<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________.
COMMISSION FILE NUMBER: 0-29205
-------
LIGHTHOUSE FAST FERRY, INC.
------------------------------------------------------
(Exact name of small business issuer as in its charter)
New Jersey 22-3241823
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 Fairfield Avenue, Suite 3C, West Caldwell, New Jersey 07006
----------------------------------------------------------------
(Address of principal executive offices)
(973) 618-9036
----------------
(Issuer's telephone number)
LIGHTHOUSE LANDINGS, INC.
----------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months(or for such
Shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
---- ----
The number of shares outstanding of the issuer's classes of common equity, as of
October 31, 2000 is 6,682,712 shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
YES NO X
---- ----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
Interim Consolidated Condensed Financial Statements
September 30, 2000
(Unaudited)
INDEX
=====
Page No.
--------
Consolidated Condensed Balance Sheets
At September 30, 2000 and December 31, 1999.................... 3
Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended
September 30, 2000 and 1999.................................... 4
Consolidated Condensed Statement of Changes in Stockholders'
Equity (Capital Deficiency) for the Nine months Ended
September 30, 2000............................................. 5
Consolidated Condensed Statements of Cash Flows
For the Nine Months Ended
September 30, 2000 and 1999.................................... 6-7
Notes to Consolidated Condensed
Financial Statements........................................... 8-18
2
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
A S S E T S September 30, December 31,
----------- 2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 73,515 $ 97,957
Inventories 39,543 40,948
Net assets of discontinued operations 400,722 32,582
Prepaid expenses and other current assets 33,179 127,994
----------- -----------
Total current assets 546,959 299,481
Property and equipment - at cost,
less accumulated depreciation 11,604,153 12,288,880
Goodwill net of accumulated amortization 1,052,227 1,112,935
Other assets 703,536 51,764
----------- -----------
$13,906,875 $13,753,060
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
---------------------------------------------------------
Current Liabilities:
Convertible promissory notes and
accrued interest $ 2,598,888 $ -
Current maturities of long-term debt 1,633,643 1,879,764
Notes payable - stockholders 100,743 125,000
Accounts payable and accrued expenses 803,132 948,606
Deferred revenues 112,153 68,765
Due to officers/stockholders 198,871 449,540
----------- -----------
Total current liabilities 5,447,430 3,471,675
Long-term debt - net of current maturities 9,516,854 10,064,110
----------- -----------
Total liabilities 14,964,284 13,535,785
----------- -----------
Stockholders' Equity,(Capital Deficiency):
Preferred Stock - $.01 par value
Authorized and unissued - 10,000,000 shares - -
Common stock - $.01 par value
Authorized - 40,000,000 shares
Issued and outstanding - 6,548,962 shares
September 30, 2000 and 4,905,795 in
December 31, 1999 65,490 49,058
Additional paid-in capital 6,859,346 5,312,588
Accumulated deficit (7,982,245) (5,144,371)
----------- -----------
Total stockholders' equity (Capital Deficiency) (1,057,409) 217,275
----------- -----------
$13,906,875 $13,753,060
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30 September 30
------------------------ --------------------------
2000 1999 2000 1999
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $1,316,469 $ 949,636 $ 2,959,440 $ 2,550,701
---------- ----------- ------------ ------------
Costs of Services:
Ferry operations 824,837 443,725 2,127,745 1,169,577
Depreciation 215,511 223,099 689,843 667,957
---------- ----------- ------------ ------------
Total Costs of Services 1,040,348 666,824 2,817,588 1,837,534
---------- ----------- ------------ ------------
Selling, General & administrative 438,482 380,604 1,141,184 921,180
Marketing 18,682 8,431 60,608 19,323
Amortization of goodwill 20,236 20,236 60,708 60,708
---------- ----------- ------------ ------------
Loss from operations (201,279) (126,459) (1,120,648) (288,044)
---------- ----------- ------------ ------------
Other expenses:
Interest (net) 753,934 340,001 1,481,942 1,070,258
Provision for state income taxes - - - 1,687
---------- ----------- ------------ ------------
Total other expenses 753,934 340,001 1,481,942 1,071,945
---------- ----------- ------------ ------------
Loss from continuing operations before
minority share loss in subsidiary (955,213) (466,460) (2,602,590) (1,359,989)
Minority share in loss of subsidiary - - - 11,071
---------- ----------- ------------ ------------
Loss from continuing operations (955,213) (466,460) (2,602,590) (1,348,918)
Loss on discontinued operations - ( 67,065) (235,284) (114,788)
---------- ----------- ------------ ------------
Net loss (955,213) (533,525) (2,837,874) (1,463,706)
---------- ----------- ------------ ------------
Per share data:
Basic and diluted:
Loss from continuing operations $ (0.15) $ (0.12) $ (0.43) $ (0.41)
Loss from discontinued operations - $ (0.02) $ (0.04) $ (0.03)
---------- ----------- ------------ ------------
Net loss $ (0.15) $ (0.14) $ (0.47) $ (0.44)
========== =========== ============ ============
Weighted average number of shares
outstanding
Basic and diluted 6,493,008 3,388,076 6,016,263 3,311,598
========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED STATEMENT OFSTOCKHOLDERS' EQUITY AND (CAPITAL DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Stockholders'
Number Amount Capital (Deficit) Total
------------ ----------- ------------------------- ---------------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 4,905,795 $ 49,058 $ 5,312,588 $ (5,144,371) $ 217,275
Increase of shares for cash 712,667 7,127 475,473 - 482,600
Shares and warrants issued
for interest and
services rendered 578,000 5,780 735,185 - 740,965
Shares issued for
satisfaction of liabilities 352,500 3,525 336,100 - 339,625
Net loss for the period - - - (2,837,874) (2,837,874)
------------ ----------- ------------------------- ---------------------- ----------
Balance at September 30, 2000 6,548,962 $ 65,490 $ 6,859,346 $ (7,982,245) (1,057,409)
------------ ----------- ------------------------- ---------------------- ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
--------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss continuing operations $(2,602,590) $(1,348,918)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interests - (11,071)
Depreciation 693,547 675,156
Amortization of goodwill 60,708 60,708
Amortization of deferred finance cost 506,064 3,000
Accrued interest 128,035 -
Imputed interest - 124,402
Stock issued for service rendered and interest 50,000 100,000
Deferred revenue 43,388 8,970
Increase (decrease) in cash flows as a result of
changes in assets and liability accounts balances:
Inventories 1,405 (4,551)
Prepaid expenses and other current assets 94,815 5,707
Other assets 28,629 (1,318)
Accounts payable and accrued expenses (145,475) 765,928
Accrued officers compensation (36,044) 31,063
----------- ------------
Total adjustments 1,425,072 1,757,994
----------- ------------
Net cash provided by (used in) operating activities
of continuing operations (1,177,518) 409,076
Net cash used in discontinued operations (288,424) -
----------- ------------
Net cash flow provided by (used in) operating activities (1,465,942) 409,076
----------- ------------
Cash flows used in investing activities:
Acquisition of operating activities (8,820) (40,264)
Construction in process (287,500) -
----------- ------------
Net cash used in investing activities (296,320) (40,264)
----------- ------------
Cash flows from financing activities:
Payments to stockholders (43,756) (50,000)
Proceeds from loans 2,165,000 400,000
Repayment of long-term debt (866,024) (982,861)
Proceeds from stock subscription - 250,000
Proceeds from issuance of common stock 482,600 226,400
----------- ------------
Net cash provided by financing activities
of continuing operations 1,737,820 (156,461)
Net increase (decrease) in cash (24,442) 212,351
Cash at beginning of year 97,957 62,606
----------- ------------
Cash at end of year $ 73,515 $ 274,957
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Nine Months Ended
September 30,
---------------------
2000 1999
--------- ---------
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year:
Interest $880,093 $1,065,661
======== ==========
Income taxes $ - $ -
======== ==========
Supplemental Schedules of Noncash
Activities:
Common stock issued as additional interest $644,465 $ -
======== ==========
Common stock issued in payment of
Consulting and legal fees $ 96,500 $ -
======== ==========
Common stock issued as payment of liabilities:
Related parties $214,625 $ -
======== ==========
Others $125,000 $ -
======== ==========
Note issued as payment of consultants'
fee $198,000 $ -
======== ==========
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landing, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2000
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 Fast Ferry, Inc. (the "Company") has sustained substantial
losses for the year ended December 31, 1999 and the nine months ended
September 30, 2000. In addition, the accompanying consolidated balance
sheet as at September 30, 2000 reflects negative working capital of
$4,900,471 and net tangible capital deficiency of $2,514,632.
Future viability of the Company is dependent upon the Company
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 proceeds were used to provide
funds for the payment of certain obligations and ongoing operations.
Commencing in January 2000 through September 30, 2000, the company
received $506,767 through the sale of its securities and $2,365,000
from convertible promissory notes.
The Company was incorporated in New Jersey in 1993. 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. On
August 8, 2000, the Company received a notice from its landlord
terminating the Stamford lease. The Company disputes the lease
termination and has filed a complaint with the Court seeking to enforce
the lease. The Company is proceeding with preparations for establishing
ferry service, and expects to be able to commence service in the summer
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 at least three
vessels specifically to meet the needs of the new service.
During 1998 and 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 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.
8
<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) Basis of Presentation:
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of
the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, the statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the financial
position as of September 30, 2000 and the results of operations and
cash flows for the nine month period ended September 30, 2000 and 1999.
The results of operations for the nine month period ended September 30,
2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
The December 31, 1999 balance sheet has been derived from the
audited financial statements at the date included in the Company's
annual report contained in Form 10-KSB. These unaudited financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report contained in
Form 10-KSB.
(c) Principles of Consolidation:
The consolidated condensed financial statements include the
accounts of Lighthouse Fast Ferry, 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.
(d) 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 September 30, 2000 and December 31, 1999
and the results of operations cash flows and stockholders equity
(Capital deficiency) for the nine month period ended September 30, 2000
and 1999 then ended.
(e) Inventories:
Inventories which consist of parts inventory and cafeteria
products are stated at the lower of cost or market on the first-in,
first-out method.
9
<PAGE>
(f) Property and Equipment:
Property and equipment is recorded at cost. The cost of the
ferries obtained through the New York Fast Ferry 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 that 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.
(g) 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. was impaired and accordingly the remaining
unamortized goodwill of $198,654 was written off to discontinued
operations during 1999. The goodwill arising from the acquisition of
New York 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 $60,708 for the nine months ended
September 30, 2000 and 1999.
(h) Revenue Recognition:
Revenue is recognized when earned. The Company's ferry business
sells the majority of commuter tickets in advance of use. The tickets
which expire (90) ninety days after issuance and are nonrefundable and
non-extendable. Accordingly, the Company determines the unused portion
of tickets sales and defers that value to future periods. Deferred
income aggregated $112,153 and $68,765 at September 30, 2000 and
December 31, 1999, respectively.
The other revenues generated by the Company, for example the sale
of food through the ferries' concession stands, are recognized when the
services have been rendered. To date, other revenues have not been
significant.
(i) 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
carry forwards. Management has fully reserved the net deferred tax
assets as it is more likely than not that the deferred tax asset will
not be utilized in the future.
10
<PAGE>
(j) Impairment of Long-Lived Asset:
The Company accounts for impairment of long-lived assets in
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 losses incurred during 1999, the
Company evaluated its long-term assets of its continuing operations
which as at December 31, 1999 and at September 30, 2000 were comprised
of property and equipment (principally two (2) ferries) with an
undepreciated cost of $11,500,000 and goodwill on the acquisition of
the Fast Ferry Holding Corp. with a unamortized cost of $1,100,000.
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.
(k) 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.
(l) 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.
(m) 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, and 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.
11
<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.
The net assets to be disposed of as of September 30, 2000 aggregating $400,722
consist principally of real estate and its related secured indebtednesses. The
net assets are recorded as current assets in the accompanying consolidated
balance sheet under the caption "Net assets of discontinued operations."
Management expects the real estate to be sold in late 2000 or early 2001.
In the second quarter of 2000 management became aware that its previous
estimate of the time required to dispose of these segments was incorrect and
accordingly the original estimate of the carrying charges of the real property -
real estate taxes and interest- would have to be increased to reflect these
charges through June 2001. The accompanying financial statements reflect a
charge for $110,000 for these costs incurred through June 2000 plus an estimate
of an additional $125,000 for interest and taxes through June 2001.
During the nine months ended September 30, 2000, $403,000 of these segments'
liabilities were paid and a second mortgage was converted into a 10% interest
bearing promissory note convertible into the Company's common stock initially at
$1.50 per share.
The net assets of discontinued operations, which have been segregated in the
accompanying balance sheet are summarized as follows:
September 30,
2000
--------
Assets:
Inventory $ 2,001
Property assets, net (See Note 4) 931,180
--------
933,181
--------
Liabilities:
Accounts Payable 32,000
Mortgage payable 40,679
Accrued real estate taxes and interest (a) 459,780
---------
532,459
---------
Net assets of discontinued operations 400,722
=========
(a) 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.
12
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT.
Property and equipment is summarized as follows:
September 30,
-----------
2000
-----------
Continuing operations:
Ferries $13,300,000
Computers and office equipment 55,612
Furniture and fixtures 100,288
-----------
13,455,900
Less: Accumulated depreciation 1,851,747
-----------
$11,604,153
===========
Discontinued operations:
Land and buildings $ 931,180
===========
NOTE 5 - LONG-TERM DEBT. September 30,
-----------
2000
-----------
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) $ 5,029,965
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) 4,995,903
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 due on December 10, 2000
including imputed interest of 9.25%. (a) 920,410
10% interest bearing obligation payable in two
installments of $100,000 each on March 15,
2000 and July 15, 2000 and a final payment of
$200,000 January 15, 2001. 204,219
-----------
11,150,497
Portion due within one year 1,633,643
-----------
Long-term debt - less current maturities $ 9,516,854
===========
(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 note holder.
13
<PAGE>
The secured debt obligations mature as follows:
2001 $ 1,633,643
2002 501,864
2003 550,306
2004 603,423
2005 661,668
Thereafter 7,199,593
-----------
$11,150,497
===========
NOTE 6 - CONVERTIBLE PROMISSORY NOTES.
June - September 2000 - During the months of June through September 2000, the
company received proceeds from nineteen convertible promissory notes, (three for
$40,000, nine for $20,000, one for $15,000, four for $10,000 and two for
$5,000), totaling $365,000 dollars. Each convertible promissory note carries a
simple interest rate of 10.5%. Interest only is payable quarterly, and the notes
mature one-year from date of issuance. In addition, each convertible promissory
note holder was issued shares of the company's common stock for each $5,000
dollars of indebtedness owed to the convertible promissory note holder at date
of issuance. These shares of stock are restricted securities. The fair value of
the common shares on the dates of issuance aggregated $15,465 that will be
charged to operations as additional interest over the life of the notes.
The lenders have the right, at their sole and exclusive option, to convert
the outstanding indebtedness to common shares (the "Conversion Rights") of the
company at any time prior to borrower making payment. Should such "Conversion
Rights" be exercised, the Company shall issue such shares to the Lender at the
rate of one share of common stock for each two ($2.00) dollars of the
indebtedness then due and owing. The shares issued by the company through the
exercise of the "Conversion Rights" will be restricted securities. The option
and conversion as provided herein shall be exercised by each lender issuing
written notice to the borrower. The outstanding balance for the eleven
convertible promissory notes including interest accrued as of September 30, 2000
is $368,118.
JULY 2000 - The Company employed the services of a financial consultant to
arrange for four convertible promissory loans, one dated July 10, and three
dated July 14, 2000. The consultant received as payment for this service (i) a
10% interest bearing note payable on January 14, 2001 in the amount of $88,000
(ii) 22,000 shares of the Company's restricted common stock, with a fair market
value at date of issuance of $44,000, and (iii) the same default remedies as the
bridge loan holders and (iv) warrants to acquire 5,000 common shares at $2.00
per share. The balance of the promissory note and interest accrued as of
September 30, 2000 is $89,882.
14
<PAGE>
On July 10, 2000, the Company received proceeds of one of these convertible
notes aggregating $500,000. The loan, which bears interest at 10% per annum
payable quarterly, is payable six months from issuance. To obtain the loan, the
Company issued to the loan holder 125,000 shares of restricted common stock of
the Company with on-demand registration and unlimited piggyback rights. The fair
value of the shares at issuance aggregating $250,000 will be charged to
operations as additional interest over the life of the notes. The outstanding
balance of the promissory note and interest accrued as of September 30, 2000 is
$511,250.
On July 14, 2000, the Company received proceeds from three of these
convertible notes aggregating $300,000. Additionally, the Company issued another
$200,000 convertible promissory notes to a stockholder in exchange for a
$200,000 second mortgage on real property of the Company's discontinued
operations. The notes, which bear interest at 10% per annum payable quarterly,
are payable six months from issuance. To obtain the notes, the Company issued a
total of 125,000 shares of the Company's unregistered common stock with on-
demand registration and unlimited piggyback rights. The fair value of the shares
at issuance aggregating $250,000 will be charged to operations as additional
interest over the life of the notes.
The four convertible notes above may be repaid anytime within three months
of issuance. However, the loans must be repaid out of the proceeds of a
financing greater than $3,000,000. Initially, the notes are convertible into
the Company's common stock at $1.50 per share. In the event the notes are not
redeemed in full within six months from issuance, the notes are in default, and
become convertible at $1.00 per share for the first 90 days of the default
period, and the conversion price is further reduced to $0.50 thereafter. In
addition, in the event of default, the Company must issue to each loan holder
50,000 warrants exercisable at $.25 per share for each 30 days period until
repaid. The outstanding balance of the four notes including interest accrued as
of September 30, 2000 is $510,694.
JUNE 2000 - On June 14, 2000, New York Fast Ferry Services Inc., received
proceeds of two bridge loans aggregating $60,000. The loans bear interest at 14%
per annum. Loans aggregating $45,000 plus accrued interest are payable on July
14, 2000, which were made, and the balance of the loans with accrued interest on
or before September 14, 2000 which was also paid.
MARCH 2000 - On March 11, 2000, the Company received proceeds of two convertible
promissory notes aggregating $1,000,000. The notes, which bear interest at 10%
per annum payable quarterly, are payable nine months from issuance. To obtain
the notes, the Company issued to each note holder 125,000 shares of restricted
common stock with on-demand registration and unlimited piggyback rights. The
fair value of the shares at issuance aggregating $125,000 will be charged to
operations as additional interest over the life of the loans.
The notes may be repaid anytime within nine months of issuance; however, the
notes must be repaid from the proceeds of a financing greater than $2,000,000.
Initially the notes are convertible into common stock at $1.50 per share. In the
event the notes are not redeemed in full within nine months from issuance, the
notes are in default, and become convertible at $1.00 per share for the first 90
15
<PAGE>
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 note
holders 50,000 warrants exercisable at $.25 per share for each 30 days period
until repaid. The outstanding balance for the two convertible notes including
accrued interest as of September 30, 2000 is $1,008,333.
MARCH 2000 - The Company employed the services of a financial consultant to
arrange for the two March, 2000 convertible notes. The consultant received as
payment for this service (i) a 10% interest bearing note payable on December 10,
2000 in the amount of $110,000, (ii) 25,000 shares of the company's common stock
whose fair market value at date of issuance was $12,500, and (iii) the same
default remedies as the bridge note holders. The outstanding balance including
accrued interest as of September 30, 2000 is $110,611. The consultant also has
agreed to perform consulting services for the Company and will receive payment
for his services in the form of warrants to acquire 50,000 common shares at
$2.00 per share for each three month period his services are required. The
consultant was issued warrants to acquire 50,000 common shares at $2.00 per
share in the second and third quarters. The fair value of the warrants
aggregating $10,000 was charged to operations.
NOTE 7 - CAPITAL STOCK.
(a) Common stock sold for consideration other than cash:
During the third quarter of 2000, the Company issued 257,500 shares having a
fair market value on the date of issuance of $261,250. The shares were issued
as additional interest, and this amount is being charged to operations over the
life of the convertible promissory notes issued in through out the third quarter
of 2000.
During the second quarter of 2000, the Company issued 20,000 of its common
shares having a fair market value on the date of issuance of $40,000 to outside
legal and financial consultants for services rendered.
During the second quarter of 2000, the Company issued 100,000 shares having
a fair market value on the date of issuance of $125,000. This issuance was for
satisfaction of a note and other liabilities related to the discontinued
operations.
During the second quarter of 2000, the Company issued 3,375 shares having a
fair market value on the date of issuance of $4,219. The shares were issued as
additional interest, and this amount is being charged to operations over the
life of the convertible promissory notes issued in June 2000.
During the first quarter of 2000, the Company issued 252,500 shares having a
fair market value on the date of issuance of $214,625 to two officer/directors
and another director for satisfaction for accrued compensation in the amount of
$214,625.
During the first quarter of 2000, a financial consultant was issued 25,000
shares having a fair market value on the date of
16
<PAGE>
issuance was $12,500 for service rendered in arranging a financing. This amount
is being charged to operations over the life of the loan.
During the first quarter of 2000, the Company issued 250,000 of its common
shares having a fair market value on the date of issuance of $125,000 as
additional interest.
During the third quarter of 2000, the Company issued 22,000 of its common
shares having a fair market value on the date of issuance of $44,000 to
consultants for services rendered.
(b) Common Stock And Warrants Issued for Cash:
During 2000, the Company sold 712,667 shares of its common stock and
warrants to acquire an additional 967,977 common shares at prices ranging from
$1.00 to $1.25 per share for an aggregate of $482,600.
NOTE 8 - 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
Per
Options Warrants Share
-------- ---------- --------------
<S> <C> <C> <C>
Outstanding at January 1,
1999 10,000 200,000 $.96 to $2.60
Cancelled (10,000) $ 2.53
Granted during 1999 420,000 1,330,000 $1.00 to $1.75
-------- ----------
Outstanding at December
31, 1999 420,000 1,530,000 $1.00 to $2.60
Granted during 2000 300,000 822,917 $.50 to $2.00
------- ----------
Outstanding at September 30,
2000 670,000 12,352,917
======= ==========
</TABLE>
(a) Stock Options:
The Company has entered into new employment agreements with its Chief
Executive Officer and its V.P., Secretary in 2000. These officers received as a
condition of their contract options to purchase 100,000 and 200,000,
respectively, shares of common stock at $1.00 per share, the fair market value
at the date of grant, 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.
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
17
<PAGE>
from 1.3 years to 7 years the expected volatility at 400%, expected dividends
are none, and the risk-free interest rate of 10%, the Company would have
recorded compensation expense of $1,205,608 and $38,616 for the nine months
ended September 30, 2000 and 1999, 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 Nine Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
Net loss as reported $(2,837,874) $(1,463,706)
Additional compensation (205,506) (38,616)
----------- -----------
Adjusted net loss $(3,043,380) $(1,502,322)
=========== ===========
Loss per share as reported $ (0.47) $ (0.44)
=========== ===========
Adjusted loss per share $ (0.51) $ (0.45)
=========== ===========
(b) Warrants Granted in 2000:
As an inducement to purchase shares of the Company's common stock, warrants
to purchase 717,917 shares were granted to individuals who purchased stock in
2000. The warrants are exercisable at various times through March 15, 2002 at
prices ranging from $.50 to $2.00.
A financial consultant was issued warrants to acquire 100,000 common shares
at $2.00 per share as part of a consulting agreement. Another consultant was
granted a warrant to acquire 5,000 common shares at $2.00 per share which was
the fair value of the common stock on the date of issuance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW - Lighthouse Fast Ferry 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.
On September 19, 2000, the Company changed its name to Lighthouse Fast Ferry,
Inc. The Company, through its subsidiary New York Fast Ferry Holding Corp.
("NYFF"), is an operator of high speed, commuter passenger ferry boats in the
New York City metropolitan region.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and the Notes to those statements, which are
prepared in accordance with generally accepted accounting principles ("GAAP") in
the United States for interim financial information, along with other
information included in this Form 10-QSB.
Comparison of three and nine month periods ended September 30, 2000 compared
with three and nine month periods ended September 30, 1999 are as follows.
18
<PAGE>
REVENUES - NYFF's operations consolidated revenues increased by 38.63% to
--------
$1,316,469 for the three months ended September 30, 2000 compared to $949,636
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, consolidated revenues increased by 16% to $2,959,440
compared to $2,550,701 for the comparable period in 1999. The overall increase
net of decreases are explained as follows:
PASSENGERS TICKET SALES - Passenger ticket sales increased by 62.53% to
$965,728 for the three months ended September 30, 2000 compared to $594,178 for
the three months ended September 30, 1999. For the nine months ended September
30, 2000, earned passenger ticket sales increased by 47.49% to $2,479,509
compared to $1,681,157 for the comparable period in 1999.
The increase is the result of adding additional scheduled runs with the M/V
Finest. The M/V Finest was originally chartered to the Massachusetts Steamship
Authority. This charter terminated in October 1999.
GALLEY SALES - Galley sales increased by 19.25% to $62,198 for the three
months ended September 30, 2000 compared to $52,158 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, galley sales
increased by 14.59% to $163,334 compared to $142,542 for the comparable period
in 1999.
The increase is primarily the result of adding the M/V Finest as a commuter
passenger ferry.
CHARTER SALES - Charter sales decreased by 4.87% to $288,543 for the three
months ended September 30, 2000 compared to $303,300 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, charter sales
decreased by 56.45% to $316,597 compared to $727,002 for the comparable period
in 1999. The decrease is the result of terminating the charter business of the
M/V Finest and utilizing this vessel for commuter transportation.
COST OF SERVICES - NYFF's cost of services increased by 85.88% to $824,837 for
----------------
the three months ended September 30, 2000 compared to $443,725 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
cost of services increased by 81.92% to $2,127,745 compared to $1,169,577 for
the comparable period in 1999. The overall changes are detailed follows:
SALARY and RELATED BENEFITS - Salary and related benefits increased by
70.40% to $198,430 for the three months ended September 30, 2000 compared to
$116,452 for the three months ended September 30, 1999. For the nine months
ended September 30, 2000, salary and related benefits increased by 50.24% to
$503,836 compared to $335,365 for the comparable period in 1999.
The increase is the result of adding a crew for additional scheduled runs
with the Motor Vessel (M/V) Finest. The M/V Finest was originally chartered to
the Massachusetts Steamship Authority. This charter terminated in October 1999.
FUEL and OIL RELATED COSTS - Fuel and oil related costs increased by 137.86%
to $196,135 for the three months ended September 30, 2000 compared to $82,458
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, fuel and oil related
19
<PAGE>
costs increased by 131.87% to $488,506 compared to $210,679 for the comparable
period in 1999.
The increase is attributable to an increase in the cost of fuel, an increase
in the scheduled runs and the operation of the M/V Finest.
BOAT MAINTENANCE and RELATED SUPPLIES - Boat maintenance and related costs
increased by 34.93% to $112,292 for the three months ended September 30, 2000
compared to $83,223 for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, boat maintenance and related costs increased by
105.12% to $357,580 compared to $174,325 for the comparable period in 1999.
The increase in Boat maintenance and related costs, which included a
scheduled engine overhaul and other unscheduled maintenance, is the result of an
increase in the scheduled runs and the operation of the M/V Finest.
DOCKING and PARKING RELATED FEES - Docking and parking related fees
increased by 138.86% to $154,285 for the three months ended September 30, 2000
compared to $64,592 for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, docking related fees increased by 61.17% to
$393,454 compared to $244,131 for the comparable period in 1999.
The increase in docking and parking related fees are the result of an
increase in the scheduled runs and the operation of the M/V Finest translating
to more passengers traveled. The number of passengers traveled is a component of
the parking fee calculation charged by the owner of the parking facility in
Highlands, New Jersey.
INSURANCE - Insurance costs decreased by 12.49% to $20,121 for the three
months ended September 30, 2000 compared to $22,993 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, insurance
related costs increased by 79.09% to $116,418 compared to $65,004 for the
comparable period in 1999.
The overall increase in insurance related costs is primarily the result of
the operation of the Motor Vessel M/V Finest, as well as a general price
increase in the insurance premiums.
GALLEY COST of GOODS SOLD - The galley cost of goods sold increased by
97.23% to $50,782 for the three months ended September 30, 2000 compared to
$25,747 for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, galley cost of goods increased by 72.31% to $117,379
compared to $68,122 for the comparable period in 1999.
The increase is attributable to an increase in the number of scheduled runs
and the operation of the M/V Finest, translating into more passengers traveled
aboard the boats.
CHARTER AND EXCURSION - The charter and excursion expenses decreased by
7.98% to $34,079 for the three months ended September 30, 2000 compared to
$37,035 for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, charter and
20
<PAGE>
excursion expenses decreased by 1.21% to $38,748 compared to $38,284 for the
comparable period in 1999.
The overall decrease is immaterial.
STAMFORD DIRECT OPERATING COSTS - Stamford direct operating costs increased by
100% to $16,665 for the three months ended September 30, 2000 compared to $0 for
the three months ended September 30, 1999. For the nine months ended September
30, 2000, other direct operating costs increased by 100% to $49,998 compared to
$0 for the comparable period in 1999.
The increase is attributable to an investment in start up costs associated
with a planned run from Stamford, Ct. to Manhattan, N.Y.
OTHER DIRECT OPERATING COSTS - Other direct operating costs increased by 274.59%
to $42,048 for the three months ended September 30, 2000 compared to $11,225 for
the three months ended September 30, 1999. For the nine months ended September
30, 2000, other direct operating costs increased by 83.64% to $61,826 compared
to $33,667 for the comparable period in 1999.
The increase is attributable to an increase in the number of scheduled runs
and the operation of the M/V Finest.
DEPRECIATION - Depreciation decreased by 3.40% to $215,511 for the three months
ended September 30, 2000 compared to $223,099 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, depreciation
increased by 3.28% to $689,843 compared to $667,957 for the comparable period in
1999.
The overall increase is attributable to an increase in other boat equipment
associated with operation of the M/V Finest and continued upgrades of equipment
on the Bravest.
SELLING, GENERAL and ADMINISTRATIVE EXPENSES - The consolidated company's
--------------------------------------------
selling, general and administrative expenses increased by 15.21% to $438,482 for
the three months ended September 30, 2000 compared to $380,604 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
selling, general and administrative expenses increased by 23.88% to $1,141,184
compared to $921,180 for the comparable period in 1999. The overall changes are
detailed as follows:
FERRY ADMINISTRATION, SALARY and RELATED BENEFITS - Salary and related
benefits for the Ferry Administration increased by 18.64% to $87,174 for the
three months ended September 30, 2000 compared to $73,475 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000, salary
and related benefits for the "Ferry Administration" increased by 12.36% to
$241,769 compared to $215,183 for the comparable period in 1999.
The increase is attributable to the addition of one head count increase,
overall salary increases, and overtime of clerical staff.
CORPORATE ADMINISTRATION, SALARY and RELATED BENEFITS - Salary and related
benefits for the Corporate Administration increased by 3.48% to $121,709 for the
three months ended September 30, 2000 compared to $117,613 for the three months
ended September 30, 1999. For the nine
21
<PAGE>
months ended September 30, 2000, salary and related benefits for the "Corporate
Administration" decreased by 2.23% to $304,076 compared to $311,000 for the
comparable period in 1999.
The three-month increase is related to salary increases associated with the
addition of the VP Secretary and the new chief financial officer. The overall
nine-month decrease was the result of changes in the employment agreements with
certain current and former officers.
PROFESSIONAL SERVICES - Professional services, which include legal,
accounting and consulting services, increased by 20.33% to $115,570 for the
three months ended September 30, 2000 compared to $96,047 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000,
professional services increased by 55.65% to $305,388 compared to $196,206 for
the comparable period in 1999.
The increase is related to the 10-KSB audits and 10-QSB reviews of the
company's financial statements, as well as various SEC filings requiring both
legal and accounting services. In addition, there were various engineering and
related expenses associated with the new planned ferry routes (i.e. Stamford,
CT., Highlands, NJ (new location) and Keyport, N.J.).
TRAVEL and RELATED AUTOMOBILE EXPENSES - Travel and related automobile
expenses decreased by 6.76% to $15,093 for the three months ended September 30,
2000 compared to $16,187 for the three months ended September 30, 1999. For the
nine months ended September 30, 2000, travel and related automobile decreased by
27.27% to $38,137 compared to $52,435 for the comparable period in 1999.
The decrease is related to an overall decrease in travel within the
organization over the comparable period in 1999.
OFFICE FACILITY RELATED EXPENSES- Office facility related expenses includes
rent, utilities, maintenance and general office expenditures for the Company's
corporate office in West Caldwell, New Jersey and the NYFF marina office in
Highlands, New Jersey.
These office facility related expenses increased by 47.99% to $35,218 for
the three months ended September 30, 2000 compared to $23,798 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
office facility related expenses increased by 118.88% to $128,465 compared to
$58,692 for the comparable period in 1999.
The increase primarily relates to the establishment of a new corporate
headquarters in West Caldwell, New Jersey as well as increased costs associated
with the maintenance of the marina office located in Highlands, New Jersey.
DEPRECIATION EXPENSE - Depreciation expense decreased by 29.12% to $1,874
for the three months ended September 30, 2000 compared to $2,644 for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
depreciation expense decreased by 56.78% to $3,994 compared to $9,242 for the
comparable period in 1999.
22
<PAGE>
The decrease is related to assets that have been fully depreciated.
CORPORATE EXPENSE - OTHER - Other corporate related expenses increased by
21.64% to $61,844 for the three months ended September 30, 2000 compared to
$50,840 for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, other corporate related expenses increased by 52.20% to
$119,355 compared to $78,422 for the comparable period in 1999.
The increase is related to the expenses associated with filing the 10-KSB and
10-QSB with the company's financials statements, as well as various other SEC
filings.
MARKETING EXPENSES - Marketing expenses increased by 121.59% to $18,682 for the
------------------
three months ended September 30, 2000 compared to $8,431 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000,
marketing expenses increased by 213.66% to $60,608 compared to $19,323 for the
comparable period in 1999.
The increase is related to increased efforts to attract new passengers.
GOODWILL AMORTIZATION - In each of the quarters ended September 30, 2000 and
---------------------
1999, the Company recorded amortization of goodwill expense of $20,236, which
was related to its acquisition of NYFF.
INTEREST EXPENSE - Interest expense primarily relates to meeting the current
----------------
obligations of the NYFF, including the mortgages on the vessels and debt
financing of the Company's current operations and business development.
Interest expense decreased by 121.74% to $753,934 for the three months ended
September 30, 2000 compared to $340,001 for the three months ended September 30,
1999. For the nine months ended September 30, 2000, interest expense decreased
by 38.47% to $1,481,942 compared to $1,070,258 for the comparable period in
1999.
The increase primarily relates to new bridge financing entered into during
2000.
Liquidity and Capital Resources.
--------------------------------
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 NYFF and commenced operating fast ferry service from Highlands, New Jersey.
As part of the transaction, the Company guaranteed payment and satisfaction of
NYFF's outstanding liabilities, which included mortgages on its two ferry
vessels and a line of credit. In July 2000, the Company entered into a verbal
agreement with the holders of the remaining 20% of issued and outstanding shares
of NY Fast Ferry to purchase those shares by the now extended deadline of
December 31, 2000. The Company expects to enter into a written stock purchase
agreement with the holders of the NY Fast Ferry shares. The NYFF operation
generates sufficient cash-flow to cover its direct operating costs. However, the
NYFF operation does not yet generate enough cash to make principal and interest
payments for both boat mortgages, carry its
23
<PAGE>
other debt, to fund the capital improvements and capital expenditures necessary
for the Company to expand its operations and to implement its strategic business
objectives.
On March 1, 2000 the company received two $500,000 convertible promissory
notes from two investment funds ($1,000,000 total) due December 11, 2000, with
interest at 10% per annum and is payable quarterly. The notes may be prepaid at
any time, but must be repaid out of the proceeds of any financing in excess of
$2,000,000. The notes are convertible to common shares of the Company at the
rate of one share for each $1.50 of indebtedness. In addition, to the 10%
interest, the Company issued 250,000 common shares, which the Company valued at
$0.50 per share, as additional consideration. Further shares are issuable in
the event of a default.
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.
As of September 30, 2000, two outstanding notes payable and preferred ship
mortgages held by Debis Financial Services, Inc., one on the ferry M/V Finest
and one on the ferry M/V Bravest, were $5,029,965 and 4,995,903, 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 $3,626,691 and $3,572,971,
respectively, due on October 10, 2005. The Company is current in these
payments.
The line of credit held by Debis Financial Services Inc. assumed by the
Company had an outstanding balance at September 30, 2000 of $920,410 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, required monthly payments
of $15,000 through April 10, 2000, plus principal payments of $45,000 in
January 1999, $920,410 on May 1, 1999 and October 1, 1999, a payment of $343,333
on March 1, 2000, and originally required a final payment of $934,319 on
December 10, 2000. The Company is currently renegotiating the terms regarding
the payment of the balance. 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 financial
institution was granted warrants to purchase 200,000 shares of Company stock at
$2.60 per share exercisable through March 16, 2004.
During the month of June 2000, the company received proceeds from eight
convertible promissory notes, (six for $20,000, one for $10,000 and one for
$5,000), totaling $135,000 dollars. Each convertible promissory note carries a
simple interest rate of 10.5%, interest only is payable quarterly, and matures
one-year from date of issuance. In addition, each convertible promissory note
holder was issued shares of the Company's common stock for each $5,000 dollars
of indebtedness owed to the convertible promissory note holder at date of
issuance, and warrants to purchase one share of common stock
24
<PAGE>
for each $2.00 of indebtedness. These shares of stock are restricted securities.
The lender has the right, at its sole and exclusive option, to convert the
outstanding indebtedness to common shares (the "Conversion Rights") of the
company at any time prior to the borrower making a payment. Should such
"Conversion Rights" be exercised, the Company shall issue such shares to the
Lender at the rate of one share of common stock for each two ($2.00) dollars of
the indebtedness then due and owing. The shares issued by the company through
the exercise of the "Conversion Rights" will be restricted securities. The
option and conversion will be exercised by the lender issuing written notice to
the borrower.
The balance for the nine convertible promissory notes including interest
accrued as of September 30, 2000 is $135,556.
On June 14, 2000, New York Fast Ferry Services Inc., received proceeds of
two bridge loans aggregating $60,000. New York Fast Ferry Services Inc. has
since paid off the balance on the loans. The loans were paid with funds from
ferry operations.
In June 1999, the Company obtained financing in the net amount of $300,000
from a then unrelated third party that is secured by a second mortgage on the
property of the Shrewsbury River, 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 was 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. The Company made a principal payment in
July 2000, reducing the balance to $58,694. The Company has renegotiated the
terms of the note, such that the Company will now make interest only payments on
the balance until a final payment is made before December 31, 2000. As of
November 1, 2000, the Company is current in its obligation. As an inducement to
enter into the loan, the Company issued the lender 25,000 shares of common stock
in June 1999 and an additional 25,000 shares in December 1999.
In the nine months ended September 30, 2000, the Company had raised proceeds
of $482,600 through the private placement of 712,667 shares of restricted common
stock to accredited investors. The Company also issued 252,500 shares of
restricted common stock to three directors and officers in satisfaction of
unpaid compensation amounting to $214,625. In addition, the company issued
100,000 shares of restricted common stock on June 13, 2000 and $25,000 on July
11, 2000 to a mortgage holder of the discounted operation in satisfaction of
$150,000 of debt.
The Company, as of September 30, 2000, had a working capital deficiency of
$4,900,471. 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 until it increases its ferry service
when each of its 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
25
<PAGE>
operations. Furthermore, capital expenditures to acquire additional fast ferry
vessels and improve and expand its landside ferry facilities will require
significant funding.
The Company has been successful to date in its efforts to raise funds and
believes that proceeds from interim financing from convertible promissory notes
sold during the second, third and fourth quarters, 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. As of September 30, 2000, $1,365,000 was raised
from the sale of convertible promissory notes. Furthermore, the Company has
negotiated more favorable terms with certain creditors, and is negotiating more
favorable payment terms with other 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 services or otherwise respond to
unanticipated competitive pressures. Such inability could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Forward-Looking Statements
--------------------------
Discussions and information in this document that are not historical facts
should be considered forward-looking statements. With regard to forward-looking
statements, including those regarding the potential interim financing, the
sufficiency of the cash flow, 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. Differences may be caused by a variety of factors,
including 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On June 30, 2000, D. Weckstein & Co., Inc. ("Weckstein") filed suit against
the Company in the Supreme Court of the State of New
26
<PAGE>
York. The Complaint alleges that the Company owes Weckstein $360,000 for
services rendered by Weckstein in connection with the Company's purchase of The
Cigar Box, pursuant to a letter agreement between Weckstein and the Company. In
the alternative, if the Court finds that Weckstein is not entitled to damages
for breach of the letter agreement, Weckstein seeks an award in quantum meruit
for services rendered. Weckstein also seeks an award of its costs and
disbursements.
On July 28, 2000, the Company filed an Answer, denying that the Company
owes Weckstein damages for breach of contract or in quantum meruit; raising
several defenses, including that Weckstein failed to perform its obligations
under the letter agreement; and seeking dismissal of the Complaint and an award
of the Company's attorney's fees, costs and further relief that the Court deems
just and equitable.
On July 28, 2000, the Company filed a Notice of Removal, and the case has
been removed from the Supreme Court of the State of New York to the United
States District Court for the Southern District of New York, based on the
diversity jurisdiction of the Federal Court.
On August 3, 2000, the Company received a notice from a subsidiary of The
Connecticut Light & Power Co. (the "Landlord"), terminating its lease for the
property that is the proposed site for the Company's Stamford, Connecticut ferry
terminal. The Landlord based the termination of the lease on the failure of the
Company to get certain necessary permits for its use of the site. The Company
disputes the Landlord's right to terminate the lease.
On August 8, 2000, the Company filed a complaint against the Landlord in
Connecticut Superior Court alleging breach of lease, promissory estoppel, breach
of the duty of good faith and fair dealing, intentional misrepresentation,
negligent misrepresentation, and violation of the Connecticut Unfair Trade
Practices Act by the Landlord. The Company claims that the Landlord had agreed
that the permits issue would not be used to attempt to terminate the lease. The
Company is seeking specific performance of the lease, compensatory and punitive
damages, attorneys fees, and other relief.
ITEM 2. CHANGES IN SECURITIES
---------------------
(a) On September 19, 2000, the Company filed Articles of Amendment to the
Company's Certificate of Incorporation to (1) authorize 10,000,000 shares
of $0.01 par value preferred stock; (2) increase the number of authorized
shares of common stock from 10,000,000 shares to 40,000,000 shares; and (3)
to provide the Board of Directors with full authority to make divisions of
shares into classes and series within any class or classes, to determine
the designations and the number of shares of any class or classes, and to
determine the relative rights, preferences and limitations of the shares of
any class or series as the Board of Directors believes is appropriate.
The general effects of each of the three amendments are as follows:
27
<PAGE>
1. Increase in Number of Authorized Shares of Common Stock
-------------------------------------------------------
Anti-Takeover Effects. The issuance of additional shares of Common Stock by
the Company may also potentially have an anti-takeover effect by making it
more difficult to obtain stockholder approval of various actions, such as a
merger or removal of management. The increase in authorized shares of
Common Stock was not proposed for an anti-takeover related purpose and the
Board of Directors and management have no knowledge of any current efforts
to obtain control of the Company or to effect large accumulations of its
Common Stock.
Dilutive Effects. The authorization and subsequent issuance of additional
shares of Common Stock may, among other things, have a dilutive effect on
earnings per share and on the equity and voting power of existing holders of
Common Stock. The actual effect on the holders of Common Stock cannot be
ascertained until the shares of Common Stock are issued in the future.
However, such effects might include dilution of the voting power and
reduction of amounts available on liquidation.
2. Authorization of Preferred Stock
--------------------------------
Anti-Takeover Effects. The authorized but unissued shares of Preferred
Stock could be used by incumbent management to make more difficult a change
in control of the Company. Under certain circumstances such shares could be
used to create voting impediments or to frustrate persons seeking to effect
a takeover or otherwise gain control of the Company. In addition, the Board
of Directors could authorize holders of a series of Preferred Stock to vote
as a class, either separately or with the holders of Common Stock, upon any
proposed merger, sale or exchange of assets by the Company or any other
extraordinary corporate transaction.
The authorization of Preferred Stock might be considered as having the
effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Common Stock, to
acquire control of the Company with a view to imposing a merger, sale of all
or any part of the Company's assets or a similar transaction that may not be
in the best interest of all of the shareholders, since the issuance of new
shares of Preferred Stock could be used to dilute the stock ownership of a
person or entity seeking to obtain control of the Company. Additionally,
Common Stock could be issued diluting the ownership interest of a potential
acquirer.
Dilutive Effects. The issuance of shares of Preferred Stock having
conversion rights might have the effect of diluting the interests of other
shareholders. In addition, it should be anticipated that any shares of
Preferred Stock which may be issued would have dividend and liquidation
preferences which would be superior to those of the Common Stock. Holders
of Common Stock do not have preemptive rights to subscribe to additional
securities which may be issued by the Company.
3. Authority of Board of Directors
-------------------------------
The Certificate of Incorporation, as amended, empowers the Board of
Directors to make divisions of shares into classes and into
28
<PAGE>
series within any class or classes, to determine the designations and the
number of shares of any class or classes, and to determine the relative
rights, preferences and limitations of the shares of any class or series as
the Board of Directors believes is appropriate. It allows the Directors the
same discretion with respect to determining the relative rights, preferences
and limitations of the shares of any series of Preferred Stock. Certain
series of the Preferred Stock could have preference over other series of the
Preferred Stock and certain series of the Common Stock could have preference
over other series of the Common Stock. Among the determinations to be made
by the Board of Directors for each issuance of a series of Preferred or
Common Stock are:
a. the stated value of shares constituting a series, if different from
the par value;
b. the rate of dividend, the time of payment of dividends, whether
dividends are cumulative, and the date from which any dividend shall accrue;
c. whether shares may be redeemed and if so, the redemption price and
the terms and conditions of redemption;
d. the amount payable upon shares in the event of involuntary
liquidation;
e. the amount payable upon shares in the event of voluntary liquidation;
f. sinking fund or other provisions, if any, for the redemption or
purchase of shares;
g. the terms and conditions on which shares may be converted, if the
shares of any series are issued with the right of conversion; and
h. voting powers, if any.
Such determination would take into account the circumstances pertinent at
that time and would be made by resolution of the Board of Directors. Such
resolution shall set forth the actions of the Board of Directors and state
the designation and number of shares, and the relative rights, preferences
and limitations of the shares, of each class and series thereby created or
with respect to which it has make a determination or change. Prior to the
issuance of any shares of a class or series with respect to which the Board
of Directors has acted under this proposed amendment, the Company shall file
a Certificate of Amendment to the Company's Certificate of Incorporation
setting forth the relevant Board of Directors' resolution and providing for
an amendment to the Certificate of Incorporation so that the designation and
number of shares of each class and series acted upon in the resolution, and
the relative rights, preferences and limitations of each such class and
series, are as stated in the resolution.
29
<PAGE>
(b) Not Applicable.
(c) Unregistered Equity Securities of the Companies Sold During the Quarter
-----------------------------------------------------------------------
During July of 2000, the Company issued 252,000 shares, having a fair
market value on the date of issuance of $504,000 to the following
purchasers of the Company's convertible promissory notes. The sales were
conducted in reliance on Section 4(2) of the Act and Rule 506 and were made
only to accredited investors.
Principal Amount
July of Note Number of Shares
Charles Consagra $ 40,000 1,000
Lancer Offshore $500,000 125,000
James Kelly $100,000 25,000
Joseph Roselle $100,000 25,000
Joseph Giamanco $300,000 75,000
Frederick Keifer $ 40,000 1,000
-------
252,000
=======
During August of 2000, the Company issued 3,125 shares, having a fair
market value on the date of issuance of $6,250 to the following purchasers
of the Company's convertible promissory notes. The sales were conducted in
reliance on Section 4(2) of the Act and Rule 506 and were made only to
accredited investors.
Principal Amount
August of Note Number of Shares
Frederick Keifer $40,000 2,000
Lowell Kupfer $10,000 250
Gary Von Bargen $15,000 750
Arthur Klowden $ 5,000 125
-------
3,125
=======
In August 2000, the Company sold 6,667 shares of common stock at $1.50 per
share and warrants to acquire 6,667 common shares at $2.00 per share, to
the following accredited investor. The sale was conducted in reliance on
Section 4(2) of the Act and Rule 506.
In August 2000, the Company sold 26,667 shares of common stock at $1.25 per
share and warrants to acquire 25,000 common shares at $1.25 per share, to
the following accredited investors. These sales were made in reliance on
Section 4(2) of the Act and Rule 506 to accredited investors only.
August Number Of Shares
------ -----------------
Thomas Coleman 6,667
Green Hibernia 20,000
-------
26,667
=======
30
<PAGE>
During September of 2000, the Company issued 2,500 shares, having a fair
market value on the date of issuance of $5,000 to the following purchasers
of the Company's convertible promissory notes. These sales were made in
reliance on Section 4(2) of the Act and Rule 506 to accredited investors
only.
Principal Amount
September of Note Number of Shares
Herman and Danny Vaden $20,000 1,000
Herbert and Lois Rake $20,000 500
Dorthy Bushnell (1) $10,000 250
Dorthy Bushnell (2) $10,000 250
John F Head $20,000 500
-------
2,500
=======
In July 2000, a financial consultant, Capital Research, Ltd., was issued as
payment for his services (a) 10% interest bearing $88,000 convertible
promissory note, (b) 22,000 shares of the Company's common stock and
warrants to acquire 5,000 shares of the Company's common stock at $2.00 per
share whose fair value aggregated $44,000. These securities were issued in
reliance on Section 4(2) of the Act.
In September 2000, the same consultant, Capital Research, Ltd., was given
warrants to acquire 50,000 shares of the Company's common stock at $2.00
per share in exchange for consulting services rendered during the quarter
ended September 30, 2000. These securities were issued in reliance on
Section 4(2) of the Act.
As disclosed in the foregoing paragraphs, The Company in the current
quarter issued for cash and services an aggregate of $1,318,000 of
convertible promissory notes. The notes are convertible into the Company's
common stock at $2.00 per share. If all the convertible debt issued in the
quarter was converted, then an additional 659,000 common shares would be
outstanding.
At September 30, 2000, the total convertible notes outstanding is
$2,563,000. All of the notes are convertible into the Company's common
stock at the rate of $2.00 per share. If all of the note holders exercised
their sole conversion option and converted their notes, then an additional
1,281,500 common shares would be outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On August 21, 2000 the Company held an annual meeting of shareholders
at which the following matters were submitted for voting:
(b) The following four persons were elected as directors to hold office
until the next annual meeting of shareholders and until their successors have
been elected and qualified:
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<PAGE>
Anthony Cappaze
Anthony Colasanti
Francis P. Matusek
Gregory J. Hauke
The tabulation with respect to each nominee was as follows:
<TABLE>
<CAPTION>
% of % of
Shares Withhold Shares
For Represented Authority Represented
----------- --------- -----------
<S> <C> <C> <C> <C>
Anthony Cappaze 3,496,093 99.72% 5,900 0.17%
Group C
Anthony T. Colasanti 3,496,093 99.72% 5,900 0.17%
Group B
Francis P. Matusek 3,496,093 99.72% 5,900 0.17%
Group A
Gregory J. Hauke 3,496,093 99.72% 5,900 0.17%
Group A
</TABLE>
(c) The other matters voted on at the shareholders' meeting and the number
of votes cast for, against or withheld as well as the number of abstentions are
set forth as follows:
Proposal Two: Amendment to the Company's Certificate of Incorporation to
------------
change the name of the Company to LIGHTHOUSE FAST FERRY, INC.:
<TABLE>
<CAPTION>
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
3,487,433 99.48% 18,010 0.51% 300 0.008%
</TABLE>
Proposal Three: Amendment to the Company's Certificate of Incorporation to
--------------
authorize 10,000,000 shares of $0.01 par value Preferred Stock:
<TABLE>
<CAPTION>
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
2,934,423 83.70% 43,610 1.24% 4,050 0.12%
</TABLE>
Proposal Four: Amendment to the Company's Certificate of Incorporation to
-------------
increase the number of authorized shares of $0.01 par value Common Stock from
10,000,000 to 40,000,000 shares:
32
<PAGE>
<TABLE>
<CAPTION>
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
3,469,493 98.97% 34,450 0.98% 1,800 0.05%
</TABLE>
Proposal Five: Amendment to the Company's Certificate of Incorporation to
-------------
provide the Board of Directors with full authority to make divisions of shares
into classes and into series within any class or classes, to determine the
designations and the number of shares of any class or classes, and to determine
the relative rights, preferences and limitations of the shares of any class or
series as the Board of Directors believes is appropriate:
<TABLE>
<CAPTION>
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
2,930,273 83.58% 51,810 1.48% -0- 0%
</TABLE>
Proposal Six: Approval of the 2000 Employee Stock Option Plan, pursuant to
------------
which 1,115,000 shares of Common Stock are reserved for issuance as bonuses or
upon exercise of stock options which may be granted to employees, officers or
directors of, and consultants and advisers to, the Company:
<TABLE>
<CAPTION>
% of % of % of
Shares Shares Shares
FOR Represented AGAINST Represented ABSTAIN Represented
----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
2,951,948 84.20% 24,810 0.71% 5,325 0.15%
</TABLE>
33
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit 3.1 - Certificate of Incorporation, as amended. (1)
Exhibit 3.2 - Bylaws. (1)
Exhibit 10.6 - Agreement with Robert E. Derecktor, Inc. for
vessel construction. (1)
Exhibit 27.1 - Financial Data Schedule. Filed herewith.
---------
(1) Incorporated by reference from the Company's Registration Statement on
Form 10-SB, as amended.
(b) Reports on Form 8-K: During the quarter ended September 30, 2000, the
Company filed no reports on Form 8-K.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-QSB to be signed on its behalf by the
undersigned thereunto duly authorized.
LIGHTHOUSE FAST FERRY, INC.
Date: November 13, 2000 By: /s/Anthony Cappaze
---------------------------
Anthony Cappaze, President
Chief Executive Officer and
Director
Date: November 13, 2000 By: /s/Anthony Colasanti
---------------------------
Anthony Colasanti, Vice
President, Secretary and.
Director
Date: November 13, 2000 By: /s/John Ferreira, Jr.
---------------------------
John Ferreira, Jr.,
Chief Financial Officer
35
