UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________
Commission File Number 000-29825
ELITE LOGISTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Idaho 91-0843203
(State of Incorporation) (I.R.S. Employer Identification No.)
1201 North Avenue H, Freeport, Texas 77541
(Address of Principal Executive Offices) (Zip Code)
(979) 230-0222
(Registrant's Telephone Number)
Check whether the (issuer) (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter
period that registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of April 5, 2002, the number of shares outstanding of the registrant's class
of common stock was 15,575,429.
Transitional Small Business Disclosure Format (Check one): Yes[ ] No: [X]
ELITE LOGISTICS, INC.
TABLE OF CONTENTS
<Table>
<Caption>
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of February 28, 2002 and May 31, 2001 2
Consolidated Statements of Operations for the Three Months and Nine Months
ended February 28, 2002 and 2001 3
Consolidated Statement of Stockholders' Equity (Deficit) for the Nine
Months ended February 28, 2002 4
Consolidated Statements of Cash Flows for the Nine Months ended
February 28, 2002 and 2001 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</Table>
PART I
ITEM 1. FINANCIAL STATEMENTS.
ELITE LOGISTICS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
February 28, May 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 35,328 $ 34,591
Accounts receivable, net of an allowance for doubtful accounts of
$1,902 and $70,294 at February 28, 2002 and May 31, 2001, respectively 99,514 133,542
Inventory 82,511 237,745
Other current assets 12,474 1,193
------------ ------------
TOTAL CURRENT ASSETS 229,827 407,071
PROPERTY AND EQUIPMENT
Computer equipment 142,811 141,539
Software 118,788 118,788
Furniture and equipment 63,978 63,978
Less: accumulated depreciation and amortization (207,684) (169,564)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT, NET 117,893 154,741
PATENTS 108,430 62,592
------------ ------------
TOTAL ASSETS $ 456,150 $ 624,404
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 444,187 $ 266,902
Accrued expenses 133,918 66,342
Leases payable 33,069 35,255
Accrued salaries 80,133 48,356
Accrued preferred stock dividends 57,747 43,729
Convertible promissory notes payable, net of discount 70,000 70,000
Shareholder loans payable 218,737 205,373
Notes payable 8,932 93,736
------------ ------------
TOTAL CURRENT LIABILITIES 1,046,723 829,693
------------ ------------
LONG-TERM LIABILITIES
Leases payable, net of current portion 1,835 24,017
------------ ------------
TOTAL LIABILITIES 1,048,558 853,710
------------ ------------
REDEEMABLE PREFERRED STOCK 244,500 244,500
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.01 par value: 50,000,000 shares authorized,
15,575,429 and 13,085,258 issued and outstanding at February 28, 2002
and May 31, 2001, respectively 155,755 130,853
Warrants 968,427 592,063
Additional paid in capital 3,656,701 2,431,314
Accumulated deficit (5,580,666) (3,598,036)
Treasury stock, 18,000 shares and 15,000 shares at February 28, 2002
and May 31, 2001, respectively, at cost (37,125) (30,000)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (836,908) (473,806)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 456,150 $ 624,404
------------ ------------
</Table>
See accompanying notes to consolidated financial statements.
2
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<Table>
<Caption>
Three Months Ended Nine Months Ended
February 28, February 28,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 159,766 $ 872,565 $ 601,840 $ 1,544,107
Cost of revenues 133,235 668,766 506,848 1,245,404
------------ ------------ ------------ ------------
Gross profit 26,531 203,799 94,992 298,703
Expenses
Marketing 107,576 153,198 294,058 400,230
Administrative expenses 370,318 403,082 1,126,341 943,242
Research and development 128,444 123,849 351,747 349,532
------------ ------------ ------------ ------------
Total expenses 606,338 680,129 1,772,146 1,693,004
------------ ------------ ------------ ------------
Operating loss (579,807) (476,330) (1,677,154) (1,394,301)
------------ ------------ ------------ ------------
Other income (expense)
Loss on sale of equipment -- -- -- (608)
Loss on exchange of investments -- -- -- (19,400)
Interest income 147 789 101 1,703
Interest expense (166,157) (2,657) (299,364) (6,105)
Other income -- -- 7,805 --
------------ ------------ ------------ ------------
Total other income (expense) (166,010) (1,868) (291,458) (24,410)
------------ ------------ ------------ ------------
Loss before income taxes (745,817) (478,198) (1,968,612) (1,418,711)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (745,817) $ (478,198) $ (1,968,612) $ (1,418,711)
------------ ------------ ------------ ------------
Basic and diluted loss per common share $ (0.05) $ (0.04) $ (0.14) $ (0.11)
Basic and diluted weighted average number
of common shares outstanding 14,748,302 12,967,287 13,667,381 12,604,090
</Table>
See accompanying notes to consolidated financial statements.
3
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
<Table>
<Caption>
Common Stock Total
------------------------- Additional Stockholders'
Number of Paid in Accumulated Treasury Equity
Shares Amounts Warrants Capital Deficit Stock (Deficit)
----------- ----------- ----------- ----------- ------------ ----------- ------------
Balance at May 31, 2001 13,085,258 $ 130,853 $ 592,063 $ 2,431,314 $ (3,598,036) $ (30,000) $ (473,806)
Issuance of 118,790 shares of
common stock and 550,000
warrants for services, net
of expenses of $2,104 118,790 1,188 100,450 103,744 -- -- 205,382
Issuance of 2,371,381 shares of
common stock upon
conversion of debt and
accrued interest and issuance
of 1,169,500 class B warrants 2,371,381 23,714 -- 1,166,021 -- -- 1,189,735
Issuance of 1,169,500 warrants
in conjunction with the
issuance of convertible
promissory notes -- -- 231,536 -- -- -- 231,536
Issuance of 330,000 warrants
in conjunction with the
repricing of warrants -- -- 68,673 (68,673) -- -- --
Expiration of warrants (24,295) 24,295
Purchase of treasury stock,
18,000 shares at cost -- -- -- -- -- (7,125) (7,125)
Preferred cumulative dividends -- -- -- -- (14,018) -- (14,018)
Net loss -- -- -- -- (1,968,612) -- (1,968,612)
----------- ----------- ----------- ----------- ------------ ----------- ------------
Balance at February 28, 2002 15,575,429 $ 155,755 $ 968,427 $ 3,656,701 $ (5,580,666) $ (37,125) $ (836,908)
----------- ----------- ----------- ----------- ------------ ----------- ------------
</Table>
See accompanying notes to consolidated financial statements.
4
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<Table>
<Caption>
Nine Months Ended
February 28,
------------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (1,968,612) $ (1,418,711)
Adjustments to reconcile net loss
to net cash used by operating activities
Depreciation 38,120 29,729
Amortization of convertible note discount 231,536
Allowance for doubtful accounts (68,392) --
Common stock issued for services 104,932 362,125
Common stock issued for interest on convertible debt 20,235
Warrants issued for services 100,450 --
Notes payable issued for services -- 92,548
Loss on exchange of investments -- 19,400
Investments exchanged for services -- 5,000
Loss on sale of equipment 1,002 608
Changes in operating assets and liabilities
Accounts receivable and other current assets 91,139 (103,759)
Inventory 155,234 505,369
Accounts payable 177,282 (370,342)
Accrued liabilities 67,576 50,910
Accrued salaries 31,777 --
------------ ------------
Net cash used in operating activities (1,017,718) (827,123)
------------ ------------
Cash flows from investing activities:
Purchase of property, equipment, and software (2,274) (17,120)
Proceeds from sale of property and equipment -- 591
Proceeds from note receivable -- 10,000
Patent costs (45,838) (20,209)
------------ ------------
Net cash (used in) provided by investing activities (48,112) (26,738)
------------ ------------
Cash flows from financing activities:
Proceeds from convertible notes payable 1,169,500 --
Proceeds from notes payable 26,553 140,872
Payments on notes payable (111,357) (203,148)
Proceeds from shareholder notes payable 14,475 53,966
Payments on shareholder notes payable (1,111) (12,118)
Payments on leased equipment (24,368) (6,665)
Issuance of stock net of related costs -- 870,812
Exercise of common stock options -- 2,600
Purchase of treasury stock (7,125) (20,000)
------------ ------------
Net cash provided by financing activities 1,066,567 826,319
------------ ------------
Net increase (decrease) in cash 737 (27,541)
Cash, beginning of period 34,591 89,334
------------ ------------
Cash, end of period $ 35,328 $ 61,793
------------ ------------
</Table>
See accompanying notes to consolidated financial statements.
5
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS ORGANIZATION
The financial statements included herein, which have not been audited pursuant
to the rules and regulations of the Securities and Exchange Commission, reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position, the results of operations and cash flows for
the interim periods on a basis consistent with the annual audited consolidated
financial statements. All such adjustments are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for a full year. Certain information, accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the Company's audited consolidated financial
statements included in the Company's Annual Report on Form 10-KSB for the year
ended May 31, 2001 filed with the Securities and Exchange Commission on August
29, 2001.
Nature of Operations
Elite Logistics, Inc. (hereinafter "ELI" or the "Company"), an Idaho
corporation, through its wholly owned subsidiary, Elite Logistics Services, Inc.
("Elite"), is in the telematics business. Telematics is the broad term used to
describe products and services enabled by the convergence of communications
(including wireless and the Internet) and Information Technology in the
automotive industry. Elite is a telematics services provider (TSP) providing
hosted Internet-based telematics services including asset tracking, access to
roadside assistance, automatic collision notification, stolen vehicle recovery
and a variety of remote vehicle management solutions. Elite designs and sells
the PageTrack(R) range of intelligent vehicle management hardware. PageTrack(R),
which includes a Global Positioning Systems (GPS) receiver, links a vehicle, or
other asset, to Elite's Internet servers via ReFLEX(TM) two-way wireless
telemetry networks. The Company's products and services are marketed nationally
and in certain international markets through a dealer/distributor channel.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant inter-company balances and transactions have
been eliminated upon consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period
presentation. Such reclassifications had no affect on net loss or equity
(deficit).
Basic and Diluted Loss Per Share
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" basic earnings (loss) per share is computed using the
weighted average number of common shares outstanding. Due to the Company having
a net loss during the three and nine month periods ended February 28, 2002 and
February 28, 2001, diluted net loss per share is the same as basic net loss per
share as the inclusion of common stock equivalents would be antidilutive.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board ('FASB') issued SFAS 141,
"Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method business
6
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
combination must meet to be recognized and reported apart from goodwill. SFAS
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS 142. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The provisions of SFAS 141 are effective immediately. The provisions of SFAS 142
are effective for fiscal years beginning after December 15, 2001. Earlier
adoption is permitted for entities with fiscal years beginning after March 15,
2001 but not required.
SFAS 141 will require that upon adoption of SFAS 142, the Company evaluate its
existing intangible assets and make any necessary reclassifications in order to
conform with the new criteria in SFAS 141. Upon adoption of SFAS 142, the
Company plans to reassess the useful lives and residual values of all recorded
intangible assets, and make any necessary amortization period adjustments by
June 1, 2002. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of SFAS 142 by
August 31, 2002. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle. The
Company does not expect the provisions of SFAS 141 and SFAS 142 to have a
significant effect on its financial position or operating results.
In October 2001, the FASB also issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supersede SFAS No. 121 and portions of Accounting Principles
Bulletin Opinion 30, "Reporting the Results of Operations." SFAS No. 144
provides a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date, as
presently required. The Company does not expect the provisions of SFAS No. 144
to have a significant effect on its financial position or operating results.
NOTE 3 - PATENTS
The Company recently acquired a patent (#5,712,899), issued in 1998, covering
"an apparatus which allows an operator of a mobile communications unit,
configured to receive and process signals generated by a Global Positioning
System (GPS) and transmit them to a base communications unit, to be in voice
communication with an operator of the base communication unit, wherein the base
unit operator can provide the mobile communications unit operator with
geographic location information by voice communication while the base unit
receives the processed GPS signals, translates these signals into the geographic
location information and provides a visual image of the information to the base
unit operator."
7
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PATENTS (CONTINUED)
This patent covers a "call center centric" business model for the provision of
telematics services. This patent also covers cell phone handsets that
incorporate a GPS unit for the provision of enhanced 911 (E-911) services,
emergency response, roadside assistance or concierge services. The FCC has
mandated the general availability of E-911 services with phased implementation
commencing late 2001. These may or may not be based on Elite's technology, and
it is therefore not possible to say if license revenue will accrue to the
Company.
The Company has retained Intellectual Property counsel to assist in negotiating,
and if necessary litigating, claims for license revenues due to the Company on
its intellectual property. The company expects to initiate actions which may
allow us to recover licensing revenues from infringement on these patents.
Elite also has two patents pending that cover its Internet-centric
machine-to-machine telematics business model ("the PageTrack Patent") and an
end-to-end logistics management system ("the logistics patent"). The
International Patent examiner has advised Elite that key claims made in our
PageTrack patent will be allowed. As a result, management is optimistic
regarding the potential for allowance of these claims in the USA. Elite is
currently negotiating with the patent office regarding the logistics patent and
Elite cannot be sure at this stage which claims will be allowed or whether this
patent will be issued at all. Elite intends to file additional patent
applications in the telemetry and telematics arenas in order to protect
proprietary technology development. Elite remains alert for the potential to
acquire additional patents in the telemetry and telematics arenas.
NOTE 4 - DEBT
Capital leases
Elite has capital leases with various leasing companies payable monthly at
$3,013, including interest at rates ranging from 14% to 24%. Capital leases
outstanding as of February 28, 2002 were $34,904.
Shareholder loans payable
The Company has cash loans from its shareholders in the amount of $218,737 at
February 28, 2002. The notes bear interest at an annual rate of 5%, are
unsecured and mature during the fourth quarter of 2002.
Notes payable
Elite has unsecured notes payable with American Express in the amount of $8,932
at February 28, 2002 payable monthly at $2,689, including interest at a rate of
15.9%. Each note payable has a maturity of six months from the date of each
note's origination.
Factoring agreement
On June 21, 2000, the Company entered into a factoring agreement with a national
banking organization. Under the agreement, the bank advances the Company 80% of
each receivable purchased up to a maximum of $750,000, subject to full recourse
to the Company and renewal on an annual basis. Finance charges equal 1.25% per
month of the average daily account balance outstanding and an administrative fee
of 0.25% of each purchased receivable. At February 28, 2002, there is no
outstanding balance owed under the factoring agreement.
Convertible promissory notes
In July, 2001, the Company entered into an agreement with an investment bank to
raise interim capital for the company through an offering of 10% convertible
promissory notes (the "Convertible Notes"). Each $10,000 investment also
provided for the issuance of 10,000 warrants to purchase common stock of the
Company exercisable at any time within five years from the date of issuance at a
price of $0.625 per
8
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
share. All unpaid principal and interest was converted into units of an equity
private placement of the Company's common stock on December 31, 2001.
During the nine months ended February 28, 2002 the Company raised $1,169,500
through the issue of the Convertible Notes. In conjunction with the issuance of
these Convertible Promissory Notes the Company issued 1,169,500 warrants which
would provide total cash proceeds to the Company of $730,938 ($0.625 per share)
if all of the warrants are exercised. A debt discount of $231,536 was recorded
in conjunction with the issuance of these warrants, all of which has been
amortized to interest expense during the nine months ended February 28, 2002. On
December 31, 2001, 100% of the holders of these notes converted the amounts
outstanding plus accrued interest of $20,235 into 2,371,381 shares of common
stock of the company using a conversion price of $0.50 per share for principal
and $0.625 per share for accrued interest. This offering expired on December 31,
2001.
NOTE 5 - EQUITY
Common Stock
From time to time, in order to fund operating activities of the Company, common
stock is issued for cash or in exchange for goods or services. Generally,
offerings of the Company's common stock often include warrants to acquire common
stock of the Company at fixed exercise prices. Occasionally, depending on the
nature of the offering and restrictions imposed on the shares being acquired,
the exercise price of the warrant may be below the fair market value of the
underlying common stock on the date of issuance.
During the nine months ended February 28, 2002, the Company issued 118,790
shares of common stock in exchange for services valued at $107,036.
Warrants
During October 2000, provisions for a private placement of the Company's common
stock to an investor provided for the issuance of 555,556 warrants with an
exercise price of $2.70 per share and contingent penalty warrants which are to
be issued in the future in the event that the Company's common stock is not
registered prior to January 13, 2001. Since October 2000, under the provisions
of this offering, 200,000 penalty warrants were issued at an exercise price of
$1.35 per share. At the request of the investor, the issuance of the remaining
400,000 penalty warrants have been waived in lieu of a reduced exercise price of
the original 555,556 warrants previously issued. On August 2, 2001 the Company
agreed to amend the exercise price per share of the $2.70 original warrants and
the $1.35 penalty warrants to $0.625 per share. Additionally, the Company issued
330,000 warrants with an exercise price of $0.625 per share to this investor to
waive their right to veto subsequent issues of the Company's common stock. The
Company recorded an adjustment of $68,673 to the original proceeds of the
October 2000 private placement offering in conjunction with the issuance of
these additional warrants.
During the nine months ended February 28, 2002, the Company issued 2,889,000
warrants in conjunction with an offering of 10% Convertible Promissory Notes.
This included 1,169,500 warrants issued to holders of the Convertible Promissory
Notes, 1,169,500 of warrants issued upon conversion of these notes to common
stock of the company and 550,000 warrants issued to the placement agent and a
consultant who assisted in structuring the Convertible Note offering. A non-cash
charge of $100,450 arising from the issuance of the 550,000 warrants was
recorded against general and administrative expenses.
During the nine months ended February 28, 2002, 43,610 warrants expired having
an original fair value of $24,295, and no warrants were 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 range was 1.51% - 3.82%,
volatility was 30% and the expected life of the warrants is eighteen months to
five years. The fair value of warrants issued during the nine months ended
February 28, 2002 was estimated to be $400,359.
9
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Treasury Stock
Due to possible violations of Blue Sky laws in certain states in which the
Company's common stock had been offered for possible sale by a broker, the
Company determined to contact shareholders in those states and offer to
reacquire those shares at the original offering price. Accordingly, during the
year ended May 31, 2001, the Company reacquired 15,000 shares of common stock at
a cost of $30,000, or $2.00 per share. During the nine months ended February 28,
2002, an additional 3,000 shares were reacquired at a cost of $7,125.
NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES
For cash flow purposes, various, non-cash transactions have been entered into by
the Company during the nine month periods ended February 28, 2002 and 2001.
These items are as follows:
<Table>
<Caption>
Nine Months Ended
February 28,
-----------------------------
2002 2001
------------ ------------
Supplemental cash flow disclosures:
Cash paid for interest $ 2,913 $ 6,105
Non cash transactions:
Common stock issued for services 104,932 326,125
Common stock issued for interest on convertible debt 20,235 --
Common stock issued for equipment -- 10,681
Common stock issued for employee compensation -- 36,000
Warrants issued for services 100,450
Notes payable issued for services -- 92,548
Lease payable issued for equipment -- 25,611
Investments exchanged for services -- 5,000
Common stock issued in conversion of debt 1,169,500
</Table>
NOTE 7 - GOING CONCERN
The Company has a history of net losses and continues to experience negative
cash flows from operations. Management will continue to attempt to raise capital
resources and may do so through a registered offering of securities or through
additional private offerings of debt or common stock of the Company. The Company
is dependent on raising capital resources from outside sources and will continue
to do so until such time as the Company generates revenues and cash flows
sufficient to maintain itself as a viable entity. 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 have 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 8 - SUBSEQUENT EVENTS
On March 4 2002 Stephen M. Harris was appointed president and chief executive
officer. Joseph D. Smith will remain as chairman and continue in an executive
role.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein should be read in conjunction with the unaudited
consolidated financial statements and notes to the consolidated financial
statements of Elite Logistics, Inc. and subsidiary included in Item 1 above and
the Company's Audited Consolidated Financial Statements included in the
Company's Annual Report on Form 10K-SB for the year ended May 31, 2001. All
significant inter-company balances and transactions have been eliminated in
consolidation. The Company's financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America.
The financial information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refers to the continuing operations of the
Company.
Since inception, the Company has incurred significant losses and as of February
28, 2002 has an accumulated deficit of $(5,580,666). The Company's auditors
issued a going concern opinion in connection with their audit of the Company's
consolidated financial statements as of May 31, 2001, due to substantial doubt
that the Company can continue as an on-going business for the next twelve (12)
months, unless the Company obtains additional capital to cover its operating
expenses. In order to meet its capital needs, the Company will have to continue
to raise capital from sources other than the sale of its products and services.
The Company has historically raised its cash through private placements. There
is no assurance that the Company will be able to raise the additional funds it
needs to continue in business. The Company will cease operations if it is unable
to raise additional funds until it becomes a viable entity.
RESULTS OF OPERATIONS
A significant amount of management's time during the quarter was devoted to
efforts to secure additional funding for the Company, which diverted management
resources from sales and operations. The Company has been constrained by a lack
of funding to effectively undertake the marketing activities necessary to
generate sales growth. The Company anticipates that, for some time to come,
management will continue to be required to devote significant resources to
raising capital.
The events of September 11 had a negative impact for the economy in general.
This impacted Elite's existing and prospective customers. In particular, some
promising strategic alliance negotiations were deferred, our ability to raise
capital was adversely impacted, and some customers were adversely impacted.
Management believes that increased focus on vehicular security, security of
sensitive cargoes (including hazardous materials and munitions transportation),
and homeland defense may create opportunities for the Company's services.
Net revenues for the three and nine month periods ending February 28, 2002 were
$159,766 and $601,840, respectively, compared to $872,565 and $1,544,107 for the
three months and nine months ending February 28, 2001, respectively. Revenues
include sales of the Company's PageTrack(R) hardware to distributors, monitoring
and control service contracts and miscellaneous third party hardware sales. The
Company continues to be adversely affected by a lack of working capital to fund
sales and marketing activities and inventory purchases. This and the condition
of the economy has constrained the company's ability to generate revenues.
Revenues declined 81.7% during the three months ended February 28, 2002 compared
to the same quarter last year and 61% for the nine month period ended February
28, 2002 compared to the same period last year.
Cost of revenues for the quarter ending February 28, 2002 were $133,235 compared
to $668,766 for the quarter ending February 28, 2001, a decrease of 80.1%. The
cost of revenues for the nine month period ending February 28, 2002 were
$506,848 compared to $1,245,404 for the period ending February 28, 2001,a
decrease of 59.3%. Cost of revenues includes the manufactured cost of our
PageTrack(R) products, wireless telemetry network services, internet
connectivity and the costs of operating Elite's 24-hour Control Center. The
decrease in cost of revenues for the three month and nine month periods reflects
the decline in sales for the year.
11
Gross profit for the three months ending February 28, 2002 was $26,531 compared
to $203,799 during the three months ending February 28, 2001 while gross profit
for the nine month periods ending February 28, 2002 and 2001 was $94,992 and
$298,703, respectively. Gross profit includes margins on our PageTrack(R)
products and the telematics services fees offset by the costs of Internet
connectivity and operating Elite's 24-hour Control Center. The significant
decline in gross profit margin for the quarter ending February 28, 2002 (16.6%)
compared to the same quarter in 2001 (23.4%) was due to the considerable decline
in activation revenue (69%) for the quarter ending February 28, 2002 compared to
the same quarter in 2001, offset by a 14% increase in recurring service revenue.
As a percent of revenues, gross profit for the nine month period ended February
28, 2002 was 15.8% compared to 19.3% during the nine month period ended February
28, 2001. The decrease in the gross profit margin reflects rate changes by our
principal wireless carrier which adversely affected service margins.
The control center operations costs are semi-fixed and will therefore tend to
decrease as a percent of revenue if and when the number of subscribers to our
service increases. Furthermore, as the Company is able to increase volumes,
significant reductions in the manufactured cost per hardware unit become
possible. Assuming the Company is able to maintain its current sales prices,
gross profit margins would therefore increase.
Sales and marketing expenses for the three and nine month periods ending
February 28, 2002 were $107,576 and $294,058, respectively compared to $153,198
and $400,230, respectively during the three and nine month periods ended
February 28, 2001. Sales expenses consist primarily of compensation for our
sales and marketing personnel, advertising, marketing literature, trade show and
other promotional costs. Costs decreased 29.8% for the quarter and 26.5% for the
nine months compared to the same periods last year due primarily to a decrease
in salary expense resulting from staff reductions and voluntary reductions in
management compensation as well as decreased commission expense due to lack of
sales volume. The Company expects that sales and marketing expenses will
increase in absolute dollars in future periods due to expanded efforts to market
and promote its products and services both domestically and internationally.
General and administrative ("G&A") expenses for the three and nine month periods
ended February 28, 2002 were $370,318 and $1,126,341, respectively compared to
$403,082 and $943,242, respectively for the three and nine month periods ended
February 28, 2001. G&A expenses consist primarily of compensation for personnel
and payments to outside contractors for general corporate functions, including
finance, legal fees, information systems, human resources, facilities, general
management, bad debt expense and the Company's occupancy costs and other
overhead. The Company does not make an allocation of its occupancy costs. The
decline in costs (8.1%) for the three months ending February 28, 2002 compared
to the same three months ending February 28, 2001 resulted from voluntary
compensation reductions as well as the allocation of office supplies to other
cost centers. G&A expenses increased 19.4% for the nine months ending February
28, 2002 and were primarily due to an increase of $267,100 in offering expenses,
consulting fees, and professional expenses related to capital sourcing
activities. The Company expects that G&A expenses will continue to increase as
it hires additional personnel and incurs additional expenses relating to the
growth of its business, such as costs associated with increased infrastructure
and maintaining its status as a publicly traded company. However, the Company
seeks to hold such increases to less than the rate of revenue growth and expects
that G&A will decrease as a percentage of revenue.
Research and development expenses for the three and nine month periods ending
February 28, 2002 were $128,444 and $351,747, respectively compared to $123,849
and $349,532 for the three and nine month periods ending February 28, 2001,
respectively. Research and development expenses consist primarily of
compensation for the Company's research and development personnel and, to a
lesser extent, depreciation on equipment used for research and development.
Costs increased 3.7% for the quarter and 0.6% for the nine months ending
February 28, 2002 compared to the same periods last year due primarily to
purchases of components for testing and development. The Company expects that,
subject to funding, research and development expenses will increase in absolute
dollars in future periods as the Company develops new and enhanced telematics
products and services to meet a variety of market opportunities.
12
Other income (expense) for the three and nine month periods ending February 28,
2002 were $(166,010) and $(291,458), respectively compared to $(1,868) and
($24,410) for the three and nine month periods ended February 28, 2001,
respectively. The increase is primarily due to increased interest expense
related to the Company's financing obligations, which include borrowings under
equipment loans, short-term loans from American Express, a factoring agreement,
capital lease obligations, shareholder loans, and convertible promissory notes,
inclusive of the amortization of debt discount.
CASH FLOW FOR NINE MONTHS ENDING FEBRUARY 28, 2002
Net cash used in operating activities was $1,017,718 for the nine months ending
February 28, 2002. Net cash used for operating activities was primarily the
result of the net loss of $(1,968,612), which was increased by write offs of
certain accounts receivable that were previously reserved and was offset by
$457,153 of non cash expenses which were satisfied by the issuance of common
stock and warrants, further offset by $39,122 of depreciation expense and the
loss on disposable equipment. The loss from operations was further offset by
$523,008 of working capital assets and liabilities which was comprised of an
increase in accounts payable of $177,282, an increase in accrued liabilities and
salaries of $99,353 and reductions in accounts receivable and inventory of
$246,373. The reduction in accounts receivable and inventory reflects the lower
levels of operations as well as tighter credit control and inventory management
to conserve cash flow. The increase in accrued liabilities primarily comprises
professional services fees related to the Convertible Note offering.
Net cash used in investing activities of $48,112 consists of patent application
and acquisition costs.
Net cash provided by financing activities during the nine month period ending
February 28, 2002 was $1,066,567, which comprised net proceeds from the issuance
of Convertible Promissory Notes of $1,169,500 offset by repayments on prior
borrowings of $136,836 and the acquisition of treasury stock in the amount of
$7,125. The Company currently depends on cash from financing activities to
sustain its business operations and this is subject to significant constraints
as described below. The company also had additional borrowings of $41,028 under
its notes payable with American Express and shareholder advances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through the
private placement of its common stock, loans from shareholders, equipment
financing, lines of credit, short-term loans and deferral of employee
compensation (of which $244,500 was converted to Preferred Stock during fiscal
year 2000). The Company does not anticipate positive cash flow from operations
until it achieves an installed base of around 25,000 units (the current
installed base is approximately 4,350 units) or monthly sales of 1,200 units
(current monthly volume is approximately 200 units). Subject to availability of
the necessary capital funding, the Company expects to achieve volumes in excess
of 1,200 units per month and a positive cash flow within the 2002 calendar year,
but there can be no assurance that the Company will achieve this target.
The Company's business plan is based on marketing its telematics products and
services through a national and international distribution channel of
PageTrack(R) dealers and distributors. The plan requires hiring additional
personnel for sales, marketing, customer support and technical support. The
Company estimates a minimum of $1,500,000 in additional capital is required to
fund its current business plan to the point of positive cash flow from
operations. 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 downsize the business so as to enable the Company to survive and grow
at a slower pace. 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.
The Company is currently significantly constrained by its lack of capital. It
has historically raised capital through the private placement of its common
stock. It is also possible that the Company may register its
13
common stock or preferred stock for sale to the public; however, turmoil in the
equity markets has greatly impaired the Company's access to such funding
opportunities. If the Company were to register its common stock or preferred
stock for sale, there can be no assurance that market conditions would
facilitate a successful sale. The Company has commenced negotiations with
several strategic partners to determine if funding will be possible. The Company
has also retained a financial advisor to assist in evaluating funding options
available.
The Company will continue to utilize its factoring agreement for eligible
receivables, to accelerate cash flow from sales. The Company, through its
principal shareholders, has borrowed funds to operate the Company. The Company
has also explored opportunities to obtain a working capital debt facility,
including eligibility for access to US Government programs that provide working
capital assistance to exporters and debt facilities offered by Small Business
Investment Companies. Management is also exploring avenues to increase sales in
order to fund a greater amount of operations from cash flow.
In June 2000, the Company entered into a factoring agreement with a national
banking organization. The bank will advance the Company 80% of each receivable
purchased up to a maximum of $750,000, subject to full recourse to the Company
and renewal on an annual basis. Finance charges equal 1.25% per month of the
average daily account balance outstanding and an administrative fee of 0.25% of
each purchased receivable. At February 28, 2002, the Company has no contingent
amounts owed under this factoring agreement.
In July 2001, the Company entered into an agreement with an investment capital
group to raise interim capital for the company through an offering of 10%
convertible promissory notes (the "Convertible Notes"). During the nine months
ended February 28, 2002 the Company raised $1,169,500 through the Convertible
Promissory Notes issue. No further amounts are expected to be raised under this
offering. This offering expired on December 31, 2001.
The company also has 5,127,584 warrants outstanding to acquire common stock of
the company with exercise prices that range from $0.625 to $2.75 per share. At
February 28, 2002, cash proceeds of $2,544,188 would be generated if all
outstanding warrants were exercised.
Until such time as the Company has successfully completed additional funding
arrangements, and is cash flow positive from operations, it remains at
significant risk from its lack of capitalization. It is highly likely that our
shareholders will incur additional dilution as a result of future fundings
involving issuance of common stock or common stock derivatives.
The Company has no material commitments for capital expenditures. Subject to the
funding constraints described above, the Company anticipates that if it can
acquire capital, there will be an increase in the rate of capital expenditures
consistent with its anticipated growth in operations, infrastructure and
personnel. The Company expects to add web-based servers and telecommunications
equipment to service increases in the customer base. If, as, and when the number
of personnel increases, the Company foresees that it would add computer hardware
resources and expand its primary office facility. If sales increase, the Company
will need to fund higher inventory levels to support this growth. 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 growth in its operating expenses commensurate with
growth in sales and that its operating expenses will be a material use of its
cash resources for the foreseeable future.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (`FASB') issued SFAS 141,
"Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
142 requires that goodwill and
14
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of".
The provisions of SFAS 141 are effective immediately. The provisions of SFAS 142
are effective for fiscal years beginning after December 15, 2001. Earlier
adoption is permitted for entities with fiscal years beginning after March 15,
2001 but not required.
SFAS 141 will require that upon adoption of SFAS 142, the Company evaluate its
existing intangible assets and make any necessary reclassifications in order to
conform with the new criteria in SFAS 141. Upon adoption of SFAS 142, the
Company plans to reassess the useful lives and residual values of all recorded
intangible assets, and make any necessary amortization period adjustments by
June 1, 2002. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of SFAS 142 by
August 31, 2002. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle. The
Company does not expect the provisions of SFAS 141 and SFAS 142 to have a
significant effect on its financial position or operating results.
In October 2001, the FASB also issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supersede SFAS No. 121 and portions of Accounting Principles
Bulletin Opinion 30, "Reporting the Results of Operations." SFAS No. 144
provides a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date, as
presently required. The Company does not expect the provisions of SFAS No. 144
to have a significant effect on its financial position or operating results.
GOING CONCERN
The Company has a history of net losses and continues to experience negative
cash flows from operations. Management will continue to attempt to raise capital
resources and may do so through a registered offering of securities or through
additional private offerings of debt or common stock of the Company. The Company
is dependent on raising capital resources from outside sources and will continue
to do so until such time as the Company generates revenues and cash flows
sufficient to maintain itself as a viable entity. 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 have 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.
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,
projected break-even points, ability to raise capital through private or public
offerings, 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
15
Logistics, Inc., 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.
16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
VIP Finance vs. Elite Logistics, Inc. - On September 19, 2001, the Company was
notified that a customer had filed claims in court regarding facts and
circumstances surrounding a purchase entered into by and between the plaintiff
and the Company during August 2000. The plaintiff is seeking actual and punitive
damages, post judgment interest and reimbursement of court costs. The Company
believes that the claims are without merit and intends to vigorously defend this
case. This lawsuit remains in the discovery phase.
ITEM 2. CHANGES IN SECURITIES
The following restricted shares were issued in transactions exempt from
registration during the three months ended March 31, 2002. All purchasers were
accredited investors as that term is defined in Rule 501 of the Securities Act
of 1933.
<Table>
<Caption>
Shares of
Date Common Stock $ Price Conversion Services Warrants $ Price Expiration
-------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
12/11/01 5,000 0.82 $ -- $ 4,100 -- -- --
12/11/01 10,000 0.82 -- 8,200 -- -- --
12/21/01 18,000 0.86 -- 15,480 -- -- --
12/31/01 2,281,381 0.50 1,169,500 20,235 -- -- --
12/31/01 -- -- -- -- 1,169,500 1.00 12/31/04
12/31/01 -- -- -- -- 509,500 0.625 8/31/06
</Table>
All of these sales were undertaken pursuant to the limited offering exemption
from registration under Securities Act of 1933 as provided in Rule 506 of
Regulation D and by exemption provided under Sections 4(2) and 4(6) of the
Securities Act of 1933 by virtue of the fact that the sales were made to
accredited investors as defined in Rule 501.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See the Index to Exhibits on page 18
(b) REPORTS ON FORM 8-K
During the three months ended February 28, 2002, a press release
announcing the appointment of Stephen M. Harris as the new Chief Executive
Officer for Elite Logistics, Inc. was filed on Form 8-K.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons, in the capacities and on the dates indicated below, have
signed this report.
ELITE LOGISTICS SERVICES, INC.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ Stephen M. Harris CEO April 11, 2002
- -----------------------------------
Stephen M. Harris
/s/ Russell A. Naisbitt CFO April 11, 2002
- -----------------------------------
Russell A. Naisbitt
</Table>
18
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1* Articles of Incorporation (incorporated by reference to
Exhibit 3.1 of Registrant's Form 10SB as filed on March 7,
2000).
3.2* Amended (No. 1) Articles of Incorporation (incorporated by
reference to Exhibit 3.2 of Registrant's Form 10SB as filed on
March 7, 2000).
3.3* Amended (No. 2) Articles of Incorporation (incorporated by
reference to Exhibit 3.3 of Registrant's Form 10SB as filed on
March 7, 2000).
3.4* Amended (No. 3) Articles of Incorporation (incorporated by
reference to Exhibit 3.4 of Registrant's Form 10SB as filed on
March 7, 2000).
3.5* Amended (No. 4) Articles of Incorporation (incorporated by
reference to Exhibit 3.5 of Registrant's Form 10SB as filed on
March 7, 2000).
3.6* Bylaws (incorporated by reference to Exhibit 3.6 of
Registrant's Form 10SB as filed on March 7, 2000).
4.1* Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 of Registrant's Form 10SB as filed on March 7,
2000).
4.2* Management Services Agreement dated September 1, 2000 by and
between Elite Logistics, Inc. and Joseph D. Smith
(incorporated by reference to Exhibit 4.2 of Registrant's Form
10QSB as filed on October 16, 2000).
4.3* Management Services Agreement dated September 1, 2000 by and
between Elite Logistics, Inc. and Diana M. Smith.
(incorporated by reference to Exhibit 4.3 of Registrant's Form
10QSB as filed on October 16, 2000).
4.4* Management Services Agreement dated September 1, 2000 by and
between Elite Logistics, Inc. and Richard L. Hansen
(incorporated by reference to Exhibit 4.4 of Registrant's Form
10QSB as filed on October 16, 2000).
4.5* Management Services Agreement dated September 1, 2000 by and
between Elite Logistics, Inc. and Thien K. Nguyen
(incorporated by reference to Exhibit 4.5 of Registrant's Form
10QSB as filed on October 16, 2000).
4.6* Elite Logistics 2001 Equity Incentive Plan dated March 2, 2000
(incorporated by reference to Exhibit 4.6 of Registrant's Form
10QSB as filed on October 16, 2000).
4.7* Elite Logistics Services, Inc. 401K Plan dated May 24, 2000
(incorporated by reference to Exhibit 4.7 of Registrant's Form
10QSB as filed on October 16, 2000).
</Table>
19
<Table>
4.8* Common Stock Purchase Agreement - Koyah. (incorporated by
reference to Exhibit 4.8 of Registrant's Form 10QSB as filed
on January 5, 2001).
4.9* Investor Rights Agreement - Koyah. (incorporated by reference
to Exhibit 4.9 of Registrant's Form 10QSB as filed on January
5, 2001).
4.10* Warrant Agreement - Koyah. (incorporated by reference to
Exhibit 4.10 of Registrant's Form 10QSB as filed on January 5,
2001).
4.11* Investment Banking Agreement - Schneider Securities.
(incorporated by reference to Exhibit 4.11 of Registrant's
Form 10QSB as filed on April 11, 2001).
4.12* Termination of Investment Banking Agreement - Schneider
Securities. (incorporated by reference to Exhibit 4.12 of
Registrant's Form 10KSB as filed on August 29, 2001).
4.13* Promissory Note (incorporated by reference to Exhibit 4.13 of
Registrant's Form 10QSB as filed on January 14, 2002).
4.14* Class A Warrant Agreement (incorporated by reference to
Exhibit 4.13 of Registrant's Form 10QSB as filed on January
14, 2002).
10.1* Acquisition Agreement (incorporated by reference to Exhibit
10.1 of Registrant's Form 10SB as filed on March 7, 2000).
10.2* Agreement between the Company and Motorola, Inc. (incorporated
by reference to Exhibit 10.2 of Registrant's Form 10SB12G/A as
filed on June 15, 2000).
10.3* Agreement between the Company and Motorola, Inc. (incorporated
by reference to Exhibit 10.3 of Registrant's Form 10SB12G/A as
filed on June 15, 2000).
10.4* Distribution Agreement (incorporated by reference to Exhibit
10.4 of Registrant's Form 10SB12G/A as filed on July 11,
2000).
11.1 Computation of Per Share Earnings
99.1* Office Lease (incorporated by reference to Exhibit 99.1 of
Registrant's Form 10SB as filed on March 7, 2000).
99.2* Agreement between the Company and Vollmer Public Relations
(incorporated by reference to Registrant's Form 10SB12G/A as
filed on June 15, 2000).
</Table>
*Incorporated by reference as indicated.
20