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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-14614
ELITE LOGISTICS, INC.
(Exact name of registrant as specific in its charter)
Idaho 91-0843203
(State of Incorporation) (I.R.S. Employer
Identification No.)
1201 North Avenue H
Freeport, Texas 77541
(Address of executive offices, including zip code.)
Registrant's telephone number: (979) 230-0222
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's
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knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ ]
State issuer's revenues for the fiscal year ended 31st May 2000 $569,263
As of 31st May, 2000, the aggregate market value of the voting stock held by
non-affiliates was approximately $8,184,556.
The number of shares outstanding of each of the issuer's classes of common
stock, as of date of this Report: 12,186,139 (one class).
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I 1
Item 1. Description of Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II 10
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 10
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation; Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995 10
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 15
PART III 16
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 16
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions 20
PART IV 22
Item 13. Exhibits and Reports on Form 8-K 22
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company has developed a complete hardware and software solution that
integrates Global Positioning System (GPS) technology, wireless communications
(e.g. paging, cellular or other wireless communications networks) and the
Internet to enable companies to efficiently track, monitor, manage, and control
their remote mobile and fixed resources. Our Internet-based asset management
solution provides cost-effective location, monitoring, control, (e.g. vehicle
disablement) reporting, dispatch, messaging, and management services. Our
customers can use our website to track the movement of their ground vehicles,
marine vessels, railway equipment, employees, and goods and services. Our
service also enables two-way messaging between our customers and their field
workers. Our service benefits our customers by increasing productivity, reducing
losses, and improving their own customer service.
We have completed development of the initial versions of our logistics control
and tracking software and our PageTrack(TM) Intelligent Vehicle Systems
hardware. Marketing of the products has commenced, and we are generating
revenues.
The Company out-sources the manufacturing of the product to third parties.
HISTORY OF THE COMPANY
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. commenced 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 focus of the activities of Summit Silver,
Inc. for over thirty years. Summit Silver Inc. also acquired a number of mining
properties, each of which contained a number of un-patented 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 or about that
time Summit Silver, Inc. amended its articles of incorporation and changed its
name to Elite Logistics, Inc. All references to "the Company" refer to Elite
Logistics, Inc. (formerly Summit Silver, Inc.) and its wholly owned subsidiary,
Elite Logistics Services, Inc.
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INTELLIGENT VEHICLE MANAGEMENT SYSTEMS
Elite'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 locking/unlocking doors, window up/down, disabling the vehicle
etc. The vehicle can be tracked and controlled via two-way pager, PDA (e.g. Palm
Pilot), the Internet, or by calling Elite's 24 hour per day Customer Control
Center.
The main components of the Company's system are:
o A hardware unit that is installed in the monitored vehicle that
utilizes patent-pending proprietary technology that integrates
Motorola's two-way ReFLEX telemetry unit (or alternative wireless
communications devices) and a GPS unit (which uses data received from
satellite to determine locations).
o A Web-enabled Logistics Satellite Operating System ("LSOS(R)")
Internet based software. 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.
o Web-enabled Geographic Information Systems ("GIS") technology 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.
o A Network Operations Center ("NOC") where the system servers are
maintained and the network elements (vehicles equipped with our
PageTrack(TM) unit, our Internet based systems and the
telecommunications network) are monitored 24 hours per day, 7 days per
week.
o 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.
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.
OPERATION OF THE SYSTEM
A GPS location obtained by the receiver is transmitted via Skytel's ReFLEX
telemetry network (or alternative wireless network) to Elite's server located
within its Network Operations Center. Elite's customers can access the server
and monitor the information either on their own computer systems via the
Internet, via a 2-way pager, text messaging cellular phone or PDA. 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 Control
Center.
The system integrates Elite's proprietary technologies with off-the-shelf
software 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 stores data in an Oracle Database. Geographical
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Information Services (GIS) and location data are maintained on MapInfo software
also running on Windows NT 4.0 Server.
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 real-time means of determining and reporting the
location and status of a vehicle or other asset.
The manufacturer's suggested retail price of each product is as follows:
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Page Track 1G $521.00
Page Track 1P $521.00
Page Track 2 $815.00
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The Company currently monitors approximately 2500 PageTrack(TM) units. Our
current revenue mix is approximately 93% hardware (attributable to the sale of
PageTrack(TM) units) and 7% carrier services.
The system, comprising both software and hardware components, is designed,
integrated and tested at the Company's facilities. The components include
circuit boards, ReFLEX transceiver, GPS receiver, enclosures and cables.
Strategic relationships have been established with three out-source
manufacturers to build the circuit board, enclosures and cables and assemble the
final product.
The Manufacturers are selected based on the following criteria:
o Ability to deliver product to Elite's specification
o Reputation for quality
o Ability to meet cost objectives
o Financial capability
o Ability to respond to rapid volume increases
o Ability to support component inventory quantities to support
forecasted quantities of the end product o Ability to support Research
and Development through product design suggestions and prototype
builds
The Company has written agreements with all of its manufactures and in the event
one of the Company's current manufacturers were to cease doing business with the
Company for any reason, the other manufactures could support the company's total
requirements.
CARRIER SERVICES
The Company has designed the PageTrack(TM) products to be network and carrier
independent. Our "plug and play" architecture means that the unit can be easily
converted to operate on most types of wireless networks including paging,
cellular, PCS, radio and satellite.
The Company has structured its business model to be a reseller of communications
services ("carrier services") provided by Wireless Network Providers. The
company currently resells
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ReFLEX telemetry services from SkyTel a WorldCom subsidiary. The company has
packaged the carrier services into a variety of plans, which range in cost from
$1.25 per month to $45.95 per month. In addition to the foregoing monthly fees,
there is a one-time activation fee of up to $17.50.
SERVICES
Commercial Fleet Management
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.
The Company offers a range of fleet management solutions, depending on the
customer's budget and needs for location and messaging services. 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.
All of the company's solutions involve the installation of a PageTrack(TM)
Intelligent Vehicle System (IVS) in each vehicle and larger customers may
license the LSOS(R) software to support their fleet requirements. Customers may
also attach an IVS directly to valuable cargo or to expensive equipment such as
construction equipment.
LSOS(R) is a proprietary fleet management and logistics software application
that provides fleet customers with time and location specific information
regarding every vehicle in the fleet along with the ability to monitor and
control functions on the vehicle. LSOS(R) updates, and displays on a map, the
position of all PageTrack(TM) equipped vehicles at periodic intervals as
determined by the customer or on demand. 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.
LSOS(R) 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(R) operates,
via the Internet or from a 2-way pager, message/Internet enabled cellular phone
or PDA. Messages can be sent to a single vehicle, several vehicles or broadcast
to the entire fleet.
The LSOS(R) logistics software will automatically complete selection of the most
economical and available transport (one which is 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(R) also reports a driver's
completed route, speed, estimated fuel consumption, estimated time of arrival at
next stop, the time of each stop and can provide documentation for customers who
require verification of deliveries. The Company's commercial fleet customers can
establish a "zone of compliance" that activates the Company's security system
when vehicles leave the zone.
LSOS(R) is designed to address a wide range of customer requirements. By
emphasizing the operation of the LSOS(R) software running on off-the-shelf,
user-friendly software (MapInfo, Oracle and Windows NT), the Company believes it
can attract a wide range of customers, many
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of whom would otherwise use less sophisticated communication and management
systems, if any at all. The open client server architecture permits LSOS(R) to
operate on a variety of hardware platforms and to 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.
In addition to the IVS and LSOS(R), commercial fleet customers purchase two-way
wireless carrier service to communicate with the Page Track units. The Company's
carrier service costs are generally lower than conventional near real-time,
two-way communication services, such as satellite, cellular, and Specialized
Mobile Radio (SMR) services.
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:
o Increase driver productivity and fleet efficiency by monitoring a
driver's route and assuring that drivers are not deviating from
assigned jobs.
o Improve customer service by visually validating that a vehicle is
proceeding in a timely manner.
o Limit unauthorized vehicle use by monitoring the location of a
vehicle.
o Reduce driver overtime by furnishing the most direct and efficient
route to a job destination.
o Increase security for fleet drivers, vehicles and cargo by constant
monitoring of vehicles.
Location Services
The Company's proprietary Internet monitoring service allows its subscribers to
locate their vehicle(s) via the Internet in near real-time (between 40 seconds
and four minutes of the time of the actual event) and reports its location for
compliance, security and convenience purposes. The Internet interface allows
customers to connect to the Company's network operations center via the Internet
and monitor vehicle locations on a detailed digitized map displayed on their PC.
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 vehicle's current location and status.
Most location 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.
Security Services
PageTrack(TM) can be integrated with a vehicle's keyless entry and 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
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customer does not respond, the Elite Customer Control Center will telephone the
customer directly.
Our Customer Control Center is staffed twenty-four hours a day, seven days a
week with Company employees who can, at the direction of the customer, track the
location of the vehicle and contact local law enforcement authorities and
provide them with the location of the potentially stolen vehicle in near
real-time. 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.
The System, when installed in conjunction with third party hardware connected to
the ignition system, can also immobilize the vehicle and/or lock the doors to
facilitate recovery by law enforcement (or a lien holder).
The Company's ability to offer automated, reliable and near real-time vehicle
tracking at the time of theft differentiates its stolen vehicle recovery
assistance service from other available services. Other vehicle recovery
services, such as LoJack(R), require a subscriber to first realize, and then
report, a vehicle stolen in order to begin the tracking process.
Roadside Assistance
An alert notification button can be installed with the PageTrack(TM) unit in a
customer's vehicle that when activated will notify Elite's Customer Control
Center of the need for assistance. The Company's Automated Roadside Assistance
Program, offered to its customers at a higher monthly fee, will direct a tow
truck or other selected services directly to a subscribing customer's location
when the customer presses the installed roadside assistance button.
Industry sources estimate that 25% of roadside assistance calls are for keys
locked in the vehicle. With PageTrack(TM), a customer can use their two way
pager, Palm VII or Internet capable cellular phone or call the Customer Control
Center to remotely lock/unlock their doors.
Information Services
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.
SALES AND MARKETING
The Company currently markets the System to:
o Shipping and delivery companies
o Other Fleet Operators
o Rental car companies
o Railroad and transportation companies
o Private motor vehicle owners (via dealers and other indirect channels)
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The Company intends to distribute its products to consumers and commercial users
through the following:
o Dealers selling directly to consumers.
o Value added resellers who will sell the Company's products in
conjunction with non-Company products and services marketed by the
reseller.
o Wholesale distributors who will market Company products to dealers and
value added resellers.
o Original equipment manufacturers who would incorporate the Company's
products into their products, such as an automobile manufacturer.
The Company will build an installation, service and support channel by
establishing authorization criteria, standards of service, quality monitoring
and training to ensure customer satisfaction.
The Company's marketing plan includes building brand recognition for Elite and
its products. A variety of target marketing communications techniques will be
employed to achieve this such as public relations programs, advertising and
industry and consumer promotions. The Company has retained the public relations
firm of Vollmer Communications to develop a public communications 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.
INTELLECTUAL PROPERTY
Patents and Trademarks
Patents have been applied for both the Logistics Satellite Operating System
(LSOS(R)) and the PageTrack(TM) technology. LSOS(R) is a registered trademark
belonging to the Company. A trademark application for PageTrack is pending.
The Company owns the following website addresses: www.elitelog.com,
www.elitelogistics.com, www.pagetrack2.com.
COMPETITION
A summary of the Company's major competitors' systems follows:
Commercial Vehicle Market
@Track / HighwayMaster - Utilize cellular telephone systems and GPS to transmit
location information to a Dispatcher.
@Road - 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.
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Orbcomm - Utilize Satellite-based communication and GPS to determine location
and transmit messages to and from vehicles to a Dispatcher.
Qualcomm - Utilize Satellite-based communication and GPS to determine location
and transmit messages to and from vehicles 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. Multiple Police vehicles equipped with LoJack(R) equipment are required
to 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(TM)
system.
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 cellular technology
to provide emergency roadside assistance and/or stolen car recovery.
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 costs of the Company's carrier services are approximately 50% less
than competing carrier services.
GOVERNMENTAL REGULATION
The Company is not aware of any governmental regulations that effect the
manufacture, development or sale of our systems
EMPLOYEES
The Company has 25 full-time employees. Except for Messrs Naisbitt and Ryan, the
Company's Officers provide their services on a full-time basis. See
"Management."
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ITEM 2. PROPERTIES
Our facilities comprise our principal office located at 1201 North Avenue H,
Freeport, Texas 77202. The Company leases 4715 sq feet of space at $7,149.00 per
month with utilities paid and offices furnished on a lease that expires December
31, 2002. The Company's offices are currently adequate and suitable for its
operations. The Company currently has no plan to relocate its offices and the
Company has not entered into any negotiations with anyone to relocate its
offices
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings nor is the Company
aware of any which are pending or are known to be contemplated. Furthermore, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our Security Holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's shares are traded on the Pink Sheets market operated by the
National Quotation Bureau, Inc. (the "Pink Sheets") under the trading symbol
"ELOG." The Company's shares began trading in 1996 on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. (the "Bulletin
Board") under the symbol SUSV. The symbol changed to ELOG on 17th November 1999.
Summary trading by quarter for the 2000 and 1999 fiscal years are as follows:
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Fiscal Quarter High Bid[1] Low Bid[1]
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2000
1 March through 31st May $8.62 $3.75
December 1st through 29th February $5.56 $3.00
1999
September 1st through November 30th $2.87 $.25
June 1st through August 31st $.26 $.12
1 March through 31st May $.25 $.04
December 1st through 28th February $.25 $.06
1998
September 1st through November 30th $.76 $.11
June 1st through August 31st $.76 $.10
</TABLE>
[1] These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not represent actual transactions.
As of May 31, 2000, the Company had 1,163 holders of record of its Common Stock.
While the Company pays dividends on its preferred stock, it has not and does not
in the future, intend to pay dividends on its common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS; SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
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.
Elite designs, develops, and produces a wireless monitoring and tracking system
that integrates two-way ReFLEX telemetry and Global Positioning Systems (GPS)
technology, with an Internet-enabled Geographic Information System (GIS) to
allow online remote tracking and control of
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vehicles and other assets. 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.
The Company has a limited operating history upon which investors may evaluate
its business and prospects. Since inception the Company has incurred significant
losses, and as of May 31, 2000 it had an accumulated deficit of $1,579,446. The
Company terminated its subchapter S status on September 1, 1999 and the
accumulated loss through August 31st, 1999 in the amount of $706,208 (generated
when the company was a subchapter S corporation) was reclassified to additional
paid in capital for financial reporting purposes leaving an accumulated deficit
of $1,579,446 at May 31, 2000.
The Company's 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 cover its operating expenses. 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 it 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.
BUSINESS ORGANIZATION
Elite Logistics Services, Inc. ("Elite") was incorporated on August 6, 1997
under the laws of the State of Texas and commenced business operations on
November 19, 1997. Elite is engaged in providing logistics management and
vehicle monitoring and control services. The Company's services are marketed
nationally.
On November 17, 1999, Elite Logistics Services, Inc. exchanged its stock with
Summit Silver, Inc. ("SSI"), a non-operating, publicly traded company with
limited assets. Subsequent to the merger, Elite Logistics Services, Inc. changed
its year-end from December 31 to May 31, which was the year-end of SSI and SSI's
name was changed to Elite Logistics, Inc.
This merger transaction is accounted for as a capital transaction without the
recording of goodwill or other intangibles. The financial statements and notes
for all periods presented have been retroactively restated to comply with the
reporting requirements for a capital transaction.
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein should be read in conjunction with the Financial
Statements of Elite and subsidiaries, for the year ended May 31, 2000, and the
related notes to the Consolidated Financial Statements, along with the Financial
Statements of Elite Logistics Services, Inc. for the period ended May 31, 1999
and the year ended December 31 1998, and the related Notes to Consolidated
Financial Statements. Such Consolidated Financial Statements included (i) the
historical accounts of Elite Logistics Services, Inc for the year ended December
31, 1998, for the period January 1, 1999 through May 31, 1999 and for the year
ended May 31st 2000 and (ii) the historical accounts of Elite Logistics, Inc
(formerly Summit Silver, Inc) for the period November 17, 1999 to May 31, 2000.
All significant inter-company balances and transactions have been eliminated.
The Company's Financial Statements have been prepared in accordance with
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generally accepted accounting principles in the United States and have been
audited by the Company's independent accountants.
The financial information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the continuing operations of the
Company.
RESULTS OF OPERATIONS
For Period Ended May 31st, 2000
Revenues for the year ending May 31, 2000 and the period ending May 31, 1999 and
the year ending December 31, 1998 were $569,263, $23,500, and $6,269
respectively. Revenues for the year ending May 31, 2000 included initial sales
of the Company's PageTrack(TM) products to distributors and the resale of SkyTel
wireless telemetry services as well as miscellaneous third party hardware sales.
Revenues for the period ending May 31, 1999 and the year ending December 31,
1998 consisted of consulting fees and miscellaneous third party hardware sales
only as the Company's own product was not yet fully developed.
Cost of revenues for the year ending May 31, 2000 and the period ending May 31,
1999 and the year ending December 31, 1998 were $656,450, $19,519, and $1,945
respectively. Cost of revenues for the year ended May 31, 2000 included the
manufactured cost of our PageTrack(TM) products, wireless telemetry network
services provided by SkyTel and the costs of operating Elite's 24-hour Control
Center. Cost of revenues for the period ending May 31, 1999 and the year ending
December 31, 1998 consisted of third party hardware.
Gross loss for the year ending May 31, 2000 was $87,187 and this compared with
gross profits for the period ending May 31, 1999 and the year ending December
31, 1998 of $4,031, and $4,324 respectively. Gross loss for the year ended May
31, 2000 included margins on our PageTrack(TM) products and the resale of
wireless telemetry network services provided by SkyTel offset by the costs of
operating Elite's 24-hour Control Center. Gross profit for the period ending May
31, 1999 and the year ending December 31, 1998 consisted of margins on third
party hardware and consulting services.
Marketing expenses consist primarily of compensation for our marketing and
business development personnel, advertising, trade show and other promotional
costs, design and creation expenses for marketing literature and our website.
The Company's does not make an allocation of our occupancy costs and other
overhead. Marketing expenses for the year ending May 31, 2000 and the period
ending May 31, 1999 and the year ending December 31, 1998 were $321,151,
$38,047, and $54,213 respectively. This increase was primarily due to increases
in the number of marketing personnel, and advertising and promotional programs.
The Company expects that sales and marketing expenses will increase both in
absolute dollars and as a percentage of total net revenues in future periods due
to expanded efforts to market and promote its products and services both
domestically and internationally.
Selling and Administrative. Selling and administrative expenses consist
primarily of compensation for personnel and payments to outside contractors for
general corporate functions, including finance, information systems, human
resources, facilities, general management, bad debt expense and the Company's
occupancy costs and other overhead. Selling and Administrative expenses for the
year ending May 31, 2000 and the period ending May 31, 1999 and the year ending
December 31, 1998 were $1,091,758, $58,945, and $77,699 respectively. This
increase was primarily due to increases in the number of personnel and outside
contractors
12
<PAGE> 16
needed to support the growth of the Company's business. The Company expects that
selling and administrative expenses will increase in absolute dollars as it
hires additional personnel and incur additional expenses relating to the
anticipated growth of its business, such as costs associated with increased
infrastructure and its public company status.
Research and Development. Research and development expenses consist primarily of
compensation for the Company's research and development personnel, network
operations and, to a lesser extent, depreciation on equipment used for research
and development. The Company does not make an allocation of its occupancy costs
and other overhead. Research and development expenses for the year ending May
31, 2000 and the period ending May 31, 1999 and the year ending December 31,
1998 were $217,113, $70,133, and $94,474 respectively. This increase was
primarily due to increases in the number of personnel needed to develop new
products and services and build the Company's external network and computer data
center infrastructure. The Company expects that research and development
expenses will increase in absolute dollars in future periods due to expanded
investments in the development of enhanced and new products and online services.
In February 1999, the Company executed an exclusive agreement with a distributor
to sell the Company's products within a limited market area. The Company
included $100,000 received for the sale of the distributorship in other income
for the period ending May 31, 1999.
Interest expense. Net interest expense consists of expenses related to the
Company's financing obligations, which include borrowings under equipment loans,
and short-term bank loans and capital lease obligations. Interest expense
increased to $10,967 for the year ended May 31, 2000 from $999 in the period
ended May 31,1999. This increase was primarily due to interest paid on the bank
lines of credit.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through the
sale of its of common stock by way of private placement, loans from
shareholders, equipment financing, lines of credit, short-term loans and through
deferred employee compensation ($244,500 of this deferred salary obligation has
been converted to redeemable preferred stock). The Company does not expect that
it will be cash flow positive until it achieves an installed base of around
20,000 units (current installed base approximately 2,500). The Company expects
to achieve this installed base target within the 2001 fiscal year.
In September and October of 1999, Elite raised $400,000 through the private
placement of 320,000 shares at $1.25.
On November 17th, 1999 Elite agreed to be acquired in a stock-for-stock
transaction pursuant to an Acquisition Agreement with Summit Silver, Inc. Elite
entered into this transaction to facilitate the raising of additional capital to
fund the Elite business plan.
Between January and March 2000, the Company sold 681,751 shares of its
restricted common stock at a price of $2.00 per share. The Company relied upon
the exemption from registration contained in Section 4(6) of the Securities Act
of 1933 (the "Act").
13
<PAGE> 17
In April 2000 the Company sought to raise $1,375,000 from the issuance of
500,000 shares of restricted common stock at a price of $2.75 per share. This
offer was withdrawn due to market conditions.
The Company intends to raise at least a further $10,000,000 during the 2001
fiscal year by way of a private placement of its securities. The company is
currently in negotiations with several parties who have the capability to
provide such funding. The Company is also seeking to retain an investment bank
to assist in raising up to $10,000,000. In the event that the Company is
successful in raising at least $10,000,000, it intends to use the net proceeds
of the offering to repay any borrowings including the Series A redeemable
preference shares in the amount of $244,500, hire additional employees, develop
new products, develop e-commerce capabilities, marketing, expand Company
facilities, initiate remote sales and control centers, and for working capital
and potential acquisitions.
Until such time as the Company has successfully completed such funding
arrangements, it remains at risk of a sudden negative disruption to the equity
markets preventing such funding from proceeding. The sale of additional equity
or convertible debt securities could result in additional dilution to our
stockholders.
The Company intends to augment the net proceeds from any private placement with
a line of credit to fund working capital requirements. To this end the Company
recently obtained a receivables-based credit facility for up to $750,000 with
Silicon Valley Bank to fund working capital requirements. At May 31, 2000 the
Company had no borrowings.
The Company also has some lease financing agreements that amount to less than
$9,000. The Company has no material commitments for capital expenditures, but
anticipates an increase in the rate of capital expenditures consistent with its
anticipated growth in operations, infrastructure and personnel. The Company
anticipates that it will continue to add computer hardware resources, and expand
its primary office facility during the next twelve months. The Company may also
use cash to acquire or license technology, products or businesses related to its
current business. In addition, the Company anticipates that it will continue to
experience significant growth in its operating expenses for the foreseeable
future and that its operating expenses will be a material use of its cash
resources.
The Company plans to build a nationwide PageTrack(TM) distribution network of
dealers and distributors. The plan requires hiring additional personnel for
sales, marketing, customer support and technical support. The Company estimates
a minimum of $2,500,000 is required to fund its business plan. There can be no
assurance that the Company will be successful in obtaining any such funds on
terms acceptable to it, if at all. In the event that the Company is unable to
secure such additional funding, management would attempt to re-orient its
business plan to a slower growth scenario that would enable the Company to
survive and grow at a slower pace. However failure to capitalize on current
market opportunities could allow competitors to overtake the Company and
significantly impair the long-term growth and value of the Company.
CASH FLOW FOR YEAR ENDING MAY 31, 2000
Net cash used in operating activities was $1,529,499 for the Year Ending May 31,
2000. Net cash used for operating activities was primarily the result of net
losses before non-cash charges of $456,268, which included depreciation and
amortization ($39,642), warrants issued for consulting services ($229,995) and
stock issued to vendors in exchange for services ($186,376). The net cash used
for operating activities also includes increases in accounts receivable
($243,677) and inventory ($693,070) offset by increases in accounts payable
($552,482), accrued expenses ($90,702) and accrued salaries ($42,103).
Net cash used in investing activities of $72,986 comprised patent application
costs and fixed asset purchases.
Net cash provided by financing activities was $1,657,555 and principally
consisted of proceeds from the sale of the company's common stock of $1,700,748,
which were offset by shareholder notes repayment of $52,101 offset by further
advances from shareholders of $42,101.
14
<PAGE> 18
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, certain other matters
discussed herein are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, that address future
activities, events or developments, including such things as future revenues,
product development, market acceptance, responses from competitors, capital
expenditures (including the amount and nature thereof), business strategy and
measures to implement strategy, competitive strengths, goals, expansion and
growth of Elite and its subsidiaries' business and operations, plans, references
to future success and other such matters, are forward-looking statements. The
words "anticipates," "believes," "estimates," "expects," "plans," "intends,"
"should," "seek," "will," and similar expressions are intended to identify these
forward-looking statements, but are not the exclusive means of identifying them.
These statements are based on certain historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
in the circumstances. However, whether actual results will conform to our
expectations and predictions is subject to a number of risks and uncertainties
that may cause actual results to differ materially, our success or failure to
implement our business strategy, our ability to successfully market our on-line
location, tracking and logistics management concept, changes in consumer demand,
changes in general economic conditions, the opportunities (or lack thereof) that
may be presented to and pursued by us, changes in laws or regulations, changes
in technology, the rate of acceptance of the Internet as a commercial vehicle,
competition in the online logistics management business and other factors, many
of which are beyond our control. Consequently, all of the forward-looking
statements made in this Report are qualified by these cautionary statements and
there can be no assurance that the actual results we anticipate will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on us or our business or operations. We assume no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
ITEM 7. FINANCIAL STATEMENTS
Immediately following the signature page in this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Joseph D. Smith 55 President, Chief
Executive Officer and a
member of the Board of
Directors
Richard L. Hansen 56 Chief Operating Officer
and a member of the Board
of Directors
Thien K. Nguyen 37 Vice President and a
member of the Board of
Directors
Hanh H. Nguyen 36 Member of the Board of
Directors
John P. Ryan 37 Secretary and a member of
the Board of Directors
Russell A. Naisbitt 39 Treasurer, Chief
Financial Officer and a
member of the Board of
Directors
Diana M. Smith 47 Executive Administrator
and member of the Board
of Directors
</TABLE>
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified. The Company's officers
are elected by the Board of Directors after each annual meeting of the Company's
shareholders and hold office until their death, or until they resign or have
been removed from office.
Officers and Directors Biographical Descriptions:
Joseph D. Smith has been President, Chief Executive Officer and a member of the
Board of Directors since November 1999. 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 Executive
Administrator and member of the Board of Directors.
Richard L. Hansen has been Chief Operating Officer and a member of the Board of
Directors of the Company since November 1999. Mr. Hansen duties include the
daily operations of the Company ensuring customer support, investor relations,
marketing and all operations in the absence of the President. From 1995 to 1998,
Mr. Hansen was the corporate logistics manager and new business manager for Call
Henry, Inc., Cocoa, Florida. Call Henry, Inc. was engaged in
16
<PAGE> 20
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 has been Vice President and a member of the Board of Directors
since November 1999. 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 engaged in the
business of producing and distributing fruit juices to hotels. Mr. Nguyen is the
husband of Hanh Hoang Nguyen, a member of the Board of Directors.
Hanh H. Nguyen - has been a member of the Board of Directors, with her husband
Thien Nguyen, Since November 1999. 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 employed by Dow Chemical
Company as Senior Lead Engineer.
John P. Ryan was the President and Chief Executive Officer of the Company From
April 1998 to November 1999. 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, an 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 Royal Silver Mines, Inc. From May 1995 to
May 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 has been Chief Financial Officer, Vice President of Business
Development and a member of the Board of Directors of the Company Since November
1999. 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 has been Comptroller, now Executive Administrator, and a member
of the Board of Directors of the Company since November 1999. From August 1997
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
17
<PAGE> 21
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 10. EXECUTIVE COMPENSATION
The following table sets forth information about the compensation paid or
accrued by the Company to the Company's named executive officers, for the last
three completed fiscal years:
SUMMARY COMPENSATION TABLE [1]
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph D. 2000 120,000 - - - - - -
Smith 1999 85,000 - - - - - -
President 1998 63,417 - - - - - -
Richard L. 2000 108,000 - - - - - -
Hansen 1999 68,500 - - - - - -
COO 1998 27,417 - - - - - -
Thien K.
Nguyen 2000 108,000 - - - - - -
Vice 1999 70,000 - - - - - -
President 1998 50,617 - - - - - -
Diana
Smith 2000 66,000 - - - - - -
Controller 1999 49,000 - - - - - -
President 1998 12,000 - - - - - -
John P.
Ryan 2000 - - - - - - -
Secretary 1999 - - - - - - -
1998 - - - - - - -
Russell A. 2000 - - - - - - -
Naisbitt 1999 - - - - - - -
Treasurer 1998 - - - - - - -
and CFO(1)
</TABLE>
(1) Mr Naisbitt is a Director of Forte Group L.L.C. (Forte). Forte has a
consulting agreement with the company that provides for payments of up to
$20,000 per month for services provided by Forte consultants. See Item 12.
Certain Relationships and Related Transactions.
All compensation received by the officers and directors has been disclosed.
There are no stock option, retirement, pension, or profit sharing plans for the
benefit of the Company's officers and directors.
18
<PAGE> 22
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 2000.
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.
The Company reimburses members of the Board of Directors for their expenses
incurred in connection with their services as directors. There are no other
compensation arrangements with any directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the Common Stock ownership as of May 31, 2000 of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, each director individually and all officers
and directors of the Company as a group. Each person has sole voting and
investment power with respect to the shares of Common Stock shown, unless
otherwise noted in the footnote to the table, and all ownership is of record and
beneficial.
<TABLE>
<CAPTION>
Name and
address Number of Percentage of
of owner Shares Position Shares Owned (1)
<S> <C> <C> <C>
Joseph D. Smith 1,104,400 President, Chief Executive 8.24%
Officer and a member of the
Board of Directors
Richard L.
Hansen 502,000 Chief Operating Officer and a 3.75%
member of the Board of Directors
Thien K. Nguyen 1,104,400 Vice President and a member 8.24%
of the Board of Directors
Hahn H. Nguyen 3,112,400 Vice President and a member of 23.22%
the Board of Directors
John P. Ryan 118,767 Secretary and member of the 0.89%
Board of Directors
Russell A.
Naisbitt(2) Treasurer, Chief Financial 0.00%
Officer and a member of the
Board of Directors
Diana M. Smith 4,016,000 Member of the Board of Directors 29.97%
</TABLE>
19
<PAGE> 23
<TABLE>
<S> <C> <C>
All officers 9,957,967 74.30%
and directors as a
group (7 persons)
</TABLE>
(1) Based on 12,186,139 shares of common stock outstanding as of the date hereof
together with certain warrants issued to Forte Group L.L.C. and Vernor
Investments Inc, which are exercisable as of the date of this Report.
(2) Mr Naisbitt is a Director of Forte Group L.L.C. (Forte). Forte has a warrant
to purchase 1,115,555 shares of common stock. Mr Naisbitt does not have sole
voting and investment power for all shares beneficially owned by Forte. See Item
12. Certain Relationships and Related Transactions.
ITEM 12. 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.
PLAN OF MERGER
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"). Shortly thereafter, Summit Silver, Inc. was renamed as
Elite Logistics, Inc.
Under the terms of the agreement, Summit Silver, Inc. issued 10,400,000 shares
of common stock in exchange for all of Elite Logistics Services, Inc.'s common
stock. Immediately prior to the agreement and plan of reorganization, Elite
Logistics Services, Inc. had 10,400,000 shares of common stock issued and
outstanding and the Company had 1,014,500 shares of Common Stock outstanding.
Elite Logistics Services, Inc. will continue as a subsidiary of the Company.
In connection with this same transaction, all 2,445 shares of Elite Logistics
Services, Inc.'s preferred stock were exchanged for an equivalent amount of
Summit Silver, Inc. preferred stock, which conferred the same rights and
provisions as the original shares of Elite Logistics Services, Inc.'s preferred
stock. Also, the 1,215,555 outstanding warrants in Elite Logistics Services,
Inc. were exchanged with Summit Silver, Inc. for warrants of the same terms and
rights.
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.
20
<PAGE> 24
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
Mr. Russell Naisbitt, a director of Elite Logistics, Inc. is also a director of
Forte Group L.L.C. ("Forte") a Houston, Texas incubator specializing in
accelerating the development of emerging technology companies.
On August 23, 1999, which was prior to its acquisition by Summit Silver, Inc.,
Elite Logistics Services, Inc. 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.
OFFICERS LOANS AND DEFERRED COMPENSATION
On May 31, 2000 the Company owed $48,355 by way of accrued compensation and
other outstanding loans as follows:
<TABLE>
<CAPTION>
Accrued
Name Compensation Loans Total
<S> <C> <C> <C>
Joseph D. Smith $27,523 $ 27,523
Thien K. Nguyen $17,667 $ 17,667
Diana M. Smith $ 3,165 $ 3,165
Total $48,355 $0.00 $ 48,355
</TABLE>
The Company has not entered into any other obligations regarding deferred
compensation with its officers and consultants.
21
<PAGE> 25
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B.
The following exhibits are filed with or incorporated by reference into this
report. The exhibits which are marked by a single asterisk (*) were previously
filed as a part of, and are hereby incorporated by reference from, the Company's
Form 10SB12G/A, as filed with the Securities and Exchange Commission on July 24,
2000. The exhibit numbers correspond to the exhibit numbers in the referenced
document.
<TABLE>
<CAPTION>F
Exhibit No. Description
<S> <C>
3.1 * Articles of Incorporation.
3.2 * Amended Articles of Incorporation.
3.3 * Amended Articles of Incorporation.
3.4 * Amended Articles of Incorporation.
3.5 * Amended Articles of Incorporation.
3.6 * Bylaws.
4.1 * Specimen Stock Certificate.
10.1 * Acquisition Agreement.
10.2 * Agreement between the Company and Motorola, Inc.
10.3 * Agreement between the Company and Motorola, Inc.
10.4 * Distribution Agreement.
11.1 * Computation of per share earnings.
27.2 Financial Data Schedule
99.1 * Office Lease.
99.2 * Agreement between the Company and Vollmer Public Relations.
</TABLE>
* Previously filed.
(b) REPORTS ON FORM 8-K
None
22
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ELITE LOGISTICS SERVICES, INC.
BY: /s/ Joseph D. Smith
Joseph D. Smith, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
Russell A. Naisbitt CFO August 29th, 2000
</TABLE>
23
<PAGE> 27
ELITE LOGISTICS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations and Accumulated Deficit F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
NOTES TO FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE> 28
Board of Directors
Elite Logistics, Inc.
Freeport, Texas
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Elite Logistics,
Inc. as of May 31, 2000 and 1999, and the related consolidated statements of
operations and accumulated deficit, cash flows, and stockholders' equity for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elite Logistics,
Inc. as of May 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company's significant losses raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
the resolution of this issue are also discussed in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Williams & Webster, P.S.
Spokane, Washington
August 23, 2000
F-2
<PAGE> 29
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, MAY 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 89,334 $ 34,264
Accounts receivable 249,657 11,225
Other receivables 5,245 --
Investments 24,400 --
Note receivable 10,000 --
Inventory 744,726 51,656
----------- -----------
TOTAL CURRENT ASSETS 1,123,362 97,145
----------- -----------
PROPERTY AND EQUIPMENT
Computer equipment 116,110 84,369
Furniture and equipment 11,406 4,828
Software 91,052 87,426
Less: accumulated depreciation and amortization (106,563) (66,921)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 112,005 109,702
----------- -----------
OTHER ASSETS
Patent costs 41,498 11,518
----------- -----------
TOTAL OTHER ASSETS 41,498 11,518
----------- -----------
TOTAL ASSETS $ 1,276,865 $ 218,365
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 599,826 $ 47,344
Accrued expenses 95,594 4,892
Leases payable 4,356 2,852
Accrued salaries 48,356 250,753
Accrued preferred dividends 17,752 --
Shareholder loans payable 10,000 52,101
----------- -----------
TOTAL CURRENT LIABILITIES 775,884 357,942
----------- -----------
LONG-TERM LIABILITIES
Leases payable , net of current portion 3,887 8,491
----------- -----------
TOTAL LIABILITIES 3,887 366,433
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
REDEEMABLE PREFERRED STOCK 244,500 --
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.01 par value; 50,000,000 shares authorized,
2,186,139 and 10,040,000 shares issued and outstanding, respectively 121,862 100,400
Warrants 230,210 --
Additional paid-in capital 1,479,968 295,127
Accumulated deficit (1,579,446) (543,595)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 252,594 (148,068)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,276,865 $ 218,365
=========== ===========
</TABLE>
F-3
<PAGE> 30
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDING ENDING YEAR ENDING
MAY 31, MAY 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 569,263 $ 23,500 $ 6,269
COST OF REVENUES 656,450 19,519 1,945
------------ ------------ ------------
GROSS PROFIT (LOSS) (87,187) 4,031 4,324
------------ ------------ ------------
EXPENSES
Marketing 321,151 38,047 54,213
Administrative expenses 1,091,758 58,945 77,699
Research and development 217,113 70,133 94,474
------------ ------------ ------------
TOTAL EXPENSES 1,630,022 167,125 226,386
------------ ------------ ------------
OPERATING INCOME (LOSS) (1,717,209) (163,094) (222,062)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Income from sale of distributorship -- 100,000 --
Interest income 3,869 -- --
Interest expense (10,967) (999) --
------------ ------------ ------------
Total other income (expense) (7,098) 99,001 --
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,724,307) (64,093) (222,062)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (1,724,307) (64,093) $ (222,062)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.16) $ (0.01) $ (0.02)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED
COMMON STOCK SHARES OUTSTANDING 11,090,604 10,040,000 10,040,000
============ ============ ============
</TABLE>
F-4
<PAGE> 31
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Total
Number Warrants Paid-in Accumulated Stockholders'
of Shares Amount and Options Capital Deficit Equity
---------- --------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $10,040,000 $ 100,400 -- $ 280,960 $ (479,502) $ (98,142)
Common stock returned to treasury
at $0.04 per share (502,000) (5,020) -- (15,813) -- (20,833)
Issuance of treasury shares for cash and
deferred salaries at $0.07 per share 502,000 5,020 -- 29,980 -- 35,000
Net loss for period ending May 31, 1999 -- -- -- -- (64,093) (64,093)
---------- --------- ---------- --------- ---------- ----------
Balance at May 31, 1999 10,040,000 100,400 -- 295,127 (543,595) (148,068)
Issuance of common stock for cash
at $1.25 per share 320,000 3,200 -- 396,800 -- 400,000
Issuance of common stock at $1.25 in
exchange for accounts payable 40,000 400 -- 49,600 -- 50,000
Warrants issued as consulting fees -- -- 229,955 -- -- 229,955
Allocation of shareholder losses upon "S"
corporation termination -- -- -- (706,208) 706,208 --
Reverse acquisition and recapitalization 1,014,500 10,145 -- 15,242 -- 25,387
Issuance of common stock for cash at
$2.00 per share, net of $29,859 for expenses 466,251 4,663 -- 897,980 -- 902,643
Issuance of common stock for cash at
$2.00 per share, net of $76,295 for expenses 215,500 2,155 -- 352,550 -- 354,705
Options exercised at $2.00 per share 21,700 217 -- 43,183 -- 43,400
Issuance of common stock in exchange for
professional services at $2.00 per share 68,188 682 -- 135,694 -- 136,376
Options issued as compensations -- -- 255 -- -- 255
Preferred cumulative dividends -- -- -- -- (17,752) (17,752)
Loss for the year ended May 31, 2000 -- -- -- (1,724,307) (1,724,307)
---------- --------- ---------- --------- ---------- ----------
Balance at May 31, 2000 12,186,139 $ 121,862 $ 230,210 $1,479,968 $(1,579,446) $ 252,594
========== ========= ========== ========= ========== ==========
</TABLE>
F-5
<PAGE> 32
ELITE LOGISTICS, INC.
(FORMERLY ELITE LOGISTICS SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ending Five Months Year Ending
May 31. Ending December 31,
2000 May 31, 1999 1998
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (1,724,307) $ (64,093) $ (222,062)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 39,642 13,757 29,804
Stock issued for consulting 229,995
Stock issued for accounts payable 50,000 -- --
Stock issued for professional services 136,376 -- --
Options issued for compensations 255
Decrease (Increase) in :
Accounts receivable (243,677) (10,865) (360)
Note receivable (10,000) -- --
Inventory (693,070) (51,576) (80)
Increase (Decrease) in :
Accounts payable 552,482 47,344 --
Accrued expenses 90,702 4,892 --
Accrued salaries 42,103 89,502 131,605
--------------- --------------- ---------------
Net cash provided (used) in operating activities (1,529,499) 28,961 (61,093)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and software (43,006) (14,572) (2,073)
Patent costs (29,980) (11,518) --
--------------- --------------- ---------------
Net cash provided (used) in investing activities (72,986) (26,090) (2,073)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock net of related costs 1,700,748 14,167 --
Net cash acquired in recapitalization 4,489 -- --
Payments on notes payable shareholders (52,101) -- --
Payments on leased equipment (5,581) (715) --
Proceeds from notes payable shareholders 10,000 10,000 39,200
--------------- --------------- ---------------
Net cash provided (used) in financing activities 1,657,555 23,452 39,200
--------------- --------------- ---------------
Net increase (decrease ) in cash 55,070 26,323 (23,966)
Cash, beginning of period 34,264 7,941 31,817
--------------- --------------- ---------------
Cash, end of period $ 89,334 $ 34,264 $ 7,851
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ $ -- $ --
=============== =============== ===============
Income taxes $ -- $ -- $ --
=============== =============== ===============
NON-CASH TRANSACTIONS:
Issuance of stock for compensation $ 244,500 $ -- $ --
Issuance of stock for professional services $ 136,376 $ -- $ --
Issuance of stock for accounts payable $ 50,000 $ -- $ --
Equipment financed by capital lease $ 2,481 $ 11,343 $ 90
Warrants issued for professional services $ 229,995 $ -- $ --
Options issued for compensations $ 255 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 33
NOTE 1 - BUSINESS ORGANIZATION
Nature of Operations
Elite Logistics, Inc. (hereinafter "ELI") was incorporated as an "S" Corporation
on August 6, 1997 under the laws of the State of Texas. Elite is engaged in the
production of global positioning systems and provides the required services for
the operation of these systems. The Company's services are marketed nationally.
On September 1, 1999, the Company amended its articles of incorporation to
become a regular "C" Corporation. See Note 15.
ELI is the holding company of Elite Logistics Services, Inc. ("Elite"). Elite is
a wholly owned subsidiary and is consolidated for financial reporting.
On November 17, 1999, Elite agreed to an exchange of its stock in an acquisition
with Summit Silver, Inc. This acquisition is being accounted for as an
acquisition and recapitalization of a non-operating public enterprise by a
private operating company. See Note 8. As part of the acquisition, the Company
acquired limited assets from Summit Silver, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Elite Logistics, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Basis of Accounting
ELI uses the accrual basis of accounting in accordance with generally accepted
accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
Advertising costs are charged to operations in the year incurred.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to seven years.
Expenditures for repairs and maintenance which do not extend the useful life of
the related asset are expensed as incurred. Equipment acquired in the
acquisition is recorded at net book value.
Impairment of Long-lived Assets
F-7
<PAGE> 34
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.
Income Taxes
Elite Logistics, Inc. had elected to be taxed under the provision of Subchapter
S of the Internal Revenue Code for the years ended December 31, 1998 and 1997
and for the period ending August 31, 1999. Under those provisions, Elite does
not pay federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on their respective
shares of corporate income. Accordingly, no provision has been made for federal
income tax for the years ended May 31, 2000 and 1999 in the accompanying
financial statements. For the period subsequent to August 31, 1999, the Company
had a significant loss for tax purposes.
At November 17, 1999, the Summit Silver, Inc. entity had a net operating loss of
approximately $1,450,000, which may be offset against future taxable income
through 2013. No provision for taxes or tax benefit from net operating loss
carryforwards has been reported in the financial statements as the Company will
probably continue to experience operating losses. It is currently unknown if the
carryforwards will expire unused. With the significant change in ownership, the
utilizability of this net operating loss will be substantially minimized for
future periods.
Trade Accounts Receivable
The Company provides for losses which may be sustained in collection of accounts
receivable. All receivables are considered collectible and no valuation
allowance is considered necessary.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.
Intangibles
Intangible assets consist of patents pending. Patent costs will be amortized
using a straight-line method over seventeen years once a patent is granted.
Research and Development Costs
Costs of research and development are expensed as incurred.
Basic and Diluted Earnings Per Share
In December 1997, the Company adopted Statement of Financial Accounting
Standards Statement (SFAS) No. 128, Earnings Per Share. Basic earnings per share
is computed using the weighted average number of common shares outstanding.
Diluted net loss per share is the same as basic net loss per share as the
inclusion of common stock equivalents would be antidilutive.
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.
F-8
<PAGE> 35
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
At May 31, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service, and other
factors. A liability of $23,568 for compensated absences accrued have been
recorded in the accompanying financial statements at May 31, 2000.
NOTE 3 - NOTES RECEIVABLE
On May 24, 2000, the Company received a promissory note receivable from a
customer in the amount of $10,000 with an interest rate of 18% and a maturity
date of June 24, 2000.
Elite Logistics Services, Inc. contracted to provide operations and services on
the hardware located at the customer's place of business.
The note was paid in full on June 24, 2000 and all services contracted for were
substantially performed. There are no remaining obligations or intent by
agreement, trade practice or law to refund any cash received related to this
contract.
NOTE 4 - INVESTMENTS
The Company's securities, which are bought and held principally for the purpose
of sale in the near term, are classified as trading securities. The Company's
securities, which were originally acquired by Summit Silver, Inc., are recorded
at fair value on the balance sheet as current assets, with changes in fair value
during the period included in earnings.
The Company's trading securities consist of common stock stated at fair value
and are summarized as follows:
<TABLE>
<CAPTION>
Investment May 31, 2000
---------- ------------
<S> <C>
Ashington Mining Company $ 600
Sterling Mining Company 21,200
Royal Silver Mines, Inc. 1,000
Utah-Idaho Consolidated Uranium, Inc. 1,600
----------
$ 24,400
==========
</TABLE>
NOTE 5 - PATENT COSTS
The Company currently has two domestic and two foreign patent applications
pending. The Company's patent applications relate to internet-enabled, global
positioning system technology for the commanding, controlling, identification
and routing of moving items.
F-9
<PAGE> 36
The costs of patent applications are capitalized. The cost of patents are
expected to be amortized over their statutory lives of seventeen years upon
receipt of patent approval. At May 31, 2000, the Company had not received any
patent approvals. There was no patent amortization expense recorded in 2000 or
1999.
NOTE 6 - INVENTORY
Inventories are stated at the lower of cost or market, with cost being
determined on a weighted average basis.
Inventories at May 31, 2000 and May 31, 1999 consist of the following for the
dates shown:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Finished goods $ 54,558 $ --
---------- ----------
Raw materials 690,168 51,656
---------- ----------
Total $ 744,726 $ 51,656
========== ==========
</TABLE>
NOTE 7 - NOTES AND LEASE PAYABLES
Elite has a capital lease with Linc Monex Equipment, Inc. payable monthly at
$770, including interest at 18%. The remaining capital lease payments are
included in the schedule below.
Current maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001 $ 4,356
2002 $ 3,887
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has cash loans from its shareholders in the amounts of $10,000 and
$52,101 at May 31, 2000 and May 31, 1999, respectively. The notes bear an
interest rate of 5% annually, are unsecured, and due upon demand. Accrued
salaries due to shareholders amount to $48,355 and $250,757 at May 31, 2000 and
May 31, 1999, respectively. In September 1999, the shareholders exchanged
$244,500 in accrued salaries for 2,445 shares of preferred stock at $100 per
share.
NOTE 9 - MERGER AND ACQUISITION
On November 17, 1999, Elite Logistics Services, Inc. ("Elite") completed an
acquisition agreement with Summit Silver, Inc. (SSI) subsequently to be known as
Elite Logistics, Inc. (ELI). In late November 1999, SSI was renamed as Elite
Logistics, Inc.
Under the terms of the agreement, SSI issued 10,400,000 shares of common stock
in exchange for all of Elite's common stock. Immediately prior to the agreement
and plan of recapitalization, Elite had 10,400,000 shares of common stock issued
and outstanding. Elite will continue as a subsidiary of ELI.
As SSI was a non-operating company with limited assets, the substance of the
merger transaction is a capital transaction, rather than a business combination.
The transaction is equivalent to the issuance of stock by Elite for the net
assets of SSI, accompanied by a recapitalization. The
F-10
<PAGE> 37
accounting is identical to that resulting from a reverse acquisition, except
that no goodwill or other intangibles is recorded. See Note 11.
In connection with this same transaction, all 2,445 shares of Elite's preferred
stock were exchanged for an equivalent amount of SSI preferred stock, which
conferred the same rights and provisions as the original shares of Elite's
preferred stock. The exchange of the redeemable preferred stock resulted in no
significant valuation adjustment in the allocation of value in the merger. Also,
the 1,215,555 outstanding warrants in Elite were exchanged with SSI for warrants
of the same terms and rights.
The income statement effect of the merger with SSI was the recognition of $2,800
of SSI's expenses in consolidated financial statements. The only substantial
asset of SSI that was acquired was $24,400 of investments. The liabilities
acquired by Elite in the acquisition totaled $10,247.
NOTE 10 - REDEEMABLE PREFERRED STOCK
On September 15, 1999, the Company issued 2,445 shares of preferred stock with
$100 par value. These shares are preferred as to dividends and liquidation. The
cumulative dividends are currently payable at prime of 8.25% plus 2% which is
10.25%. The shares are required to be redeemed within one year. The preferred
stock was issued in payment to existing stockholders for deferred compensation.
As part of the acquisition of Summit Silver, Inc., these shares were traded for
2,445 shares of Summit's preferred stock at $.01 per value. (Note 8).
As of May 31, 2000, cumulative dividends are $17,752, but have not been declared
or paid.
The Corporation is required to redeem all issued and outstanding shares of
series A preferred stock on September 15, 2000 at a redemption price of $100 per
share. Prior to such time, the Corporation may redeem in whole or in part Series
A preferred stock at the option of the board of directors. See Note 8. Total
authorized shares of preferred stock is 10,000,000. At May 31, 2000, no shares
of preferred stock were redeemed.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Leases
ELI leases office space in Freeport, Texas on an annually renewable lease. The
monthly rent was $1,700 and the lease term end in December 1999. Subsequent to
December 31, 1999, the Company expanded its office space and renewed the lease
for a three-year term ending December 2002. The monthly lease payment is $7,149.
The future expected minimum lease payments on the above lease at May 31, 2000
are as follows:
<TABLE>
<S> <C>
2000 $85,788
2002 $50,043
</TABLE>
Distributorship Agreement
The Company has an exclusive agreement with a distributor to sell the Company's
PageTrack(TM) system (which involves two-way pager service requirements). The
agreement limits the market area. The distributor paid $100,000 and the Company
recognized income of this amount as other income on its statement of operations
at the time the agreement was signed in February 1999. Elite is required pay to
the distributor 20% of net sales of air time less a 10% administration charge
under the terms of the distributorship agreement. At February 1999, all material
conditions relating to the sale of this distributorship agreement were
substantially performed. There are no remaining obligations or intent by
agreement, trade practice or law to refund any cash received related to this
sale of the distribution agreement.
F-11
<PAGE> 38
Employment Agreements
The Company has several employment agreements in place. These agreements are for
unspecified terms and contain 12-18 month non-compete clauses for employees in
the event that their job tenure with the Company is severed.
NOTE 12 - COMMON STOCK
Elite Logistics Services, Inc. originally had 100 shares of no par stock issued.
In September 1999, the original 100 shares were split at 100,400 to 1 and
converted to 10,040,000 shares of common stock. Also, in September 1999, the
Company issued 320,000 shares of common stock to various investor groups in
exchange for cash proceeds of $400,000. This issuance resulted in non-qualifying
shareholders which then caused the termination of the Company's S election and
resulted in the Company's conversion to a C Corporation. Also in November 1999,
the Company issued 40,000 shares of common stock in settlement of a vendor
payable of $50,000.
In January and February 2000, the Company issued 466,251 shares of common stock
at $2.00 per share.
In March 2000, the Company issued 237,200 shares of common stock at $2.00 per
share and another 68,188 shares of common stock in exchange for professional
services valued at $136,376.
The audited financial statements have been retroactively restated for the
10,040,000 shares of common stock.
NOTE 13 - WARRANTS AND OPTIONS
Warrants
On September 20, 1999, the Board of Directors approved the issuance of a warrant
to Vernor Investments to purchase up to 100,000 shares of the Company's common
stock at 5% below the current market value at the time of purchase, exercisable
from the date of issuance until September 30, 2000. As of May 31, 2000, this
warrant has not been exercised.
On November 10, 1999, the Board of Directors approved the issuance of a warrant
to Forte Group LLC to purchase up to 1,115,555 shares of the Company's common
stock at $1.25 per share from the date of issuance until September 30, 2002.
This warrant has not been exercised.
The fair value of each warrant granted is estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value. The risk-free interest rate is 5.5%, volatility is .5%
and the expected life of the warrants is one to three years.
The fair market value of these warrants of $229,955 was recorded as consulting
fees pursuant to Financial Accounting Standard No. 123.
F-12
<PAGE> 39
The following is a summary of warrants during the period ended May 31, 2000:
<TABLE>
<CAPTION>
Weighted
Number Average
Of Shares Exercise Price
----------- --------------
<S> <C> <C>
Outstanding at May 31, 1999 -- $ --
Granted 1,215,555 1.25
Exercised -- --
Forfeited or expired -- --
----------- -----------
Outstanding at May 31, 2000 1,215,555 $ 1.25
=========== ===========
Weighted average fair value of
Warrants granted from May 31, 1999
to May 31, 2000 $ .19
===========
</TABLE>
Options
On January 1, 2000 the Company granted 23,000 options to purchase 23,000 common
stock shares for $2.00 per share, in accordance with the Elite Logistics, Inc.
2000 Employee Incentive Plan. During the year ended May 31, 2000, 21,700 of
these options were exercised at $2.00 per share.
The remaining 1,300 options have an estimated value of $255 based on the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value: the risk-free interest rate is 5%, volatility is .3% and
the expected life of the option is six months. The fair market value was
recorded as compensation expense pursuant to Financial Accounting Standard No.
123.
The Company has a compensation agreement in place with an employee to grant an
additional 30,000 options for common stock per year over the next three years
contingent upon continued employment. These options will be exercisable at the
fair market value at the date of grant.
Employee Stock Option Plan
In 2000, the Company adopted the Elite Logistics, Inc. Employee Stock Option
Plan, under which 500,000 shares of common stock are available for issuance with
respect to awards granted to officers, management and other key employees of the
Company. The plan also includes a provision for an annual increase in the number
of shares available for issuance to 200,000 shares or 1.5% of the outstanding
shares or a lessor amount determined by the Board. At the time the option is
granted, the administrator shall fix the period within which the option may be
exercised, fixing the exercise price at no less than 100% of the fair market
value per share on the date of grant and will determine the acceptable form of
consideration for exercising the option.
NOTE 14 - YEAR 2000
Like other companies, Elite Logistics, Inc. could be adversely affected if the
computer systems the Company, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment and elevators, etc. At this time, the
Company does not have any evidence of problems associated with the Year 2000
issue.
NOTE 15 - GOING CONCERN CONSIDERATION
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,724,307 for the period ended May 31, 2000. Management's plans include
raising several million dollars through a private placement in 2000 and, if
successful in this endeavor, applying
F-13
<PAGE> 40
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 16 - INCOME TAXES
The Company elected to be taxed as a subchapter S corporation for tax purposes.
An S Corporation makes no provision for tax purposes and passes all items of
income, loss or tax preference to the individual shareholders. For the years
ended December 31, 1998 and 1997, there are no provisions for taxes based upon
the Company's effective S election.
On September 1, 1999, the Company sold shares of common stock to non-qualifying
holders for an S Corporation. As of September 1, 1999, the Company's S election
was terminated. The loss for the five months period ending May 31, 1999 of
$64,093 is allocated to the S Corporation. The loss for the period from May 31,
1999 to August 31, 1999 is $162,613. The loss for the period from September 1,
1999 to May 31, 2000 is $1,561,439. The S Corporation period loss will be passed
to the shareholders of record on August 31, 1999. The subsequent loss of
$1,561,439 is the Company's net operating loss as of May 31, 2000. In compliance
with financial accounting reporting standards, the accumulated losses of
$706,208 from the S Corporation period were cancelled against the Company's
additional paid-in capital. The net operating loss acquired from Summit Silver,
Inc. of approximately $1,450,000 is not expected to be utilized by the Company
because of the Internal Revenue Code limitations concerning ownership changes.
The Company has no significant book to tax differences in its assets and
liabilities, which would give rise to deferred tax assets or liabilities. The
Company may elect to file consolidated tax returns in the future as part of the
merged entity to be known as Elite Logistics, Inc, formerly Summit Silver, Inc.
See Note 8.
NOTE 17 - SUBSEQUENT EVENTS
On May 24, 2000, the Company's board of directors approved a 401k plan effective
June 1, 2000.
On December 12, 1999, the Company entered into a six-month agreement with
Memphis Consulting Group to provide financial consulting and public relations
services designed to raise capital and create a public market for the Company's
stock. Memphis will receive 4,000 shares of common stock per month and cost
reimbursement for out-of-pocket expenses. The Company will also pay Memphis a
finder's fee based on a percentage of the total capital raised. This agreement,
which may be terminated with a thirty-day written notice, has an option to renew
upon agreement of both parties.
On June 12, 2000, the above agreement was renewed with the following amendments:
the term of the agreement is for twelve months, which may be terminated with a
thirty-day written notice, has an option to renew upon agreement of both
parties, and the continuance of the agreement past June 23, 2000 is contingent
on Memphis raising $250,000 before this date. If Memphis succeeds in raising
funds in sequential increments of $250,000 and $3,000,000 during the term of
this agreement, Elite agrees to issue warrants for 150,000 (in 50,000
increments) shares of Elite's common stock with an exercise price of $2.75,
$4.75 and $6.50, per common share respectively, with an exercise period of two
years from the date of the warrant documents.
F-14
<PAGE> 41
Subsequent to May 31, 2000, the Company sold 36,726 shares of common stock for
$2.75 per share. In addition, the Company exchanged 3,000 common stock shares
valued at $8,250 for services and expenses, 6,867 common stock shares for
services valued at $30,902 and 3,884 common stock shares for equipment valued at
$10,681.
F-15
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.2 Financial Data Schedule
</TABLE>
