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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-2
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: (409) 230-0222
Copies to: Conrad C. Lysiak, Esq.
601 West First Avenue
Suite 503
Spokane, Washington 99201
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 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 LSOT 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:
Page Track 1G $225.00
Page Track 1P $235.00
Page Track 2 $630.00
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 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.pagetrak.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
effect 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."
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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."
<PAGE> 15
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.
<PAGE> 16
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.
<PAGE> 17
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 February 29, 2000 it had
an accumulated deficit of $812,548. The Company terminated its
subchapter S status on September 1, 1999, and the accumulated loss
through August 31, 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 $812,548 at February 29, 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.
<PAGE> 18
Results of Operations
For Nine Months Ended February 29, 2000
Revenues for the nine month period ended February 29, 2000
were $276,155, an increase of 1,859% over revenues for the nine months
ended February 28, 1999 or $14,094. Revenues for 2000 primarily
comprised sales of the Company's PageTrack products to distributors and
the resale of SkyTel paging services. Revenues in 1999 consisted of
consulting fees and miscellaneous third party hardware sales.
Cost of revenues for the nine month period ended February 29, 2000
were $371,244 an increase of 16,392% over cost of revenues for the nine
months ended February 28, 1999 of $2,251. Cost of revenues for the
nine months ended February 29, 2000 included the manufactured cost of
our PageTrack products, network services provided by SkyTel and the
costs of running our 24-hour network operations center. Cost of
revenues in 1999 consisted of third party hardware.
The Company incurred a gross loss of $104,089 for the nine months
ended February 29, 2000 compared to a gross profit of $11,843 for the
nine months ended February 28, 1999. The gross loss was primarily
attributed to the revenues not reaching a critical mass sufficient to
cover the costs of operating the network operation center.
Operating Expenses
Professional Services. Professional expenses for the nine months
ended February 29, 2000 were $254,884 an increase of 36,733% over
professional expenses for the comparative nine months ended February
28, 1999 of $692. Professional expenses for the nine months ended
February 29, 2000 includes an amount of $229,955 as compensation for
management services provided to the Company by Forte Group LLC. The
amount recorded as an expense is based on the estimated fair value of
the warrants based on the Black-Scholes option pricing model. The
balance of the expense for the nine months ended February 29, 2000
comprises accounting and legal fees incurred in the ordinary course of
business.
Marketing. 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 does not make an
allocation of our occupancy costs and other overhead.
Marketing expenses increased 73% to $122,618 for the nine months
ended February 29, 2000 from $70,971 for the nine months ended February
28, 1999. 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.
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, legal and general
management, bad debt expense and an allocation of the Company's
occupancy costs and other overhead. Selling and administrative
<PAGE> 19
expenses increased 660% to $342,910 for the nine months ended February
29, 2000 from $45,128 in the nine months ended February 28, 1999. 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 increased 56% to $147,564
for the nine months ended February 29, 2000 from $94,471 in the nine
months ended February 28, 1999. 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.
Included in other income for the period ending February 28, 1999
is $100,000 received for the sale of a distributorship. In February
1999, the Company executed an exclusive agreement with a distributor to
sell the Company's products within a limited market area.
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 $5,406 for the nine
months ended February 29, 2000 from $0 in the nine months ended
February 28, 1999. This increase was primarily due to interest paid on
the bank lines of credit.
Results of Operations
For Period Ended March 31, 1999
Revenues for the period ending May 31, 1999 and the years ending
December 31, 1998 and 1997 were $23,500, $6,269, and $1,000,
respectively. Revenues for the period ending May 31, 1999 included
sales of the Company's PageTrack products to distributors and the
resale of SkyTel paging services as well as consulting fees and
miscellaneous third party hardware sales. Revenues consisted of
consulting fees and miscellaneous third party hardware sales for 1998
and 1997 as the Company's product was not yet fully developed.
Cost of revenues for the period ending May 31, 1999 and the years
ending December 31, 1998 and 1997 were $19,519, $1,945, and $244,
respectively. Cost of revenues primarily consisted of third party
hardware.
<PAGE> 20
Marketing expenses for the period ending May 31, 1999 and the
years ending December 31, 1998 and 1997 were $38,047, $54,213, and
$22,478, respectively. Marketing expenses consist primarily of
compensation for the Company's marketing and business development
personnel. The increase in marketing expenses was primarily due to
increases in the number of marketing personnel.
Administrative expenses for the period ending May 31, 1999 and the
years ending December 31, 1998 and 1997 were $58,945, $77,699 and
$188,348, respectively. Administrative expenses consist primarily of
compensation for personnel and payments to outside contractors for
general corporate functions, including finance, information systems,
human resources, facilities, legal and general management. These
expenses have remained fairly consistent during the period ending May
31, 1999 in comparison to the year ending December 31, 1998.
Administrative expenses for the year ending December 31, 1997 include
$115,649 in kind contributions from stockholders when the Company was
formed.
Research and development expenses for the period ending May 31,
1999 and the years ending December 31, 1998 and 1997 were $70,133,
$94,474 and $47,370, respectively. Research and development expenses
primarily consist of compensation for the Company's research and
development personnel, network operations, and depreciation on
equipment used for research and development. These expenses have
remained fairly consistent during the period ending May 31, 1999 in
comparison to the year ending December 31, 1998. Research and
development expenses increased 99% from the year ending December 31,
1997 to December 31, 1998 due to an increase in the number of personnel
needed to develop new products and services and to build the Company's
external network and computer data center infrastructure.
Included in other income for the year ending May 31, 1999 is
$100,000 received for the sale of a distributorship. In February 1999,
the Company executed an exclusive agreement with a distributor to sell
the Company's products within a limited market area.
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.
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 the Company.
Elite entered into this transaction to facilitate the raising of
additional capital through the Company 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").
<PAGE> 21
The Company is currently seeking to raise $1,375,000 from the
issuance of 500,000 shares of restricted common stock at a price of
$2.75 per share. As at June 30, 2000, the Company had yet to complete
the private placement of 500,000 shares at $2.75 per share to partially
fund its business plan. The Company has received oral commitments
for the full amount being sought, however a sudden negative disruption
to the equity markets could cause potential subscribers to change their
minds and not subscribe for stock.
The Company intends to seek a further $10,000,000 from a secondary
offering 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.
The Company believes that the net proceeds from its private
placement currently underway will need to be augmented during the
balance of the current fiscal year by a line of credit and/or further
equity raising of $2,500,000 to fund the current business plan. The
Company intends to build a nationwide PageTrack distribution network of
dealers and distributors. The plan requires hiring additional
personnel for sales, marketing, customer support and technical support.
The cost of implementing the plan is $1,700,000. There is no assurance
that the Company will be able to raise the additional capital needed to
fund the plan and if the Company is unable to do so, the plan will not
be implemented. Thereafter, the Company expects that it will be able to
fund operations out of operating cash flow. The sale of additional
equity or convertible debt securities could result in additional
dilution to our stockholders. 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 believes that the Company could 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.
At February 29, 1999 the Company had no borrowings. The
Company is currently seeking a bank revolving line of credit for up to
$0.5 million to fund working capital requirements. The Company is also
seeking an underwriter for an offering to raise up to $10,000,000.
The Company intends to use the $10,000,000 to repay any borrowings
including the redeemable preference shares in the amount of $244,500,
hire additional employees, development of new products, development of
eCommerce capabilities, marketing, expansion of Company facilities,
initiating remote sales and support centers, and for working capital.
The Company also has some lease financing agreements that amount
to less than $11,000. 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
<PAGE> 22
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.
There is no assurance that the Company will be able to obtain
adequate borrowings and equity financing for a subsequent offering
financing in order to proceed with its current business plan. If the
borrowings or equity financing are not obtained, the Company may have
to curtail its plan of operations or cease operations entirely.
Cash Flow for Nine Months Ending February 29, 2000
Net cash used in operating activities was $824,933 for the nine
months to February 29, 2000. Net cash used for operating activities
was primarily the result of net losses before non-cash charges
($19,263), which include equity instrument compensation expense of
$244,500, and deferred salaries ($39,534). The net cash used for
operating activities also includes increases in accounts receivable
($14,496) and inventory ($310,300) offset by increases in accounts
payable ($78,905) and accrued expenses ($42,762).
Net cash used in investing activities of $50,188 comprised patent
application costs and fixed asset purchases.
Net cash provided by financing activities was $1,292,743 and
principally consisted of proceeds from the sale of stock of $1,316,743
which were offset by shareholder notes repayment of $30,000 offset by
further advances from shareholders of $24,000. Proceeds from a line of
credit of $226,000, were offset by line of credit repayments of the
same amount.
Market Risk Disclosure
As at June 30, 2000, the Company had yet to complete the
private placement of 500,000 shares at $2.75 per share to
partially fund its business plan. The Company has received oral
commitments for the full amount being sought, however a sudden negative
disruption to the equity markets could cause potential subscribers to
change their minds and not subscribe for stock.
As previously discussed, the Company intends to seek a further
$10,000,000 from a secondary offering 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.
The Company leases 2,518 sq feet of space at $3,900.00 per month
with utilities paid and offices furnished on a lease that expires
December 31, 2001.
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.
<PAGE> 23
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the Common Stock ownership as of
June 12, 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, and all
ownership is of record and beneficial.
Name and
address Number of Percentage of
of owner Shares Position Shares Owned
Joseph D. Smith 1,104,400 President, Chief Executive 9.50%
Officer and a member of the
Board of Directors
Richard L.
Hansen 502,000 Chief Operating Officer and a 4.32%
member of the Board of Directors
Thien K. Nguyen 1,104,400 Vice President and a member 9.50%
of the Board of Directors
Hanh H. Nguyen 3,112,400 Member of the Board of Directors 26.77%
John P. Ryan 214,167 Secretary and member of the 1.84%
Board of Directors
Russell A.
Naisbitt 0 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 34.54%
the Board of Directors
All officers 10,053,367 86.47%
and directors as a
group (7 persons)
<PAGE> 24
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
The officers and directors of the Company are as follows:
Name Age Position with Company
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
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.
<PAGE> 25
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, investors 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
<PAGE> 26
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.
<PAGE> 27
SUMMARY COMPENSATION TABLE [1]
(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
($) ($) ($) ($) (#) ($) ($)
Joseph D. 1999 85,000 - - - - - -
Smith 1998 63,417 - - - - - -
President 1997 20,000 - - - - - -
Richard L. 1999 68,500 - - - - - -
Hansen 1998 27,417 - - - - - -
COO 1997 5,000 - - - - - -
Thien K.
Nguyen 1999 70,000 - - - - - -
Vice 1998 50,617 - - - - - -
President 1997 - - - - - - -
Hanh H.
Nguyen 1999 - - - - - - -
Director 1998 - - - - - - -
1997 - - - - - - -
John P.
Ryan 1999 - - - - - - -
Secretary 1998 - - - - - - -
1997 - - - - - - -
Russell A. 1999 - - - - - - -
Naisbitt 1998 - - - - - - -
Treasurer 1997 - - - - - - -
and CFO
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.
<PAGE> 28
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 1,043,130 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 September 30, 1999 the Company owed $112,356 by way of deferred
compensation and other outstanding loans as follows:
Deferred
Name Compensation Loans Total
Joseph D. Smith $47,523 $ 4,001 $ 51,524
Richard L. Hansen
Thien K. Nguyen $17,667 $ 17,667
Hahn H. Nguyen $40,000 $ 40,000
Russell A. Naisbitt
Diane M. Smith $ 3,165 $ 3,165
Total $68,355 $44,001 $112,356
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.
<PAGE> 29
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
January 31, 2000, 11,627,880 share of common stock were issued and
outstanding. Of the 11,627,880 shares presently outstanding, 10,909,750
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.
<PAGE> 30
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:
<PAGE> 31
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 Bulletin Board operated by
the National Association of Securities Dealers, Inc. (the "Bulletin
Board") under the trading symbol "ELOG." The Company's shares began
trading in 1996. Summary trading by quarter for the 1999 and 1998
fiscal years and the first quarter of 2000 are as follows:
Fiscal Quarter High Bid[1] Low Bid[1]
2000
First Quarter 5.50 3.50
1999
Fourth Quarter 3.875 0.25
Third Quarter 0.25 0.1825
Second Quarter 0.25 0.04
First Quarter 0.25 0.0625
1998
Fourth Quarter 0.45 0.125
Third Quarter 0.51 0.125
Second Quarter 0.125 0.10
First Quarter 0.0625 0.0625
[1] These quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commissions and may not represent actual
transactions.
As of January 20, 2000, the Company had 1,075 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.
<PAGE> 32
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:
DATE NAME SHARES AMOUNT PAID
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
<PAGE> 33
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
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.
<PAGE> 34
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.
<PAGE> 36
PART F/S
ITEM 13. FINANCIAL STATEMENTS.
TABLE OF CONTENTS
ACCOUNTANT'S REVIEW REPORT . . . . . F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . F-2
Consolidated Statements of Operations
and Accumulated Deficit . . . . . F-3
Consolidated Statements of Stockholders' Equity . F-4
Consolidated Statements of Cash Flows . . . F-5
NOTES TO FINANCIAL STATEMENTS . . . . . F-6
<PAGE> 36
Board of Directors
Elite Logistics, Inc.
Freeport, Texas
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Elite Logistics, Inc.
(formerly Elite Logistics Services, Inc.) as of May 31, 1999, December 31,
1998 and 1997 and the related statements of operations, cash flows, and
stockholders' equity for the five months ended May 31, 1999 and years ended
December 31, 1998 and 1997. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Elite Logistics, Inc. as of
May 31, 1999, December 31, 1998 and 1997, and the results of its operations
and its cash flows for the five months ended May 31, 1999 and years ended
December 31, 1998 and 1997 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 10 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 10. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Spokane, Washington
April 15, 2000
F-1
<PAGE> 37
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
BALANCE SHEETS
05/31/99 12/31/98 12/31/97
ASSETS
CURRENT ASSETS
Cash $ 34,264 $ 7,941 $ 31,817
Accounts receivable 11,225 360 -
Inventory 51,656 80 -
-------- -------- ---------
TOTAL CURRENT ASSETS 97,145 8,381 31,817
-------- -------- ---------
PROPERTY AND EQUIPMENT
Computer equipment 84,369 61,285 59,653
Furniture and equipment 4,828 2,645 2,645
Software 87,426 86,063 85,622
Less: accumulated depreciation
and amortization (66,921) (53,164) (23,360)
-------- -------- ---------
TOTAL PROPERTY AND EQUIPMENT 109,702 96,829 124,560
-------- -------- ---------
OTHER ASSETS
Patent costs 11,518 - -
-------- -------- ---------
TOTAL OTHER ASSETS 11,518 - -
-------- -------- ---------
TOTAL ASSETS $218,365 $105,210 $ 156,377
======== ======== =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 47,344 $ - $ -
Accrued expenses 4,892 - -
Leases payable 2,852 - -
Accrued salaries 250,753 161,251 18,357
Shareholder loans payable 52,101 42,101 14,100
-------- -------- ---------
TOTAL CURRENT LIABILITIES 357,942 203,352 32,457
-------- -------- ---------
LONG-TERM LIABILITIES
Leases payable, net of
current portion 8,491 - -
-------- -------- ---------
TOTAL LIABILITIES 366,433 203,352 32,457
-------- -------- ---------
COMMITMENTS AND CONTINGENCIES - - -
-------- -------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - $0.01 par value;
10,000,000 shares authorized,
none issued - - -
Common stock - $0.01par value;
50,000,000 shares authorized,
10,040,000 shares issued and
outstanding 100,400 100,400 100,400
Additional paid-in capital 295,127 280,960 280,960
Accumulated deficit (543,595) (479,502) (257,440)
-------- -------- ---------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (148,068) (98,142) 123,920
-------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $218,365 $105,210 $ 156,377
======== ======== =========
F-2
<PAGE> 38
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
STATEMENTS OF OPERATIONS
From
Inception
Five Months (08/06/97)
Ending Year Ending to
May 31, December 31, December 31,
1999 1998 1997
REVENUES $ 23,500 $ 6,269 $ 1,000
COST OF REVENUES 19,519 1,945 244
---------- ---------- -----------
GROSS PROFIT 4,031 4,324 756
---------- ---------- -----------
EXPENSES
Marketing 38,047 54,213 22,478
Administrative expenses 58,945 77,699 188,348
Research and development 70,133 94,474 47,370
---------- ---------- -----------
TOTAL EXPENSES 167,125 226,386 258,196
---------- ---------- -----------
OPERATING INCOME (LOSS) (163,094) (222,062) (257,440)
---------- ---------- -----------
OTHER INCOME (EXPENSE)
Income from sale of
distributorship 100,000 - -
Interest expense (999) - -
Total other income
(expense) 99,001 - -
---------- ---------- -----------
LOSS BEFORE INCOME TAXES (64,093) (222,062) (257,440)
INCOME TAXES - - -
---------- ---------- -----------
NET LOSS $ (64,093) $ (222,062) $ (257,440)
========== ========== ===========
BASIC AND DILUTED
LOSS PER COMMON
SHARE $ (0.01) $ (0.02) $ (0.03)
========== ========== ==========
WEIGHTED AVERAGE
NUMBER OF BASIC
AND DILUTED COMMON
STOCK SHARES
OUTSTANDING 10,040,000 10,040,000 10,040,000
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 39
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Beginning balance
08/06/97 - $ - $ - $ - $ -
Issuance of common
stock in November
1997 for cash at
$0.04 per share 3,815,200 38,152 105,736 - 143,888
Issuance of
common stock in
November 1997
for compensation at
$0.04 per share 3,714,800 37,148 105,563 - 142,711
Issuance of common
stock in November
1997 for cash at
$0.04 for contributed
assets 2,510,000 25,100 69,661 - 94,761
Net loss for year
ending 12/31/97 - - - (257,440) (257,440)
---------- ---------- ---------- ---------- ----------
Balance at
12/31/97 10,040,000 100,400 280,960 (257,440) 123,920
Net loss for
year ending
12/31/98 - - - (222,062) (222,062)
---------- ---------- ---------- ---------- ----------
Balance at
12/31/98 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 05/31/99 - - - (64,093) (64,093)
---------- --------- --------- ---------- ----------
Balance at
May 31, 1999 10,040,000 $ 100,400 $ 295,127 $ (543,595) $ (148,068)
========== ========= ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 40
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
STATEMENTS OF CASH FLOWS From
Inception
Five Months (08/06/97)
Ending Year Ending to
May 31, December 31, December 31,
1999 1998 1997
Cash flows from operating activities:
Net loss $ (64,093) $ (222,062) $ (257,440)
Adjustments to reconcile net
loss to net cash provided
(used) by operating activities:
Depreciation and
amortization 13,757 29,804 23,360
Accrued salaries 89,502 128,794 32,457
Stock issued for compensation - - 142,711
Decrease (Increase) in:
Accounts receivable (10,865) (360) -
Inventory (51,576) (80) -
Increase (Decrease) in:
Accounts payable 47,344 - -
Accrued expenses 4,892 - -
--------- ---------- ----------
Net cash provided (used) in
operating activities 28,961 (63,904) (58,912)
--------- ---------- ----------
Cash flows from investing activities:
Purchase of property and
equipment and software (14,572) (2,073) (53,159)
Payments on leased equipment (715) - -
Patent costs (11,518) - -
--------- ---------- ----------
Net cash provided (used) in
investing activities (26,805) (2,073) (53,159)
--------- ---------- ----------
Cash flows from financing activities:
Issuance of stock 14,167 - 143,888
Proceeds from notes payable
shareholders 10,000 42,101 -
--------- ---------- ----------
Net cash provided (used) in
financing activities 24,167 42,101 143,888
--------- ---------- ----------
Net increase (decrease)
in cash 26,323 (23,876) 31,817
Cash, beginning of period 7,941 31,817 -
--------- ---------- ----------
Cash, end of period $ 34,264 $ 7,941 $ 31,817
========= ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and
income taxes:
Interest $ - $ - $ -
========= ========== ==========
Income taxes $ - $ - $ -
========= ========== ==========
NON-CASH TRANSACTIONS:
Issuance of stock for equipment
and software $ - $ - $ 94,761
Issuance of stock for
compensation $ - $ - $ 142,711
Equipment financed by capital
lease $ 11,343 $ - $ -
F-5
<PAGE> 41
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 1 - BUSINESS ORGANIZATION
The financial statements presented are those of Elite Logistics Inc. from
inception (November 19, 1997) through May 31, 1999. During the period of
presentation, the Company's name was Elite Logistics Services, Inc.
On November 17, 1999, the Company exchanged its stock with Summit Silver,
Inc. ("SSI"), a nonoperating company with limited assets. This merger
transaction is accounted for as a capital transaction without the recording
of goodwill or other intangibles. Subsequent to the merger, the Company
changed its year-end from December 31 to May 31, which was the year-end of
SSI. See Notes 12 and 13.
The financial statements and notes for all periods presented have been
retroactively restated to comply with the reporting requirements for a
capital transaction.
Elite Logistics Services, Inc. (hereinafter "Elite") was incorporated 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.
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
Elite uses the accrual basis of accounting in accordance with generally
accepted accounting principles.
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-6
<PAGE> 42
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 Services, Inc. has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code for the years ended December 31,
1998 and 1997 and for the year ending May 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 and tax preferences.
Accordingly, no provision has been made for federal income tax for the year
ended May 31, 1999 or for the years ended December 31, 1998 and 1997 in the
accompanying financial statements. See Note 11.
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. Patents are currently
expected to be granted in 2000 at which time amortization would begin.
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-7
<PAGE> 43
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenues and cost of revenues are recognized when services and products are
furnished or delivered.
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 new 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 balance sheet and measure those instruments at
fair value.
At May 31, 1999, 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. The Company's policy is to recognize the cost of
compensated absences when actually paid to employees, as currently the
amount cannot be reasonably estimated. If the amount were estimatible,
currently is would not be recognized, as the amount would be deemed
immaterial.
NOTE 3 - PATENT COSTS
The costs of patent applications are capitalized. 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 cost of patents are
amortized over their statutory lives of seventeen years. At May 31, 1999,
the Company had not received any patent approvals. There was no patent
amortization expense recorded in 1999, 1998 or 1997.
F-8
<PAGE> 44
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 4 - INVENTORY
Inventories are stated at the lower of cost or market, with cost being
determined on a weighted average basis.
Inventories at May 31, 1999, December 31, 1998 and 1997 consist of the
following for the dates shown:
1999 1998 1997
Finished goods $ - $ - $ -
Work in progress - - -
Raw materials 51,656 80 -
-------- ---- ----
Total $ 51,656 $ 80 $ -
======== ==== ====
NOTE 5 - CAPITAL LEASE
Elite has a capital lease with Linc Monex Equipment, Inc. payable monthly at
$460, including interest at 18%. The remaining capital lease payments are
included in the schedule below.
Current maturities of long-term debt for the years ending May 31 are as
follows:
2000 $ 2,852
2001 $ 3,410
2002 $ 5,081
NOTE 6 - LOANS FROM SHAREHOLDERS
The Company has unsecured cash loans with its shareholders in the amounts of
$52,101, $42,101, and $14,100 at May 31, 1999, December 31, 1998 and 1997,
respectively. The notes bear an interest rate of 5% annually, are unsecured,
and due upon demand.
Debt to shareholders also included accrued salaries due to the shareholders
of $250,753, $161,251 and $18,357 for the year ending May 31, 1999 and the
years ended December 31, 1998 and 1997, respectively. In September 1999, the
shareholders exchanged $244,500 in deferred salaries for 2,445 shares of
preferred stock at $100 per share. See Note 13.
F-9
<PAGE> 45
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Office Lease
Elite leases office space in Freeport, Texas on an annually renewable lease.
The monthly rent is $1,700 and the lease term ends in December 1999.
Distributorship Agreement
In February 1999, the Company executed an exclusive agreement with a
distributor to sell the Company's Page Track 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. Elite is required to pay 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 have been substantially performed.
Employment Agreements
The Company has several employment agreements in place. These agreements are
for unspecified terms and contain 12-18 month non-complete clauses for
employees in the event that their job tenure with the Company is severed.
NOTE 8 - COMMON STOCK
All references to common stock in the accompanying financial statements
reflect that of the continuing operating company. Subsequent to the period
covered by these financial statements, 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 to discontinue the Company's S elections, and resulted in the
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.
NOTE 9 - YEAR 2000
Like other companies, Elite could be adversely affected if the computer
systems it, 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, elevators, etc. At this time there have been no
known problems related to the Year 2000 issue.
The Company has reviewed its business and processing systems and believes
that the majority of its systems are already year 2000 compliant or can be
made so with software updates. Based on preliminary assessments, the Company
regards the costs associated with Year 2000 readiness to be immaterial. All
costs associated with the Year 2000 issue will be expensed as incurred.
F-10
<PAGE> 46
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 10 - GOING CONCERN CONSIDERATION
As shown in the accompanying financial statements, the Company incurred net
losses of $64,093 $222,062, and $257,440, for the year ended May 31, 1999 and
the years ended December 31, 1998 and 1997, respectively. Management's plans
consist of successfully merging the Company with another corporation to
expand its business direction. See Note 12. Management plans include
raising several million dollars through a private placement in the first half
of 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.
After the date of these financial statements, the Company executed a merger
and share exchange with another corporation. This merger and exchange
resulted in the Company's current stockholders becoming majority stockholders
in the new company. See Note 12.
NOTE 11 - INCOME TAXES
The Company upon formation 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, 1997 and 1998 and for the
five month year ended May 31, 1999, 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 period from January 1,
1999 to August 31, 1999 will be passed to the shareholders of record on
August 31, 1999.
The Company has no significant book to tax differences in its assets and
liabilities, which would give rise to deferred tax assets or liabilities.
NOTE 12 - MERGER AND ACQUISITION
On November 17, 1999, Elite Logistics Services, Inc. completed an acquisition
agreement with Summit Silver, Inc. (SSI). On November 5, 1999, the continuing
entity 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 reorganization, Elite had 10,400,000 shares of common
stock issued and outstanding.
F-11
<PAGE> 47
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 12 - MERGER AND ACQUISITION (Continued)
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. Also, the 1,215,555 outstanding warrants in
Elite were exchanged with SSI for warrants of the same terms and rights. See
Note 13.
NOTE 13 - SUBSEQUENT EVENTS
Termination of S Corporation Status
On September 1, 1999, the Company acquired new non-qualifying shareholders
and amended its articles of incorporation to change from an S corporation to
a regular C corporation. See Note 11.
Merger with Summit Silver, Inc.
On November 17, 1999, the Company agreed to an exchange of its stock in an
acquisition with Summit Silver, Inc. ("SSI"). As SSI was a nonoperating
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 ELI 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 12.
Preferred Stock Issuance
In September 1999, the Company issued 2,445 shares of $ 100 par value Series
A preferred stock for accrued compensation of $244,500. Holders of Series A
preferred shares with $100 par value are entitled to cumulative dividends at
the per share rate of prime rate plus 2% of the original issue price, payable
quarterly if declared by the board of directors.
The Corporation is required to redeem all issued and outstanding shares of
series A preferred stock in 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.
Transactions Involving 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. For
valuation purchases at issuance the strike price was determined to be $1.19
per share of common stock.
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.
F-12
<PAGE> 48
ELITE LOGISTICS, INC.
(Formerly Elite Logistics Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For the Five Months Ended May 31, 1999
For the Years Ended December 31, 1998 and 1997
NOTE 13 - SUBSEQUENT EVENTS (Continued)
On November 17, 1999 the outstanding warrants were converted under the
acquisition agreement into warrants of Elite Logistics, Inc. under the same
terms and conditions described above.
Office Lease
Subsequent to December 31, 1999, the Company has expanded its office space
and renewed the lease for a two year term ending December 2002. The monthly
lease payment is $7,149 commencing in 2000.
F-13
<PAGE> 49
Board of Directors
Elite Logistics, Inc.
Freeport, Texas
Independent Accountant's Review Report
We have reviewed the accompanying consolidated balance sheet of Elite
Logistics, Inc. as of February 29, 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for the nine
months ended February 29, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
The financial statements for the year ended May 31, 1999 were audited by us
and we expressed an unqualified opinion on them in our report dated April 15,
2000, but we have not performed any auditing procedures since that date.
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.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, WA
April 24, 2000
1
<PAGE> 50
ELITE LOGISTICS, INC.
CONSOLIDATED BALANCE SHEETS
02/29/00 05/31/99
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 451,826 $ 34,264
Investments 24,400 -
Accounts receivable 29,147 11,225
Inventory 361,956 51,656
----------- ----------
TOTAL CURRENT ASSETS 867,329 97,145
----------- ----------
PROPERTY AND EQUIPMENT
Computer equipment 100,761 84,369
Furniture and equipment 7,288 4,828
Software 87,426 87,426
Less: accumulated depreciation
and amortization (86,184) (66,921)
----------- ----------
TOTAL PROPERTY AND EQUIPMENT 109,291 109,702
----------- ----------
OTHER ASSETS
Patents 34,286 11,518
----------- ----------
TOTAL OTHER ASSETS 34,286 11,518
----------- ----------
TOTAL ASSETS $ 1,010,906 $ 218,365
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 129,919 $ 47,344
Line of credit - -
Accrued expenses 46,231 4,892
Leases payable 3,620 2,852
Accrued salaries 53,355 250,753
Notes payable to shareholders 44,001 52,101
----------- ----------
TOTAL CURRENT LIABILITIES 277,126 357,942
----------- ----------
LONG-TERM LIABILITIES
Leases payable, net of current portion 4,524 8,491
----------- ----------
TOTAL LIABILITIES 281,650 366,433
----------- ----------
COMMITMENTS AND CONTINGENCIES - -
----------- ----------
REDEEMABLE PREFERRED STOCK 244,500 -
----------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value;
50,000,000 shares authorized,
11,880,751 and 10,040,000 shares
issued and outstanding, respectively 118,808 100,400
Warrants outstanding 229,955 -
Additional paid-in capital 948,541 295,127
Accumulated deficit (812,548) (543,595)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 484,756 (148,068)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,010,906 $ 218,365
=========== ==========
2
<PAGE> 51
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
02/29/00 02/28/99 02/29/00 02/28/99
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ 36,189 $ 7,825 $ 267,155 $ 14,094
COST OF REVENUES 52,684 1,890 371,244 2,251
---------- ---------- ---------- ----------
GROSS PROFIT (LOSS) (16,495) 5,935 (104,089) 11,843
EXPENSES
Professional services 64,330 350 254,884 692
Marketing expenses 60,761 46,968 122,618 70,971
Selling and administrative
expenses 68,058 32,701 342,910 45,128
Research and
development 22,732 63,020 147,564 94,471
---------- ---------- ---------- ----------
TOTAL EXPENSES 215,881 143,039 867,976 210,570
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (232,376) (137,104) (972,065) (198,727)
OTHER INCOME (EXPENSE)
Income from sale of
distributorship - 100,000 - 100,000
Interest income - - 2,310 -
Interest expense (3,185) - (5,406) -
---------- ---------- ---------- ----------
TOTAL OTHER INCOME
(EXPENSE) (3,185) 100,000 (3,096) 100,000
---------- ---------- ---------- ----------
LOSS BEFORE
INCOME TAXES (235,561) (37,104) (975,161) (98,727)
INCOME TAX - - - -
---------- ---------- ---------- ----------
NET (LOSS) $ (235,561) $ (37,104) $ (975,161) $ (98,727)
========== ========== ========== ==========
BASIC AND DILUTED
LOSS PER COMMON
SHARE $ (0.02) $ (0.00) $ (0.09) $ (0.01)
========== ========== ========== ==========
BASIC AND DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
STOCK SHARES
OUTSTANDING 10,411,269 10,040,000 10,411,269 10,040,000
========== ========== ========== ==========
See accountant's review report and notes to the financial statements
3
<PAGE> 52
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholder
of Shares Amount Warrants Capital Deficit Equity
Balance at
12/31/98 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
---------- --------- --------- --------- ---------- ----------
Loss for the year
ending 05/31/99 - - - - (64,093) (64,093)
Balance at
05/31/99 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 recapitaliz-
ation 1,014,500 10,145 - 15,242 - 25,387
Issuance of
common stock
for cash at
$2.00 per
share, net of
$29,859 of
expenses 466,251 4,663 - 897,980 - 902,643
Loss for nine months
ending 02/29/00 - - - - (975,161) (975,161)
---------- --------- --------- --------- ---------- ----------
Balance at
02/29/00
(Unaudited) 11,880,751 $ 118,808 $ 229,955 $ 948,541 $ (812,548) $ 484,756
========== ========= ========= ========= ========== ==========
See accountant's review report and notes to the financial statements.
4
<PAGE> 53
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
02/29/00 02/28/00
(Unaudited)
Cash flows from operating activities:
Net loss $ (975,161) $ (98,727)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization 19,263 29,804
Accrued salaries 39,534 145,648
Stock issued for accounts payable 50,000 -
Stock issued for compensation 244,500 -
Decrease (Increase) in :
Accounts receivable (14,496) (105,490)
Inventory (310,300) (80)
Increase (Decrease) in :
Accounts payable 78,905 -
Accrued expenses 42,762 1,836
----------- ---------
Net cash used by operating activities (824,993) (27,009)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (24,923) -
Payments on leased equipment (2,113) -
Patent costs (23,152) (150)
----------- ---------
Net cash used by investing activities (50,188) (150)
----------- ---------
Cash flows from financing activities:
Issuance of stock 1,316,743 -
Proceeds from line of credit 226,000 -
Payments on line of credit (226,000) -
Proceeds from shareholders' notes payable 6,000 40,001
Payments to shareholders for notes (30,000) -
----------- ---------
Net cash provided by financing activities 1,292,743 40,001
----------- ---------
Net increase in cash 417,562 12,842
Cash, beginning of period 34,264 4,581
----------- ---------
Cash, end of period $ 451,826 $ 17,423
=========== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest expense $ 6,696 $ -
=========== =========
Income taxes $ - $ -
=========== =========
NON-CASH OPERATING ACTIVITIES
Common stock issued for accounts payable $ 50,000 $ -
Preferred stock issued for accrued salaries $ 244,500 $ -
Warrants issued for consulting $ 229,955 $ -
See accountant's review report and notes to the financial statements.
5
<PAGE> 54
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
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 of 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.
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.
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.
6
<PAGE> 55
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 year ended May 31,
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.
7
<PAGE> 56
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 new 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 February 29, 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. The Company's policy is to recognize the cost of compensated
absences when actually paid to employees as, currently, the amount cannot be
reasonably estimated. If the amount were estimatible, currently it would not
be recognized, as the amount would be deemed immaterial.
NOTE 3 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.
The Company's trading securities consist of common stock stated at fair value
and are summarized as follows:
Investment February 29,
2000
Ashington Mining Company $ 600
Sterling Mining Company 21,200
Royal Silver Mines, Inc. 1,000
Utah-Idaho Consolidated Uranium, Inc. 1,600
--------
$ 24,400
========
8
<PAGE> 57
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 4 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 February 29, 2000, the Company had not
received any patent approvals. There was no patent amortization expense
recorded in 2000 or 1999.
NOTE 5 INVENTORY
Inventories are stated at the lower of cost or market, with cost being
determined on a weighted average basis.
Inventories at February 29, 2000 and May 31, 1999 consist of the following
for the dates shown:
2000 1999
Finished goods $ 13,000 $ -
Work in progress 26,000 -
Raw materials 322,956 51,656
---------- ---------
Total $ 361,956 $ 51,656
========== =========
NOTE 6 NOTES AND LEASE PAYABLES
Elite has a capital lease with Linc Monex Equipment, Inc. payable monthly at
$460, including interest at 18%. The remaining capital lease payments are
included in the schedule below.
Current maturities of long-term debt are as follows:
2000 $ 3,620
2001 $ 4,401
2002 $ 123
NOTE 7 RELATED PARTY TRANSACTIONS
The Company has cash loans from its shareholders in the amounts of $44,001
and $51,101 at February 29, 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 the shareholders amount to $53,355 and $250,753 at
February 29, 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.
9
<PAGE> 58
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 8 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 nonoperating 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 9 REDEEMABLE PREFERRED STOCK
On September 15, 1999, the Company agreed to issue 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).
As of February 29, 2000, cumulative dividends have not been declared or paid.
The Corporation is required to redeem all issued and outstanding shares of
series A preferred stock in 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.
10
<PAGE> 59
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 10 COMMITMENTS AND CONTINGENCIES (continued)
Leases
ELI leases office space in Freeport, Texas on an annually renewable lease.
The monthly rent is $1,700 and the lease term ends in December 1999.
Subsequent to December 31, 1999, the Company has expanded its office space
and renewed the lease for a three year term ending December 2002. The
monthly lease payment will be $7,149, commencing May 1, 2000.
Distributorship Agreement
The Company has an exclusive agreement with a distributor to sell the
company's Page Track 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.
Employment Agreements
The Company has several employment agreements in place. These agreements are
for unspecified terms and contain 12-18 month non-complete clauses for
employees in the event that their job tenure with the Company is severed.
NOTE 11 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.
The interim financial statements have been retroactively restated for the
10,040,000 shares of common stock.
NOTE 12 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.
11
<PAGE> 60
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 12 WARRANTS (continued)
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.
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 in pursuant to Financial Accounting Standard No. 123.
The following is a summary of warrants during the period ended February 29,
2000:
Weighted
Average
Number Exercise
Of Shares Price
Outstanding at May 31, 1999 - $ -
Granted 1,215,555 1.25
Exercised - -
Forfeited or expired - -
--------- ------
Outstanding at February 29, 2000 1,215,555 $ 1.25
========= ======
Weighted average fair value of
Warrants granted from May 31, 1999
to February 29, 2000 $ .19
=========
NOTE 13 YEAR 2000
Like other companies, Elite could be adversely affected if the computer
systems it, 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, elevators, etc. At this time there have been no
known problems related to the Year 2000 issue.
The Company has reviewed its business and processing systems and believes
that the majority of its systems are already year 2000 compliant or can be
made so with software updates. Based on preliminary assessments, the Company
regards the costs associated with Year 2000 readiness to be immaterial. All
costs associated with the Year 2000 issue will be expensed as incurred.
12
<PAGE> 61
ELITE LOGISTICS, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 14 GOING CONCERN CONSIDERATION
As shown in the accompanying financial statements, the Company incurred a net
loss of $975,161 for the period ended February 29, 2000. Management plans
include raising several million dollars through a private placement in the
first half of 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.
NOTE 15 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 February 29, 2000 is $812,548. The
S Corporation period loss will be passed to the shareholders of record on
August 31, 1999. The subsequent loss of $812,548 is the Company's net
operating loss as of February 29, 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 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 9.
13
<PAGE> 62
PART III
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit No. Description
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.
* Previously filed.
<PAGE> 63
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-2 Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
Signatures Title Date
/s/ Joseph D. Smith
Joseph D. Smith President and a member of the July 10, 2000
the Board of Directors
/s/ Richard L. Hansen
Richard L. Hansen Chief Operating Officer and a July 10, 2000
member of the Board of Directors
/s/ Thien K. Nguyen Vice President and a member of July 10, 2000
Thien K. Nguyen the Board of Directors
/s/ Hanh H. Nguyen
Hanh H. Nguyen Member of the Board of Directors July 10, 2000
_______________________ Secretary and a member of the July __, 2000
John P. Ryan Board of Directors
/s/ Russell A. Naisbitt Treasurer, Chief Financial July 10, 2000
Russell A. Naisbitt Officer and a member of the
Board of Directors
/s/ Diana Smith Member of the Board of Directors July 10, 2000
Diana Smith
