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 AUGUST 31, 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 October 18, 2002, the number of shares outstanding of the registrant's
class of common stock was 19,567,942.
Transitional Small Business Disclosure Format (Check one): Yes[ ] No: [X]
ELITE LOGISTICS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of August 31, 2002 and May 31, 2002 1
Consolidated Statements of Operations for the Three Months
ended August 31, 2002 and 2001 2
Consolidated Statement of Stockholders' Equity (Deficit) for the Three
Months ended August 31, 2002 3
Consolidated Statements of Cash Flows for the Three Months ended
August 31, 2002 and 2001 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I
ITEM 1. FINANCIAL STATEMENTS.
ELITE LOGISTICS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
August 31, May 31,
2002 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 67,160 $ 739
Accounts receivable, net of allowance for doubtful accounts of
$37,112 and $33,141 at August 31, 2002 and May 31, 2002, respectively 55,652 62,809
Inventory 178,874 204,302
Other current assets 41,617 2,482
------------ ------------
TOTAL CURRENT ASSETS 343,303 270,332
------------ ------------
PROPERTY AND EQUIPMENT
Computer equipment 142,811 142,811
Software 118,788 118,788
Furniture and equipment 63,978 63,978
Less: accumulated depreciation and amortization (235,352) (226,581)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT, NET 90,225 98,996
------------ ------------
PATENTS, NET 147,281 145,696
------------ ------------
TOTAL ASSETS $ 580,809 $ 515,024
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 458,590 $ 890,383
Accrued expenses 118,168 150,728
Leases payable 19,347 25,110
Accrued salaries 151,789 163,002
Accrued preferred stock dividends -- 61,873
Convertible promissory notes payable, net of discount 292,806 --
Shareholder loans payable 365,115 359,743
Notes payable 846 7,024
------------ ------------
TOTAL CURRENT LIABILITIES 1,406,661 1,657,863
------------ ------------
LONG-TERM LIABILITIES - Leases payable, net of current portion -- 2,190
------------ ------------
TOTAL LIABILITIES 1,406,661 1,660,053
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE PREFERRED STOCK -- 244,500
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.01 par value: 50,000,000 shares authorized,
19,567,942 and 15,575,429 issued and outstanding at August 31, 2002
and May 31, 2002, respectively 195,681 155,755
Warrants 1,119,725 937,581
Additional paid in capital 4,423,874 3,659,883
Accumulated deficit (6,528,007) (6,105,623)
Treasury stock, 18,000 shares, at cost (37,125) (37,125)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (825,852) (1,389,529)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 580,809 $ 515,024
------------ ------------
See Accompanying Notes to the consolidated financial statements
1
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
August 31,
-----------------------------
2002 2001
------------- -------------
Revenues $ 124,400 $ 296,969
Cost of revenues 122,893 243,232
------------- -------------
Gross profit 1,507 53,737
------------- -------------
Expenses
Marketing 52,885 101,840
Administrative expenses 264,314 318,939
Research and development 89,983 113,956
------------- -------------
Total expenses 407,182 534,735
------------- -------------
Operating loss (405,675) (480,998)
------------- -------------
Other income (expense)
Interest income -- 46
Interest expense (16,749) (22,945)
Other income 40 7,555
------------- -------------
Total other income (expense) (16,709) (15,344)
------------- -------------
Loss before income taxes (422,384) (496,342)
Income taxes -- --
------------- -------------
Net loss $ (422,384) $ (496,342)
------------- -------------
Basic and diluted loss per common share $ (0.03) $ (0.04)
------------- -------------
Basic and diluted weighted average number
of common shares outstanding 15,941,782 13,117,225
------------- -------------
2
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
Common Stock Total
------------------------ Additional Stockholders'
Number of Paid in Accumulated Treasury Equity
Shares Amounts Warrants Capital Deficit Stock (Deficit)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2002 15,575,429 $ 155,755 $ 937,581 $ 3,659,883 $(6,105,623) $ (37,125) $(1,389,529)
Issuance of 1,368,747 shares of
common stock for payment of
$166,742 of shareholder loans
and $8,272 of accrued interest 1,368,747 13,688 -- 161,326 -- -- 175,014
Issuance of 1,358,274 shares of
common stock for payment of
accounts payable 1,358,274 13,583 -- 298,947 -- -- 312,530
Issuance of 985,492 shares
of common stock upon redemption
of 1,845 shares of preferred
stock and $61,873 of accrued
dividends 985,492 9,855 -- 236,518 -- -- 246,373
Issuance of 280,000 shares of
common stock for repayment of a loan 280,000 2,800 -- 67,200 -- -- 70,000
Issuance of 615,000 warrants in
conjunction with the issuance
of convertible promissory notes -- -- 20,909 -- -- -- 20,909
Issuance of 511,500 warrants
for consulting services -- -- 45,865 -- -- -- 45,865
Issuance of 480,709 warrants
for payment of accrued salaries -- -- 115,370 -- -- -- 115,370
Net loss -- -- -- -- (422,384) -- (422,384)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at August 31, 2002 19,567,942 $ 195,681 $ 1,119,725 $ 4,423,874 $(6,528,007) $ (37,125) $ (825,852)
----------- ----------- ----------- ----------- ----------- ----------- -----------
See Accompanying Notes to the consolidated financial statements.
3
ELITE LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
August 31,
------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $(422,384) $(496,342)
Adjustments to reconcile net loss
to net cash used by operating activities
Depreciation 10,495 12,712
Amortization of convertible note discount 6,216 12,831
Allowance for doubtful account (37,112) (60,894)
Common stock issued for services -- 43,836
Warrants issued for services 2,754 42,100
Changes in operating assets and liabilities
Accounts receivable 44,269 149,632
Inventory 25,428 114,891
Other current assets (7,428) --
Accounts payable (49,264) (26,455)
Accrued expenses (24,288) 93,772
Accrued salaries 115,560 --
--------- ---------
Net cash used in operating activities (335,754) (113,917)
--------- ---------
Cash flows from investing activities:
Patent costs (3,309) (15,428)
--------- ---------
Net cash used in provided by investing activities (3,309) (15,428)
--------- ---------
Cash flows from financing activities:
Proceeds from convertible notes payable 307,500 235,000
Proceeds from notes payable -- 9,037
Payments on notes payable (6,178) (91,772)
Proceeds from shareholder notes payable 112,115 7,000
Payments on shareholder notes payable -- (994)
Payments on capital leases (7,953) (7,870)
Purchase of treasury stock -- (7,125)
--------- ---------
Net cash provided by financing activities 405,484 143,276
--------- ---------
Net increase (decrease) in cash 66,421 13,931
Cash, beginning of period 739 34,591
--------- ---------
Cash, end of period $ 67,160 $ 48,522
--------- ---------
See Accompanying Notes to the consolidated financial statements.
4
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, 2002 filed with the Securities and Exchange Commission on
September 13, 2002, subsequently amended on October 1, 2002.
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 month periods ended August 31, 2002 and 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 No.
141, "Business Combinations", and SFAS No. 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 No.
141 also specifies criteria that intangible assets acquired in a purchase method
business
5
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
No. 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 No. 142. SFAS No. 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 No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The provisions of SFAS No. 141 are effective immediately. The provisions of SFAS
No. 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 No. 141 requires that upon adoption of SFAS No. 142, the Company evaluate
its existing intangible assets and make any necessary reclassifications in order
to conform to the new criteria in SFAS No. 141. Effective June 1, 2002 the
Company adopted the provisions of SFAS No. 142 and reassessed the useful lives
and residual values of all recorded intangible assets. In addition, to the
extent an intangible asset was identified as having an indefinite useful life,
the Company was required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 and to record, if necessary, any
impairment loss as a cumulative effect of a change in accounting principle. As
of August 31, 2002, an impairment loss was not considered necessary and the
provisions of SFAS No. 141 and SFAS No. 142 had no significant effect on our
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. As of August 31, 2002, the Company had no such assets to
which the provisions of SFAS No. 144 would apply thus this standard had no
significant effect on our financial position or operating results.
NOTE 3 - PATENTS
We currently have one issued domestic patent and two foreign patent applications
pending. Our patent applications relate to internet-enabled, global positioning
system technology for the commanding, controlling, identification and routing of
items in transit. The costs of patent applications and any cost incurred
defending patents are capitalized as incurred. The costs of patents are expected
to be amortized over their statutory lives of 10 years upon receipt of patent
approvals. As of August 31, 2002, we have recorded accumulated amortization of
$8,373.
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 August 31, 2002 were $19,347.
6
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - DEBT (CONTINUED)
Shareholder loans payable
The Company has cash loans from its shareholders in the amount of $365,115 at
August 31, 2002. The notes bear interest at an annual rate ranging from 5% to
8.25%, are unsecured and mature during the first quarter of 2004.
Notes payable
Elite has unsecured notes payable with American Express in the amount of $846 at
August 31, 2002 payable monthly, including interest at a rate of 15.9%.
Subsequent to August 31, 2002 this note payable was paid in full.
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 August 31, 2002, there is no
outstanding balance owed under the factoring agreement.
Convertible promissory notes
During July, 2001, the Company entered into an agreement with an investment
capital group to assist with the placement of an offering of 10% convertible
promissory notes (the "Convertible Notes") including warrants. This offering
expired on December 31, 2001. Each $10,000 investment provided for the issuance
of 10,000 warrants to purchase common stock of the Company with an exercise
price of $0.625 per share, expiring five years from the date of issuance. During
the three months ended August 31, 2001 the Company issued $235,000 of
Convertible Notes with unpaid principal and interest due on December 31, 2001.
In conjunction with the issuance of these Convertible Notes the Company issued
235,000 warrants or total proceeds to the Company of $146,875 ($0.625 per share)
in cash if all of the warrants are exercised. A debt discount of $49,327 was
recorded in conjunction with the issuance of these warrants, of which $12,831
has been amortized to interest expense during the three months ended August 31,
2001.
At the offering's expiration (December 31, 2001), the Company generated proceeds
of $1,169,500 through the issue of the Convertible Notes. In conjunction with
the issuance of these Convertible 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, which was amortized
to interest expense during the six months ended December 31, 2001. 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.
During the three months ended August 31, 2002, Elite received proceeds of
$307,500 through the issue of Convertible Notes bearing interest at a rate of
12% per annum and maturing on September 30, 2002. In conjunction with the
issuance of these Convertible Notes the Company issued 615,000 warrants which
would provide total cash proceeds of $92,250 ($0.15 per share) if all of the
warrants are exercised. A debt discount of $20,909 was recorded in conjunction
with the issuance of these warrants, of which $6,216 has been amortized to
interest expense during the three months ended August 31, 2002.
7
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 three month period ending August 31, 2001, the Company issued 53,000
shares of common stock in exchange for services valued at $43,836.
During the three months ended August 31, 2002, the Company issued 1,368,747
shares of common stock (at $0.13 per share) for payment of shareholder loans and
accrued interest of $175,014. Additionally, the Company issued (i) 1,358,274
shares of common stock (at $0.23 per share) for the payment of accounts payable
valued of $312,530, (ii) 985,492 shares of common stock (at $0.25 per share) to
redeem 1,845 shares of preferred stock valued at $184,500 and to settle accrued
dividends valued at $61,873, and (iii) 280,000 shares of common stock (at $0.25
per share) for repayment of a note payable.
Warrants
During the three months ended August 31, 2001, the Company issued 485,000
warrants in conjunction with the 10% Convertible Note offering referred to
above. Included were 235,000 warrants issued to holders of the notes were
recorded as a debt discount. An additional 250,000 warrants were issued to the
investment capital group and a consultant for assisting in promoting the
Convertible Note offering. Accordingly, $42,100 was recorded as general and
administrative expenses in conjunction with the issuance of these warrants.
During the three months ended August 31, 2002, the Company issued 615,000
warrants to purchase common stock of the Company with an exercise price of $0.15
per share in conjunction with the issuance of Convertible Notes. The fair value
of these warrants was $20,909 and was recorded as a discount to the value of the
Convertible Notes. Additionally, the Company issued 511,500 warrants to purchase
common stock of the Company (61,500 warrants have an exercise price of $0.10 per
share and 450,000 warrants have an exercise price of $0.01 per share) for
consulting services valued at $45,865 and issued 480,709 warrants to purchase
common stock of the Company with an exercise price of $0.01 per share in payment
of accrued salaries valued at $115,370.
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 1.74%, volatility
was 30% and the expected life of the warrants was three to five years. The fair
value of warrants issued in conjunction with Convertible Notes and for
consulting services during the three months ended August 31, 2002 was $66,774.
The fair value of the warrants issued for accrued salaries was determined based
on the value of the liabilities extinguished, which totaled $115,370, and
approximated the fair value of these warrants using the Black-Scholes Option
Price Calculation thus no additional compensation expense was required to be
recorded.
Preferred Stock
Total authorized shares of Series A Redeemable Preferred Stock ("Preferred
Stock") is 10,000,000 which have preferences as to dividends and upon
liquidation. The cumulative dividends are payable at prime plus 2% (prime was
4.75% at August 31, 2002). The Company had outstanding 2,445 shares of Preferred
Stock at $0.01 par value with a $100 redemption price per share. As referred to
above within "Common Stock", during the three months ended August 31, 2002, the
Company redeemed 1,845 shares of Preferred Stock and settled the accrued
dividends outstanding of $61,873 by the issuance of 985,492 shares of common
stock. The remaining 600 shares of Preferred Stock were redeemed by the issuance
of a $60,000 note payable to the shareholder.
8
ELITE LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES
For cash flow purposes, various, non-cash transactions have been entered into by
the Company during the three month periods ended August 31, 2002 and 2001. These
items are as follows:
Three Months Ended
August 31,
-----------------------
2002 2001
--------- --------
Supplemental cash flow disclosures:
Cash paid for interest $ 1,814 $ 6,741
Non cash transactions:
Common stock issued in payment of shareholder loans and accrued interest $ 175,014 $ -
Common stock issued for services $ - $ 43,836
Common stock issued in payment of accounts payable $ 312,530 $ -
Common stock issued in payment of a loan $ 70,000 $ -
Common stock issued to redeem preferred stock and accrued dividends $ 246,373 $ -
Warrants issued for convertible note discount $ 20,909 $ -
Warrants issued for services $ 45,865 $ 42,100
Warrants issued for accrued salaries $ 115,370 $ -
Notes payable issued to redeem preferred stock $ 60,000 $ -
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.
9
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/A for the year ended May 31, 2002. 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 August
31, 2002 has an accumulated deficit of $(6,528,007). 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, 2002, 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 capital 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
Net revenues for the three months ended August 31, 2002 were $124,400, compared
to $296,969 for the three months ended August 31, 2001, a decrease of 58.1%.
Revenues include sales of the Company's PageTrack(R) products 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 have constrained the Company's ability to generate
revenues.
Cost of revenues for the quarter ended August 31, 2002 were $122,893 compared to
$243,232 for the quarter ended August 31, 2001, a decrease of 49.5%. Cost of
revenues includes the manufactured cost of our PageTrack(R) products, wireless
telemetry network services provided by SkyTel, an MCI Worldcom Company, and
Weblink Wireless, Inc., internet connectivity and the costs of operating Elite's
24-hour Control Center. The decrease in cost of revenues for the three month
period ending August 31, 2002 is attributable to the corresponding decrease in
revenues.
Gross profit margin for the three months ended August 31, 2002 decreased by
$52,230 to $1,507 as compared to $53,737 for the same quarter ended August 31,
2001. Gross profit margin for the quarter ended August 31, 2002 consists of
margins on our PageTrack(R) products, activations and resale of wireless
telemetry network services provided by SkyTel and Weblink 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 was directly
attributable to lower sales volume of PageTrack(R) products which have a higher
overall margin and the rising cost of services provided by SkyTel and Weblink.
Sales and marketing expenses for the three months ended August 31, 2002 were
$52,885 compared to $101,840 during the three month period ended August 31,
2001, a decrease of 48.1%. Sales expenses consist primarily of compensation for
our sales and marketing personnel, advertising, marketing literature, trade show
and other promotional costs, design and creation expenses for marketing
literature and our website. The decrease in expense for the quarter compared to
the same period last year is due primarily to reductions in the number of sales
and marketing personnel and voluntary reductions in the salaries of senior
marketing personnel. We expect that sales and marketing expenses will increase
in
10
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.
General and administrative ("G&A") expenses for the three month period ended
August 31, 2002 were $264,314 compared to $318,939 for the three month period
ended August 31, 2001, a decrease of 17.1%. 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 our occupancy
costs and other overhead. Despite an overall decrease in costs for the three
months ended August 31, 2002 compared to the same period a year ago, wage
expenses increased 114% for the three months ended August 31, 2002. The wage
increase resulted from the replacement of two executive with new executives with
higher compensation. The wage increase was offset by a 48.5% decrease in
professional fees, primarily consulting fees, and a 39.7% decrease in insurance
expense due in part to staff reductions.
Research and development expenses for the three month period ended August 31,
2002 were $89,983 compared to $113,956 for the three month period ended August
31, 2001, a decrease of 21%. The decrease consists primarily of staff reductions
as well as reductions in compensation for the Company's research and development
personnel. The Company expects, subject to future capital funding, that 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.
Other income (expense) for the three month period ended August 31, 2002 were
$(16,709) compared to $(15,344) for the three month period ended August 31,
2001. The largest component of the other income and (expense) is interest
expense. Interest expense consists of costs related to the Company's financing
obligations, which include borrowings under equipment loans, short-term loans
from American Express, capital lease obligations, shareholder loans, convertible
promissory notes and the amortization of debt discount.
CASH FLOW FOR THREE MONTHS ENDING AUGUST 31, 2002
Net cash used in operating activities was $335,754 for the three months ended
August 31, 2002. Net cash used for operating activities was primarily the result
of the net loss of $(422,384), which was further offset by $10,495 of
depreciation expense and $6,216 from the amortization of debt discount. The loss
from operations was further offset by $104,277 of working capital assets and
liabilities which was comprised of a decrease in accounts payable of $49,269, a
net increase in accrued expenses and salaries of $91,272 and reductions in
accounts receivable and inventory of $69,697. 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
decrease in accounts payable and accrued liabilities was due to payment of
certain obligations of the Company from proceeds generated from the issuance of
Convertible Notes. The increase in accrued salaries was due to insufficient cash
flows to cover payroll thus certain of the officers and employees of the Company
agreed to defer payment of their salaries until cash resources become available.
Net cash used in investing activities of $3,309 consists of patent application
and acquisition costs.
Net cash provided by financing activities during the three month period ended
August 31, 2002 was $405,484, which comprised of net proceeds from the issuance
of Convertible Notes of $307,500 and the issuance of shareholder loans of
$112,115 offset by repayments of notes payable and capital leases of $14,131.
The Company currently depends on cash from financing activities to sustain its
business operations subject to significant constraints as described below within
"Liquidity and Capital Resources".
LIQUIDITY AND CAPITAL RESOURCES
As shown in the accompanying consolidated financial statements, we incurred a
net loss of $(422,384) for the quarter ended August 31, 2002 and continue to
experience negative cash flows from operations. We will be required to raise
additional capital through offerings of securities in order to fund our
operating requirements, and will attempt to continue raising capital resources
until such time as we generate
11
revenues sufficient to maintain ourselves as a viable entity. Management
believes that these actions will assist us in reaching the point of
profitability from operations and enable us 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 our ability to
continue as a going concern and increase the availability of resources for
funding of our current operations and future market development.
We have retained a financial advisor to assist in evaluating funding options
available. There is no assurance, however, that we will be able to raise the
additional funds we needs to continue in business. If we are unable to raise
sufficient capital resources we may have to cease operations.
Since inception, we have financed our operations primarily through the private
placement of our common stock, loans from shareholders, equipment financing,
lines of credit, short-term loans and deferral of employee compensation. We do
not anticipate positive cash flow from operations until we achieve an installed
base of around 25,000 units (current installed base is approximately 5,000
units) or monthly sales of 1,000 units. We believe that if we can obtain the
capital required to fund our business plan that we will achieve positive cash
flow within the 2003 fiscal year, but there can be no assurance that we will
achieve this target.
Our business plan is based on building a nationwide and international
distribution channel of PageTrack(R) dealers and distributors. The plan requires
hiring additional personnel for sales, marketing, customer support and technical
support. We estimate that a minimum of $1,200,000 of additional capital will be
required to fund our current business plan to the point of positive cash flow
from operations. There can be no assurance that we will be successful in
obtaining any such funds on terms acceptable to us, if at all.
In the event that we are unable to secure such additional funding, management
would attempt to downsize the business so as to enable us to survive and grow at
a slower pace. Failure to capitalize on current market opportunities could allow
competitors to overtake us and significantly impair our long-term growth and
value.
It is possible that we may register our common stock or preferred stock for sale
to the public; however, turmoil in the equity markets has greatly impaired our
access to such funding opportunities. If we were to register our common stock or
preferred stock for sale, there can be no assurance that market conditions would
facilitate a successful sale. Management is also exploring avenues to increase
sales in order to fund operations from cash flow sooner than projected.
Until such time as we have successfully completed additional funding
arrangements and are cash flow positive from operations, we remain at
significant risk of closing our operations from our lack of capitalization. It
is highly likely that our shareholders will incur additional dilution as a
result of future capital fundings involving issuance of common stock or common
stock derivatives.
CREDIT FACILITIES
During June 2000, we entered into a factoring agreement with a national banking
organization. The bank will advance us 80% of each receivable purchased up to a
maximum of $750,000, subject to full recourse to us. 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 August 31, 2002, we had no
contingent amounts owed under this agreement.
From time to time, we have obtained short-term loans from our primary
shareholders, who are or were officers and management of the Company. As of
August 31, 2002, shareholder loans totaled $365,115. The loans bear interest at
an annual fixed interest rate ranging from 5% to 8.25%, are unsecured and mature
during the fourth quarter of 2002. During the three months ended August 31,
2002, $166,742 of shareholder loans and $8,272 of accrued interest were
converted to 1,368,747 shares of our common
12
stock. We may continue to borrow funds from these shareholders in the future but
there is no assurance that funds will be made available or under similar terms.
RELATED PARTY DISCLOSURE
As referred to above, we have loans with certain of our shareholders, directors,
and officers. During the three months ended August 31, 2002 we borrowed $112,115
under these loan agreements and repaid principal and accrued interest of
$175,014 by the issuance of 1,368,747 of common stock, as referred to above,
which approximated t he fair market value of common stock on the date of
issuance. Total interest expense incurred during the three months ended August
31, 2002 under these loan arrangements was $10,533. At August 31, 2002, accrued
but unpaid interest on these shareholder notes was $26,514. The total of
shareholder loans outstanding at August 31, 2002 was $365,115.
During the three months ended August 31, 2002, the Company issued 511,500
warrants to purchase common stock of the Company (61,500 warrants to a third
party consultant having an exercise price of $0.10 per share and 450,000
warrants to a former employee having an exercise price of $0.01 per share) for
consulting services valued at $45,865 and issued 480,709 warrants to purchase
common stock of the Company with an exercise price of $0.01 per share in payment
of accrued salaries valued at $115,370. The accrued salaries settled were for
officers of the Company.
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 1.74%, volatility
was 30% and the expected life of the warrants was three to five years. The fair
value of warrants issued in conjunction with the consulting services during the
three months ended August 31, 2002 was $45,865. The fair value of the warrants
issued for accrued salaries was determined based on the value of the liabilities
extinguished, which totaled $115,370, and approximated the fair value of these
warrants using the Black-Scholes Option Price Calculation thus no additional
compensation expense was required to be recorded.
From time to time, when cash flow is not sufficient to cover payroll, certain
officers and employees of the company forego receipt of payment of certain
salaries earned. As of August 31, 2002, $151,789 of salaries has been accrued
and will be paid as cash resources become available.
During the year ended May 31, 2000, we entered into agreements with certain
officers that provided for those officers to convert debt amounts owing to them
for deferred compensation into equity in the form of 2,445 shares of Series A
Preferred Redeemable Preferred Stock. The preferred stock has a par value of
$0.01 per share, is redeemable at $100 per share, carries an annual dividend of
prime plus 2% per share, and was redeemable on or before May 15, 2002, with
Board of Directors approval. During the three month period ended August 31,
2002, the Company redeemed all 2,445 shares of the Series A Preferred Stock plus
accrued dividends, which in the aggregate amounted to $306,373, in exchange for
985,492 shares of common stock and a note payable of $60,000 bearing interest at
rate of 8.00% per annum.
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.
13
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 Logistics, Inc., and its subsidiarie's 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.
14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are presently involved in two legal proceedings:
VIP Finance vs. Elite Logistics, Inc. - On November 21, 2001, VIP Finance, one
of our customers, filed a petition in the 141st Judicial District Court of
Tarrant County, Texas in which VIP alleged breach of contract, fraud, and
deceptive trade practices based on plaintiff's purchase of 1,000 PageTrack 2(TM)
units claiming that the units were defective. The plaintiff is seeking actual
and punitive damages, post judgment interest and reimbursement of court costs.
We believe that the claims are without merit and we intend to vigorously defend
this case. This lawsuit remains in the discovery phase.
Richard Andros vs. Elite Logistics Services, Inc. - On July 2, 2002, Mr. Andros,
an independent contractor, filed a petition in County Civil Court at Law #4 in
Harris County, Texas alleging that he is owed $32,017. We are reviewing these
claims with our legal counsel.
Other than those referred to above, we are not a party to any material legal
proceedings nor are we aware of any which are pending or are known to be
contemplated. Furthermore, we know of no legal proceedings pending or
threatened, or judgments entered against, any of our directors or officers in
their capacity as such. From time to time we are involved in lawsuits that occur
in the normal conduct of our business and are not material to us.
ITEM 2. CHANGES IN SECURITIES
The following shares were sold pursuant to Section 4(6) of the Securities Act of
1933 (the "Act"). All purchasers were accredited investors as that term is
defined in Rule 501 of the Securities Act of 1933.
Shares of Debt discount
Date Common Stock $ Price Conversion Warrants $ Price and Services Expiration
- ------- ------------ ------- ---------- -------- ------- ------------- -----------
5/20/02 215,474 $0.25 $ 53,869 $ - - $ - -
7/12/02 280,000 0.25 70,000 - - - -
8/30/02 197,800 0.25 49,450 - - - -
8/31/02 180,000 0.10 18,000 - - - -
8/31/02 765,000 0.25 191,250 - - - -
8/31/02 985,492 0.25 246,373 - - - -
8/31/02 254,262 0.25 63,566 - - - -
8/31/02 1,114,485 0.10 111,449 - - - -
8/07/02 - - - 50,000 0.15 1,700 9/30/05
8/19/02 - - - 350,000 0.15 11,900 9/30/05
8/20/02 - - - 50,000 0.15 1,700 9/30/05
8/22/02 - - - 100,000 0.15 3,400 9/30/05
8/23/02 - - - 65,000 0.15 2,210 9/30/05
8/31/02 - - - 61,500 0.10 2,755 8/31/07
8/31/02 - - - 930,709 0.01 158,480 8/31/07
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See the Index to Exhibits on page 18.
(B) REPORTS ON FROM 8-K:
July 18, 2002 - Form 8-K filled to announce the resignation of
Russell Naisbitt as a member of the Board of Directors and to
announce the appointing of Matthew Hutchins, Sr. as the Chairman
of the Board of Directors.
16
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.
Name Title Date
- ------------------------ ----------------------------------- ----------------
/s/ Stephen M. Harris President, October 21, 2002
- ------------------------ Chief Executive Officer
Stephen M. Harris And Interim Chief Financial Officer
17
CERTIFICATION
UNDER
SECTION 302
OF THE
SARBANES-OXLEY ACT OF 2002
I, Steve M. Harris, being the President, Chief Executive Officer (performing
similar functions as a Chief Financial Officer) of Elite Logistics, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB for the period
ended August 31, 2002 of Elite Logistics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. Intentionally deleted
5. Intentionally deleted
6. Intentionally deleted
Dated: October 21, 2002
/s/ Steve M. Harris
- --------------------------
Steve M. Harris
President and Chief Executive Officer
(Interim Chief Financial Officer)
18
INDEX TO EXHIBITS
EXHIBIT 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).
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).
19
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
4.14 of Registrant's Form 10QSB as filed on January 14, 2002).
4.15* Management Services Agreement dated March 4, 2002 by and between
Elite Logistics, Inc. and Stephen M. Harris (incorporated by
reference to Exhibit 4.15 of Registrant's Form 10KSB as filed on
September 13, 2002).
4.16* Management Services Agreement dated July 11, 2002 by and between
Elite Logistics, Inc. and Matthew Hutchins, Sr. (incorporated by
reference to Exhibit 4.16 of Registrant's Form 10KSB as filed on
September 13, 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).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes - Oxley Act of 2002.
99.2* Office Lease (incorporated by reference to Exhibit 99.1 of
Registrant's Form 10SB as filed on March 7, 2000).
99.3* Agreement between the Company and Vollmer Public Relations
(incorporated by reference to Registrant's Form 10SB12G/A as
filed on June 15, 2000).
*Incorporated by reference as indicated.
20