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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB /A No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Lighthouse Landings, Inc.
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(Name of small business issuer in its charter)
New Jersey 22-3241823
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
195 Fairfield Avenue, Suite 3C, West Caldwell, New Jersey 07006
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(Address of principal executive offices)
Issuer's telephone number: 973-618-9036
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Securities to be registered under Section 12(b) of the Act: None
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Securities to be registered under Section 12(g) of the Act: Common Stock, $.01 Par Value
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
History of the Company
----------------------
Lighthouse Landings, Inc. (the "Company") is a New Jersey corporation
formed on May 12, 1993 under the name Drydock Cafe, Inc. On September 21, 1994,
the Company changed its name to Lighthouse Landings, Inc.
Through 1997 the Company's principal business was the redevelopment of a
marina facility on a 2 1/2 acre site located on the Shrewsbury River in
Highlands, New Jersey (the "Property"), which it acquired in September 1993.
The Property is a mostly vacant parcel of land with 463 linear feet of
waterfront and has on its premises a 4,000 square foot building on the water's
edge and a small office building. The Property has preliminary zoning approval
for a restaurant facility, retail building, bait and tackle shop, 23 slip
marina, concrete parking area and deep water boat fueling pier.
In September 1993 the Company purchased the Property at a Sheriff's sale
for $1,000,000. Currently, the Property is encumbered by a promissory note with
the remaining principal balance of $60,000, all of which is delinquent. However,
the note holder has afforded the Company additional time to pay the balance.
Relations with the note holder have historically been amenable.
In December 1997, the Company purchased all outstanding shares of a
privately-owned company called The Cigar Box, Inc. ("Cigar Box"), a retail cigar
and accessories store, located in Ramsey, New Jersey. The Cigar Box
stockholders received 75,000 shares of the Company's common stock. The
acquisition was contemplated and consummated at a time when cigars were
increasingly popular and the Cigar Box was to be used to supply retail outlets
at ferry locations in New Jersey. The Company had planned to operate additional
Cigar Box retail outlets, one of which would be included as part of a private
club at the Property's restaurant facility.
In October 1998, the Company acquired 80% of the issued and outstanding
shares of the capital stock of Fast Ferry Holding Corporation, a New York
corporation, and its wholly owned subsidiaries, Fast Ferry I Corporation, Fast
Ferry II Corporation and New York Fast Ferry Services, Inc., all New York
corporations (collectively "NY Fast Ferry"). NY Fast Ferry owns two vessels,
the M/V Finest and the M/V Bravest, and is in the business of operating high-
speed commuter ferry services in the greater New York City harbor area. The
Company issued 454,545 shares of its common stock to the NY Fast Ferry
shareholders. Of the 454,545 shares issued, 70,000 shares are subject to a put
under which two of the three selling shareholders can require the Company to
purchase an aggregate of 70,000 shares at a price of $5.00 per share.
As a result of the acquisition of NY Fast Ferry, the Company's primary
business changed from the redevelopment of the Property to the operation of
existing fast ferry service and the development of new routes. Accordingly, the
Company reevaluated all other business strategies and decided to sell all non-
core business assets and operations so it could focus solely on developing its
core business of ferry services. In October 1999 the Company listed both the
Cigar Box and the Property for sale. Efforts to sell the business were
unsuccessful. The Company closed the business on March 31, 2000.
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Current Business; Markets
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The Company is in the business of operating high-speed, passenger ferries.
At present, it owns two high-speed passenger ferries: the M/V Finest and the M/V
Bravest. These ferries are 38-meter aluminum hull, low wake catamarans that
travel at speeds averaging 35 knots. These vessels each have a capacity of 340
passengers and are equipped with TV monitors and a public announcement and
stereo system. Both vessels also have a refreshment concession area onboard.
The Company's primary passenger is the executive commuter. The Company's
fast ferry service offers the executive commuter a fast, convenient, reliable,
clean and comfortable alternative to the crowded public transportation available
via train or bus, not to mention the congestion and stress faced by those
choosing to commute via automobile. The market being served by NY Fast Ferry
includes the Rumson-Red Bank peninsula immediately south of Highlands, New
Jersey in Monmouth County and has an excellent market potential to support
present and expanded ferry service. According to the New Jersey Department of
Transportation, there are approximately 22,000 Manhattan bound daily commuters
from Monmouth County, New Jersey alone.
The Company's vessels travel 17 nautical miles across New York Harbor from
Highlands, New Jersey to Pier 11 in downtown Manhattan, New York. Pier 11 is
located about two blocks from Wall Street. This ferry also makes a stop at the
East 34/th/ Street Pier on the eastside of midtown Manhattan. The trip to Pier
11 is approximately 40 minutes long and an additional 10 minutes to the East
34/th/ Street dock. Daily, the ferry makes two peak trips in the morning and two
peak return trips at the end of the business day and one off-peak morning trip
and one off-peak return trip in the evening four days a week. Passengers on
these trips are primarily commuters, the majority of whom purchase 40-trip
tickets at the current cost of $450.
The M/V Finest was under a bareboat charter arrangement until October 31,
1999 to the Massachusetts Steamship Authority, which operates a fast ferry
service in Massachusetts. The M/V Finest recently underwent a scheduled engine
overhaul and is now available for NY Fast Ferry operation. The M/V Finest will
be used to add additional peak runs to and from Manhattan from the Clam Hut site
in the Highlands area for which the Company is seeking final site approval. This
vessel will make one trip during morning peak hours to Manhattan and two trips
from Manhattan during peak evening hours.
NY Fast Ferry also runs excursions during non-commuter times and on
holidays and weekends when the vessel is not operating scheduled trips. These
excursions include whale watching trips off the coast in the winter, summer
sunset cruises in New York Harbor, and fall foliage tours up the Hudson River
Valley. The ferries also make trips to sporting events including baseball games
at Shea Stadium and football games at West Point and for special events such as
4/th/ of July fireworks. The Company also rents its vessels for charters and
private parties.
The Property is not in operational condition for fast ferry service because
of the condition of the bulkhead, the surface of the parking area, and the
site's limited parking capacity. Accordingly, NY Fast Ferry operates from a
leased facility known as the Aragon Marina
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("Aragon") located on Willow Street, Highlands, New Jersey. The site is leased
by NY Fast Ferry on a passenger trip basis, with a remaining term of
approximately four years, renewable at the same rates and basis for an
additional five years. Under this lease the property owner provides and
maintains all land side facilities, including providing parking attendants in
the morning, snow plowing, lighting, docks, shuttle bus to offsite lot, etc. It
is Aragon's obligation to provide 300 parking spaces, but only 250 are
available, and there are payment reductions for the lost parking spaces. The
monthly lease payment to Aragon has averaged $24,900 over the last 12 months.
The Company believes the Aragon site is better suited to providing first-
class, convenient commuter fast ferry service than the Property it owns.
Accordingly, the Company is in negotiations with the owner of Aragon to purchase
that site and has placed its Property on the market for sale. However, the
Aragon property needs improvements and the parking space needs to be expanded.
The Company is also actively seeking other sites in the New York and New
Jersey areas suitable for providing fast ferry service to commuters to
Manhattan, in order to maximize ferry capacity. If the Company is unsuccessful
in negotiating acceptable terms for the Aragon property, there is sufficient
time remaining on the Aragon lease to permit the Company to explore other
options. The Company is awaiting final site plan approval to utilize a dock and
parking facility at the Clam Hut located approximately one-half mile south of
the Aragon property. The Clam Hut has parking capacity for 150 vehicles. Upon
receiving site plan approval, the Company can add an additional morning ferry
run.
The Company entered into a five-year lease agreement, renewable for a
further five-year team, with The Connecticut Light and Power Authority (the
"Landlord") for approximately 3.6 acres together with a docking facility located
at Atlantic Street and Washington Boulevard in Stamford, Connecticut (the
"Stamford Property") for the purpose of operating a high-speed ferry service.
The lease commenced on November 1, 1999 with rent payments commencing on March
1, 2000. Rent for the first six months (March through August) is based on annual
rate of $100,000, or $8,333.33 per month, and for the seventh through the
twenty-fourth month rent is based on an annual rate of $150,000, or $12,500 per
month.
The Company plans to operate high-speed ferry service from the Stamford
Property to LaGuardia airport and to Manhattan, stopping at the pier at East
34th Street and at Pier 11 downtown utilizing one newly-designed aluminum hull
catamaran with a capacity of 275 passengers and a 38 knot service speed. The
Company plans to expand services to up to four vessels. The design work for the
new boats was completed in January 2000. The Company has signed a Letter of
Intent with Derecktor Shipyards for the construction of at least three vessels.
The Company expects that the first vessel will be completed by Spring 2001. The
U.S. Coast Guard must issue a certificate of inspection for any new vessel it
uses.
Before ferry service can begin, the Company must obtain various
governmental approvals and complete site improvements on the Stamford Property.
The Company expects the refurbishment to be completed within approximately
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120 days from the time construction begins. The Stamford site has been zoned for
parking and the Company has received oral assurances from the local authorities
that it can operate fast ferry service from this site. As a result of meetings
with its engineers and government officials, the Company expects to have the
permit process completed by the end of September 2000, and site improvements
completed by the end of the year. The Company plans to begin operations at the
Stamford site in the Spring 2001 and the site will have approximately 600
parking spaces.
The operation of ferry vessels requires U.S. Coast Guard (USCG)
certificates of inspection (See Government Regulations) and permits to dock. New
York City has recently expanded its facilities at Pier 11 located at the South
Street Seaport in the Wall Street area of lower Manhattan. This provides more
times for ferries to dock and disembark passengers. In order to dock the ferry
vessels at any pier under the City's control, the Company must obtain a permit
and will then be given specific docking times around which it can schedule its
trips to and from Manhattan. The Company plans to apply for the docking permit
immediately upon obtaining a vessel to operate from Stamford. The Company
believes it will not take more than 30 days to obtain the permit once the vessel
is acquired.
After the requisite site improvements are completed and operations have
commenced, the Company plans to construct a small terminal, consisting of a
totally enclosed waiting room, a ticket office and necessary facilities,
including rest rooms.
Competition
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The Company currently operates in the Monmouth County, New Jersey area. In
that market its main competitor is Seastreak, a well-capitalized, wholly-owned
subsidiary of Sea Container Corporation, a United Kingdom based corporation.
This ferry service operates from a nearby site on the Shrewsbury River, the
former Connors Hotel property, and from Atlantic Highlands Yacht Harbor
approximately a mile west. Seastreak has undertaken an improvement and expansion
program whereby it will increase parking capacity at its Highlands facility,
expand its off-peak and weekend schedules and construct a new Highlands
terminal. At this time, the Company's vessels are faster and more comfortable
than Seastreak's vessel. The Company's vessels can reach a speed of 35 knots,
whereas Seastreak's vessels can only reach a speed of about 28 knots. The
Company's vessels can make the trip from the Highlands to Manhattan about ten
minutes faster than Seastreak's vessels. The Company's vessels have more
interior room and provide a smoother ride than Seastreak's vessels. However,
Seastreak has substantially greater financial resources through its parent
corporation, Sea Container, that could adversely impact the Company. In
addition, Seastreak has ordered two new vessels, which are expected to completed
in November of 2000, and which are comparable to the Company's vessels.
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Monmouth County has indicated it is contemplating an additional high speed
ferry terminal and operation in a town about seven miles northwest of the
Company's site in the Highlands. The Company believes the ferry operator that
will be servicing that facility is New York Waterways. New York Waterways also
provides conventional ferry service for short hauls at various locations in the
New York metropolitan area and has been in business for many years. New York
Waterways has substantially greater financial resources that, if they choose to
compete, could adversely impact the Company.
The Company's competitors have longer and profitable operating histories
and substantially greater financial resources than the Company. The Company's
inability to fund the necessary site and facilities improvements, to purchase
additional ferries or to take advantage of opportunities as they might arise
could have significant adverse impact on its results of operations.
Dependence on Suppliers
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Parking at docking sites is the Company's biggest issue. The Company
currently is dependent on the lease with Aragon (on which four years remain).
Management is confident it could find other temporary dock space with available
parking on a short term basis until permanent arrangements could be made if
Aragon should breach its lease arrangement with the Company.
Government Regulation
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The operations of the ferry vessels is under the jurisdiction of the USCG.
The vessels are required to pass an inspection and must have valid certificates
of inspection from the USCG. The USCG conducts an in-water inspection of the
vessel annually and an out-of-water inspection about every 18 months. Should a
violation or other problem be found, the Company is given a period within which
it can correct the problem, during which time the vessels are free to operate.
If the USCG deems it to be a safety hazard, the certificate of inspection is
suspended immediately and the ferry cannot be operated until the necessary
repairs/corrections are made. The vessels' captain and mates must also have
required USCG licenses. To date the Company has an excellent safety record and
maintains the only boats in the Greater New York harbor that are American Bureau
of Shipping (ABS) classified.
The Company also obtains permits from New York - New Jersey Port authority
for docking at city-owned ferry terminals. Obtaining these permits has not been
a problem.
Employees
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As of June 8, 2000 the Company had 25 full-time employees and 5 part-time
employees. Fast Ferry Holding Corporation employs 22 of the 25 full-time
employees and all of the part-time employees. The number of employees will
increase as additional ferries become operational and the Stamford Property
service becomes operational.
Fast Ferry Holding Corporation has a collective bargaining agreement with
Local 333, United Marine Division of the International Longshoreman Association,
AFL-CIO, dated
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September 9, 1997. The contract runs through September 15, 2001. The contract
contains a no-strike clause, specified pay rates, medical benefit guarantee and
union shop provision. Pay increases of 3% are specified in the year following
any year in which a profit is made.
Management believes its relationship with its union and non-union employees
is good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto, along with the other
information contained elsewhere in this Form 10-SB.
Comparison of the Year Ended December 31, 1999 vs. December 31, 1998.
Consolidated revenues for the twelve month period ended December 31, 1999
totaled $3,285,978 and were comprised of $2,214,884, or 67%, from passenger
tickets from the NY Fast Ferry service operating from Highlands(NJ), $789,859,
or 24%, from the charter of the M/V Finest to the Massachusetts Steamship
Authority, which terminated in October 1999, and about $281,000, or 9%, from
excursion trips and galley sales. During the twelve months ended December 31,
1999, the Company ran a total of 1,198 revenue trips from its Highlands (NJ)
site at a 47% load factor. The ferry service ran over 98% of its scheduled
trips, missing only a single trip due to weather conditions or the condition of
the vessels. As the Company acquired the NY Fast Ferry operation in October
1998, the consolidated revenues generated in the period of the prior year under
review reflect only three months of operations of the ferry service, which
totaled $681,167. Of the revenues, about $438,000, or 64%, was attributable to
passenger tickets sales, $217,500, or 32%, was attributable to the charter of
the M/V Finest, and $25,675, or 4%, was generated from excursion trips and
galley sales.
Consolidated operating costs for the twelve month period under review of
$2,493,582 are directly attributable to the ferry operations as compared to
$509,742 for the twelve months ended December 31, 1998. Of the $2,493,582 about
64%, or $1,597,574, are direct operating costs and $896,008, or 36%, represent
depreciation of the ferry vessels and other boat equipment. By comparison, in
1998 direct operating costs totaled $287,116, or 56%, and depreciation of the
ferry vessels and other boat equipment totaled $222,626, or 44%.
Payroll and related costs for the ferry vessel crew represented 29% of the
total direct operating costs for the period or approximately $461,600 for the
twelve months ended December 31, 1999 as compared to $93,594, or 33%, in the
comparable period in 1998. Fuel and oil costs accounted for 19% of the category
or about $306,700 in 1999 as compared to $68,075, or 24%, of the category, in
for the comparable period in 1998. The decline in fuel as a percentage of the
category was a result of improved buying procedures. Docking fees and fees to
the owner of the parking facility totaled $347,500, or 22%, of the direct
operating costs in 1999 as compared to $65,939, or 23%, of the category in the
prior year. Boat maintenance and supplies, which included a scheduled engine
overhaul, accounted for almost $246,300, or 15%, and insurance costs totaled
$99,659, or 6%, of the total direct operating costs. For the same
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period in 1998, boat maintenance and supplies accounted for almost $27,000, or
10%, and insurance totaled $ 22,552, or 8%, of the total direct operating
costs.
Direct excursion expenses represented 2%, or about $30,300, of the
operating costs and costs of sales related to galley sales totaled $92,939 or
6%. Other direct operating costs amounted to $35,189, or 2%, of the category. By
comparison, for the prior year ended December 31, 1998, direct excursion
expenses and costs of sales related to galley sales represented less than 1%, or
about $1,390, of the operating costs and other direct operating costs amounted
to $8,570, or 3%, of the category.
Marketing and administrative expenses totaled $1,304,319 and $534,240, for
the years ended December 31, 1999 and 1998, respectively. Of the total marketing
and administrative expenses in 1999, $486,624, or 37%, is attributable to
administration of the ferry service and $710,920, or 55%, is attributable to
corporate administration. For the comparable period in the prior year, 17%, or
$91,120, of the total marketing and administrative expenses was attributable to
the administration of the ferry service and $287,056, or 54%, was attributable
to corporate administration. Salaries and related benefits for ferry
administration totaled $285,150, or 22%, and $64,028, or 12%, of the marketing
and administrative expenses for the years ended December 31, 1999 and 1998,
respectively. The increase was attributable to the addition of headcount as the
operation expanded. Corporate management compensation represented $374,229, or
29%, and $183,334, or 34%, of the total category for the period ended 1999 and
1998, respectively. The Company incurred occupancy expense, including utilities
and maintenance for the 1999 period under review totaling $41,013 as compared to
$8,068 for the prior period in 1998 when it utilized available space in the
offices of certain officers and directors, as well as at the Cigar Box.
Marketing and promotional expenses accounted for 2% of the category, or
$27,337, as compared to $147, less than 1%, in 1998.
Other marketing and administrative expenses amount to approximately
$239,163 and $143,893 for the twelve-month periods ended December 31, 1999 and
1998, respectively, and include legal and auditing services, in part due to the
audit of the Company's financial statements, as well as other professional
services related to the development of business plans, market strategies and
funding of the Company. Of the remaining $195,400, approximately $60,400 is
attributable to travel expenditures and certain other expenses, such as
stationary and supplies, and telephone, related to the increased headcount and
corporate activity, totaled $135,000. By comparison, of the remaining $110,640
approximately $43,500 is attributable to travel expenditures and certain other
expenses, such as stationary and supplies, and telephone, related to the
increased headcount and corporate activity, totaled $67,140.
Depreciation expense, related to office equipment, totaled $9,439 for the
twelve months ended December 31, 1999 as compared to $2,460 in the prior period.
Amortization of goodwill related to the acquisition of New York Fast Ferry
amounted to $70,000 and 16,741, for the years ended December 31, 1999 and 1998
respectively.
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Interest expense for the twelve months ended December 31, 1999 totaled
$1,473,735, which was primarily attributable to the current obligations of the
NY Fast Ferry, including the mortgages on the boats, and debt financing of the
Company's current operations and business development. Of the total interest
expense, interest paid in connection with the vessel mortgages and line of
credit totaled $969,982. For the comparable period ended December 31, 1998,
interest expense totaled $348,249, of which about $ 290,000 was primarily
attributable to the current obligations of the NY Fast Ferry and the mortgages
on the boats.
Discontinued operations consist of revenues and costs from the Cigar Box
operation as well as certain costs related to the Property, both of which have
been reclassified as discontinued operations. In accordance with management's
decision to cease operations at the Cigar Box and place the related assets and
the Property for sale, the appropriate impairment of assets has been recorded.
For the twelve month period under review, the discontinued operations resulted
in a loss of $155,347 and an impairment of $391,654 for 1999 and $113,392 and
$331,161, respectively, for 1998.
Liquidity and Capital Resources
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Since inception the Company has funded its operations primarily through
cash generated from private placements of debt and equity securities and
institutional financing. In October 1998, the Company acquired 80% of the stock
of New York Fast Ferry and commenced operating fast ferry service from the
Highlands in Monmouth County (NJ). As part of the transaction, the Company
guaranteed payment and satisfaction of NY Fast Ferry's outstanding liabilities.
The NY Fast Ferry operation generates sufficient cash-flow to cover its direct
operating costs. However, the NY Fast Ferry operation does not yet generate
enough cash to carry its debt service, other than one preferred ship mortgage,
to fund the capital improvements and capital expenditures necessary for the
Company to expand its operations and to implement its strategic business
objectives.
As of December 31, 1999, the Company had outstanding two notes payable and
preferred ship mortgages (first senior liens) with a financial institution, one
on the ferry vessel M/V Finest and one on the ferry vessel M/V Bravest, of
$5,156,274 and $5,127,461, respectively, which bear interest at 9.25% per annum.
Both ship mortgages each require monthly payments of principal and interest in
the amount of $56,719 through September 10, 2005, with final payments of
$3,572,971 and $3,626,691, respectively, due on October 10, 2005.
The Company also has a line of credit with an outstanding balance at
December 31, 1999 of $1,254,913 with the same financial institution that holds
the preferred ship mortgages. The line of credit, secured by the M/V Finest and
the M/V Bravest, requires monthly payments of $15,000 through April 10, 2000,
plus principal payments of $45,000 in January 1999, $343,333 on May 1, 1999 and
October 1, 1999, a payment of $343,333 on March 1, 2000, and a final payment of
$934,319 on December 10, 2000. All payments are current. The note carries no
interest, but has been discounted to a net present value using a discount rate
of 9.25% per annum. These two preferred ship mortgages and the line of credit
are further secured by cross collateralization agreements, assignment of
personal property, a pledge of a potential receivable arising out of a lawsuit
against the City of New York, and a Company guarantee. Moreover, the
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financial institution was granted warrants to purchase 200,000 shares of Company
stock at $2.60 per share exercisable through March 16, 2004. As of this date the
Company is in final stages of negotiations with respect to the December 2000
payment in excess of $900,000 and expects to restructure that payment in a more
favorable manner for the Company.
In June 1999, the Company obtained financing in the net amount of $300,000
from an unrelated third party that is secured by a second mortgage on the
Property located on the Shrewsbury River, Highlands, NJ, subject to a real
estate tax lien, and by a personal guarantee of a major shareholder. The note
carries an annual interest rate of 18% and is payable in monthly installments,
applied first to interest, as follows: from July 10, 1999 through December 10,
1999, $10,000 per month; from January 10, 2000 through May 10, 2000, $15,000 per
month; and commencing June 10, 2000, three monthly installments each equal to
one-third of the outstanding balance on June 10, 2000. As an inducement to enter
into the loan, the Company issued the lender 25,000 shares of restricted common
stock, and if the loan was not prepaid by December 11, 1999, the lender was
entitled to an additional 25,000 restricted shares. The loan was not prepaid by
December 11, 1999, so the lender received the additional shares. All payments
are current.
In the twelve months ended December 31, 1999, the Company had raised
proceeds of $1,615,000 through the private subscription of the Company's common
stock and the exercise of certain warrants.
The Company, as of December 31, 1999, had a working capital deficiency of
$3,259,245. Furthermore, in the planned development of its commercial
operations, the Company's combined losses are expected to continue as the
Company divests its non-core assets and operations and commences ferry service
at other sites and until each of such sites become fully operational. The
Company's ability to meet its obligations in the ordinary course of business is
dependent upon its ability to continue to obtain adequate financing and/or to
successfully expand its ferry operations. Additionally, capital expenditures to
improve and expand its landside ferry facilities and acquire fast ferry vessels
will require significant funding.
The Company has been successful to date in its efforts to raise funds and
believes that proceeds from anticipated interim financing together with
available funds and cash flows expected to be generated by operations will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. Furthermore, the Company has
begun to negotiate more favorable payment terms with certain creditors that
require significant principal payments in the next twelve months. In the event
the Company's plans change, its assumptions change or prove to be inaccurate or
if the proceeds of the interim financing or cash flows prove to be insufficient
to fund operations, the Company may find it necessary or desirable to reallocate
funds within the above described business strategies, seek additional financing
or curtail its activities. There can be no assurance that additional financing
will be available on terms favorable to the Company, or at all, or that the
Company will be able to negotiate more favorable payment terms with its existing
creditors. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to meet its current obligations,
take advantage of unanticipated opportunities, develop new products or
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otherwise respond to unanticipated competitive pressures. Such inability could
have a material adverse effect on the Company's business, and financial
condition and results of operations.
Subsequent Events
-----------------
In the first quarter of 2000, the Company successfully raised a net of
approximately $390,000 in equity funding through private placements with
accredited investors of 634,500 shares with warrants for the purchase of an
additional 634,500 shares of common stock at $1.00 to $1.25 per share
exercisable for one year from date of issuance. The Company also issued a total
of 250,000 shares of common stock to two investment funds (125,000 shares each)
in consideration of a $1,000,000 bridge loan to the Company. The Company issued
27,500 shares of common stock to a finder on that transaction.
Forward-Looking Statements
--------------------------
Discussions and information in this document which are not historical facts
should be considered forward-looking statements. With regard to forward-looking
statements, including those regarding the potential revenues from the additional
ferry operations from the Stamford Property, and the business prospects or any
other aspect of the Company, actual results and business performance may differ
materially from that projected or estimated in such forward-looking statements.
The Company has attempted to identify in this document certain of the factors
that it currently believes may cause actual future experience and results to
differ from its current expectations. In addition to the risks cited above
specific to the ferry business, differences may be caused by a variety of
factors, including but not limited to, adverse economic conditions, entry of new
and stronger competitors in the ferry business, insufficient parking space for
potential ferry customers, inadequate capital and the inability to obtain
funding from third parties, unexpected costs, and the inability to obtain or
keep qualified personnel.
ITEM 3. DESCRIPTION OF PROPERTY
The Property, located on the Shrewsbury River in Highlands, New Jersey,
which the Company acquired in September 1993, is a mostly vacant parcel of land
with 463 linear feet of waterfront and has on its premises, a 4,000 square foot
vacant building on the water's edge and a small office building. The Company has
preliminary zoning approval for a restaurant facility, retail building, bait and
tackle shop, a 23 slip marina, a concrete parking area and deep water boat
fueling capacity.
The Property is subject to a first mortgage and note with an outstanding
balance of $58,262. The Property is also subject to a second mortgage lien
related to a note payable to Ashley North Fairfield, Inc. ("ANF Note"). The
current outstanding balance of the ANF Note is $156,577 with an annual interest
rate of 18%. The Company made monthly principal and interest payments in the
amount of $10,000 through December 1999, and made payments of $15,000 through
May 10, 2000. On June 10, 2000 any outstanding balance will be due in full
provided that if the Company makes a principal payment equal to one half of the
outstanding principal balance, the due date for the remaining one half will be
extended 90 days. The Company is currently negotiating with ANF to reduce the
amount of the monthly payment and
11
<PAGE>
extend the date when the balance of the note will due in full. The Property is
also subject to real estate tax liens due to the non-payment of property
taxes.
The total sum due and outstanding on all tax liens as of December 31, 1999
was approximately $340,000. This amount includes principal and interest. The
lien holder cannot proceed with foreclosure for a period of two years after the
purchase of the liens. After the two year period, a foreclosure complaint can be
filed which would afford the Company an approximate three to six month period to
satisfy the liens. As of this date, foreclosure papers have not been filed, nor
has there been a threat of foreclosure.
Since the Company has been operating its high-speed ferry service in the
Highlands from a another site (Aragon) in close proximity to the Property that
offers more parking, it has determined that it is economically more feasible to
buy rather than lease the other site. Accordingly, the Company plans to sell the
Property and has listed it with a real estate broker at a value of $1.2 million.
The Cigar Box in Ramsey, New Jersey is located in a strip mall complex. The
Cigar Box, Inc. had approximately 1 1/2 years remaining on the lease, for
approximately 1,500 square feet at $2,000 per month, at the time the Company
surrendered the premises to the Landlord.
Corporate Offices
-----------------
The Company's corporate offices are located at 195 Fairfield Avenue, Suite
3C, West Caldwell, New Jersey 07006, phone number 973-618-9036, at a cost of
$2,750 per month commencing March 1, 2000, under a sublease agreement with
Anthony Colasanti, a director of the Company. For the previous six months the
Company leased smaller office space in Summit, New Jersey, with fewer amenities
at a base cost of $2,038 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 12, 2000, the number of shares of
the Company's outstanding $0.01 par value common stock beneficially owned by
each of the Company's current directors and the Company's executive officers,
the number of shares beneficially owned by all of the Company's current
directors and named executive officers as a group, and the number of shares
owned by each person who owned of record, or was known to own beneficially, more
than 5% of the Company's outstanding shares of common stock:
12
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name and Address Beneficial Common
Of Beneficial Owner Ownership Stock
------------------- --------- -----
<S> <C> <C>
Anthony Cappaze 1,509,850/(1)/ 23.1%
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Anthony Colasanti 390,000/(2)/ 6.0%
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Francis P. Matusek 1,050,400/(3)/ 17.1%
186 Highway 34
Matawan, New Jersey 07747
Ray Wright 150,000/(4)/ 2.4%
One Springfield Avenue
Summit, NJ 07901
John Ferreira, Jr. 0 *
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Gregory J. Hauke 26,500 *
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
All directors and executive 2,976,750/(5)/ 43.2%
Officers as a group
(four persons)
</TABLE>
__________________________
*Less than one percent.
(1) Includes 718,700 shares owned by Cappaze Associates, L.P., of which Mr.
Cappaze is the General Partner; 78,000 shares owned by Elchanan Dulitz FBO
Ashley North Ave. Inc., to which Mr. Cappaze pledged stock to secure a loan to
the Company; 15,000 shares owned by Mr. Cappaze's spouse; options to acquire
200,000 shares at $1.75 per share until 6/11/2002; warrants to purchase 100,000
shares at $1.25 per share until 10/27/2001; and warrants to purchase 100,000
shares at $1.00 per share until January 2003. Does not include options to
acquire 200,000 shares at $1.00 per share until 1/1/07, which are not
exercisable before 1/1/02.
(2) Includes options to acquire 100,000 shares at $1.50 per share until
12/20/2001; warrants to purchase 100,000 shares at $1.25 per share until
10/27/2001; warrants to purchase 100,000 shares at $1.00 per share until January
2003; and warrants to purchase 50,000 shares at $1.00 per share until January
2002. Does not include options to acquire 100,000 shares at $1.00 per share
until 1/1/07, which are not exercisable before 1/1/02.
(3) Includes 710,000 shares owned by Sun-Rize Ferry Service, L.P., of which Mr.
Matusek is the General Partner; and 2,250 shares owned by Mr. Matusek's
spouse.
(4) Includes options to acquire 100,000 shares of $1.00 per share until 12/04.
Raymond F. Wright tendered his resignation as Treasurer, effective 03/15/00.
(5) Includes footnotes 1 through 3.
Other Owners
------------
To the knowledge of the Directors and Senior Officers of the Company,
as of June 12, 2000, there are no persons and/or companies who or which
beneficially own, directly or indirectly, shares carrying more than 5% of the
voting rights attached to all outstanding shares of the Company, other than the
following:
13
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent
Nature of of
Name and Address Beneficial Common
of Beneficial Owner Ownership Stock
------------------- --------- -----
<S> <C> <C>
Lancer Offshore, Inc. 500,000/(1)/ 8.1%
c/o Kaya Flamboyan 9
Curacao Netherlands Antilles
The Viator Fund Ltd. 1,375,000 20.0%
c/o Kaya Flamboyan 9
Curacao Netherlands Antilles
Michael Lauer 2,250,000 32.7%
c/o Kaya Flamboyan 9
Curacao Netherlands Antilles
</TABLE>
_________________
(1) Includes warrants to purchase 750,000 shares at $1.25 per share until
12/31/2002.
(2) Mr. Lauer is Managing Director of Lancer Offshore, Inc., The Viator Fund
Ltd. and The Orbitor Fund. This total includes 500,000 shares beneficially owned
by Lancer Offshore, Inc.; 1,375,000 shares and warrants beneficially owned by
The Viator Fund, Ltd.; 125,000 shares owned by The Orbitor Fund; and 250,000
shares directly owned by Mr. Lauer.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth as of June 1, 2000, the names and ages of
the current directors and executive officers of the Company, and the principal
offices and positions with the Company held by each person and the date such
person became a director or executive officer of the Company. The executive
officers of the Company are elected annually by the board of directors.
Executive officers serve terms of one year or until their death, resignation or
removal by the board of directors. The present term of office of each director
will expire at the next annual meeting of shareholders. Each executive officer
will hold office until his successor duly is elected and qualified, until his
resignation or until he is removed in the manner provided by the Company's
bylaws.
<TABLE>
<CAPTION>
Name of Director Director
or Officer Since Age Position
---------- ----- --- --------
<S> <C> <C> <C>
Anthony Cappaze Inception 56 Chairman of the Board and Chief
Executive Officer
Anthony Colasanti Inception 57 Director, Vice President, Secretary
and General Counsel
Francis P. Matusek Inception 48 Director
Gregory J. Hauke June, 2000 Director
John Ferreira, Jr. N/A 37 Chief Financial Officer
</TABLE>
14
<PAGE>
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected by the Board of
Directors and hold office until their successors are elected and qualified. No
family relationship exists among the Company's officers, directors and
significant employees.
Anthony Cappaze has served as Chairman of the Board and Chief Executive
---------------
Officer of the Company since its inception. He has served as president of
Trinity Group, an investment advisory company, since 1998. From 1983 to 1998,
he was Regional Manager, New York and New Jersey, for Northern Telecom. Prior
to that, from 1975 to 1983, he served as Eastern U.S. Regional Vice President,
Computer Marketing and Sales, at United Telecom. He attended Minnesota State
University from 1963 to 1964.
Anthony Colasanti is Vice President, Secretary, General Counsel and
-----------------
Director of the Company. He has served as Director of the company and General
Counsel since 1996. He was elected by the Board to serve as Corporate Secretary
beginning January 1, 1999. He assists the Company as an independent contractor
in areas of planning, organizing, leading and controlling, as well as raising
substantial capital. Mr. Colasanti is a partner in the law firm of Colasanti
and Scott and licensed to practice law in New Jersey and Florida. He has
engaged in the general practice of law in New Jersey since 1967, with an
emphasis on commercial transactional matters and commercial litigation. From
1987 to 1991, he served as a director for Newton Savings Bank, a New Jersey
savings and loan institution. He received his B.S. in Economics from St.
Peter's College in 1964 and his LLB (Law) from Seton Hall University in
1967.
Francis P. Matusek has served as Director of the Company since its
------------------
inception and was an officer of the Company from inception to January 1999.
Since 1974, Mr. Matusek, a Certified Public Accountant, has been engaged in
independent accounting and tax consulting through his company Matusek & Company.
He received his B.S. in Accounting from the University of South Carolina in
1972.
Gregory J. Hauke was appointed as a Director of the Company on June 1,
----------------
2000. Mr. Hauke has served as President of Hauke Realty Inc. since 1985, and has
served as Chief Financial Officer of Phoenix Funding since 1996. Mr. Hauke also
serves as Managing Partner of several real estate partnerships and is formerly
of the accounting firm of Arthur Anderson & Company. Mr. Hauke received his B.S.
in Business Administration from Seton Hall University and his MBA from Fairleigh
Dickinson University.
John Ferreira, Jr. joined the Company on May 1, 2000 as its Chief Financial
------------------
Officer. Previously, from November 1995 to April 2000, Mr. Ferreira served as
Corporate Controller of ESC Sharplan Medical Systems, North American Operations.
His responsibilities included all accounting practices and policies, financial
and management reporting, internal controls, treasury and finance activities,
information technology and human resources. From August 1994 to November 1995,
Mr. Ferreira was employed as a Senior Financial and Operating Analyst for Volvo
Car Finance (a GE Capital joint venture). Mr. Ferreira was a General and Lease
Accounting Manager for Tricon Capital Corporation, a subsidiary of Bell Atlantic
Capital Corporation, from July 1989 to November 1994, and employed by
PriceWaterhouseCoopers (formerly Coopers & Lyband) from September 1985 to June
1989. Mr. Ferreira holds a Bachelor of Science degree from Seton Hall
University and is a member of both the New Jersey Society of Certified Public
Accountants and the American Institute of Certified Public Accountants.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Compensation and other Benefits of Executive Officers
-----------------------------------------------------
The following table sets out the compensation received for the fiscal years
ended April 30, 1997 and 1998, and December 31, 1999 in respect to each of the
individuals who were the Company's chief executive officer at any time during
the last fiscal year and the Company's four most highly compensated executive
officers whose total salary and bonus exceeded $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
FISCAL YEAR COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------ -------
<TABLE>
<CAPTION>
Restricted
Shares
or All other
Name and Other Annual Securities under Restricted LTIP Compen-
Principal Salary/(1)/ Bonus Compen- Option/SARs Share Payouts sation
Position Year ($) ($) sation Granted Units ($) ($)
-------- ---- --- --- ------ ------- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony Cappaze/ 1999 100,000 0 0 200,000 0 0 5700
Chairman 1998 75,000 0 0 0 0 0 0
and CEO 1997 75,000 0 0 0 0 0 0
</TABLE>
____________
(1) The base compensation is recorded and accrued, but payment is deferred in
the interest of optimizing the Company's cash flow.
Stock Option Plan
-----------------
The Board of Directors of the Company has adopted a stock option plan
effective March 10, 2000, subject to shareholder approval by March 10, 2001.
The stock option plan was adopted in order to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to the Company's employees and to promote the success of
the Company's business. The Company has reserved 1,115,000 shares of its common
stock under the stock option plan. As of the date hereof, no options have been
granted under the stock option plan.
Agreements with Management
--------------------------
The Company had employment agreements with Messrs. Cappaze and Matusek that
provided for annual salaries of $75,000 each through April 30, 1998 and $100,000
each, thereafter. Mr. Cappaze and Mr. Colasanti signed new employment
agreements in January 2000, and Mr. Matusek's agreement ended March 31, 1999.
Mr. Cappaze and Mr. Matusek have deferred a significant portion of their
compensation under these agreements. This deferred
16
<PAGE>
compensation carries an interest rate of 4% per annum. As of December 31, 1999,
the total deferred compensation, including interest due, was $449,541.
The Company entered into an employment agreement with John Ferreira on
April 30, 2000. For the period from May 1, 2000 to December 31, 2000, Mr.
Ferreira will receive a salary at the rate of $100,000 per annum. Beginning
January 1, 2001, Mr. Ferreira's salary will be $125,000 per year.
Option/Stock Appreciation Rights ("SAR") Grants during the most recently
------------------------------------------------------------------------
completed Fiscal Year
---------------------
The following table sets out the stock options granted by the Company
during the previous fiscal year to the Named Executive Officers of the Company.
The following amounts include options that were granted prior to the previous
fiscal year but were repriced during that year.
OPTION/SAR GRANTS IN PREVIOUS YEAR
INDIVIDUAL GAINS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Expiration Date
---- ----------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Anthony Cappaze 200,000 48% $1.75 $1.75 06/11/02
Anthony Colasanti 100,000 24% $1.50 $1.50 12/20/01
</TABLE>
___________
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year-End
--------------------------------------------------------------------------
Option/SAR Values
-----------------
None.
Compensation of Directors
-------------------------
Directors of the Company are paid $500 per meeting for their services as
such. Furthermore, the directors are reimbursed for all expenses incurred by
them in attending board meetings.
Benefit Plans
-------------
The Company currently has no retirement, pension, profit-sharing or
insurance or medical reimbursement plans covering its officers and directors,
but does contemplate implementing group health, term life insurance and 401(k)
plans once additional full-time management employees are hired. The NY Fast
Ferry group has a group medical health plan and a 401(k) plan for its employees.
17
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1999 Anthony Cappaze, an officer and director of the Company, was
granted options to purchase 200,000 shares of common stock exercisable at $1.75
per share for three years. In October 1999, Mr. Cappaze was granted warrants to
purchase 100,000 shares of common stock at $1.00 per share for two years. Mr.
Cappaze signed a new Employment Agreement as of January 2000, which provides
that he receives warrants for the purchase of 100,000 shares of common stock at
$1.00 per share for three years and options, which expire on 1/1/07, to acquire
200,000 shares of common stock at $1.00 per share, of which options for 100,000
shares are not exercisable until 1/1/02 and the remainder are exercisable
beginning 1/1/03. In January 2000, the Board of Directors voted to issue 120,000
shares to Mr. Cappaze in lieu of outstanding salary for 1996 and 1997 of
$102,000.
Anthony Colasanti, an officer and director of the Company, also serves as
general legal counsel for the Company. Mr. Colasanti's law firm, Colasanti &
Scott, LLP, was paid approximately $5,000 in 1997, approximately $10,000 in 1998
and approximately $30,000 in 1999 by the Company for legal services rendered by
his firm to the Company.
Mr. Colasanti also received as an annual retainer for consulting services,
10,000 shares of common stock in May 1997 and 10,000 shares in May 1998. He
received 25,000 shares in May 1999 for legal services in negotiating and closing
a loan for the Company. In December 1999, Mr. Colasanti was granted an option to
purchase 100,000 shares of common stock at $1.50 per share for two years. In
October 1999, Mr. Colasanti was granted warrants to purchase 100,000 shares of
common stock at $1.25 per share for two years. Mr. Colasanti signed an
employment agreement as of January 2000, which provides that he receives
warrants for the purchase of 50,000 shares of common stock at $1.00 for three
years and options, which expire on 1/1/07, for 100,000 shares of common stock at
$1.00 per share, of which 50% are exercisable commencing 1/1/02, and the
remainder beginning 1/1/03. In January 2000, Mr. Colasanti was also granted
warrants for the purchase of 100,000 shares of common stock at $1.00 per share
for two years. These warrants were granted to Mr. Colasanti for services
rendered in raising capital for the Company.
In January 2000, the Board of Directors voted to issue 12,500 shares to Mr.
Colasanti in lieu of outstanding salary of $10,625. Mr. Colasanti directed the
Company to issue the 12,500 shares to several individuals as gifts from Mr.
Colasanti. Of the 12,500 shares, Mr. Colasanti gave a total of 5,000 shares to
his two adult sons (2,500 shares each). Neither of these sons live in Mr.
Colasanti's household, and none of the other individuals are related to Mr.
Colasanti or reside in his household. Thus, Mr. Colasanti is not the beneficial
owner of these shares.
In January 2000, the Board of Directors voted to issue 120,000 shares to
Francis Matusek, a director and officer of the Company, in lieu of outstanding
compensation of $102,000.
In October 1999, the Company issued an aggregate of 1,250,000 shares to an
investor and two companies controlled by that investor, all of them accredited
investors, for gross proceeds of $1,250,000 or $1.00 per share. One of the
Companies also received warrants to purchase an aggregate of 750,000 shares of
common stock exercisable at $1.25 per share until December 31,
18
<PAGE>
2002. A finder's fee was paid to a third company on this portion of the offering
in the amount of $125,000 and warrants to acquire 75,000 shares of common stock
exercisable at $1.25 per share for five years.
In March 2000, the Company issued 125,000 shares to the Viator Fund and
125,000 shares to another entity in consideration of a $100,000 bridge loan to
the Company.
Other than the transactions stated herein, none of the directors or
executive officers of the Company, nor any 5% owner of the Company, has been
involved in any transaction with the Company exceeding $60,000 that has occurred
in the last two years.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
------------
The Company has 10,000,000 shares of Common Stock authorized, $.01 par
value per share. The Company currently has no preferred stock authorized. Each
share of Common Stock is entitled to share pro rata in dividends and
distributions, if any, with respect to the Common Stock, when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of Common Stock has any preemptive rights to subscribe for
any securities of the Company. Upon liquidation, dissolution or winding up of
the company, each share of the Common Stock is entitled to share ratably in the
amount available for distribution to holders of Common Stock. All shares of
Common Stock presently outstanding are fully paid and nonassessable.
Each shareholder is entitled to one vote for each share of Common Stock
held. There is no right to cumulate votes for the election of directors.
Options and Warrants
--------------------
The Company has issued warrants and/or options to purchase stock to certain
officers, investors and suppliers. The warrants/options are exercisable at any
time within one to five years of their issue. The total number warrants/options
outstanding at December 31, 1999 was 2,000,000.
Stock Option Plan
-----------------
The Board of Directors of the Company has adopted an employee stock option
plan effective March 10, 2000, subject to shareholder approval by March 10,
2001. The employee stock option plan was adopted in order to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to the Company's employees and to promote the
success of the Company's business. The Company has reserved 1,115,000 shares of
its common stock under the stock option plan. As of the date hereof, no options
have been granted under the stock option plan.
19
<PAGE>
PART II
-------
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
------------------
The Company's Common Stock has been traded on the NASD Over-the-Counter
Bulletin Board under the symbol LGHT, but it currently trades on the "Pink
Sheets." The Company's stock was de-listed from the Bulletin Board pursuant to
new NASD Rules, permitting only those companies who file periodic reports with
the SEC to be listed. The Company intends to re-apply for listing on the
Bulletin Board as soon as the Company completes the registration process under
this Registration Statement. The following table sets forth the high and low
bid prices of the Company's common stock during the periods indicated.
OTC Market
Calendar High Bid Price Low Bid Price
-------- -------------- -------------
1999 4/th/ Quarter $ 3.50 $ 1.50
3/rd/ Quarter 5.3125 1.625
2/nd/ Quarter 4.00 1.50
1/st/ Quarter 4.75 2.00
1998 4/th/ Quarter $ 2.875 $ 1.25
3/rd/ Quarter 4.50 2.00
2/nd/ Quarter 5.375 2.25
1/st/ Quarter 5.25 3.50
1997 4/th/ Quarter $ 6.625 $ 2.75
3/rd/ Quarter 6.50 3.125
2/nd/ Quarter 6.00 2.00
1/st/ Quarter * *
_______________
* Trading did not commence until 2/nd/ Quarter.
The closing bid price of the Common Stock on the OTC Bulletin Board on
June 12, 2000, was $2.12 per share.
Holders
-------
As of June 12, 2000, there were approximately 120 holders of the Company's
Common Stock, who collectively held 6,139,795 issued and outstanding shares.
20
<PAGE>
Dividends
---------
The Company did not declare or pay cash or other dividends on its Common
Stock during the last two fiscal years. The Company has no plans to pay any
dividends, although it may do so if its financial position changes.
ITEM 2. LEGAL PROCEEDINGS
On November 25, 1997 New York Fast Ferry Services, Inc. ("NYFF") filed
suit, in the Supreme Court of the State and County of New York, against the City
of New York (the "City") alleging, among other things, breach of agreement by
the City for a lease of a ferry franchise agreement (the "Agreement").
In September 1993, based on NYFF's response to the City's Request for
Proposal ("RFP"), NYFF was awarded the ferry route contemplated in the RFP. As
part of the RFP process, the City solicited NYFF to spend approximately
$12,000,000 to build two ferries to serve the route. The City provided data to
NYFF related to the economic viability of the service. Continuation of the
fundamental premises in the data was necessary for the service to be economical
for NYFF. The Agreement between NYFF and the City stated that the City intended
to construct landing and terminal facilities at one end of the route, and to
make improvements to the terminals at the other end of the route. The City also
agreed to use its "best efforts" to provide connecting transit links to one of
the terminals on the route.
NYFF claims that the City, for the most part, has not made the improvements
on the terminals. NYFF also claims that the City has breached its duty under
the Agreement to act in good faith, and instead, has acted in a manner to
undermine or destroy NYFF's business. NYFF is seeking $4,000,000 in
compensatory damages or, alternatively, recission of the Agreement. The
proceeds, if any, of the suit are pledged 50% to the original shareholders of
NYFF and 50% to debis Financial Services, Inc. as a pledge of collateral against
amounts owing to them pursuant to a note payable.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1997 the Company granted options to acquire 56,250 shares
exercisable at $4.00 per share to a consultant. In October 1997 the consultant
exercised options to acquire 8,750 shares of common stock at $4.00 per share.
Both the grant and the exercise were exempt under Section 4(2) of the Securities
Act of 1933 (the "Act"). The options to purchase the remaining 47,500 shares
expired in 1998. No commissions or finder's fees were paid on the transaction.
21
<PAGE>
In October 1997 the Company issued 2,500 shares of its common stock to a
consultant (at a value of $1.00 per share) in lieu of interest owed to the
consultant. The transaction was exempt under Section 4(2) of the Act. No
commissions or finder's fees were paid on the transaction.
In October 1997 the Company issued 25,000 shares of its common stock to an
accredited investor for $3.75 per share in a transaction exempt under Section
4(2) of the Act. No commissions or finder's fees were paid on the
transaction.
In December 1997 the Company issued 75,000 shares of its common stock to
one person in exchange for all of the outstanding shares of the Cigar Box, Inc.
in a transaction exempt under Section 4(2) of the Act. No commissions or
finder's fees were paid on the transaction.
In April 1998 the Company issued 30,000 shares of its common stock to an
investor for $3.25 per share in a transaction exempt under section 4(2) of the
act. No commissions or finder's fees were paid on the transaction.
In October 1998 the Company issued an aggregate of 454,545 shares of its
common stock to the three shareholders of Fast Ferry Holding Corp. in exchange
for 80% of the outstanding shares of Fast Ferry Holding Corp. in a transaction
exempt under Section 4(2) of the Act. No commissions or finder's fees were paid
on the transaction.
In October 1998 the Company granted one of its noteholders, as part of
refinancing negotiations, warrants to purchase 200,000 shares of its common
stock exercisable at $2.60 per share until March 16, 2004. The transaction was
exempt under Section 4(2) of the Act. No commissions or finder's fees were paid
on the transaction.
In October 1998 the Company granted an option to purchase 10,000 shares of
common stock to a shareholder of the Company. The option was exercisable at
$2.53 per share until October 6, 2001. The transaction was exempt under Section
4(2) of the Act. No commissions or finder's fees were paid on the transaction.
Those options were cancelled.
In June 1999, the Company entered into a loan agreement with Ashley North,
Inc., and in connection with that loan, issued a promissory note and 25,000
shares of its common stock in June 1999 and an additional 25,000 shares in
December 1999. The transaction was exempt under Section 4(2) of the Act. No
commissions or finder's fees were paid on the transaction.
In June 1999, the Company issued 100,000 shares of its common stock to an
accredited investor for $50,000. The transaction was exempt under Section 4(2)
of the Act.
In July 1999, the Company issued a $200,000 promissory note, and warrants
to purchase 200,000 shares of common stock at $1.00 per share exercisable for
three years, for a $200,000 investment by an accredited investor. The note is
convertible to common stock at the option of the holder. The transaction was
exempt under Section 4(2) of the Act. No commissions or finder's fees were paid
on the transaction.
22
<PAGE>
In September 1999, a consultant purchased 50,000 shares of common stock at
a price of $0.10 per share in a transaction exempt under Section 4(2) of the
Act. No commissions or finder's fees were paid on the transaction.
In October 1999, the Company granted an option to purchase 20,000 shares of
common stock to John Koenig, a shareholder of the Company, as part of his
employment agreement. The option is excisable at $1.50 per share until October
6, 2001. The transaction was exempt under Section 4(2) of the Act. No
commissions or finder's fees were paid on the transaction.
In October 1999, the Company issued, as a bonus to an employee, warrants to
purchase 5,000 shares of common stock at $1.00 per share, exercisable for one
year.
In October 1999, the Company issued an aggregate of 1,250,000 shares to an
investor and two companies controlled by that investor, all of them accredited
investors, for gross proceeds of $1,250,000 or $1.00 per share. One of the
Companies also received warrants to purchase an aggregate of 750,000 shares of
common stock exercisable at $1.25 per share until October 31, 2002. A finder's
fee was paid to a third company on this portion of the offering in the amount of
$125,000 and warrants to acquire 75,000 shares of common stock exercisable at
$1.25 per share for five years.
The Company also issued 150,000 shares of common stock for gross proceeds
of $150,000. The investors, all accredited, also received warrants to purchase
an aggregate of 150,000 shares of common stock, exercisable at $1.25 per share
for one year. Aggregate commissions of $15,000 were paid on this portion of the
offering. The offering was conducted in reliance on Section 4(2) of the Act and
Rule 506 promulgated thereunder. The month of the issuance, the investors'
names, and the shares issued are as follows:
Stock issued in October 1999:
Number of Shares
Name and Warrants
---- ------------
Joseph Roselle 50,000
Anthony R. Mautone 15,000
Christopher Colasanti 15,000
Michael Hunt 15,000
Vincent Bonomo 7,500
Catherine Bonomo 7,500
23
<PAGE>
Stock issued in November 1999:
Number of Shares
Name and Warrants
---- ------------
Dennis Mautone 15,000
Joseph Capozza 12,500
Daniel Coiro 12,500
In January 2000, the Company sold 97,500 shares of common stock at $1.00
per share, less a finder's fee of $8,500, and an equal number of warrants good
for purchasing shares of common stock for $1.25 per share, exercisable for one
year, to the following accredited investors:
Number of Shares
Name and Warrants
---- ------------
Joseph Pontoriero 25,000
Anthony R. Mautone 15,000
Joseph Capozza 25,000
Daniel Coiro 25,000
Andrew Scott 7,500
The offering was conducted in reliance on Section 4(2) of the Act and Rule
506. No commissions or finder's fees were paid on the transactions.
In February 2000, the Company sold 50,000 shares of common stock at $1.00
per share, and an equal number of warrants good for purchasing shares of common
stock at $1.25 per share, exercisable for one year, to the following accredited
investors:
<TABLE>
<CAPTION>
Number of Shares
Name and Warrants
---- ------------
<S> <C>
Arthur Anastasia and David Del Monaco 10,000
Trebor Trading & Investment Limited 25,000
Andrew Scott 5,000
John Gluszak 10,000
</TABLE>
The offering was conducted in reliance on Section 4(2) of the Act and Rule 506.
24
<PAGE>
In March 2000, the Company sold 450,000 shares of common stock at $0.50 per
share, and an equal number of warrants good for purchasing shares of common
stock at $1.00 per share, exercisable for two years, to the following accredited
investors:
Number of Shares
Name and Warrants
---- ------------
Joseph Roselle 150,000
Joseph Giamanco 150,000
Gary Herman 150,000
The offering was conducted in reliance on Section 4(2) of the Act and Rule
506.
In March 2000, the Company sold 25,000 shares of common stock at $0.50 per
share, and an equal number of warrants good for purchasing common stock at $1.25
per share, exercisable for one year, to Trebor Trading & Investment Limited, an
accredited investor. The offering was conducted in reliance on Section 4(2) of
the Act and Rule 506.
In March 2000, the Company issued 10,000 shares of its common stock to Fred
Ferguson and 2,000 shares to William Mills, both accredited investors, at $1.00
per share, with an equal number of warrants at $1.00 per share, exercisable for
one year. The offering was conducted in reliance on Section 4(2) of the Act and
Rule 506.
In March 2000, the Company issued 125,000 shares of its common stock to The
Orbiter Fund and 125,000 shares to The Viator Fund, both accredited investors,
in consideration of a $1,000,000 bridge loan to the Company. Capital Research,
which acted as the finder in the transaction, received 27,500 shares. The
transaction was conducted in reliance on Section 4(2) of the Act and Rule 506.
In all transactions above, the stock was issued for an amount that the
Board of Directors of the Company believed was a fair market value for
restricted securities of the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles provide that the Company shall indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company), by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, provided he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to
25
<PAGE>
believe his conduct was unlawful; and provided that no indemnification shall be
made to or on behalf of any individual if a judgment or adjudication establishes
that his or her acts or omissions (i) were in breach of his or her fiduciary
duty of loyalty to the Company and its shareholders, (ii) were for acts or
omissions not in good faith or which involve a knowing violation of law, or
(iii) were for any transaction from which the director derived any improper
personal benefit. The Company's Articles also provide that reasonable expenses
incurred by a director, officer, employee or agent of the Company in defending
any civil, criminal, suit or proceeding described above shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
to the full extent permitted under New Jersey Law.
The termination of any such action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea nolo contendere or its equivalent, shall
not of itself create a presumption that the person did not act in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
26
<PAGE>
PART F/S
--------
Financial Statements
--------------------
The Company's financial statements for fiscal years ended December 31, 1998
and 1999, and the statements of operations and statements of cash flows for the
years then ended are attached following the signature page of this Form 10-SB.
PART III
--------
ITEM 1. EXHIBITS
3.1 Certificate of Incorporation, as amended.*
3.2 Bylaws.*
10.1 Stock Purchase Agreement dated 9/9/98 for acquisition of Fast Ferry
Holding Corp.*
10.2 Lease Agreement dated 3/30/98 for Aragon Marina.*
10.3 Lease Agreement dated October 1999 for Stamford Property Marina.*
10.4 Letter of Intent for vessel construction.**
10.5.1 Employment Agreement with John Ferreira. Filed herewith.
10.5.2 Employment Agreement with Anthony Cappaze. Filed herewith.
10.5.3 Employment Agreement with Anthony Colasanti. Filed herewith.
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule. Filed herewith.
_____________
* Filed previously.
** Incorporated by reference from the Company's Form 10-KSB/A No. 1 for the
fiscal year ended December 31, 1999, File No. 0-29205.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this Form 10-SB /A No. 1
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIGHTHOUSE LANDINGS, INC.
Date: June 22, 2000 By: /s/ Anthony Cappaze
----------------------------------
Anthony Cappaze, President, Chief
Executive Officer and Director
Date: June 22, 2000 By: /s/ Anthony Colasanti
----------------------------------
Anthony Colasanti, Secretary and
Director
Date: June 22, 2000 By: /s/ John Ferreira, Jr.
----------------------------------
John Ferreira, Jr., Chief Financial
Officer
28
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
LIGHTHOUSING LANDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Lighthouse Landings, Inc. and Subsidiaries
Independent Accountants' Report.................................................... F-1
Consolidated Balance Sheets
As at December 31, 1999 and 1998.................................................. F-2
Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998.................................... F-3
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999 and 1998.................................... F-4
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998.................................... F-5 - F-6
Notes to Consolidated Financial Statements......................................... F-7 - F 20
Lighthouse Landings, Inc. and Subsidiaries Pro Forma Financial Statements (Unaudited)
Pro Forma Balance Sheet as at October 6, 1998(Unaudited)........................... F-21
Pro Forma Statement of Operations
For the Period January 1,1998 to October 6, 1998(Unaudited)....................... F-22
For The Year Ended December 31, 1997(Unaudited)................................... F-23
Notes To Pro Forma Financial Statements (Unaudited)................................ F-24
Pro Forma Adjustments (Unaudited).................................................. F-25
Fast Ferry Holding Corp. and Subsidiaries
Independent Accountants' Report......................................................... F-26
Consolidated Balance Sheets As at October 6, 1998 December 31, 1997
And December 31, 1996............................................................. F-27
Consolidated Statements of Operations and Deficit
For The Period January 1, 1998 to October 6, 1998 And For The
Years Ended December 31, 1997 and 1996............................................ F-28
Consolidated Statements of Cash Flows
For The Period January 1, 1998 to October 6, 1998 And For The
Years Ended December 31, 1997 and 1996............................................ F-29
Notes to Consolidated Financial Statements......................................... F-30 - F-33
</TABLE>
<PAGE>
[LETTERHEAD OF WEINICK SANDERS LEVENTHAL & CO., LLP]
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors and Stockholders
Lighthouse Landings, Inc.
We have audited the accompanying consolidated balance sheets of Lighthouse
Landings, Inc. and Subsidiaries as at December 31, 1999 and 1998, and the
related consolidated statements of operations, cash flows and changes in
stockholder's equity for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lighthouse Landings,
Inc. and Subsidiaries as at December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has sustained substantial losses
for the years ended December 31, 1999 and 1998. In addition at December 31, 1999
the Company has negative working capital of $3,172,194. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
February 23, 2000 (Except as to Note 11
as to which the date is March 31, 2000)
F-1
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 97,957 $ 62,606
Inventories 40,948 1,057
Net assets of discontinued operations 32,582 -
Prepaid expenses and other current assets 127,994 72,308
------------ ------------
Total current assets 299,481 135,971
Net assets of discontinued operations - 727,506
Property and equipment - at cost, less accumulated depreciation 12,288,880 13,103,525
Goodwill net of accumulated amortization 1,112,935 1,193,880
Other assets 51,764 19,091
------------ ------------
$ 13,753,060 $ 15,179,973
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,879,764 $ 1,332,601
Notes payable - stockholders 125,000 -
Accounts payable and accrued expenses 948,606 683,952
Deferred revenues 68,765 46,566
Due to officers/stockholders 449,540 484,142
------------ ------------
Total current liabilities 3,471,675 2,547,261
Long-term debt - net of current maturities 10,064,110 11,301,455
------------ ------------
Total liabilities 13,535,785 13,848,716
------------ ------------
Minority interest - 11,071
------------ ------------
Redeemable common stock - 350,000
------------ ------------
Stockholders' equity:
Common stock - $.01 par value
Authorized - 10,000,000 shares
Issued and outstanding - 4,905,795 shares in 1999 and 3,250,795 in 1998 49,058 32,508
Additional paid-in capital 5,312,588 3,809,138
Accumulated deficit (5,144,371) (2,621,460)
------------ ------------
217,275 1,220,186
Less: Stock subscription receivable - (250,000)
------------ ------------
Total stockholders' equity 217,275 970,186
------------ ------------
$ 13,753,060 $ 15,179,973
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
Revenues $ 3,285,978 $ 681,167
------------ ------------
Operating costs:
Ferry operations 1,597,574 287,116
Depreciation 896,008 222,626
------------ ------------
Total operating costs 2,493,582 509,742
------------ ------------
792,396 171,425
------------ ------------
Marketing and administrative expenses 1,223,374 514,036
Amortization of goodwill 80,945 20,204
------------ ------------
1,304,319 534,240
------------ ------------
Net loss from operations (511,923) (362,815)
------------ ------------
Other expenses:
Interest (net) 1,473,735 348,249
Provision for state income taxes 1,323 1,014
------------ ------------
Total other expenses 1,475,058 349,263
------------ ------------
Loss from continuing operations before
minority share in loss of subsidiary (1,986,981) (712,078)
Minority share in loss of subsidiary 11,071 42,534
------------ ------------
Loss from continuing operations (1,975,910) (669,544)
------------ ------------
Discontinued operations:
Loss from discontinued operations (155,347) (113,392)
Estimated loss on disposal (391,654) -
Impairment loss - (331,161)
------------ ------------
Loss from discontinued operations (547,001) (444,553)
------------ ------------
Net loss ($2,522,911) ($1,114,097)
============ ============
Per share data:
Basic and diluted:
Loss from continuing operations ($0.55) ($0.23)
Loss from discontinued operations (0.15) (0.16)
------------ ------------
Net loss ($0.70) ($0.39)
============ ============
Weighted average number of shares outstanding:
Basic and diluted 3,591,138 2,850,100
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-In (Accumulated Subscriptions Stockholders'
------------
Number Amount Capital Deficit) Receivable Equity
------------ ------- ---------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 2,736,250 $27,363 $2,473,883 ($1,507,273) $ - $ 993,973
Issuance of shares upon the acquisition of
Fast Ferries Holding Corp. 384,545 3,845 969,055 - - 972,900
Increase of shares for cash 30,000 300 97,200 - - 97,500
Stock subscription 100,000 1,000 249,000 - (250,000) -
Value of 200,000 warrants issued pursuant to
noteholder for refinancing Corp. - - 20,000 - - 20,000
Net loss for 1998 - - - (1,114,187) - (1,114,187)
--------- ------- ---------- ------------ ------------- ------------
Balance at December 31, 1998 3,250,795 32,508 3,809,138 (2,621,460) (250,000) 970,186
Payments for shares subscribed for - - - - 250,000 250,000
Increase of shares for cash 1,550,000 15,500 1,304,500 - - 1,320,000
Shares issued to noteholder as interest 50,000 500 99,500 - - 100,000
Shares issued for services rendered 55,000 550 99,450 - - 100,000
Net loss for 1999 - - - (2,522,911) - (2,522,911)
--------- ------- ---------- ------------ ------------- ------------
Balance at December 31, 1999 4,905,795 $49,058 $5,312,588 ($5,144,371) $ - $ 217,275
========= ======= ========== ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss continuing operations ($1,975,910) ($669,634)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interests (11,071) (42,534)
Depreciation 904,837 225,086
Amortization of goodwill 80,945 20,294
Amortization of deferred finance cost 4,000 909
Imputed interest 156,909 42,440
Stock issued for services rendered and interest 200,000 -
Deferred revenues 22,199 (49,746)
Increase (decrease) in cash flows as a result of
changes in assets and liabilities net of assets
and liabilities acquired in an acquisition:
Accounts receivable - 9,826
Inventories (39,891) (1,057)
Prepaid expenses and other current assets (55,686) (72,308)
Accounts payable 264,654 248,731
Accrued officers compensation (34,602) 137,236
Other taxes (36,673) -
------------ ------------
1,455,621 518,877
------------ ------------
Net cash used in operating activities
of continuing operations (520,289) (150,757)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (90,192) -
Cash paid for acquisition - (105,696)
------------ ------------
Net cash used in investing activities (90,192) (105,696)
------------ ------------
Cash flows from financing activities:
Proceeds from loans, net 400,000 49,779
Repayments of redeemable stock obligations (225,000) -
Proceeds from stock subscription 250,000 -
Repayments of long-term debt (1,247,091) (197,448)
Proceeds from issuance of common stock 1,320,000 97,500
------------ ------------
Net cash provided by (used in) financing
activities of continuing operations 497,909 (50,169)
------------ ------------
Net cash provided by discontinued operations 147,923 231,483
------------ ------------
Net increase (decrease) in cash 35,351 (75,139)
Cash at beginning of year 62,606 479
Cash acquired from acquisition - 137,266
------------ ------------
Cash at end of year $ 97,957 $ 62,606
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year:
Interest $1,072,251 $166,591
============= =============
Income taxes $ 1,323 $ 1,014
============= =============
Supplemental Schedules of Noncash Activities:
Stock issued for business acquisition:
Common stock $ - $972,900
============= =============
Redeemable common stock $ - $350,000
============= =============
Warrants issued as inducement to note holder $ - $ 20,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - REALIZATION OF ASSETS - GOING CONCERN.
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern.
Lighthouse Landings, Inc. (the "Company") has sustained substantial
losses for the years ended December 31, 1999 and 1998. In addition,
the accompanying consolidated balance sheet as at December 31, 1999
reflects negative working capital of $3,172,194 net tangible capital
deficiency of $910,751.
Future viability of the Company is dependent upon the Company's
obtaining additional funding. During 1999, the Company arranged
private placements of its common stock for net cash proceeds of
$1,530,000 and obtained short term loans in the amount of $700,000 for
both its continuing and discontinued segments. The funds were used to
provide funds for certain obligations and ongoing operations.
Commencing in January 2000 through March 17, 2000, the Company
received $1,385,000 before offering costs from the sale of its
securities and bridge loans.
The Company currently operates a commuter ferry service from
Highlands, NJ to and from Manhattan, and is pursuing the establishment
of other routes in the Greater New York City area. In November 1999,
the Company completed negotiations and executed a lease for a property
in Stamford, CT as a base for fast ferry service to and from Manhattan
and LaGuardia Airport. The site requires improvements and governmental
approvals. The Company is proceeding with preparations for
establishing ferry service, and expects to be able to commence service
in the spring of 2001. Initially, it is expected that service on these
new routes will be provided by a vessel on a short-term charter. The
Company is proceeding with plans for construction and financing of two
vessels specifically to meet the needs of the new service.
During the latter half of 1998 and during 1999, the Company
assessed its strategic direction and concluded that focusing on the
commuter ferry business would provide the greatest return on assets
and discontinued the marina\restaurant property and the retail cigar
operations in 1999. Accordingly, the Company is pursuing the
divestiture of the discontinued segments assets. The carrying value of
the related net assets have been reclassified as "Net assets of
discontinued operations" in the accompanying consolidated balance
sheet.
It is management's opinion that the funds to be raised by the
sales of its securities and borrowings through March 17, 2000 plus the
funds anticipated to be raised through the sale of net assets of the
discontinued segments will be sufficient to meet the Company's
obligations as they become due.
The conditions previously mentioned raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
F-7
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Description of Business:
The Company was incorporated in New Jersey in 1993 and is in
the commuter ferry business. The Company currently operates a commuter
ferry service from Highlands, New Jersey to and from Manhattan, and is
pursuing the establishment of other routes in the Greater New York
City metropolitan area.
(b) Principles of Consolidation:
The consolidated financial statements include the accounts of
Lighthouse Landings, Inc. and its subsidiaries. Inclusion of the
results of subsidiary companies' operations is on the "Purchase"
method, from the dates of their respective acquisition. All
significant intercompany balances and transactions have been
eliminated in consolidation. Recognition of the interest of minority
stockholders is provided for in the accounts. As discussed more
thoroughly in Note 3, the retail and marina segments are presented as
discontinued operations.
(c) Change of Accounting Period:
The Company has changed its April 30 fiscal year end to
December 31st. Accordingly, the accompanying consolidated financial
statements reflect balance sheets as of December 31, 1999 and 1998 and
the results of operations cash flows and stockholders equity for the
years then ended.
(d) Inventories:
Inventories which consist entirely of supplies and cafeteria
products are stated at the lower of cost or market on the first-in,
first-out method.
(e) Property and Equipment:
Property and equipment is recorded at cost. The cost of the
ferries obtained through the Fast Ferries Holding Corp. acquisition in
December 1998 has been determined as an allocation of the purchase
price of the business acquired based upon an appraisal. Depreciation
is computed using the straight-line method. Depreciation on equipment,
including the ferries, is calculated principally over their estimated
useful lives of fifteen years.
Expenditures which substantially increase estimated useful
lives are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When assets are sold or otherwise disposed of,
their costs and accumulated depreciation are removed from the accounts
and any resulting gain or loss is recorded in operations.
F-8
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Goodwill:
Goodwill arising from acquisitions initially represents the
excess of the purchase cost over the fair value of identifiable assets
less identifiable liabilities. Goodwill is reviewed on an ongoing
basis to determine that the value has not been impaired; in 1999 it
was determined that the value of the goodwill arising from the
purchase of The Cigar Box, Inc. has been impaired and accordingly the
remaining unamortized goodwill of $198,654 has been written off to
discontinued operations during 1999. The goodwill arising from the
acquisition of Fast Ferry Holding Corp. and its wholly owned
subsidiaries aggregating $1,214,174 is being amortized over 15 years.
Amortization of goodwill charged to operations was $80,945 in 1999 and
$20,294 in 1998.
(g) Revenue Recognition:
Revenue is recognized when earned. The Company's ferry business
sells the majority of commuter tickets in advance of use. Accordingly,
the Company determines the unused portion of ticket sales and defers
that value to future periods. Deferred income aggregated $68,765 and
$46,566 at December 31, 1999 and 1998, respectively.
(h) Income Taxes:
The Company complies with Statement of Financial Accounting
Standards No. ("SFAS 109"), "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets are computed
for differences between financial statement and tax basis of assets
and liabilities that will result in future taxable or deductible
amounts, based on the enacted tax laws and rates in the periods in
which differences are expected to affect taxable income. The principal
asset and liability differences are deferred revenues, valuation
allowances for long-term assets, the estimated loss on the disposal of
discontinued operations, and utilization of the Company's tax loss
carryforwards. Management has fully reserved the net deferred tax
assets as it is not more likely than not that the deferred tax asset
will be utilized in the future.
F-9
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(i) Impairment of Long-lived Asset:
The Company accounts for impairment of long-lived assets
accordance with Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairments of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" SFAS No. 121 requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. Due to significant loss incurred during 1999, the Company
evaluated its long-term assets of its continuing operations which as
at December 31, 1999 were comprised of property and equipment
(principally two (2) ferries) with an undepreciated cost of
$12,288,880 and goodwill on the acquisition of the Fast Ferry Holding
Corp. with a unamortized cost of $1,112,935. Based upon an estimate of
the future undiscounted net cash flows of the related asset or asset
grouping over the remaining life, it was determined that there was no
impairment in either the net book value of the ferries or the
goodwill.
(j) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
(k) Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash. The Company
places its cash with high credit quality financial institutions which
at times may be in excess of the FDIC insurance limit.
(l) Loss Per Common Share:
Loss per common share is based on the weighted average number
of common shares outstanding. In March 1997, the Financial Accounting
Standards Broad issued Statement No. 128 ("SFAS 128"), "Earnings Per
Share," which requires dual presentation of basic and diluted earnings
per share on the face of the statements of operations which the
Company has adopted. Basic loss per share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average common shares outstanding for the period. Diluted
loss per share reflects the potential dilution that could occur if
convertible debentures, options and warrants were to be exercised or
converted or otherwise resulted in the issuance of common stock that
then shared in the earnings of the entity.
Since the effect of outstanding options, warrant and
convertible debenture conversions are antidilutive in all periods
presented, it has been excluded from the computation of loss per
common share.
F-10
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS.
On October 28, 1999, the Company adopted a plan to sell its
real estate and retail/wholesale segments. Accordingly both segments
have been accounted for as discontinued operations in the accompanying
consolidated financial statements for both 1999 and 1998. The net
assets to be disposed of as of December 31, 1999 aggregating $32,582
consists principally of real estate and are recorded as current assets
in the accompanying consolidated balance sheet under the caption
"Assets held for resale". Management expects the real estate to be
sold in late 2000. The estimated loss on disposal of the discontinued
operations in 1999 of $391,654 represents: a write-off of the goodwill
on The Cigar Box, Inc. of $198,654; and a provision of $193,000 for
expected losses during the phase out period. Net sales of the retail
segment for 1999 and 1998 were $75,994 and $184,840, respectively.
There were no revenues from the real estate segment during 1999 and
1998.
The net assets of discontinued operations, which have been
segregated in the accompanying balance sheets are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Assets:
Cash $ 3,129 $ 1,189
Inventory 27,401 42,187
Prepaid expenses 100 100
Property assets, net (See Note 4) 974,359 968,108
Goodwill - 194,913
---------- ----------
1,004,989 1,206,497
---------- ----------
Liabilities:
Accounts payable 186,334 48,943
Secured mortgage payable 443,485 157,288
Accrued real estate taxes 342,588 272,760
---------- ----------
972,407 478,991
---------- ----------
Net assets of discontinued operations $ 32,582 $ 727,506
========== ==========
</TABLE>
(a) The mortgage notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
20% demand mortgage on real property
subject to the tax lien referred to below $ 58,267 $157,288
Second mortgage on real property payable in monthly
installments (applied firstly to interest) of
$15,000 from January 10, 2000 through
May 10, 2000, and three equal monthly
payments equal to one-third of the balance
outstanding on June 10, 2000, commencing
June 10, 2000. The loan carries interest at
18% plus as added inducement to enter into the
loan, the lender received 50,000 shares of
common stock valued at $100,000. 180,023 -
6% second demand mortgage on real property 205,195 -
-------- --------
$443,485 $157,288
======== ========
</TABLE>
F-11
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS. (Continued)
(b) Real estate taxes liens have been recorded by local governmental
authorities because of non-payment of said property taxes arising from a
dispute over property tax valuations. The Company is currently attempting
to resolve the dispute.
NOTE 4 - PROPERTY AND EQUIPMENT.
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Continuing operations:
Ferries $13,300,000 $13,300,000
Computers and office equipment 38,887 29,502
Furniture and fixtures 106,244 25,437
----------- -----------
13,445,131 13,354,939
Less: Accumulated depreciation 1,156,251 251,414
=========== ===========
$12,288,880 $13,103,525
=========== ===========
Discontinued operations:
Land and buildings $ 931,181 $ 918,680
Furniture and fixtures 62,260 62,260
----------- -----------
993,441 980,940
Less: Accumulated depreciation 19,082 12,832
----------- -----------
$ 974,359 $ 968,108
=========== ===========
</TABLE>
NOTE 5 - ACQUISITIONS.
On October 6, 1998, the Company acquired 80% of the outstanding
stock of Fast Ferry Holding Corp. and its wholly owned subsidiaries,
New York Fast Ferry Services, Inc. Fast Ferry I, Inc. and Fast Ferry
II, Inc. (the NYFF Group). The NYFF Group owns two vessels the M/V
"Finest", and the M/V "Bravest" and is in the business of operating
high speed commuter ferry services in the greater New York City harbor
area. The NYFF Group was acquired by the issuance of 454,545 shares of
the Company's stock at a value of $2.53 per share. Of the 454,545
shares issued, 70,000 shares were subject to a put option. Such
agreement allowed 2 of the 3 selling shareholders to sell back to the
Company an aggregate of 70,000 shares at a price of $5.00 per share.
As at December 31, 1998, the 70,000 shares subject to the put
option were not treated as equity, but rather as a liability under the
caption "Redeemable Common Stock" in the amount of $350,000 (70,000 @
$5.00). During March 1999 the puts were exercised and the Company
redeemed and retired the 70,000 shares. At December 31, 1999, the
Company is still indebted to the selling stockholders in the amount of
$125,000. Such amount is due in 2000 and bears interest at 12% per
annum. The selling shareholders are holding the remaining 25,000
unpaid shares as security for the obligation.
The acquisition has been accounted for as a purchase.
F-12
<PAGE>
NOTE 5 - ACQUISITIONS. (Continued)
The assets acquired and the liabilities assumed in connection
with the aforementioned acquisition of the NY Fast Ferry group is as
follows:
<TABLE>
<S> <C> <C>
Fair value of identifiable assets acquired $13,475,702
Fair value of liabilities assumed 13,207,673
-----------
268,029
Minority interest 53,607
-----------
Net fair value of 80% interest in
Fast Ferry Holding Corp. 214,422
Purchase cost:
Issuance 454,545 common shares
at fair market of $2.53 per share $1,150,000
Legal and accounting fees 105,696
Excess price over fair market
value of 70,000 shares subject to put 172,900
----------
1,428,596
-----------
Excess of cost over net identifiable
assets purchased (goodwill) $ 1,214,174
===========
</TABLE>
The unaudited consolidated results of operations on a pro forma
basis, as if the NYFF Group had been acquired at the beginning of the
periods presented are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $1,488,750 $1,474,616
Costs and expenses - net 3,361,228 4,740,927
----------- -----------
Loss from continuing operations ( 1,872,478) ( 3,266,311)
Loss from discontinued operations ( 444,553) ( 592,748)
Extraordinary item 282,088 -
Cumulative effect of a change in
accounting principles ( 178,678) -
----------- -----------
Net loss ($2,213,621) ($3,859,059)
=========== ===========
</TABLE>
F-13
<PAGE>
NOTE 6 - INCOME TAXES.
The components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------
1999 % 1998 %
--------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Loss from continuing operations
before income taxes ($1,974,587) ($668,530)
----------- ---------
Computed tax benefit
at statutory rate (671,100) (34.0) (227,300) (34.0)
State income tax 1,323 - 1,014 -
Non-deductible portion of
Amortization of goodwill
and finance costs 28,900 1.5 7,200 1.1
Depreciation of property assets 95,000 4.8 23,700 3.5
Compensatory element of
stock issuance 68,000 3.4 - -
Other 10,000 0.5 10,000 1.5
Reserve for operating loss
carryforward tax asset 469,200 23.8 186,400 27.9
----------- ------ --------- ---------
Income tax $ 1,323 - $ 1,014 -
=========== ====== ========= =========
</TABLE>
The net operating loss carryforwards at December 31, 1999 expire
as follows:
2009 $ 62,000
2010 107,000
2011 93,000
2012 1,228,000
2013 1,531,000
2014 665,000
----------
$3,686,000
==========
The Tax Reform Act of 1986 enacted a complex set of rules
limiting the utilization of net operating loss carryforwards to offset
future taxable income following a corporate ownership change. Among
other things, the Company's ability to utilize the net operating loss
carryforward of Fast Ferry Holding Corp. is limited following the
change in ownership in excess of fifty percentage points in any three-
year period which accrued at acquisition. The effects, if any, of the
change in ownership are not reflected in the foregoing tables.
F-14
<PAGE>
NOTE 7 - LONG-TERM DEBT.
Long-term debt is as follows:
December 31,
------------
1999 1998
---- ----
Mortgage note payable, secured by the
vessel "Finest" due in monthly install-
ments of $61,875 through March 10, 1999,
and $56,719 through September 10, 2005,
including interest at 9.25% per annum, with a
final payment of $3,626,691 due October 10,
2005. (a) $ 5,156,274 $ 5,308,158
Mortgage note payable, secured by the vessel
"Bravest" due in monthly installments of
$59,063 through March 10, 1999 and
$56,719 through September 10, 2005, including
interest at 9.25% per annum, with a final
payment of $3,572,971 due October 10, 2005. (a) 5,127,461 5,276,094
Note payable, secured by the vessel "Finest"
and "Bravest", payable in fifteen monthly
installments of $15,000 commencing in
February 1999, payment of $343,333 on
March 31, 2000 and a final payment of
$934,319 on December 10, 2000
including imputed interest of 9.25%. (a) 1,254,913 1,994,670
10% interest bearing obligation payable in two
installments of $100,000 each on March 15,
2000 and July 15, 2000 and as final payment of
$200,000 January 15, 2001. 400,000 -
Other 5,226 55,134
----------- -----------
11,943,874 12,634,056
Portion due within one year 1,879,764 1,332,601
----------- -----------
Long-term debt - less current maturities $10,064,110 $11,301,455
=========== ===========
(a) The two first mortgages on the ships and note payable are secured through
(i) cross collateralization agreements; (ii) assignments of charter agreements
and other personal property, (iii) a pledge of a potential receivable arising
from a lawsuit against the City of New York and (iv) cross corporate guarantees.
Reference is made to Note 9(c)(i) regarding warrants issued to the
noteholder. The secured debt obligations mature as follows:
2000 $ 1,879,764
2001 668,352
2002 513,559
2003 563,130
2004 617,485
Thereafter 7,701,584
-----------
$11,943,874
===========
F-15
<PAGE>
NOTE 8 - CAPITAL STOCK.
(a) Stock Issued for Consideration Other Than Cash:
On October 5, 1998, the Company issued 454,545 common shares
valued at $2.53 per share (the market value at time of sale) for 80%
of the outstanding stock of Fast Ferry Holding Corp (see Note 5).
Pursuant to the provisions of a note payable obligation entered
into in June 1999, the Company issued 50,000 shares of its common
stock as additional interest who fair value at the time of issuance
was $100,000.
During 1999, the Company issued 55,000 shares having a fair
market value on the date of issuance was $55,000 to a director for
services rendered.
During 1999 a consulted to the Company purchased 50,000 shares of
common stock for $5,000 in cash. The variance between the fair value
of the shares issued and the cash proceeds aggregating $45,000 was
charged to operations as compensation.
(b) Stock Issued for Cash:
During 1998, the Company sold 30,000 shares of its common stock
for $97,500. During 1999, the Company sold 1,480,000 shares of its
common stock for $1,320,000.
(c) Stock Subscriptions Receivable:
During 1998, 100,000 common shares were subscribed for at a price
of $2.50 per share. The aggregate amount of the subscription of
$250,000 is treated as a reduction of stockholders' equity in the
accompanying 1998 consolidated balance sheet. The subscription was
paid in full in October 1999.
NOTE 9 - STOCK OPTIONS AND WARRANTS.
A summary of activity related to non-qualifying stock options and
warrants granted by the Company is as follows:
<TABLE>
<CAPTION>
Exercise Price
Options Warrants Per Share
------- -------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1997 47,500 - $4.00
Granted during 1998 10,000 200,000 $1.88 to $2.60
Expired in 1998 (47,500) - $4.00
-------- ---------
Outstanding at December 31, 1998 10,000 200,000 $1.88 to $2.60
Granted during 1999 410,000 1,380,000 $1.00 to $1.75
-------- ---------
Outstanding at December 31, 1999 420,000 1,580,000 $1.88 to $2.60
======== =========
</TABLE>
F-16
<PAGE>
NOTE 9 - STOCK OPTIONS AND WARRANTS. (Continued)
(a) Stock Options Granted in 1998:
Pursuant to a consulting agreement entered into on September 1,
1997, the Company agreed to issue options to purchase up to an aggregate of
56,250 shares of its common stock at $4.00 per share. In 1997, 8,750
options were exercised at $4.00 and the remaining 47,500 expired in 1998.
The Company granted an option to a employee/stockholder pursuant to
an employment contract to purchase 10,000 shares at a price of $1.88 per
share which was the fair value at date of grant. Such option is exercisable
through October 6, 2000.
(b) Stock Options Granted in 1999:
The Company granted an option to a employee/stockholder to purchase
20,000 shares at a price of $1.50 per share which was the fair value at
date of grant. Such option is exercisable through October 6, 2001.
In June 1999, the Company's President was granted options to
purchase 200,000 shares exercisable through October 6, 2002 at a $1.75 per
share which was the fair value on the date of grant. Such options were
granted for his guaranteeing and securitising an obligation of the Company.
Also in October an officer and a director each received options to
purchase 100,000 common shares exercisable at $1.50 per share which was the
fair value at the date of grant. The officer's option expires on December
20, 2001 and the other expires on December 20, 2004.
Assuming the fair market value of the stock at the date of grant to
be equal to option exercise price, the life of the options to be from 1.3
years to 5 years the expected volatility at 200%, expected dividends are
none, and the risk-free interest rate of 10%, the Company would have
recorded compensation expense of $61,816 and $2,013 for the years ended
December 31, 1999 and 1998, respectively, as calculated by the Black-
Scholes option pricing model. As such, proforma net loss and loss per share
would be as follows:
For the Years Ended
December 31,
-------------------------------
1999 1998
----------- -----------
Net loss as reported ($2,522,911) ($1,114,187)
Additional compensation 61,816 2,013
----------- -----------
Adjusted net loss (2,584,727) (1,116,200)
=========== ===========
Loss per share as reported ($.70) ($.39)
=========== ===========
Adjusted loss per share ($.72) ($.39)
=========== ===========
F-17
<PAGE>
NOTE 9 - STOCK OPTIONS AND WARRANTS. (Continued)
(b) Warrants:
(i) Warrants Granted in 1998:
In connection with the Company's refinancing the debt of
Fast Ferry Holding Corp., on October 5, 1998, the Company granted
the noteholder warrants to purchase 200,000 shares of its common
stock at $2.60 per share, the market value at time of grant. Such
warrants were granted pursuant to the refinancing of the two
ferries owned by the NYFF Group. The warrants are exercisable
through March 16, 2004. Management has put a $.10 value on the
warrants. Accordingly, deferred interest expense of $20,000 was
recorded at the time of issuance and amortization of $4,000 and
$909 has been charged to operations 1999 and 1998, respectively.
(ii) Warrants Granted in 1999:
In July 1999, as part of a financing agreement, a lender
was issued a warrant to acquire 200,000 common shares for three
years at $1.00 per share.
As an inducement to purchase shares of the Company's
common stock, warrants to purchase 900,000 shares were granted to
individuals who purchased stock in 1999 and 75,000 warrants were
issued to a financial consultant as a finder's fee relating to
the sale. These warrants are exercisable at various times through
December 31, 2002 at prices ranging from $1.00 to $1.25.
On October 27, 1999 warrants to purchase 100,000 common
shares were granted to both of the Company's President and
Secretary. The warrants are exercisable through October 27, 2001
at $1.25 per share which was the fair market value of the
Company's common stock at date of issuance. An employee received
a warrant to acquire 5,000 common shares at $1.00 per share
exercisable for one year.
NOTE 10 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
(i) The Company and its subsidiaries have a number of operating
lease agreements involving office and retail store space, and
office equipment. These leases are non-cancelable and expire
on various dates through December 2, 2001. Annual payments
under these lease agreements amount to approximately $25,000.
(ii) The NYFF Group operates from leased property in Highlands, NJ
(the Aragon site). The lease is for five years, and commenced
May 1998. Lease payments are dependent on daily passenger
volume using the leased property, and averaged approximately
$24,250 per month during 1999. As the passenger volume using
the Aragon site increases, the lease payments will increase
proportionately. In addition, the NYFF Group rents other
facilities on short-term leases. Rents under the short-term
leases aggregate approximately $2,500 per month.
(iii) In November 1999, the Company completed negotiations to lease
a property in Stamford, CT as a base for ferry service to and
from Manhattan and LaGuardia Airport. Subject to the approval
process outlined in Note 1, the lease will have an initial
term of five years, with payments commencing in March 2000 at
$8,333 per month.
F-18
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES. (Continued)
(b) Employment Contracts:
The Company has entered into new employment agreements with
its executive officer Anthony Cappaze and its Secretary, Anthony
Colasanti in 2000. The agreements provide for a base salary of
$150,000 and $120,000 per year, respectively, for three years. Under
these agreements Mr. Cappaze received 100,000 warrants and Mr.
Colasanti 50,000 warrants to purchase a like number of the Company's
common shares exercisable through January 2003 at the fair market
value of the common stock on the date of grant of $1.00 per share.
Messers Cappaze and Colasanti also received as a condition of their
contract options to purchase 200,000 and 100,000, respectively,
shares of common stock at $1.00 per share through January 2007. Half
of these options are exercisable in January 2002 and the officers are
first able to exercise the other 50% in January 2003. Mr. Colasanti
also received a warrant to acquire 100,000 common shares for two
years at $1.00 per share.
The NYFF Group has entered into an employment contract with
its President which provides for a salary of $90,000 each year
through October 4, 2003. Pursuant to the contract, the President is
to be granted an option to purchase 10,000 shares of the Company's
common stock each year at the fair market value on the grant date.
(c) Litigation:
The NY Fast Ferry Group had initiated a suit alleging breach
of contract against the City of New York. Fifty percent (50%) of the
proceeds, if any, is pledged to the original stockholders of The NY
Fast Ferry Group and the remaining (50%) to the first mortgage holder
as a pledge of collateral against amounts owing to them pursuant to
notes payable referred to in Note 7.
NOTE 11 - SUBSEQUENT EVENTS.
(a) Sales and Issuances of Securities
During the period from January 17, 2000 through March 1, 2000,
the Company sold, at a price of $1.00 each, 147,500 units comprised
of 147,500 shares of its common stock and warrants to acquire an
additional 147,500 shares of its common stock at a price of $1.00 per
unit. The warrants are exercisable for one year at $1.25 per share.
During the period from March 10, 2000 through March 17, 2000,
the Company sold, at a price of $0.50 each, 475,000 units comprised
of 475,000 shares of its common stock and warrants to acquire an
additional 475,000 common shares. The warrants are exercisable for
two years from issuance at $1.25 per share. Additionally, the Company
sold an aggregate of 12,000 common shares and warrants to acquire
12,000 common shares at $1.00 per share to two individuals, for
$12,000.
In December an officer and a former director each received
options to purchase 100,000 common share exercisable at $1.50 per
share which was the fair value at the date of grant. The officer's
option expires on December 20, 2001 and the other expires on December
20, 2004.
In January, 2000, two officer/directors and a third director
were issued an aggregate of 252,500 shares of the Company's common
stock in lieu of payment of $214,650 of the unpaid compensation and
interest thereon owed to them which aggregated $460,166 at December
31, 1999.
(b) Bridge Loan:
On March 11, 2000, the Company received proceeds of two bridge
loans aggregating $1,000,000. The loans, which bear interest at 10%
per annum payable quarterly, are payable nine months from issuance.
To obtain the loans, the Company issued to each loan holder 125,000
shares of unregistered common stock with on-demand registration and
unlimited piggyback rights. The fair value of the shares at issuance
aggregating $125,000 which will be charged to operations as
additional interest over the life of the loans.
The loans may be repaid anytime within nine months of
issuance, however, the loans must be repaid out of the proceeds of a
financing greater than $2,000,000. Initially the loans are
convertible into common stock at $1.50 per share. In the event the
loans are not
F-19
<PAGE>
NOTE 11 - SUBSEQUENT EVENTS. (Continued)
redeemed in full within nine months from issuance, the loans are in
default, and become convertible at $1.00 per share for the first 90
days of the default period and are further reduced to $.50
thereafter. In addition, in the event of default, the Company must
issue to each of the loan holders 50,000 warrants exercisable at $.25
per share for each 30 days period until repaid.
The Company employed the services of a financial consultant to
arrange for the above financing. The consultant received as payment
for this service (i) a 10% interest bearing note payable on December
10, 2000 in the amount of $100,000, (ii) 27,500 shares of the
Company's common stock whose fair market value at date of issuance
was $13,750.
F-20
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT OCTOBER 6, 1998
(Unaudited)
<TABLE>
<CAPTION>
Lighthouse Fast Ferry
Landings, Inc. Holding Corp.
and Subsidiaries and Subsidiaries Pro Forma Adjustments Pro Forma
---------------- ---------------- ---------------------- -----------
(Historical) (Historical) Debit Credit As Adjusted
------------ ------------ ----- ------ -----------
<S> <C> <C> <C> <C> <C>
A S S E T S
-----------
Current assets:
Cash $ 8,245 $ 137,266 $ - $ - $ 145,511
Accounts receivable - 9,826 - - 9,826
Assets held for resale of
discontinued operations 961,412 - - - 961,412
Prepaid expenses 12,097 - - - 12,097
------------ ------------ ---------- ---------- -----------
Total current assets 981,754 147,092 - - 1,128,846
Property and equipment - 9,137,960 4,190,648 (B) - 13,328,608
Goodwill - - 1,214,174 (C) - 1,214,174
Investment in Fast Ferry Holding Corp. - - 1,428,596 (A) 1,428,596 (C) -
------------ ------------ ---------- ---------- -----------
$ 981,754 $ 9,285,052 $6,833,418 $1,428,596 $15,671,628
============ ============ ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term obligations $ - $ 1,091,389 $ - $ - $ 1,091,389
Accounts payable - 372,077 - - 372,077
Deferred revenues - 96,312 - - 96,312
Accrued expense and other current liabilities - - - 105,696 (A) 105,696
Due to officers/stockholders 282,271 - - - 282,271
------------ ------------ ---------- ---------- -----------
Total current liabilities 282,271 1,559,778 - 105,696 1,947,745
Long-term obligations - 11,647,895 - - 11,647,895
Minority interest - - - 53,605 (B) 53,605
Redeemable common stock - - - 350,000 (A) 350,000
------------ ------------ ---------- ---------- -----------
Total liabilities 282,271 13,207,673 - 509,301 13,999,245
------------ ------------ ---------- ---------- -----------
Stockholders' equity:
Common stock 28,663 205,000 205,000 (C) 3,845 (A) 32,508
Additional paid-in capital 2,647,284 - - 969,055 (A) 3,616,339
- - 4,137,043 (C) 4,137,043 (B) -
Accumulated deficit ( 1,726,464) ( 4,127,621) - 4,127,621 (C) (1,726,464)
Stock subscription receivable ( 250,000) - - - ( 250,000)
------------ ------------ ---------- ---------- -----------
Total stockholders' equity 699,483 ( 3,922,621) 4,342,043 9,237,564 1,672,383
------------ ------------ ---------- ---------- -----------
$ 981,754 $ 9,285,052 $4,342,043 $9,746,865 $15,671,628
============ ============ ========== ========== ===========
</TABLE>
F-21
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998 TO OCTOBER 6, 1998
(Unaudited)
<TABLE>
<CAPTION>
Lighthouse Fast Ferry
Landings, Inc. Holding Corp.
and Subsidiaries and Subsidiaries Pro Forma Adjustments Pro Forma
---------------- ---------------- -------------------------- ------------
(Historical) (Historical) Debit Credit As Adjusted
---------------- ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 807,583 $ - $ - $ 807,583
---------- ---------- ---------- ---------- -----------
Cost and expenses:
Cost of operations - 120,769 - - 120,769
Depreciation and amortization - 525,046 209,532 (D) - 795,236
- - 60,651 (E) - -
Selling, general and administrative - 258,542 - - 258,542
Interest - 906,290 - - 906,290
---------- ---------- ---------- ---------- -----------
Total cost and expenses - 1,810,647 270,183 - 2,080,837
---------- ---------- ---------- ---------- -----------
Loss from continuing operations before
minority shares in loss of subsidiary - (1,003,064) 270,183 - (1,273,254)
Minority shares in loss of subsidiary - - - 53,605 (F) 53,605
---------- ---------- ---------- ---------- -----------
Loss from continuing operations - (1,003,064) 270,183 53,605 (1,219,649)
Loss from discontinued operations (391,991) - - - (391,991)
Extraordinary gain on forgiveness of debt - 282,088 - - 282,088
Cumulative effect of a change in accounting
principle - (178,678) - - (178,678)
---------- ---------- ---------- ---------- -----------
Net loss ($391,991) $ (899,654) $270,183 $53,605 ($1,508,230)
========== ========== ========== ========== ===========
Per share data:
Pro forma net loss per share:
Loss from continuing operations ($0.39)
Loss from discontinued operations (0.12)
Extraordinary gain 0.09
Cumulative effect of a change in accounting
principle (0.06)
-----------
Net Loss ($0.48)
===========
Weighted average number of shares outstanding 3,138,509
===========
</TABLE>
F-22
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Lighthouse Fast Ferry
Landings, Inc. Holding Corp.
and Subsidiaries and Subsidiaries Pro Forma Adjustments Pro Forma
---------------- ---------------- --------------------------- -----------
(Historical) (Historical) Debit Credit As Adjusted
---------------- ---------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 1,474,616 $ - $ - $ 1,474,616
----------- ------------ ------------ ------------ ------------
Cost and expenses:
Cost of operations - 1,932,262 - - 1,932,262
Depreciation and amortization - 673,752 279,377 (G) - 1,034,074
- - 80,945 (H) - -
Selling, general and administrative - 1,035,304 - - 1,035,304
Interest - 1,025,620 - - 1,025,620
----------- ------------ ------------ ------------ ------------
Total cost and expenses - 4,666,938 360,322 - 5,027,260
----------- ------------ ------------ ------------ ------------
Loss from continuing operations before
minority shares in loss of subsidiary - (3,192,322) 360,322 - (3,552,644)
Minority shares in loss of subsidiary - - - 233,536 (I) 233,536
----------- ------------ ------------ ------------ ------------
Loss from continuing operations - (3,192,322) 360,322 233,536 (3,319,108)
Loss from discontinued operations (592,748) - - - (419,948)
----------- ------------ ------------ ------------ ------------
Net loss ($592,748) ($3,192,322) $360,322 $233,536 ($3,739,056)
=========== ============ ============ ============ ============
Per share data:
Pro forma net loss per share:
Loss from continuing operations ($1.10)
Loss from discontinued operations (0.14)
----
Net Loss ($1.24)
====
Weighted average number of shares outstanding 2,977,302
============
</TABLE>
F-23
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
Introduction:
The pro forma financial statements assume the purchase of 80% of the
capital stock of Fast Ferry Holding Corp. (FFHC) on October 6, 1998 had occurred
at the beginning of each of the periods presented.
Per share data for the period January 1, 1998 to October 6, 1998 and for
the year ended December 31, 1997 is based upon the weighted average number of
shares outstanding during each period retroactively reflecting the issuance
of the common shares for FFHC as if they had been issued at the beginning of the
periods presented.
The pro forma consolidated balance sheet as at October 6, 1998 and the
pro forma consolidated statements of operations for the period ended October 6,
1998 and for the year ended December 31, 1997 include all material adjustment
necessary to adjust the historical results to reflect the assumptions. The pro
forma information does not purport to be indicative of the consolidated balance
sheet and consolidated statements of operations which would have actually been
obtained if the purchase of FFHC had been consummated on the dates indicated.
In addition, the pro forma financial information does not purport to be
indicative of the balance sheet or results of operations which may be obtained
in the future.
The pro forma information has been prepared by the Company's management
and all calculations and estimates have been made by management based upon
adjustments deemed appropriate. These adjustments are set forth under the
section "Pro Forma Adjustments".
Preparation of Pro Forma Financial Statements:
In the opinion of management, the pro forma financial statements are
derived from the historical financial statements of (i) Lighthouse Landings,
Inc. and Subsidiaries and Fast Ferry Holding Corp. and Subsidiaries, which are
included elsewhere herein. These financial statements should be read in
conjunction with the accompanying pro forma financial statements. The pro forma
financial statements do not purport to be indicative of the balance sheet and
statements of operations if the purchase of Fast Ferry Holding Corp. had been
consummated on the dates indicated.
Purchase of Fast Ferry Holding Corp.:
On October 6, 1998, the Company acquired 80% of the outstanding stock of
Fast Ferry Holding Corp. and its wholly owned subsidiaries, New York Fast Ferry
Services, Inc., Fast Ferry I, Inc. and Fast Ferry II, Inc. (the NYFF Group).
The NYFF Group owns two vessels the M\V "Finest", and the M\V "Bravest" and is
in the business of operating high speed commuter ferry services in the greater
New York City harbor area. The NYFF Group was acquired by the issuance of
454,545 shares of the Company's stock at a value of $2.53 per share. Of the
454,545 shares issued, 70,000 shares were subject to a put option. Such
agreement allowed 2 of the 3 selling shareholders to sell back to the Company an
aggregate of 70,000 shares at a price of $5.00 per share. As at October 6,
1998, the 70,000 shares subject to the put option were not treated as equity,
but rather as a liability under the caption "Redeemable Common Stock" in the
amount of $350,000 (70,000 @ $5.00).
F-24
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Balance Sheet as at October 6, 1998
------------------------------------------------
Debit Credit
------ ------
<S> <C> <C> <C>
(A)
Investment in Fast Ferry Holding Corp. 1,428,596
Common stock 3,845
Additional paid-in capital 969,055
Redeemable common stock 350,000
Accrued professional fees 105,696
To record investment in 80% of capital stock
of Fast Ferry Holding Crop.
(B)
Property assets 4,190,648
Additional paid-in capital 4,137,043
Minority interest 53,605
To reflect net assets of Fast Ferry Holding Corp. at fair
market value per appraisal.
(C)
Additional paid-in capital 4,137,043
Accumulated deficit 4,127,621
Common stock 205,000
Investment in Fast Ferry Holding Corp. 1,428,596
Goodwill 1,214,174
To eliminate in consolidation
</TABLE>
Consolidated Statement Operations for the Period January 1, 1998 to
-------------------------------------------------------------------
October 6, 1998
---------------
(D) To reflect depreciation of $209,532 on the variant between the historical
carrying value of property assets and the appraised value.
(E) To record amortization of goodwill of $60,650 which has an estimated life
of 15 years.
(F) To reflect minority interest in loss of Fast Ferry Holding Corp. of $53,605
for the period.
Consolidated Statement of Operations For the Year Ended December 31, 1997
-------------------------------------------------------------------------
(G) To reflect depreciation of $279,376 on the variant between the historical
carrying value of property assets and the appraisal value.
(H) To reflect amortization of goodwill of $80,945 which has an estimated life
of 15 years.
(I) To reflect minority interest in loss of Fast Ferry Holding Corp. of
$233,536 for the year.
F-25
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors
Fast Ferry Holding Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Fast Ferry
Holding Corp. and Subsidiaries as at October 6, 1998, December 31, 1997 and
1996, and the related consolidated statements of operations and deficit, and
cash flows for the period January 1, 1998 to October 6, 1998 and for the years
ended December 31, 1997 and 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial state ment presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fast Ferry Holding
Corp. and Subsidiaries as of October 6, 1998, December 31, 1997 and 1996, and
the results of their operations and their cash flows for the period January 1,
1998 to October 6, 1998 and for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
New York, N. Y.
January 24, 1999
F-26
<PAGE>
FAST FERRY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
<TABLE>
<CAPTION>
October 6, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash $ 137,266 $ 2,626 $ 42,031
Accounts receivable 9,826 6,799 -
Other current assets - 50,603 3,750
------------ ----------- -----------
Total current assets 147,092 60,028 45,781
Property and equipment - at cost, less
accumulated depreciation 9,137,960 9,668,283 9,757,120
Deferred start-up costs, net of
accumulated amortization - 178,678 223,354
------------ ----------- -----------
$ 9,285,052 $ 9,906,989 $10,026,255
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
------------------------------------------------
Current liabilities:
Deferred revenues $ 96,312 $ - $ -
Current maturities of long-term obligations 1,091,389 141,036 -
Accounts payable 218,047 280,414 -
Accrued liabilities 154,030 41,103 115,538
------------ ----------- -----------
Total current liabilities 1,559,778 462,553 115,538
Long-term obligations 11,647,895 12,467,403 9,741,362
------------ ----------- -----------
Total liabilities 13,207,673 12,929,956 9,856,900
------------ ----------- -----------
Stockholders' capital deficiency:
Common stock, no par value
Authorized - 500 shares
Issued and outstanding - 140 shares 205,000 205,000 205,000
Deficit ( 4,127,621) ( 3,227,967) ( 35,645)
------------ ----------- -----------
Total stockholders'
capital deficiency ( 3,922,621) ( 3,022,967) 169,355
------------ ----------- -----------
$ 9,285,052 $ 9,906,989 $10,026,255
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
FAST FERRY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
For the For the
For the Period Year Ended Year Ended
January 1, 1998 December 31, December 31,
To October 6, 1998 1997 1996
------------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 807,583 $1,474,616 $ -
Cost of operations 634,776 2,589,050 -
---------- ---------- ----------
Income (loss) from operations 172,807 ( 1,114,434) -
---------- ---------- ----------
Other deductions:
General and administrative expenses 269,581 1,052,268 34,844
Interest expense 904,686 1,025,620 1,542
Loss of sale of property assets 1,604 - -
---------- ---------- ----------
Total other deductions 1,175,871 2,077,888 36,386
---------- ---------- ----------
Loss before extraordinary item ( 1,003,064) ( 3,192,322) ( 36,386)
Extraordinary item 282,088 - -
---------- ---------- ----------
Loss before the effect of a
change in accounting principle ( 720,976) ( 3,192,322) ( 36,386)
Cumulative effect of a change in
accounting principle ( 178,678) - -
---------- ---------- ----------
Net loss ( 899,654) ( 3,192,322) ( 36,386)
Retained earnings (deficit) at
beginning of period ( 3,227,967) ( 35,645) 741
---------- ---------- ----------
Deficit at end of period ($4,127,621) ($3,227,967) ($ 35,645)
========== ========== ==========
Per share data:
Loss before extraordinary item
and cumulative effect of a
change in accounting principle ($7,164.74) ($22,802.30) ($259.90)
Extraordinary item 2,014.91 - -
Cumulative effect of a change
in accounting principal ( 1,276.27) - -
--------- ---------- ----------
Net loss ($6,426.10) ($22,802.30) ($259.90)
========= ========== ==========
Weighted average number of
shares outstanding 140 140 140
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
FAST FERRY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
For the Period Year Ended Year Ended
January 1, 1998 December 31, December 31,
To October 6, 1998 1997 1996
------------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 899,654) ($3,192,322) ($ 36,386)
----------- ----------- -----------
Adjustments to reconcile net
loss to net cash provided by (used in)
operating activities:
Cumulative effect of a change in
accounting principle 178,678 - -
Loss on sale of property assets 1,604 - -
Deferred revenues 96,312 - -
Depreciation and amortization 525,046 718,428 1,225
Increase in long-term obligations
for interest 124,939 334,725 1,542
Increase (decrease) in cash flows
as a result of changes in asset
and liability account balances:
Account receivable ( 3,027) ( 6,799) -
Other current assets 50,603 ( 41,153) ( 3,750)
Accounts payable ( 62,367) 280,414 ( 3,453)
Accrued expenses 112,927 25,565 115,538
- - ( 127,247)
----------- ----------- -----------
Total adjustments 1,024,715 1,311,180 ( 16,145)
----------- ----------- -----------
Net cash provided by (used in) operating activities 125,061 ( 1,881,142) ( 52,531)
----------- ----------- -----------
Cash from investing activities:
Purchase of property and equipment ( 6,327) ( 590,615) ( 8,961,411)
Proceeds for sales of property
and equipment 10,000 - -
----------- ----------- -----------
Net cash provided by (used in)
investing activities 3,673 ( 590,615) ( 8,961,411)
----------- ----------- -----------
Cash provided by financing activities:
Increase in long-term obligations 5,906 2,432,352 8,942,886
----------- ----------- -----------
Net increase (decrease) in cash 134,640 ( 39,405) ( 71,056)
Cash at beginning of period 2,626 42,031 113,087
----------- ----------- -----------
Cash at end of period $ 137,266 $ 2,626 $ 42,031
=========== =========== ===========
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the period:
Interest $ 487,659 $ 690,895 $ -
=========== =========== ===========
Income taxes $ - $ 4,512 $ 3,836
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
FAST FERRY HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 6, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Business:
Fast Ferry Holding Corp. (FFHC) and its subsidiaries
(collectively the Company) were incorporated in New York and are in the
business of operating and chartering high speed ferries. On October 6,
1998, FFHC's stockholders sold 80% of their capital stock in FFHC to
Lighthouse Landings, Inc., a publicly-held New Jersey corporation
having operations in the retail cigar and marine\ restaurant
businesses.
(b) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
(c) Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, New York Fast Ferry
Services, Inc., Fast Ferry I Corp. and Fast Ferry II Corp. All
significant intercompany accounts and transactions have been elimi-
nated in consolidation.
(d) Accounts Receivable:
Accounts receivable have been adjusted for all known uncol-
lectible accounts. Additional allowance for doubtful accounts has not
been provided as the amount is not considered material.
(e) Property and equipment.
Depreciation is computed by either the straight-line or
accelerated methods over the estimated useful lives of the respective
assts.
Expenditures which substantially increase estimated useful
lives are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired or otherwise disposed of,
their costs and related accumulated depreciation or amortization are
removed from the accounts and resulting gains or losses are included in
operations.
F-30
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Revenue Recognition:
The Company commenced its passenger services in 1998 and
revenue is recognized when earned. The Company sells the majority of
commuter tickets in advance of use. Accordingly, the Company determines
the unused portion of ticket sales and defers that value of future
periods. Deferred income aggregated $96,312 at October 6, 1998.
(g) Cumulative Effect of a Change in an Accounting Principle:
Previously, the Company had capitalized start-up costs until
the ferries became operational and then amortized those costs over five
years commencing January 1, 1997. Effective January 1, 1998, the
Company adopted Statement of Position 98-5, "Reporting on the Cost of
Start-Up Activities" and now expenses start-up costs as they are
incurred. While the accounting policy for capitalizing start-up costs
previously followed by the Company was in accordance with generally
accepted accounting principles, the changed policy is preferable and is
in conformity with Statement of Position 98-5. The effect of adoption
of Statement of Position 98-5 was a charge to operations in 1998 of
$178,678 ($1,276.27 per share).
The effect of expensing start-up costs as incurred would have
resulted in a charge to operations of $96,107 ($686.48 per share) in
1995 and $127,247 ($908.91 per share) in 1996 and a reduction of
amortization expense of $44,676 ($319.11 per share) in 1997.
(h) Advertising Costs:
The Company expenses advertising costs as incurred. Adver-
tising costs amounted to $6,359, $335,076 and $2,886 for the period
January 1, 1998 to October 6, 1998 and for the years ended December 31,
1997 and 1996, respectively.
NOTE 2 - PROPERTY AND EQUIPMENT.
Property and equipment, at cost consist of the following:
<TABLE>
<CAPTION>
October 6, 1998 December 31, 1997 December 31, 1996
--------------- ----------------- -----------------
<S> <C> <C> <C>
Ferries $10,280,145 $10,280,145 $9,741,362
Office and other
equipment 54,938 63,115 16,983
----------- ----------- ----------
10,335,083 10,343,260 9,758,345
Less: Accumulated
depreciation 1,197,123 674,977 1,225
----------- ----------- ----------
$ 9,137,960 $ 9,668,283 $9,757,120
=========== =========== ==========
</TABLE>
Depreciation expense for the period January 1, 1998 to October
6, 1998 and for the years ended December 31, 1997 and 1996 was
$525,046, $673,752 and $1,225, respectively.
F-31
<PAGE>
NOTE 3 - LONG-TERM OBLIGATIONS.
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
October 6, 1998 December 31, 1997 December 31, 1996
--------------- ----------------- -----------------
<S> <C> <C> <C>
Note payable, secured by
the Fast Ferry ("Finest"),
payable in monthly install-
ments ranging from $56,719
to $61,875 including interest
at 9.25% per annum with a
final payment of $3,626,691
due October 10, 2005. $ 5,410,526 $ 5,269,874 $ 5,102,842
Note payable, secured by the
Fast Ferry ("Bravest"),
payable in monthly install-
ments ranging from $56,719
to $59,063 including interest
at 9.25% per annum with a final
payment of $3,572,971 due
October 10, 2005. 5,370,622 5,245,299 4,638,520
Note payable, secured by the
Fast Ferry ("Finest and
Bravest"), payable in 15
monthly installments of
$15,000 plus a $45,000
payment in January 1999
with $343,333 payments due
May 1, 1999, October 1, 1999
and March 1 ,2000 and a final
payment of $793,267 due
December 31, 2000.
Interest is inputed as %9.25%
per annum. 1,952,230 2,093,266 -
Other 5,906 - -
----------- ----------- -----------
12,739,284 12,608,439 9,741,362
Less: Portion payable in one year 1,091,389 141,036 -
----------- ----------- -----------
$11,647,895 $12,467,403 $ 9,741,362
=========== =========== ===========
</TABLE>
As of October 6, 1998, long-term obligations mature as follows:
Years Ending
October 6,
----------
1999 $ 1,091,389
2000 780,361
2001 1,330,877
2002 502,863
2003 551,306
Thereafter 8,482,488
-----------
$12,739,284
===========
F-32
<PAGE>
NOTE 4 - ACCRUED LIABILITIES.
Accrued liabilities are comprised for the following:
December 31,
--------------------------
October 6, 1998 1997 1996
--------------- ---------- ---------
Payroll $ 7,474 $ - $ -
Payroll taxes 3,278 43 -
Insurance 41,061 41,061 -
Professional fees 125,687 - -
-------- ------- --------
$177,500 $41,104 $115,538
======== ======= ========
NOTE 5 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company operates from leases property in Highlands, NJ
(the Aragon site). The lease is for five years, and commenced May
1998. Lease payments are dependent on daily passenger volume using the
leased property, and averaged approximately $24,250 per month during
1999. As the passenger volume using the Aragon site increase, the
lease payments will increase proportionately. In addition, the Company
rents other facilities on short-term leases. Rents under the short-
term leases aggregate approximately $2,500 per month.
(b) Litigation:
In November 1997, the Company initiated a suit alleging breach
of contract against the City of New York. Fifty percent (50%) of the
proceeds, if any, is pledged to the original stockholders of The NY
Fast Ferry Group and the remaining (50%) to the first mortgage holder
as a pledge of collateral against amounts owing to them pursuant to
notes payable referred to in Note 3. Management and the Company's
counsel are unable to render an opinion covering the ultimate outcome
of this action.
F-33
<PAGE>
EXHIBITS
3.1 Certificate of Incorporation, as amended.*
3.2 Bylaws.*
10.1 Stock Purchase Agreement dated 9/9/98 for acquisition of Fast Ferry
Holding Corp.*
10.2 Lease Agreement dated 3/30/98 for Aragon Marina.*
10.3 Lease Agreement dated October 1999 for Stamford Property Marina.*
10.4 Letter of Intent for vessel construction. **
10.5.1 Employment Agreement with John Ferreira. Filed herewith.
10.5.2 Employment Agreement with Anthony Cappaze. Filed herewith.
10.5.3 Employment Agreement with Anthony Colasanti. Filed herewith.
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule. Filed herewith.
------------------
* Filed previously.
** Incorporated by reference from the Company's Form 10-KSB/A No. 1 for the
fiscal year ended December 31, 1999, File No. 0-29205.
