other than the sale of its
products and services. To do so, the Company has been raising cash through the
private placement of its securities and intends to continue to do so until such
time as it will generate sufficient revenues to maintain itself as a viable
entity. There is no assurance, however, that the Company will be able to raise
the additional funds its needs to continue in business. If the Company is unable
to raise additional funds until it becomes a viable entity, it will have to
cease operations.
Elite designs, develops, and produces a wireless monitoring and
tracking system that integrates two-way paging and Global Positioning Systems
(GPS) technology, with an Internet-enabled Geographic Information System to
allow online remote tracking and control of vehicles. The Intelligent Vehicle
Systems (IVS) can monitor, track, analyze, and control the movement of virtually
any object, including ground vehicles, marine vessels, railway equipment and
valuable objects that are in transit.
From inception in November 1997 through late 1999, Elite devoted
substantially all of its efforts to product development, and raising capital. In
late 1999, Elite began to place greater emphasis on securing funding for our
official launch and developing the sales and marketing plans for our technology.
Elite also decided that it needed the credibility and access to capital of a
public company structure and decided to seek a public listing via a reverse
merger. Elite entered into a one-year consulting agreement with the Forte Group
of Houston, Texas to provide strategic management consulting services that would
assist Elite in all these endeavors. Forte consultants have played an active
role in the management of the Company and will continue to do so pending the
expansion of the Company's management team.
14
<PAGE> 16
Elite first generated product revenues in the third quarter of 1999
through the sale of its PageTrack(TM) hardware products and the resale of SkyTel
network services. Feedback from early adopters of the technology revealed some
minor flaws in the technology that needed to be addressed prior to a mass-market
roll-out. Product design enhancements were completed by the end of 1999. The
Company is now ready to commence volume production and sales of the
PageTrack2(TM) unit (PT2). Orders on hand exceed the first six months forecasts
and the Company's is confident of exceeding its first year target of
approximately 20,000 PT2 sales.
The Company is now investing significant resources to increase its
distribution reach by building a multi-faceted sales channel that includes OEMs,
Distributors, Dealers and Manufacturers Agents. The Company is currently also in
discussions with Motorola for the potential distribution of the product within
the Latin American and Caribbean region.
To date, the Company has derived its revenues principally from the sale
of hardware products and the resale of SkyTel network service fees within the
United States. The Company recognizes hardware revenues upon delivery of the
product and also recognizes network fees ratably over the length of the service
contract.
The Company expenses all research and development as incurred.
Development costs incurred in the period from achievement of technological
feasibility, which the Company defines as the establishment of a working model,
until the general availability of this software to customers, have been short,
and therefore software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs to date.
The Company has a limited operating history upon which investors may evaluate
its business and prospects. Since inception the Company has incurred significant
losses, and as of May 31, 2000 it had an accumulated deficit of $1,579,446. The
Company terminated its subchapter S status on September 1, 1999 and the
accumulated loss through August 31st, 1999 in the amount of $706,208 (generated
when the company was a subchapter S corporation) was reclassified to additional
paid in capital for financial reporting purposes leaving an accumulated deficit
of $1,579,446 at May 31, 2000.
The Company's revenues may not increase or even continue at its current
levels or the Company may not achieve or maintain profitability or generate cash
from operations in future periods. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the intelligent vehicle management systems
market. The Company may not be successful in addressing these risks and its
failure to do so would harm its business.
15
<PAGE> 17
RESULTS OF OPERATIONS
For Period Ended May 31st, 2000
Revenues for the year ending May 31, 2000 and the period ending May 31, 1999 and
the year ending December 31, 1998 were $569,263, $23,500, and $6,269
respectively. Revenues for the year ending May 31, 2000 included initial sales
of the Company's PageTrack(TM) products to distributors and the resale of SkyTel
wireless telemetry services as well as miscellaneous third party hardware sales.
Revenues for the period ending May 31, 1999 and the year ending December 31,
1998 consisted of consulting fees and miscellaneous third party hardware sales
only as the Company's own product was not yet fully developed.
Cost of revenues for the year ending May 31, 2000 and the period ending May 31,
1999 and the year ending December 31, 1998 were $656,450, $19,519, and $1,945
respectively. Cost of revenues for the year ended May 31, 2000 included the
manufactured cost of our PageTrack(TM) products, wireless telemetry network
services provided by SkyTel and the costs of operating Elite's 24-hour Control
Center. Cost of revenues for the period ending May 31, 1999 and the year ending
December 31, 1998 consisted of third party hardware.
Gross loss for the year ending May 31, 2000 was $87,187 and this compared with
gross profits for the period ending May 31, 1999 and the year ending December
31, 1998 of $4,031, and $4,324 respectively. Gross loss for the year ended May
31, 2000 included margins on our PageTrack(TM) products and the resale of
wireless telemetry network services provided by SkyTel offset by the costs of
operating Elite's 24-hour Control Center. Gross profit for the period ending May
31, 1999 and the year ending December 31, 1998 consisted of margins on third
party hardware and consulting services.
Marketing expenses consist primarily of compensation for our marketing and
business development personnel, advertising, trade show and other promotional
costs, design and creation expenses for marketing literature and our website.
The Company's does not make an allocation of our occupancy costs and other
overhead. Marketing expenses for the year ending May 31, 2000 and the period
ending May 31, 1999 and the year ending December 31, 1998 were $321,151,
$38,047, and $54,213 respectively. This increase was primarily due to increases
in the number of marketing personnel, and advertising and promotional programs.
The Company expects that sales and marketing expenses will increase both in
absolute dollars and as a percentage of total net revenues in future periods due
to expanded efforts to market and promote its products and services both
domestically and internationally.
16
<PAGE> 18
Selling and Administrative. Selling and administrative expenses consist
primarily of compensation for personnel and payments to outside contractors for
general corporate functions, including finance, information systems, human
resources, facilities, general management, bad debt expense and the Company's
occupancy costs and other overhead. Selling and Administrative expenses for the
year ending May 31, 2000 and the period ending May 31, 1999 and the year ending
December 31, 1998 were $1,091,758, $58,945, and $77,699 respectively. This
increase was primarily due to increases in the number of personnel and outside
contractors needed to support the growth of the Company's business. The Company
expects that selling and administrative expenses will increase in absolute
dollars as it hires additional personnel and incur additional expenses relating
to the anticipated growth of its business, such as costs associated with
increased infrastructure and its public company status.
Research and Development. Research and development expenses consist primarily of
compensation for the Company's research and development personnel, network
operations and, to a lesser extent, depreciation on equipment used for research
and development. The Company does not make an allocation of its occupancy costs
and other overhead. Research and development expenses for the year ending May
31, 2000 and the period ending May 31, 1999 and the year ending December 31,
1998 were $217,113, $70,133, and $94,474 respectively. This increase was
primarily due to increases in the number of personnel needed to develop new
products and services and build the Company's external network and computer data
center infrastructure. The Company expects that research and development
expenses will increase in absolute dollars in future periods due to expanded
investments in the development of enhanced and new products and online services.
In February 1999, the Company executed an exclusive agreement with a distributor
to sell the Company's products within a limited market area. The Company
included $100,000 received for the sale of the distributorship in other income
for the period ending May 31, 1999.
Interest expense. Net interest expense consists of expenses related to the
Company's financing obligations, which include borrowings under equipment loans,
and short-term bank loans and capital lease obligations. Interest expense
increased to $10,967 for the year ended May 31, 2000 from $999 in the period
ended May 31,1999. This increase was primarily due to interest paid on the bank
lines of credit.
17
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through the
sale of its of common stock by way of private placement, loans from
shareholders, equipment financing, lines of credit, short-term loans and through
deferred employee compensation ($244,500 of this deferred salary obligation has
been converted to redeemable preferred stock). The Company does not expect that
it will be cash flow positive until it achieves an installed base of around
20,000 units (current installed base approximately 2,500). The Company expects
to achieve this installed base target within the 2001 fiscal year.
In September and October of 1999, Elite raised $400,000 through the private
placement of 320,000 shares at $1.25.
On November 17th, 1999 Elite agreed to be acquired in a stock-for-stock
transaction pursuant to an Acquisition Agreement with Summit Silver, Inc. Elite
entered into this transaction to facilitate the raising of additional capital to
fund the Elite business plan.
Between January and March 2000, the Company sold 681,751 shares of its
restricted common stock at a price of $2.00 per share. The Company relied upon
the exemption from registration contained in Section 4(6) of the Securities Act
of 1933 (the "Act").
In April 2000 the Company sought to raise $1,375,000 from the issuance of
500,000 shares of restricted common stock at a price of $2.75 per share. This
offer was withdrawn due to market conditions.
The Company intends to raise at least a further $10,000,000 during the 2001
fiscal year by way of a private placement of its securities. The company is
currently in negotiations with several parties who have the capability to
provide such funding. The Company is also seeking to retain an investment bank
to assist in raising up to $10,000,000. In the event that the Company is
successful in raising at least $10,000,000, it intends to use the net proceeds
of the offering to repay any borrowings including the Series A redeemable
preference shares in the amount of $244,500, hire additional employees, develop
new products, develop e-commerce capabilities, marketing, expand Company
facilities, initiate remote sales and control centers, and for working capital
and potential acquisitions.
Until such time as the Company has successfully completed such funding
arrangements, it remains at risk of a sudden negative disruption to the equity
markets preventing such funding from proceeding. The sale of additional equity
or convertible debt securities could result in additional dilution to our
stockholders.
The Company intends to augment the net proceeds from any private placement with
a line of credit to fund working capital requirements. To this end the Company
recently obtained a receivables-based credit facility for up to $750,000 with
Silicon Valley Bank to fund working capital requirements. At May 31, 2000 the
Company had no borrowings.
18
<PAGE> 20
The Company also has some lease financing agreements that amount to less than
$9,000. The Company has no material commitments for capital expenditures, but
anticipates an increase in the rate of capital expenditures consistent with its
anticipated growth in operations, infrastructure and personnel. The Company
anticipates that it will continue to add computer hardware resources, and expand
its primary office facility during the next twelve months. The Company may also
use cash to acquire or license technology, products or businesses related to its
current business. In addition, the Company anticipates that it will continue to
experience significant growth in its operating expenses for the foreseeable
future and that its operating expenses will be a material use of its cash
resources.
The Company plans to build a nationwide PageTrack(TM) distribution network of
dealers and distributors. The plan requires hiring additional personnel for
sales, marketing, customer support and technical support. The Company estimates
a minimum of $2,500,000 is required to fund its business plan. There can be no
assurance that the Company will be successful in obtaining any such funds on
terms acceptable to it, if at all. In the event that the Company is unable to
secure such additional funding, management would attempt to re-orient its
business plan to a slower growth scenario that would enable the Company to
survive and grow at a slower pace. However failure to capitalize on current
market opportunities could allow competitors to overtake the Company and
significantly impair the long-term growth and value of the Company.
19
<PAGE> 21
CASH FLOW FOR YEAR ENDING MAY 31, 2000
Net cash used in operating activities was $1,529,499 for the Year Ending May 31,
2000. Net cash used for operating activities was primarily the result of net
losses before non-cash charges $456,268, which included depreciation and
amortization ($39,642) warrants issued for consulting services ($299,995) and
stock issued to vendors in exchange for services ($186,376). The net cash
used for operating activities also includes increases in accounts receivable
($243,677) and inventory ($693,070) offset by increases in accounts payable
($552,482) and accrued expenses ($90,702) and accrued salaries ($42,103).
Net cash used in investing activities of $72,986 comprised patent application
costs and fixed asset purchases.
Net cash provided by financing activities was $1,657,555 and principally
consisted of proceeds from the sale of the company's common stock of $1,700,748,
which were offset by shareholder notes repayment of $52,101 offset by further
advances from shareholders of $42,101.
Market Risk Disclosure
As previously discussed, the Company intends to seek a further
$10,000,000 from a private placement this year of which an estimated $2,500,000
is required to fund its business plan. Until such time as the Company has
successfully completed such funding arrangements, it remains at risk of a sudden
negative disruption to the equity markets preventing such underwriting from
proceeding.
ITEM 3. DESCRIPTION OF PROPERTIES.
As at 31 May, 2000 the Company leased 4715 sq feet of space at
$7,149.00 per month with utilities paid and offices furnished on a lease that
expires December 31, 2002.
The Company's offices are currently adequate and suitable for its
operations. The Company may relocate its offices upon generating revenues from
operations, however, there is currently no plan to do so and the Company has not
entered into any negotiations with anyone to relocate its offices.
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<PAGE> 22
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the Common Stock ownership as of May 31, 2000 of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, each director individually and all officers
and directors of the Company as a group. Each person has sole voting and
investment power with respect to the shares of Common Stock shown, unless
otherwise noted in the footnote to the table, and all ownership is of record and
beneficial.
<TABLE>
<CAPTION>
Name and
address Number of Percentage of
of owner Shares Position Shares Owned(1)
-------- --------- -------- ----------------
<S> <C> <C> <C>
Joseph D. Smith 1,104,400 President, Chief Executive 8.24%
Officer and a member of the
Board of Directors
Richard L.
Hansen 502,000 Chief Operating Officer and a 3.75%
member of the Board of Directors
Thien K. Nguyen 1,104,400 Vice President and a member 8.24%
of the Board of Directors
Hahn H. Nguyen 3,112,400 Vice President and a member of 23.22%
the Board of Directors
John P. Ryan 118,767 Secretary and member of the 0.89%
Board of Directors
Russell A.
Naisbitt(2) Treasurer, Chief Financial 0.00%
Officer and a member of the
Board of Directors
Diana M. Smith 4,016,000 Member of the Board of Directors 29.97%
All officers 9,957,967 74.30%
and directors as a
group (7 persons)
</TABLE>
(1) Based on 12,186,139 shares of common stock outstanding as of the date hereof
together with certain warrants issued to Forte Group L.L.C. and Vernor
Investments Inc, which are exercisable as of the date of this Report.
(2) Mr Naisbitt is a Director of Forte Group L.L.C. (Forte). Forte has a warrant
to purchase 1,115,555 shares of common stock. Mr Naisbitt does not have sole
voting and investment power for all shares beneficially owned by Forte. See Item
12. Certain Relationships and Related Transactions.
21
<PAGE> 23
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Joseph D. Smith 55 President, Chief Executive Officer and a
member of the Board of Directors
Richard L. Hansen 56 Chief Operating Officer and a member of the
Board of Directors
Thien K. Nguyen 37 Vice President and a member of the Board of
Directors
Hanh H. Nguyen 36 Member of the Board of Directors
John P. Ryan 37 Secretary and a member of the Board of
Directors
Russell A. Naisbitt 38 Treasurer, Chief Financial Officer and a
member of the Board of Directors
Diana M. Smith 47 Member of the Board of Directors
</TABLE>
All directors hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. The Company's
officers are elected by the Board of Directors after each annual meeting of the
Company's shareholders and hold office until their death, or until they resign
or have been removed from office.
Officers and Directors Biographical Descriptions:
Joseph D. Smith - President, Chief Executive Officer and a member of the Board
of Directors.
Since November 1999, Mr. Smith has been President, Chief Executive
Officer and a member of the Board of Directors. From August 1997 to November
1999, Mr. Smith was President of Elite Logistics Services, Inc., the Company's
wholly owned subsidiary corporation. From 1996 to August 1997, Mr. Smith was
Director of Logistics for Baker Energy located in Houston, Texas. Baker Energy
is in the business of oil and gas logistics. Mr. Smith was responsible for all
logistics planning, logistics software development, budgeting and company
development. From March 1988 to January 1999, Mr. Smith was a part owner and
Chief Technical Officer of Southern Instrument Company located in Freeport,
Texas. Southern Instrument Company was engaged in the business of selling
science and laboratory equipment. From October 1995 to May 1996 Mr. Smith was an
independent logistics consultant. Mr. Smith is the husband of Diana Smith, the
Company's Comptroller and member of the Board of Directors.
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<PAGE> 24
Richard L. Hansen - Chief Operating Officer and a member of the Board of
Directors.
Since November 1999, Mr. Hansen has been Chief Operating Officer and a
member of the Board of Directors of the Company. Mr. Hansen duties include the
daily operations of the Company ensuring customer support, investor relations,
marketing and all operations in the absence of the President. From 1995 to 1998,
Mr. Hansen was the corporate logistics manager and new business manager for Call
Henry, Inc., Cocoa, Florida. Call Henry, Inc. was engaged in the business of
distributing logistics software. Mr. Hansen was responsible for new business
contacts, including marketing, proposal development and integration, and
logistic policies.
Thien K. Nguyen - Vice President and a member of the Board of Directors.
Since November 1999, Mr. Nguyen has been Vice President and a member of
the Board of Directors. From August 1997 to November 1999 Mr. Nguyen was Senior
Vice President and a member of the Board of Directors of Elite Logistics
Services, Inc., the Company's wholly owned subsidiary corporation. From August
1996 to August 1997, Mr. Nguyen was unemployed. From February 1993 to August
1996, Mr. Nguyen was Vice President of Operations for Tree Fresh of Texas, Inc.
Tree Fresh of Texas, Inc. is located in Houston,, Texas and is engage in the
business of produced and distributed fruit juices to hotels. Mr. Nguyen is the
husband of Hanh Hoang Nguyen, the Company's Vice President of Research and
Development and a member of the Board of Directors.
Hanh H. Nguyen - Member of the Board of Directors.
Since November 1999, Ms. Nguyen has been a member of the Board of
Directors, with her husband Thien Nguyen. Since November 1997, Ms. Nguyen has
been a director of Elite Logistics Services, Inc., the Company's wholly owned
subsidiary corporation. Since 1989, Ms. Nguyen has been Senior Lead Engineer for
Dow Chemical Company. Ms. Nguyen continues to be employed by Dow Chemical
Company.
John P. Ryan - Secretary and a member of the Board of Directors.
From April 1998 to November 1999, Mr. Ryan was the President and Chief
Executive Officer of the Company. At that time the Company was engaged in the
business of mining. In November 1999, Mr. Ryan resigned as President of the
Company and was appointed Secretary of the Company. Since May 1998, Mr. Ryan has
been the Secretary and a member of the Board of Directors of American Health
Providers Corporation, and Idaho corporation located in Coeur d'Alene, Idaho.
American Health Providers Corporation is engaged in the business of acquiring
existing health care companies. From May 1996 to November 1999, Mr. Ryan was
Secretary and a Director of Metalline Mining Company, an Idaho corporation
engaged in the mining business. From January 1998 to February 1999, Mr. Ryan was
President and a member of the Board of Directors of Grand Central Silver Mines,
Inc., a Utah mining corporation. Since October 1996 Mr. Ryan has been Vice
President of Corporate Development for Royal Silver Mines, Inc., a Utah
corporation engaged in the business of mining. Since April 1997, he has been a
member of the Board of Directors of Royals Silver Mines, Inc. as well. From May
1995 to May
23
<PAGE> 25
1996, Mr. Ryan was a financial consultant for Pennaluna & Company, an SEC, NASD
registered broker/dealer located in Coeur d'Alene, Idaho. >From January 1995 to
May 1995, Mr. Ryan was an engineer and manager for Bunker Hill Mines.
Russell A. Naisbitt - Chief Financial Officer, Vice President of Business
Development and a member of the Board of Directors.
Since November 1999, Mr. Naisbitt has been Chief Financial Officer,
Vice President of Business Development and a member of the Board of Directors of
the Company. From June 1999 to the present, Mr. Naisbitt has been a founding
partner and member of the Board of Directors of Forte Group L.L.C., a management
consulting company, located in Houston, Texas. From April 1998 to June 1999, Mr.
Naisbitt was an independent consultant in the Internet and telecommunications
fields. From January 1997 to the present, Mr. Naisbitt has been a member of the
Board of Directors for eWave, Inc., an online advertising technology company,
located in Houston, Texas. From January 1996 to March 1998, Mr. Naisbitt was the
President and a member of the Board of Directors of Pharos Systems USA, Inc., a
network print management software company, located in Houston, Texas. From June
1994 to December 1995, Mr. Naisbitt was the Vice President, Business Development
and member of the Board of Directors of Landmark Golf Products, Inc., a software
company, located in Houston, Texas.
Diana M. Smith - Member of the Board of Directors.
Since November 1999, Ms. Smith has been Comptroller and a member of the
Board of Directors of the Company. From August 1999 to November 1999, Ms. Smith
was Chief Financial Officer and a Director of Elite Logistics Services, Inc.,
the Company's wholly owned subsidiary corporation. From March 1988 to January
1999, Ms. Smith was a part owner and Chief Financial Officer of Southern
Instrument Company located in Freeport, Texas. Southern Instrument Company was
engaged in the business of selling science and laboratory equipment. Since June
1993, Ms. Smith has operated an accounting and bookkeeping service in Freeport,
Texas. Ms. Smith is the wife of Joseph Smith, the Company's President, Chief
Executive Officer and a member of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation.
The following table sets forth the compensation paid by the Company
during fiscal 1999 to its officers. This information includes the dollar value
of base salaries, bonus awards and number of stock options granted, and certain
other compensation, if any.
24
<PAGE> 26
SUMMARY COMPENSATION TABLE [1]
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
--------- ---- ------ ----- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph D 2000 120,000 -- -- -- -- -- --
Smith 1999 85,000 -- -- -- -- -- --
President 1998 63,417 -- -- -- -- -- --
Richard L 2000 108,000 -- -- -- -- -- --
Hansen 1999 68,500 -- -- -- -- -- --
COO 1998 27,417 -- -- -- -- -- --
Thien K
Nguyen 2000 108,000 -- -- -- -- -- --
Vice 1999 70,000 -- -- -- -- -- --
President 1998 50,617 -- -- -- -- -- --
Diana
Smith 2000 66,000 -- -- -- -- -- --
Controller 1999 49,000 -- -- -- -- -- --
President 1998 12,000 -- -- -- -- -- --
John P
Ryan 2000 -- -- -- -- -- -- --
Secretary 1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
Russell A 2000 -- -- -- -- -- -- --
Naisbitt 1999 -- -- -- -- -- -- --
Treasurer 1998 -- -- -- -- -- -- --
and CFO(1)
</TABLE>
(1) Mr Naisbitt is a Director of Forte Group L.L.C. (Forte). Forte has a
consulting agreement with the company that provides for payments of up to
$20,000 per month for services provided by Forte consultants. See Item 12.
Certain Relationships and Related Transactions.
All compensation received by the officers and directors has been
disclosed.
There are no stock option, retirement, pension, or profit sharing plans
for the benefit of the Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem with
stock appreciation rights ("SARs"), and freestanding SARs have been made to any
executive officer or any director since the inception of the Company,
accordingly, no stock options have been exercised by any of the officers or
directors in fiscal 1999.
Long-Term Incentive Plan Awards.
The Company does not have any long-term incentive plans that provide
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year, whether such performance is measured by
reference to financial performance of the Company or an affiliate, the Company's
stock price, or any other measure.
Compensation to Directors.
There are no compensation arrangements with any directors.
25
<PAGE> 27
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time, the Company has entered into transactions with
parties related to the Company. The Company believes that all transactions with
related parties were entered into on terms no more or less favorable to the
Company than could have been obtained from unrelated third parties.
On November 17, 1999, Elite Logistics Services, Inc. completed an
acquisition agreement with Summit Silver, Inc. subsequently to be known as Elite
Logistics, Inc. (the "Company"). On November 5, 1999, Summit Silver, Inc. was
renamed as Elite Logistics, Inc.
Under the terms of the agreement, Summit Silver, Inc. issued 10,400,000
shares of common stock in exchange for all of Elite Logistics Services, Inc.'s
common stock. Immediately prior to the agreement and plan of reorganization,
Elite Logistics Services, Inc. had 10,400,000 shares of common stock issued and
outstanding and the Company had 1,014,500 shares of Common Stock outstanding.
Elite Logistics Services, Inc. will continue as a subsidiary of the Company.
In connection with this same transaction, all 2,445 shares of Elite
Logistics Services, Inc.'s preferred stock were exchanged for an equivalent
amount of Summit Silver, Inc. preferred stock, which conferred the same rights
and provisions as the original shares of Elite Logistics Services, Inc.'s
preferred stock. Also, the 1,215,555 outstanding warrants in Elite Logistics
Services, Inc. were exchanged with Summit Silver, Inc. for warrants of the same
terms and rights.
Officers Loans and Deferred Compensation
On May 31, 2000 the Company owed $48,355 by way of accrued compensation and
other outstanding loans as follows:
<TABLE>
<CAPTION>
Name Total
---- -----
<S> <C>
Joseph D. Smith $27,523
Thien K. Nguyen $17,667
Diana M. Smith $ 3,165
Total $48,355
</TABLE>
The Company has not entered into any other obligations regarding deferred
compensation with its officers and consultants.
Series A Preferred Stock
Elite Logistics Services, Inc. entered into an agreement with certain
officers that provided for those officers to convert certain debt owing to them
by Elite Logistics Services, Inc. for deferred compensation into equity in the
form of Series A Preferred Redeemable Preference Shares. The shares carry an
annual dividend of $8.25 per share and are redeemable on or before September 16,
2000, with Board of Directors approval.
26
<PAGE> 28
The Series A Preferred shares of Elite Logistics Services, Inc. were
exchanged for Series A Preferred shares of the Company on the same terms upon
consummation of the Plan of Merger. See "Certain transactions - Plan of Merger."
Forte Group L.L.C. Consulting Services and other transactions
Russell Naisbitt, a director in Forte Group L.L.C. a Houston
consulting company specializing in assisting emerging technology companies, is a
director of Elite Logistics, Inc.
On August 23, 1999, prior to its acquisition by Summit Silver, Inc.,
Elite entered into a consulting agreement with Forte that provides for cash
compensation of $20,000 per month for services to be provided by Forte over an
initial period of twelve (12) months. Compensation (if any) and consulting
services to be provided (if any) beyond the initial period are to be mutually
agreed. In addition to the consulting fees detailed above, Forte may earn
certain success-related contingency fees in the event that it introduces
investors who fund the Company or executives who are employed by the Company.
Forte was also issued a warrant to purchase 1,115,555 shares of the
Company's common stock at $1.25, which was exchanged for a similar warrant to
purchase shares in the Company upon consummation of the Plan of Merger.
The exercise price of the warrant was the fair market value of the
Company's common stock on the date of the grant.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company currently consists of
50,000,000 shares of Common Stock, $0.01 par value per share. As of May 31,
2000, 12,186,139 share of common stock were issued and outstanding. Of the
12,186,139 shares presently outstanding, 11,468,009 are "restricted" as that
term is defined in Rule 144 of the Securities Act of 1933 (the "Act"), and may
only be resold in compliance therewith and 718,130 are freely tradeable.
In general, under Reg. 144, a person who has held his shares for a
period of one (1) year, may sell in ordinary market transactions through a
broker or with a market maker, within any three (3) month period a number of
shares which does not exceed the greater of one percent (1%) of the number of
outstanding shares of Common Stock or the average of the weekly trading volume
of the Common Stock during the four calendar weeks prior to such sale. Sales
under Reg. 144 require the filing of Form 144 with the Securities and Exchange
Commission. If the shares of Common Stock have been held for more than two (2)
years by a person who is not an affiliate, there is no limitation on the manner
of sale or the volume of shares that may be sold and no Form 144 is required.
Sales under Reg. 144 may have a depressive effect on the market price of the
Company's Common Stock.
27
<PAGE> 29
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value per share. The preferred shares may be issued in one or more
series and may have such voting powers, designations, privileges, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions as shall be fixed from time to time
by the Board of Directors. As of the date hereof, no preferred shares
outstanding other than as follows:
Series A Preferred Stock
Elite entered into an agreement with certain officers that provided for
those officers to convert certain debt owing to them by Elite for deferred
compensation into equity in the form of Series A Preferred Redeemable Preference
Shares. The shares carry an annual dividend of $8.25 per share and are
redeemable on or before September 16, 2000, with Board of Directors approval.
The Series A Preferred shares of Elite were exchanged for Series A
Preferred shares of The Company on the same terms upon consummation of the Plan
of Merger. See "Certain transactions - Plan of Merger."
Dividends
Holders of the Common Stock are entitled to share equally in dividends
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefore. No dividend has been paid on the Common Stock since
inception, and none is contemplated in the foreseeable future.
Transfer Agent
The Company's transfer agent is OTC Stock Transfer, Inc., 231 East 2100
South, Salt Lake City, Utah 84115 and its telephone number is (801) 485-5555.
Rights of Shareholders
All shares have equal voting rights. Voting rights are not cumulative
and, therefore, the holders of more than 50% of the Common Stock could, if they
chose to do so, elect all of the directors of the Company.
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is not
subject to redemption and carries no subscription or conversion rights. In the
event of liquidation of the Company, the shares of Common Stock are entitled to
share equally in corporate assets after satisfaction of all liabilities.
There are no outstanding options, warrants or rights to purchase shares
of the Company's Common Stock, other than as follows:
28
<PAGE> 30
Warrants
At the present time the Company has 1,215,555 Warrants issued and
outstanding. Each warrant is convertible into one share of common stock upon
payment of $1.25 per Warrant.
PART II
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
The Company's shares are traded on the Pink Sheets market operated by the
National Quotation Bureau, Inc. (the "Pink Sheets") under the trading symbol
"ELOG." The Company's shares began trading in 1996 on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. (the "Bulletin
Board") under the symbol SUSV. The symbol changed to ELOG on 17th November 1999.
Summary trading by quarter for the 2000 and 1999 fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal Quarter High Bid[1] Low Bid[1]
-------------- ----------- ----------
<S> <C> <C>
2000
1 March through 31st May $8.62 $3.75
December 1st through 29th February $5.56 $3.00
1999
September 1st through November 30th $2.87 $ .25
June 1st through August 31st $ .26 $ .12
1 March through 31st May $ .25 $ .04
December 1st through 28th February $ .25 $ .06
1998
September 1st through November 30th $ .76 $ .11
June 1st through August 31st $ .76 $ .10
</TABLE>
[1] These quotations reflect inter-dealer prices, without retail mark-up,
markdown or commissions and may not represent actual transactions.
As of May 31, 2000, the Company had 1,163 holders of record of its Common
Stock.
While the Company pays dividends on its preferred stock, it has not and
does not in the future, intend to pay dividends on its common stock.
SEC Rule 15g
The Company's shares are covered by Section 15g of the Securities Act of
1933, as amended that imposes additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouses). For
transactions covered by the Rule, the broker/dealer must make a special
suitability determination for the purchase and have received the purchaser's
written agreement to the transaction prior to the sale. Consequently, the Rule
may affect the ability of broker/dealers to sell the Company's securities and
also may affect the ability of purchasers to sell their shares in the secondary
market.
29
<PAGE> 31
Section 15g also imposes additional sales practice requirements on
broker/dealers who sell penny securities. These rules require a one-page summary
of certain essential items. The items include the risk of investing in penny
stocks in both public offerings and secondary marketing; terms important to in
understanding of the function of the penny stock market, such as "bid" and
"offer" quotes, a dealers "spread" and broker/dealer compensation; the
broker/dealer compensation, the broker/dealers duties to its customers,
including the disclosures required by any other penny stock disclosure rules;
the customers rights and remedies in causes of fraud in penny stock
transactions; and, the NASD's toll free telephone number and the central number
of the North American Administrators Association, for information on the
disciplinary history of broker/dealers and their associated persons.
ITEM 2. LEGAL PROCEEDINGS.
No material legal proceedings to which the Company is a party are pending
nor are any known to be contemplated and the Company knows of no legal
proceedings pending or threatened, or judgments entered against, any Director or
Officer of the Company in his capacity as such.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial disclosures
from the inception of the Company through the date of this Registration
Statement.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has made the following sale of unregistered securities during
the last three years:
<TABLE>
<CAPTION>
DATE NAME SHARES AMOUNT PAID
---- ---- ------ -----------
<S> <C> <C> <C>
1/11/00 Joyce L. Stump 5,000 $ 10,000.00
1/11/00 Frank Pitts 5,000 $ 10,000.00
1/18/00 Abraham Toubail 10,000 $ 20,000.00
1/18/00 Rutherford Limited
Partnership 15,000 $ 30,000.00
1/18/00 Bruce Bishop 10,000 $ 20,000.00
1/19/00 Michael Moneymaker 5,000 $ 10,000.00
1/19/00 Charles Colvard 1,000 $ 2,000.00
1/24/00 J. K. Hazen 25,000 $ 50,000.00
1/24/00 English Builders 8,000 $ 16,000.00
1/24/00 Michael Moneymaker 2,000 $ 4,000.00
1/25/00 Roger Sanders II 2,500 $ 5,000.00
1/25/00 Michael Aspinwall 7,500 $ 15,000.00
1/25/00 Simon Williams 5,000 $ 10,000.00
1/28/00 Floyd E. Hambleton 12,500 $ 25,000.00
1/28/00 Kelly Revocable Trust 5,000 $ 10,000.00
1/28/00 Fred C. or Margaret Hoeppner 5,000 $ 10,000.00
1/28/00 Wallis W. Wood 10,000 $ 20,000.00
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
DATE NAME SHARES AMOUNT PAID
---- ---- ------ -----------
<S> <C> <C> <C>
1/28/00 Deborah and Joseph Jacobson 1,250 $ 2,500.00
1/28/00 Richard and Suzanne Salter 7,500 $ 15,000.00
1/31/00 James H. Harris, M.D. 35,000 $ 70,000.00
1/31/00 Robert J. Kaufman 5,000 $ 10,000.00
1/31/00 Thomas C. Dryden 2,500 $ 5,000.00
</TABLE>
The foregoing shares were sold pursuant to Section 4(6) of the Securities
Act of 1933 (the "Act"). All purchasers were accredited investors as that term
is defined in Rule 501 of the Securities Act of 1933.
Between January and March 2000, the Company sold 681,751 shares of common
stock to 73 individuals. Sales were made only to accredited investors pursuant
to the exemption from registration contained in Section 4(6) of the Securities
Act of 1933 (the "Act").
On November 17, 1999, Elite completed an acquisition agreement with Summit
Silver, Inc. subsequently to be known as Elite Logistics, Inc. (the "Company").
In late November 1999, Summit Silver, Inc. was renamed as Elite Logistics, Inc.
Under the terms of the agreement, Summit Silver, Inc. issued 10,400,000
shares of common stock in exchange for all of Elite's common stock. Immediately
prior to the agreement and plan of reorganization, Elite had 10,400,000 shares
of common stock issued and outstanding and Summit Silver had 1,043,130 shares of
Common Stock outstanding. Elite will continue as a subsidiary of the Company.
In connection with this same transaction, all 2,445 shares of Elite's
preferred stock were exchanged for an equivalent amount of Summit Silver, Inc.
preferred stock, which conferred the same rights and provisions as the original
shares of Elite's preferred stock. Also, the 1,215,555 outstanding warrants in
Elite were exchanged with Summit Silver, Inc. for warrants of the same terms and
rights.
Series A Preferred Stock
Elite entered into an agreement with certain officers that provided for
those officers to convert certain debt owing to them by Elite for deferred
compensation into equity in the form of Series A Preferred Redeemable Preference
Shares. The shares carry an annual dividend of $8.25 per share and are
redeemable on or before September 16, 2000, with Board of Directors approval.
The Series A Preferred shares of Elite were exchanged for Series A
Preferred shares of The Company on the same terms upon consummation of the Plan
of Merger. See "Certain transactions - Plan of Merger."
Forte Group L.L.C. Consulting Services and other transactions
Russell Naisbitt, a director of Forte Group L.L.C. a Houston consulting
company specializing in assisting emerging technology companies, is a director
of the Company.
31
<PAGE> 33
Elite has entered into a consulting agreement with Forte that provides for
cash compensation of $20,000 per month for services to be provided by Forte over
an initial period of twelve (12) months. Compensation (if any) and consulting
services to be provided (if any) beyond the initial period are to be mutually
agreed. In addition to the consulting fees detailed above, Forte may earn
certain success-related contingency fees in the event that it introduces
investors who fund the company or executives who are employed by the company.
Forte was also issued a warrant to purchase 1,115,555 shares of Elite at
$1.25, which was exchanged for a similar warrant to purchase shares in the
Company upon consummation of the Plan of Merger.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Idaho Revised Statutes and certain provisions of the Company's Bylaws
under certain circumstances provide for indemnification of the Company's
Officers, Directors and controlling persons against liabilities which they may
incur in such capacities. A summary of the circumstances in which such
indemnification is provided for is contained herein, but this description is
qualified in its entirety by reference to the Company's Bylaws and to the
statutory provisions.
In general, any Officer, Director, employee or agent may be indemnified
against expenses, fines, settlements or judgments arising in connection with a
legal proceeding to which such person is a party, if that person's actions were
in good faith, were believed to be in the Company's best interest, and were not
unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent
decision of the Board of Directors, by legal counsel, or by a vote of the
shareholders, that the applicable standard of conduct was met by the person to
be indemnified.
The circumstances under which indemnification is granted in connection with
an action brought on behalf of the Company is generally the same as those set
forth above; however, with respect to such actions, indemnification is granted
only with respect to expenses actually incurred in connection with the defense
or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith and in a manner believed to have been in the Company's
best interest, and have not been adjudged liable for negligence or misconduct.
Indemnification may also be granted pursuant to the terms of agreements
which may be entered in the future or pursuant to a vote of shareholders or
Directors. The statutory provision cited above also grants the power to the
Company to purchase and maintain insurance which protects its Officers and
Directors against any liabilities incurred in connection with their service in
such a position, and such a policy may be obtained by the Company.
32
<PAGE> 34
ITEM 13. FINANCIAL STATEMENTS.
ELITE LOGISTICS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT F2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F3
Statements of Operations and Accumulated Deficit F4
Statements of Stockholders' Equity F5
Statements of Cash Flows F6
NOTES TO FINANCIAL STATEMENTS F7
</TABLE>
F-1
<PAGE> 35
Board of Directors
Elite Logistics, Inc.
FREEPORT, TEXAS
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Elite Logistics,
Inc. as of May 31, 2000 and 1999, and the related consolidated statements of
operations and accumulated deficit, cash flows, and stockholders' equity for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elite Logistics,
Inc. as of May 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company's significant losses raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
the resolution of this issue are also discussed in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Williams & Webster, P.S.
Spokane, Washington
August 23, 2000
F-2
<PAGE> 36
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, MAY 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 89,334 $ 34,264
Accounts receivable 249,657 11,225
Other receivables 5,245 --
Investments 24,400 --
Note receivable 10,000 --
Inventory 744,726 51,656
------------ ------------
TOTAL CURRENT ASSETS 1,123,362 97,145
------------ ------------
PROPERTY AND EQUIPMENT
Computer equipment 116,110 84,369
Furniture and equipment 11,406 4,828
Software 91,052 87,426
Less: accumulated depreciation and amortization (106,563) (66,921)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 112,005 109,702
------------ ------------
OTHER ASSETS
Patent costs 41,498 11,518
------------ ------------
TOTAL OTHER ASSETS 41,498 11,518
------------ ------------
TOTAL ASSETS $ 1,276,865 $ 218,365
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 599,826 $ 47,344
Accrued expenses 95,594 4,892
Leases payable 4,356 2,852
Accrued salaries 48,356 250,753
Accrued preferred dividends 17,752 --
Shareholder loans payable 10,000 52,101
------------ ------------
TOTAL CURRENT LIABILITIES 775,884 357,942
------------ ------------
LONG-TERM LIABILITIES
Leases payable, net of current portion 3,887 8,491
------------ ------------
TOTAL LIABILITIES 3,887 366,433
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
REDEEMABLE PREFERRED STOCK 244,500 --
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.01 par value; 50,000,000 shares
authorized, 12,186,139 and 10,040,000 shares
issued and outstanding, respectively 121,862 100,400
Warrants 230,210 --
Additional paid-in capital 1,479,968 295,127
Accumulated deficit (1,579,446) (543,595)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 252,594 (148,068)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,276,865 $ 218,365
============ ============
</TABLE>
F-3
<PAGE> 37
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDING ENDING YEAR ENDING
MAY 31, MAY 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 569,263 $ 23,500 $ 6,269
COST OF REVENUES 656,450 19,519 1,945
------------ ------------ ------------
GROSS PROFIT (LOSS) (87,187) 4,031 4,324
------------ ------------ ------------
EXPENSES
Marketing 321,151 38,047 54,213
Administrative expenses 1,091,758 58,945 77,699
Research and development 217,113 70,133 94,474
------------ ------------ ------------
TOTAL EXPENSES 1,630,022 167,125 226,386
------------ ------------ ------------
OPERATING INCOME (LOSS) (1,717,209) (163,094) (222,062)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Income from sale of distributorship -- 100,000 --
Interest income 3,869 -- --
Interest expense (10,967) (999) --
------------ ------------ ------------
Total other income (expense) (7,098) 99,001 --
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,724,307) (64,093) (222,062)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (1,724,307) $ (64,093) $ (222,062)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.16) $ (0.01) $ (0.02)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED
COMMON STOCK SHARES OUTSTANDING 11,090,604 10,040,000 10,040,000
============ ============ ============
</TABLE>
F-4
<PAGE> 38
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Total
Number Warrants Paid-in Accumulated Stockholders'
of Shares Amount and Options Capital Deficit Equity
---------- ---------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,040,000 $ 100,400 $ -- $ 280,960 $ (479,502) $ (98,142)
Common stock returned to treasury
at $0.04 per share (502,000) (5,020) -- (15,813) -- (20,833)
Issuance of treasury shares for cash and
deferred salaries at $0.07 per share 502,000 5,020 -- 29,980 -- 35,000
Net loss for period ending May 31, 1999 -- -- -- -- (64,093) (64,093)
---------- ---------- ----------- ----------- ----------- ----------
Balance at May 31, 1999 10,040,000 100,400 -- 295,127 (543,595) (148,068)
Issuance of common stock for cash
at $1.25 per share 320,000 3,200 -- 396,800 -- 400,000
Issuance of common stock at $1.25 in
exchange for accounts payable 40,000 400 -- 49,600 -- 50,000
Warrants issued as consulting fees -- -- 229,955 -- -- 229,955
Allocation of shareholder losses upon "S"
corporation termination -- -- -- (706,208) 706,208 --
Reverse acquisition and recapitalization 1,014,500 10,145 -- 15,242 -- 25,387
Issuance of common stock for cash at
$2.00 per share, net of $29,859 for expense 466,251 4,663 -- 897,980 -- 902,643
Issuance of common stock for cash at
$2.00 per share, net of $76,295 for expense 215,500 2,155 -- 352,550 -- 354,705
Options exercised at $2.00 per share 21,700 217 -- 43,183 -- 43,400
Issuance of common stock in exchange for
professional services at $2.00 per share 68,188 682 -- 135,694 -- 136,376
Options issued as compensations -- -- 255 -- -- 255
Preferred cumulative dividends -- -- -- -- (17,752) (17,752)
Loss for the year ended May 31, 2000 -- -- -- -- (1,724,307) (1,724,307)
---------- ---------- ----------- ----------- ----------- -----------
Balance at May 31, 2000 12,186,139 $ 121,862 $ 230,210 $ 1,479,968 $(1,579,446) $ 252,594
========== ========== =========== =========== =========== ===========
</TABLE>
F-5
<PAGE> 39
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ending Five Months Year Ending
May 31. Ending December 31,
2000 May 31, 1999 1998
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (1,724,307) $ (64,093) $ (222,062)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 39,642 13,757 29,804
Stock issued for consulting 229,995
Stock issued for accounts payable 50,000 -- --
Stock issued for professional services 136,376 -- --
Options issued for compensations 255
Decrease (Increase) in :
Accounts receivable (243,677) (10,865) (360)
Note receivable (10,000) -- --
Inventory (693,070) (51,576) (80)
Increase (Decrease) in :
Accounts payable 552,482 47,344 --
Accrued expenses 90,702 4,892 --
Accrued salaries 42,103 89,502 131,605
--------------- --------------- ---------------
Net cash provided (used) in operating activities (1,529,499) 28,961 (61,093)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and software (43,006) (14,572) (2,073)
Patent costs (29,980) (11,518) --
--------------- --------------- ---------------
Net cash provided (used) in investing activities (72,986) (26,090) (2,073)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock net of related costs 1,700,748 14,167 --
Net cash acquired in recapitalization 4,489 -- --
Payments on notes payable shareholders (52,101) -- --
Payments on leased equipment (5,581) (715) --
Proceeds from notes payable shareholders 10,000 10,000 39,200
--------------- --------------- ---------------
Net cash provided (used) in financing activities 1,657,555 23,452 39,200
--------------- --------------- ---------------
Net increase (decrease ) in cash 55,070 26,323 (23,966)
Cash, beginning of period 34,264 7,941 31,817
--------------- --------------- ---------------
Cash, end of period $ 89,334 $ 34,264 $ 7,851
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ $ -- $ --
=============== =============== ===============
Income taxes $ -- $ -- $ --
=============== =============== ===============
NON-CASH TRANSACTIONS:
Issuance of stock for compensation $ 244,500 $ -- $ --
Issuance of stock for professional services $ 136,376 $ -- $ --
Issuance of stock for accounts payable $ 50,000 $ -- $ --
Equipment financed by capital lease $ 2,481 $ 11,343 $ 90
Warrants issued for professional services $ 229,995 $ -- $ --
Options issued for compensations $ 255 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 40
NOTE 1 - BUSINESS ORGANIZATION
Nature of Operations
Elite Logistics, Inc. (hereinafter "ELI") was incorporated as an "S" Corporation
on August 6, 1997 under the laws of the State of Texas. Elite is engaged in the
production of global positioning systems and provides the required services for
the operation of these systems. The Company's services are marketed nationally.
On September 1, 1999, the Company amended its articles of incorporation to
become a regular "C" Corporation. See Note 15.
ELI is the holding company of Elite Logistics Services, Inc. ("Elite"). Elite is
a wholly owned subsidiary and is consolidated for financial reporting.
On November 17, 1999, Elite agreed to an exchange of its stock in an acquisition
with Summit Silver, Inc. This acquisition is being accounted for as an
acquisition and recapitalization of a non-operating public enterprise by a
private operating company. See Note 8. As part of the acquisition, the Company
acquired limited assets from Summit Silver, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Elite Logistics, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Basis of Accounting
ELI uses the accrual basis of accounting in accordance with generally accepted
accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
Advertising costs are charged to operations in the year incurred.
F-7
<PAGE> 41
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to seven years.
Expenditures for repairs and maintenance which do not extend the useful life of
the related asset are expensed as incurred. Equipment acquired in the
acquisition is recorded at net book value.
Impairment of Long-lived Assets
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.
Income Taxes
Elite Logistics, Inc. had elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code for the years ended December 31, 1998 and 1997
and for the period ending August 31, 1999. Under those provisions, Elite does
not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of corporate income. Accordingly, no provision has been made for federal
income tax for the years ended May 31, 2000 and 1999 in the accompanying
financial statements. For the period subsequent to August 31, 1999, the Company
had a significant loss for tax purposes.
At November 17, 1999, the Summit Silver, Inc. entity had a net operating loss of
approximately $1,450,000, which may be offset against future taxable income
through 2013. No provision for taxes or tax benefit from net operating loss
carryforwards has been reported in the financial statements as the Company will
probably continue to experience operating losses. It is currently unknown if the
carryforwards will expire unused. With the significant change in ownership, the
utilizability of this net operating loss will be substantially minimized for
future periods.
Trade Accounts Receivable
The Company provides for losses which may be sustained in collection of accounts
receivable. All receivables are considered collectible and no valuation
allowance is considered necessary.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.
Intangibles
Intangible assets consist of patents pending. Patent costs will be amortized
using a straight-line method over seventeen years once a patent is granted.
Research and Development Costs
Costs of research and development are expensed as incurred.
Basic and Diluted Earnings Per Share
In December 1997, the Company adopted Statement of Financial Accounting
Standards Statement (SFAS) No. 128, Earnings Per Share. Basic earnings per share
is computed using the weighted average number of common shares outstanding.
Diluted net loss per share is the same as basic net loss per share as the
inclusion of common stock equivalents would be antidilutive.
F-8
<PAGE> 42
Revenue Recognition
Revenues and cost of revenues are recognized when services and products are
furnished or delivered. Product is directly shipped to consumers from the
Company's contract manufacturer if ten or more units are ordered. Orders of less
than ten units are shipped by the Company from a limited inventory of finished
goods.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
At May 31, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service, and other
factors. A liability of $23,568 for compensated absences accrued have been
recorded in the accompanying financial statements at May 31, 2000.
NOTE 3 - NOTES RECEIVABLE
On May 24, 2000, the Company received a promissory note receivable from a
customer in the amount of $10,000 with an interest rate of 18% and a maturity
date of June 24, 2000.
Elite Logistics Services, Inc. contracted to provide operations and services on
the hardware located at the customer's place of business.
The note was paid in full on June 24, 2000 and all services contracted for were
substantially performed. There are no remaining obligations or intent by
agreement, trade practice or law to refund any cash received related to this
contract.
NOTE 4 - INVESTMENTS
The Company's securities, which are bought and held principally for the purpose
of sale in the near term, are classified as trading securities. The Company's
securities, which were originally acquired by Summit Silver, Inc., are recorded
at fair value on the balance sheet as current assets, with changes in fair value
during the period included in earnings.
F-9
<PAGE> 43
The Company's trading securities consist of common stock stated at fair value
and are summarized as follows:
<TABLE>
<CAPTION>
Investment May 31, 2000
---------- ------------
<S> <C>
Ashington Mining Company $ 600
Sterling Mining Company 21,200
Royal Silver Mines, Inc. 1,000
Utah-Idaho Consolidated Uranium, Inc. 1,600
-------
$24,400
=======
</TABLE>
NOTE 5 - PATENT COSTS
The Company currently has two domestic and two foreign patent applications
pending. The Company's patent applications relate to internet-enabled, global
positioning system technology for the commanding, controlling, identification
and routing of moving items.
The costs of patent applications are capitalized. The cost of patents are
expected to be amortized over their statutory lives of seventeen years upon
receipt of patent approval. At May 31, 2000, the Company had not received any
patent approvals. There was no patent amortization expense recorded in 2000 or
1999.
NOTE 6 - INVENTORY
Inventories are stated at the lower of cost or market, with cost being
determined on a weighted average basis.
Inventories at May 31, 2000 and May 31, 1999 consist of the following for the
dates shown:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Finished goods $ 54,558 $ --
Raw materials 690,168 51,656
-------- --------
Total $744,726 $ 51,656
======== ========
</TABLE>
NOTE 7 - NOTES AND LEASE PAYABLES
Elite has a capital lease with Linc Monex Equipment, Inc. payable monthly at
$770, including interest at 18%. The remaining capital lease payments are
included in the schedule below.
Current maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2001 $ 4,356
2002 $ 3,887
</TABLE>
F-10
<PAGE> 44
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has cash loans from its shareholders in the amounts of $10,000 and
$52,101 at May 31, 2000 and May 31, 1999, respectively. The notes bear an
interest rate of 5% annually, are unsecured, and due upon demand. Accrued
salaries due to shareholders amount to $48,355 and $250,757 at May 31, 2000 and
May 31, 1999, respectively. In September 1999, the shareholders exchanged
$244,500 in accrued salaries for 2,445 shares of preferred stock at $100 per
share.
NOTE 9 - MERGER AND ACQUISITION
On November 17, 1999, Elite Logistics Services, Inc. ("Elite") completed an
acquisition agreement with Summit Silver, Inc. (SSI) subsequently to be known as
Elite Logistics, Inc. (ELI). In late November 1999, SSI was renamed as Elite
Logistics, Inc.
Under the terms of the agreement, SSI issued 10,400,000 shares of common stock
in exchange for all of Elite's common stock. Immediately prior to the agreement
and plan of recapitalization, Elite had 10,400,000 shares of common stock issued
and outstanding. Elite will continue as a subsidiary of ELI.
As SSI was a non-operating company with limited assets, the substance of the
merger transaction is a capital transaction, rather than a business combination.
The transaction is equivalent to the issuance of stock by Elite for the net
assets of SSI, accompanied by a recapitalization. The accounting is identical to
that resulting from a reverse acquisition, except that no goodwill or other
intangibles is recorded. See Note 11.
In connection with this same transaction, all 2,445 shares of Elite's preferred
stock were exchanged for an equivalent amount of SSI preferred stock, which
conferred the same rights and provisions as the original shares of Elite's
preferred stock. The exchange of the redeemable preferred stock resulted in no
significant valuation adjustment in the allocation of value in the merger. Also,
the 1,215,555 outstanding warrants in Elite were exchanged with SSI for warrants
of the same terms and rights.
The income statement effect of the merger with SSI was the recognition of $2,800
of SSI's expenses in consolidated financial statements. The only substantial
asset of SSI that was acquired was $24,400 of investments. The liabilities
acquired by Elite in the acquisition totaled $10,247.
NOTE 10 - REDEEMABLE PREFERRED STOCK
On September 15, 1999, the Company issued 2,445 shares of preferred stock with
$100 par value. These shares are preferred as to dividends and liquidation. The
cumulative dividends are currently payable at prime of 8.25% plus 2% which is
10.25%. The shares are required to be redeemed within one year. The preferred
stock was issued in payment to existing stockholders for deferred compensation.
As part of the acquisition of Summit Silver, Inc., these shares were traded for
2,445 shares of Summit's preferred stock at $.01 per value. (Note 8).
F-11
<PAGE> 45
As of May 31, 2000, cumulative dividends are $17,752, but have not been declared
or paid.
The Corporation is required to redeem all issued and outstanding shares of
series A preferred stock on September 15, 2000 at a redemption price of $100 per
share. Prior to such time, the Corporation may redeem in whole or in part Series
A preferred stock at the option of the board of directors. See Note 8. Total
authorized shares of preferred stock is 10,000,000. At May 31, 2000, no shares
of preferred stock were redeemed.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Leases
ELI leases office space in Freeport, Texas on an annually renewable lease. The
monthly rent was $1,700 and the lease term end in December 1999. Subsequent to
December 31, 1999, the Company expanded its office space and renewed the lease
for a three-year term ending December 2002. The monthly lease payment is $7,149.
The future expected minimum lease payments on the above lease at May 31, 2000
are as follows:
<TABLE>
<S> <C>
2001 $85,788
2002 $50,043
</TABLE>
Distributorship Agreement
The Company has an exclusive agreement with a distributor to sell the Company's
PageTrack(TM) system (which involves two-way pager service requirements). The
agreement limits the market area. The distributor paid $100,000 and the Company
recognized income of this amount as other income on its statement of operations
at the time the agreement was signed in February 1999. Elite is required pay to
the distributor 20% of net sales of air time less a 10% administration charge
under the terms of the distributorship agreement. At February 1999, all material
conditions relating to the sale of this distributorship agreement were
substantially performed. There are no remaining obligations or intent by
agreement, trade practice or law to refund any cash received related to this
sale of the distribution agreement.
Employment Agreements
The Company has several employment agreements in place. These agreements are for
unspecified terms and contain 12-18 month non-compete clauses for employees in
the event that their job tenure with the Company is severed.
NOTE 12 - COMMON STOCK
Elite Logistics Services, Inc. originally had 100 shares of no par stock issued.
In September 1999, the original 100 shares were split at 100,400 to 1 and
converted to 10,040,000 shares of common stock. Also, in September 1999, the
Company issued 320,000 shares of common stock to various investor groups in
exchange for cash proceeds of $400,000. This issuance resulted in non-qualifying
shareholders which then caused the termination of the Company's S election and
resulted in the Company's conversion to a C Corporation. Also in November 1999,
the Company issued 40,000 shares of common stock in settlement of a vendor
payable of $50,000.
In January and February 2000, the Company issued 466,251 shares of common stock
at $2.00 per share.
In March 2000, the Company issued 237,200 shares of common stock at $2.00 per
share and another 68,188 shares of common stock in exchange for professional
services valued at $136,376.
The audited financial statements have been retroactively restated for the
10,040,000 shares of common stock.
F-12
<PAGE> 46
NOTE 13 - WARRANTS AND OPTIONS
Warrants
On September 20, 1999, the Board of Directors approved the issuance of a warrant
to Vernor Investments to purchase up to 100,000 shares of the Company's common
stock at 5% below the current market value at the time of purchase, exercisable
from the date of issuance until September 30, 2000. As of May 31, 2000, this
warrant has not been exercised.
On November 10, 1999, the Board of Directors approved the issuance of a warrant
to Forte Group LLC to purchase up to 1,115,555 shares of the Company's common
stock at $1.25 per share from the date of issuance until September 30, 2002.
This warrant has not been exercised.
The fair value of each warrant granted is estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value. The risk-free interest rate is 5.5%, volatility is .5%
and the expected life of the warrants is one to three years.
The fair market value of these warrants of $229,955 was recorded as consulting
fees pursuant to Financial Accounting Standard No. 123.
The following is a summary of warrants during the period ended May 31, 2000:
<TABLE>
<CAPTION>
Weighted
Number Average
Of Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at May 31, 1999 -- $ --
Granted 1,215,555 1.25
Exercised -- --
Forfeited or expired -- --
--------- -----
Outstanding at May 31, 2000 1,215,555 $1.25
========= =====
Weighted average fair value of
Warrants granted from May 31, 1999 to
May 31, 2000 $ .19
=========
</TABLE>
F-13
<PAGE> 47
Options
On January 1, 2000 the Company granted 23,000 options to purchase 23,000 common
stock shares for $2.00 per share, in accordance with the Elite Logistics, Inc.
2000 Employee Incentive Plan. During the year ended May 31, 2000, 21,700 of
these options were exercised at $2.00 per share.
The remaining 1,300 options have an estimated value of $255 based on the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value: the risk-free interest rate is 5%, volatility is .3% and
the expected life of the option is six months. The fair market value was
recorded as compensation expense pursuant to Financial Accounting Standard No.
123.
The Company has a compensation agreement in place with an employee to grant an
additional 30,000 options for common stock per year over the next three years
contingent upon continued employment. These options will be exercisable at the
fair market value at the date of grant.
Employee Stock Option Plan
In 2000, the Company adopted the Elite Logistics, Inc. Employee Stock Option
Plan, under which 500,000 shares of common stock are available for issuance with
respect to awards granted to officers, management and other key employees of the
Company. The plan also includes a provision for an annual increase in the number
of shares available for issuance to 200,000 shares or 1.5% of the outstanding
shares or a lessor amount determined by the Board. At the time the option is
granted, the administrator shall fix the period within which the option may be
exercised, fixing the exercise price at no less than 100% of the fair market
value per share on the date of grant and will determine the acceptable form of
consideration for exercising the option.
NOTE 14 - YEAR 2000
Like other companies, Elite Logistics, Inc. could be adversely affected if the
computer systems the Company, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment and elevators, etc. At this time, the
Company does not have any evidence of problems associated with the Year 2000
issue.
NOTE 15 - GOING CONCERN CONSIDERATION
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,724,307 for the period ended May 31, 2000. Management's plans include
raising several million dollars through a private placement in 2000 and, if
successful in this endeavor, applying for a NASDAQ Smallcap listing. Management
believes that these actions will assist the Company in reaching the point of
profitability from operations and enable the Company to raise further capital
from private placements or public offerings. If successful, these actions will
serve to mitigate the factors which had raised substantial doubt about the
Company's ability to continue as a going concern and increase the availability
of resources for funding of the Company's current operations and future market
development.
F-14
<PAGE> 48
NOTE 16 - INCOME TAXES
The Company elected to be taxed as a subchapter S corporation for tax purposes.
An S Corporation makes no provision for tax purposes and passes all items of
income, loss or tax preference to the individual shareholders. For the years
ended December 31, 1998 and 1997, there are no provisions for taxes based upon
the Company's effective S election.
On September 1, 1999, the Company sold shares of common stock to non-qualifying
holders for an S Corporation. As of September 1, 1999, the Company's S election
was terminated. The loss for the five months period ending May 31, 1999 of
$64,093 is allocated to the S Corporation. The loss for the period from May 31,
1999 to August 31, 1999 is $162,613. The loss for the period from September 1,
1999 to May 31, 2000 is $1,561,439. The S Corporation period loss will be passed
to the shareholders of record on August 31, 1999. The subsequent loss of
$1,561,439 is the Company's net operating loss as of May 31, 2000. In compliance
with financial accounting reporting standards, the accumulated losses of
$706,208 from the S Corporation period were cancelled against the Company's
additional paid-in capital. The net operating loss acquired from Summit Silver,
Inc. of approximately $1,450,000 is not expected to be utilized by the Company
because of the Internal Revenue Code limitations concerning ownership changes.
The Company has no significant book to tax differences in its assets and
liabilities, which would give rise to deferred tax assets or liabilities. The
Company may elect to file consolidated tax returns in the future as part of the
merged entity to be known as Elite Logistics, Inc, formerly Summit Silver, Inc.
See Note 8.
NOTE 17 - SUBSEQUENT EVENTS
On May 24, 2000, the Company's board of directors approved a 401k plan effective
June 1, 2000.
On December 12, 1999, the Company entered into a six-month agreement with
Memphis Consulting Group to provide financial consulting and public relations
services designed to raise capital and create a public market for the Company's
stock. Memphis will receive 4,000 shares of common stock per month and cost
reimbursement for out-of-pocket expenses. The Company will also pay Memphis a
finder's fee based on a percentage of the total capital raised. This agreement,
which may be terminated with a thirty-day written notice, has an option to renew
upon agreement of both parties.
On June 12, 2000, the above agreement was renewed with the following amendments:
the term of the agreement is for twelve months, which may be terminated with a
thirty-day written notice, has an option to renew upon agreement of both
parties, and the continuance of the agreement past June 23, 2000 is contingent
on Memphis raising $250,000 before this date. If Memphis succeeds in raising
funds in sequential increments of $250,000 and $3,000,000 during the term of
this agreement, Elite agrees to issue warrants for 150,000 (in 50,000
increments) shares of Elite's common stock with an exercise price of $2.75,
$4.75 and $6.50, per common share respectively, with an exercise period of two
years from the date of the warrant documents.
Subsequent to May 31, 2000, the Company sold 36,726 shares of common stock for
$2.75 per share. In addition, the Company exchanged 3,000 common stock shares
valued at $8,250 for services and expenses, 6,867 common stock shares for
services valued at $30,902 and 3,884 common stock shares for equipment valued at
$10,681.
F-15
<PAGE> 49
PART III
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
3.1 * Articles of Incorporation.
3.2 * Amended Articles of Incorporation.
3.3 * Amended Articles of Incorporation.
3.4 * Amended Articles of Incorporation.
3.5 * Amended Articles of Incorporation.
3.6 * Bylaws.
4.1 * Specimen Stock Certificate.
10.1 * Acquisition Agreement.
10.2 * Agreement between the Company and Motorola, Inc.
10.3 * Agreement between the Company and Motorola, Inc.
10.4 * Distribution Agreement.
11.1 * Computation of per share earnings.
27.2 Financial Data Schedule
99.1 * Office Lease.
99.2 * Agreement between the Company and Vollmer Public
Relations.
</TABLE>
* Previously filed.
F-16
<PAGE> 50
SIGNATURES
In accordance with Section 12 of the Securities Ace of 1934, the registrant
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized:
ELITE LOGISTICS, INC.
BY: /s/ Joseph D. Smith
Joseph D. Smith, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Joseph D. Smith, as true and lawful
attorney-in-fact and agent, with full power of substitution, for his and in his
name, place and stead, in any all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, therewith, with the Securities and Exchange Commission, and to
make any and all state securities law or blue sky filings, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intends and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10SB/A-3 Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Joseph D. Smith
Joseph D. Smith President and a member of the August 29, 2000
the Board of Directors
/s/ Richard L. Hansen
Richard L. Hansen Chief Operating Officer and a August 29, 2000
member of the Board of Directors
/s/ Thien K. Ngugen Vice President and a member of August 29, 2000
Thien K. Nguyen the Board of Directors
/s/ Hanh H. Nguyen
Hanh H. Nguyen Member of the Board of Directors August 29, 2000
/s/ John P. Ryan Secretary and a member of the August 29, 2000
John P. Ryan Board of Directors
/s/ Russell A. Naisbitt Treasurer, Chief Financial August 29, 2000
Russell A. Naisbitt Officer and a member of the
Board of Directors
/s/ Diana Smith Member of the Board of Directors August 29, 2000
Diana Smith
</TABLE>
F-17
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.2 Financial Data Schedule
</TABLE>
