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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB /A No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Lighthouse Fast Ferry, Inc. (f/k/a 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
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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. On September 19, 2000,
the Company changed its name to Lighthouse Fast Ferry, 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"). In July 2000, the Company entered
into an oral agreement with the holders of the remaining 20% of issued and
outstanding shares of Fast Ferry Holding Corporation to purchase those shares by
the now extended deadline of January 31, 2001. The Company and the holders of
the NY Fast Ferry shares are currently negotiating a written stock purchase
agreement for the purchase by the Company of the remaining NY Fast Ferry shares
for a combination of cash and restricted common shares of the Company. The
purchase price in the agreement under negotiation is $28,753 in cash and 102,271
common shares of the Company. Management expects that this written agreement
will be finalized and executed in January 2001. 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.
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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 Cigar Box business were
unsuccessful. The Company closed the Cigar Box on March 31, 2000. The Property
is still listed for sale.
Current Business; Markets
-------------------------
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 which 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. Each day, the ferry makes two peak trips in the morning and
two peak return trips at the end of the business day, and it makes 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 full-time for NY Fast Ferry operation. The M/V
Finest and M/V Bravest are now used for peak runs to and from Manhattan from the
Clam Hut site in the Highlands area, for which the Company has received site
approval from the Planning Board of the Borough of Highlands, New Jersey. On
December 15, 2000 the Company executed a Parking License Agreement, Docking
Permit and Lease of Dock and Office Space (the "Clam Hut Lease) for the Clam Hut
site. Pursuant to the terms of the Clam Hut Lease, the Company has the right to
use 125 of the parking spaces at the Clam Hut site from Monday to Friday until
December 31, 2001 for a fee of $1250 per week plus 5% of gross revenues of all
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excursions/charters originating and/or terminating at the landlord's pier. The
Clam Hut Lease is renewable at the end of each period with terms to be decided
upon renewal and in keeping with the requirements of the municipality. In
addition, pursuant to the terms of the Clam Hut Lease, the Company has the right
to use the pier and to install a parking garage at the end of the pier and to
use the outbuilding at the foot of the pier for $800.00 per month as a ticket
booth. The terms of use for the pier and outbuilding are coincident with the
terms of the parking space license. The Company has begun making site
improvements, and began ferry service from the site on December 11, 2000.
Together, the M/V Finest and the M/V Bravest currently make two trips during
morning peak hours to Manhattan, and four trips from Manhattan during peak
evening hours.
NY Fast Ferry also runs excursions during non-commuter times and on
holidays and weekends when the vessels are 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 ("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, New
Jersey and Connecticut 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 entered into a five-year lease agreement, renewable for a
further five-year term, 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 an
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
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$150,000, or $12,500 per month. On August 7, 2000, the Company received a notice
from a subsidiary of its Landlord terminating the lease. The Company disputes
the Landlord's right to terminate the lease and has filed legal action to
enforce the lease. See Item 2, Legal Proceedings, below.
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
34/th/ 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 service to up to four vessels. The design work for the
new boats was completed in January 2000. The Company entered into a contract
with Derecktor Shipyards ("Derecktor") for the construction of at least three
vessels. Work on the first vessel has been suspended by Derecktor until the
Company obtains a commitment for construction and permanent financing of the
vessel. The Company is in negotiations with a number of private lenders for
permanent financing of the vessel. Actual construction of the vessel will
commence immediately upon the Company receiving permanent financing of the
vessel. Construction is expected to be completed eight to ten months after
financing is in place. The U.S. Coast Guard must issue a certificate of
inspection for any new vessel the Company uses.
Before ferry service can begin, the Company must first obtain various
governmental approvals and complete site improvements on the Stamford Property.
The Company expects the refurbishment to be completed within approximately 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. The Company has met with
its engineers and government officials, and is attempting to resolve its dispute
with the Landlord on the Stamford site in a favorable manner (see the discussion
in Item 2, Legal Proceedings). The Company is unable to make site improvements
until the dispute with the Landlord is resolved. In the meantime, the Company is
diligently proceeding with the Department of Environmental Protection (the
"DEP") permit process. The Company received correspondence dated October 30,
2000 from the Connecticut DEP advising the Company that the proposed activities
do not conform to the statutory criteria for which a Certification of Permission
("COP") may be issued. The correspondence further stated that the proposed
activities cannot be authorized by a COP, but require a permit pursuant to
Section 22A-361 of the general statutes. Upon receipt of the correspondence, the
Company discussed this matter in detail with its professional expert, Frederick
R. Harris and Company. The Company's expert met with the DEP to review this
matter and was unsuccessful in achieving a resolution. On December 15, 2000 the
Company filed an application with DEP in accordance with Section 22A-361, which
involves public notice and expects that the DEP approval process will be
concluded in approximately six (6) months. The Company received written approval
from the Connecticut Department of Environmental Protection on October 30, 2000.
The Company hopes to begin operations at the Stamford site by the Summer of
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.
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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 from Stamford, 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. Seastreak has substantially greater financial resources through its
parent corporation, Sea Container, and the use of those resources could
adversely impact the Company. In addition, Seastreak has ordered two new
vessels, which are comparable to the Company's vessels, one of which is expected
to be completed in February 2001 and the other is expected to be completed three
months thereafter.
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. Although the Company previously thought that
the ferry operator that would be servicing that facility would be New York
Waterways, Monmouth County announced in late 2000 that new bids will be sought
and the project would be delayed at least another year.
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 a significant adverse impact on its results of operations.
Dependence on Suppliers
-----------------------
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 breaches its lease arrangement with the Company.
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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. If a
violation or other problem is 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' captains 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 December 6, 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 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
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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 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 $1,223,374 and $514,036, for
the years ended December 31, 1999 and 1998, respectively. Of the total marketing
and administrative expenses in 1999, $486,624, or 40%, is attributable to
administration of the ferry service and $710,920, or 58%, is attributable to
corporate administration. For the comparable period in the prior year, 18%, or
$91,120, of the total marketing and administrative expenses was attributable to
the administration of the ferry service and $287,056, or 56%, was attributable
to corporate administration. Salaries and related benefits for ferry
administration totaled $285,150, or 23%, 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
31%, and $183,334, or 36%, of the total category
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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 $80,945 and $20,204 for the years ended December 31, 1999 and 1998,
respectively.
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.
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Comparison of the Three and Nine Month Periods Ended September 30, 2000 vs. the
Nine Month Period Ended September 30, 1999.
REVENUES - NYFF's operations consolidated revenues increased by 38.63% to
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$1,316,469 for the nine months ended September 30, 2000 compared to $949,636 for
the nine 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:
PASSENGER 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.
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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 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.
11
<PAGE>
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 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
12
<PAGE>
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 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, NJ).
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.
13
<PAGE>
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.
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 nine months ended
September 30, 2000 compared to $340,001 for the nine 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.
14
<PAGE>
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 NY Fast Ferry and commenced operating fast ferry service from Highlands, New
Jersey. As part of the transaction, the Company guaranteed payment and
satisfaction of NY Fast Ferry's outstanding liabilities, which included
mortgages on its two ferry vessels and a line of credit. In July 2000, the
Company entered into an oral 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 January 31, 2001. The Company and the holders of the NY
Fast Ferry shares are currently negotiating a written stock purchase agreement
for the purchase by the Company of the remaining NY Fast Ferry shares for a
combination of cash and restricted common shares of the Company. The purchase
price in the agreement under negotiation is $28,753 in cash and 102,271 common
shares of the Company. Management expects that this written agreement will be
finalized and executed in January 2001. 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 make principal and interest
payments for both boat mortgages, carry its 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.
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.
On March 1, 2000 the company received a total of $1,000,000 in proceeds
from senior convertible promissory notes from two investment funds, originally
due December 11, 2000 with interest at 10% per annum, and is payable quarterly.
The Company issued a $110,000 senior convertible promissory note to a third
investment fund a finder's fee. 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 December 2000 the Company and the investment funds agreed to extend the
maturity date of the notes to June 30, 2001 and in consideration therefor, the
Company agreed to issue to the investment funds shares of the Company's Common
Stock at a rate of one share for each $2.00 of the outstanding indebtedness then
due and owing. Further, the Company agreed to reduce the conversion price from
$1.50 per share to $1.00 per share and upon a ninety day default, the conversion
price is reduced from $1.00 per share to $0.75 per share. Each lender has the
right at its sole and exclusive option to convert the outstanding indebtedness
under the notes to common stock of the Company at any time prior to the Company
making payment and should such conversion rights be exercised, the Company shall
issue common stock to the lender at the rate of one share for each $1.00 of
indebtedness then due and owing. The loans may be prepaid at any time, but must
be repaid out of the proceeds of any financing in excess of $2,000,000.
As of September 30, 2000, two outstanding notes payable and preferred ship
mortgages held by Debis Financial Services, Inc. ("Debis"), one on the ferry M/V
Finest and one on the ferry M/V
15
<PAGE>
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 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 and Debis
have agreed to restructure the payment of the debt. The remaining principal
balance on the line of credit shall be paid through eight quarterly principal
payments, plus accrued interest. The first payment was due December 31, 2000
with seven subsequent payments due at each calendar quarter. In consideration
for the restructuring of the debt payment, Debis will receive a restructure fee
of $50,000, $25,000 of which was payable on December 31, 2000 and $25,000 of
which is payable on March 31, 2001. The Company expects to make the first of
such payments in the first quarter of 2001. Quarterly principal and interest
payments will be equal, except that the first payment on December 31, 2000 will
be divided in half, and the second half of such payment will be due January 31,
2001 with accrued interest. 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 June 2000 the Company received proceeds from eight 10.5% convertible
promissory notes, (six for $20,000, one for $10,000 and one for $5,000),
totaling $135,000. During July 2000 the Company received proceeds from two 10.5%
convertible promissory notes (two for $40,000) totaling $80,000. During August
2000 the Company received proceeds from four 10.5% convertible promissory notes
(one for $40,000, one for $10,000, one for $15,000 and one for $5,100) totaling
$70,100. During September 2000 the Company received proceeds from five 10.5%
convertible promissory notes (three for $20,000 and two for $10,000) totaling
$80,000. 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.
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 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 $2.00 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.
16
<PAGE>
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 July 2000, the Company received a total of $1,000,000 in proceeds from
senior convertible promissory notes from four lenders, originally due January
14, 2001 with interest at 10% per annum, payable quarterly, and paid a finder's
fee by issuance of a $88,000 note. One of these lenders exchanged a $200,000
note for its $200,000 mortgage note receivable. In December 2000 the Company and
the lenders agreed to extend the maturity date of the notes to June 30, 2001 and
in consideration therefor, the Company agreed to issue to the lenders shares of
the Company's common stock at a rate of one share for each $2.00 of outstanding
indebtedness then due and owing. Further, the Company agreed to reduce the
conversion price from $1.50 per share to $1.00 per share and upon a ninety day
default, the conversion price is reduced from $1.00 per share to $0.75 per
share. Each lender has the right at its sole and exclusive option to convert the
outstanding indebtedness under the notes to common stock of the Company at any
time prior to the Company making payment and should such conversion rights be
exercised, the Company shall issue common stock to the lender at the rate of one
share for each $1.00 of indebtedness then due and owing. The loans may be
prepaid at any time, but must be repaid out of the proceeds of any financing in
excess of $2,000,000.
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 is currently
renegotiating the terms of the note, such that the Company will make interest
only payments on the balance until a final payment is made before March 1, 2001.
To date, 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
operations. Furthermore, capital
17
<PAGE>
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, $2,165,000 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.
Subsequent Events
-----------------
In October, the Company received a total of $500,000 in proceeds from
senior convertible promissory notes from two lenders and issued a $55,000 note
as a finder's fee, originally due January 30, 2001 with interest at 10% per
annum, payable quarterly. In December 2000 the Company and the lenders agreed to
extend the maturity date of the loans to June 30, 2001 and in consideration
therefor, the Company agreed to issue to the lenders shares of the Company's
common stock at a rate of one share for each $2.00 of outstanding indebtedness
then due and owing. Further, the Company agreed to reduce the conversion price
from $1.50 per share to $1.00 per share and upon a ninety day default, the
conversion price is reduced from $1.00 per share to $0.75 per share. Each lender
has the right at its sole and exclusive option to convert the outstanding
indebtedness under the notes to common stock of the Company at any time prior to
the Company making payment and should such conversion rights to exercised, the
Company shall issue common stock to the lender at the rate of one share for each
$1.00 of indebtedness then due and owing. The loans may be prepaid at any time,
but must be repaid out of the proceeds of any financing in excess of $2,000,000.
In addition, during the month of October, the Company received proceeds
from four 10.5% convertible promissory notes (one for $5,000, two for $40,000
and one for $10,000) totaling $95,000. During the month of November, the Company
received proceeds from three 10.5% convertible promissory notes (two for $60,000
and one for $20,000) totaling $140,000. 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.
18
<PAGE>
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 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 $2.00 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 loan balance for the twenty-six 10.5% convertible promissory notes
including interest accrued as of November 30, 2000 was approximately $511,000.
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 principal balance of the ANF Note is $40,177.47 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 would
have been due in full. However, the Company is renegotiating the terms of the
note, such that the Company will make interest only payments on the balance
until a final payment is made on or before March 1, 2001. To date, the Company
is current in its obligation. Payment and satisfaction of the remaining
indebtedness will be
19
<PAGE>
satisfied from the Company's cash reserves on or before December 31, 2000. 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 was 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. By virtue of the surrender of the
premises to the Landlord, the Company believes it has no further liability for
lease payments on the premises, and the Landlord has not sought further payments
from the Company.
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, and are being
occupied by the Company under a sublease agreement with Anthony Colasanti, a
director of the Company, at a cost of $2,750 per month. For the six months prior
to March 1, 2000, 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 December 6, 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:
20
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
Of Beneficial Owner Beneficial Ownership Common Stock
------------------- -------------------- ------------
<S> <C> <C>
Anthony Cappaze 1,509,850/(1)/ 21.4%
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Anthony Colasanti 390,000/(2)/ 5.6%
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Francis P. Matusek 1,050,400/(3)/ 15.8%
186 Highway 34
Matawan, New Jersey 07747
Ray Wright 150,000/(4)/ 2.2%
One Springfield Avenue
Summit NJ 07901
John Ferreira, Jr. 0 *
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
Gregory J. Hauke 29,250 *
195 Fairfield Avenue, Suite 3C
West Caldwell, NJ 07006
All current directors and executive officers as a 2,979,500/(5)/ 39.8%
group
(five 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 2,250 shares owned by Mr. Matusek's spouse.
(4) Includes options to acquire 100,000 shares at $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.
21
<PAGE>
Other Owners.
------------
To the knowledge of the Directors and Senior Officers of the Company, as of
December 6, 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:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Common Stock
------------------- -------------------- ------------
<S> <C> <C>
Capital Research Ltd. 556,873/(1)/ 7.8%
27241 Paseo Peregrino
San Juan Capistrano, CA 92675
Joseph Giamanco 1,228,917/(2)/ 16.1%
c/o Henry Kramer
GHM, Inc.
74 Trinity Place
New York, NY 10006
Michael Lauer 4,436,467/(3)/ 46.3%
c/o The Lancer Group
375 Park Avenue
New York, NY 10152
</TABLE>
_______________
(1) Includes 126,500 shares to be issued pursuant to an amendment to senior
promissory notes executed in December 2000; warrants to purchase 75,000 shares
at $1.25 per share until October 2004; approximately 144,623 shares underlying
currently convertible promissory notes, such notes being convertible into shares
of common stock at the rate of one share for each $1.00 of indebtedness then due
and owing (number reflects indebtedness under the notes as of November 30,
2000); approximately 100,000 shares underlying a currently convertible
promissory note, such note being convertible into shares of common stock at the
rate of one share for each $1.00 of indebtedness then due and owing to be issued
in consideration for the negotiation and execution of the amendment to senior
promissory notes; and 50,000 shares to be issued in consideration of the
negotiation and execution of the amendment to senior promissory notes.
(2) Includes warrants to purchase 200,000 shares at $1.00 per share until July
2002; 200,000 shares underlying a convertible promissory note, such note being
convertible into shares of common stock at the rate of one share for each $1.00
of indebtedness then due and owing; warrants to purchase 150,000 shares at $0.50
per share until March 2002; approximately 303,917 shares underlying a
convertible promissory note, such note being convertible into shares of common
stock at the rate of one share for each $1.00 of indebtedness then due and
owing; and 150,000 shares to be issued pursuant to an amendment to senior
promissory notes executed in December 2000.
(3) Mr. Lauer is Managing Director of Lancer Offshore, Inc., The Viator Fund
Ltd. and The Orbiter Fund, and managing partner of Lancer Partners, L.P. This
total includes 1,733,754 shares beneficially owned by Lancer Offshore, Inc.;
1,625,000 shares and warrants beneficially owned by The Viator Fund, Ltd.;
375,000 shares beneficially owned by The
22
<PAGE>
Orbitor Fund; 452,713 shares beneficially owned by Lancer Partners, L.P.; and
250,000 shares owned directly by Mr. Lauer.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth as of December 6, 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 50 Director
John Ferreira, Jr. N/A 37 Chief Financial Officer
</TABLE>
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
23
<PAGE>
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. Mr. Colasanti is 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.
24
<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 $100,000 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FISCAL YEAR COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------ -------
Restricted
Shares
Securities or All other
Other Annual under Restricted LTIP Compen-
Name and Salary/(1)/ Bonus Compen- Option/SARs Share Payouts sation
Principal Position Year ($) ($) sation Granted Units ($) ($)
------------------ ---- --- --- ------ ------- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony Cappaze/ 1999 100,000 0 0 300,000 0 0 5700
Chairman 1998 75,000 0 0 0 0 0 0
And CEO 1997/(1)/ 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, which was approved by the shareholders on August 21,
2000. 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. To date, 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's
employment agreement dated January 2000 provides that he receive warrants for
the purchase of 100,000 shares of common stock at $1.00 per
25
<PAGE>
share for each of 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. Mr. Colasanti's employment agreement dated January 2000
provides that he receive warrants for the purchase of 100,000 shares of common
stock at $1.00 per share for each of 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 are exercisable beginning
1/1/03. Mr. Cappaze and Mr. Matusek have deferred a significant portion of their
compensation under these agreements. This deferred compensation carries an
interest rate of 4% per annum. As of December 31, 1999, the total deferred
compensation, including interest due, was $198,870.
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 received a salary at the rate of $100,000 per annum. Beginning January
1, 2001, Mr. Ferreira's salary will be $125,000 per year.
Option/Stock Appreciation Rights ("SAR") Grants during the most recently
------------------------------------------------------------------------
completed Fiscal Year
---------------------
The following table sets out the stock options and stock warrants granted
as bonuses which were granted by the Company during the previous fiscal year to
the Named Executive Officers of the Company. The following amounts include
options that were granted prior to the previous fiscal year but were repriced
during that year.
OPTION/SAR GRANTS IN PREVIOUS YEAR
INDIVIDUAL GAINS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Expiration Date
---- ----------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Anthony Cappaze 200,000 32% $1.75 $1.75 06/11/02
100,000 16% $1.25 $1.25 10/27/01
Anthony Colasanti 100,000 16% $1.50 $1.50 12/20/01
100,000 16% $1.25 $1.25 10/27/01
</TABLE>
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year-End
--------------------------------------------------------------------------
Option/SAR Values
-----------------
The following table sets out all options/SARs and warrants granted as
bonuses which were exercised by the Named Executive Officers during the most
recently completed fiscal year and the values of the options/SARs and warrants
for such persons as of the end of the most recently completed fiscal year.
26
<PAGE>
Aggregated Option/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options/SARs at FY-End Value of
(#) Unexercised
Options/SARs at
FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Anthony Cappaze -0- -0- 200,000 all exercisable N/A
100,000 all exercisable $16,000
Anthony Colasanti -0- -0- 100,000 all exercisable N/A
100,000 all exercisable $16,000
</TABLE>
__________________
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.
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
27
<PAGE>
$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 100,000 shares of common stock at $1.00 for each of
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 each of 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
Michael Lauer and two companies controlled by that investor (Lancer Offshore,
Inc. and the Viator Fund Ltd.), all of them accredited investors, for gross
proceeds of $1,250,000 or $1.00 per share. The Viator Fund also received
warrants to purchase an aggregate of 750,000 shares of common stock exercisable
at $1.25 per share until December 31, 2002. A finder's fee was paid to Capital
Research 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 $1,000,000 bridge loan to
the Company.
In July 2000, the Company issued 125,000 shares, having a fair market value
on the date of issuance of $2.00 per share, to Lancer Offshore, Inc. in
connection with its purchaser of a senior convertible promissory note of the
Company in the amount of $500,000.
In October 2000, the Company issued 75,000 shares, having a fair market
value on the date of issuance of $1.50 per share, to Lancer Offshore, Inc. in
connection with its purchaser of a senior convertible promissory note of the
Company in the amount of $200,000.
28
<PAGE>
In December 2000, the Company entered into an Amendment to Senior
Promissory Note Agreement whereby the Company agreed to issue 350,000 shares to
Lancer Offshore, Inc.; 250,000 shares to The Orbiter Fund, Ltd.; 250,000 shares
to The Viator Fund, Ltd.; 150,000 shares to Lancer Partners, L.P.; 150,000
shares to Joseph Giamanco; and 176,650 shares to Capital Research Ltd. in
consideration of the extension of the maturity dates of certain Senior
Convertible Promissory Notes and the reduction of the conversion prices.
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
The following summary description of the Company's securities is not
complete and is qualified in its entirety by reference to the Company's
Certificate of Incorporation and Bylaws.
The Company's Certificate of Incorporation was amended effective September
19, 2000 to increase the number of authorized common stock shares and to
authorize the issuance of preferred shares. The authorized capital stock of the
Company now consists of 40,000,000 shares of $0.01 par value common stock
(previously defined as "Common Stock") and 10,000,000 shares of $0.01 par value
preferred stock ("Preferred Stock"), which the Company may issue in one or more
series as determined by the Board of Directors.
Common Stock
------------
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.
Preferred Stock
---------------
The Company's Board of Directors is authorized to issue from time to time,
without shareholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of Preferred Stock with such dividend,
redemption, conversion and exchange provisions as may be provided by the Board
of Directors with regard to such particular series. Any series of Preferred
Stock may possess voting, dividend, liquidation and redemption rights superior
to those of the Common Stock. The rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of the holders of any
Preferred Stock that may be issued in the future. Issuance of a new series of
Preferred Stock, or providing desirable flexibility in connection with
29
<PAGE>
possible acquisitions and other corporate purposes, could make it more difficult
for a third party to acquire, or discourage a third party from acquiring the
outstanding shares of Common Stock of the Company and make removal of the Board
of Directors more difficult. No shares of Preferred Stock are currently issued
and outstanding, and the Company has no present plans to issue any shares of
Preferred Stock.
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 September 30, 2000 was 2,972,917.
Stock Option Plan
-----------------
The Board of Directors of the Company has adopted an employee stock option
plan effective March 10, 2000, which was approved by the shareholders on August
21, 2000. 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 November 27, 2000 no options
have been granted under the stock option plan.
Convertible Promissory Notes
----------------------------
Senior Convertible Promissory Notes. Since March 2000, the Company has
-----------------------------------
issued Senior Promissory Notes ("Senior Notes") in an aggregate amount of
$2,753,000. The Senior Notes were all originally due January 31, 2001, with
interest at 10% per annum, payable quarterly. In December 2000 the Company and
the lenders agreed to extend the maturity date of the notes to June 30, 2001 and
in consideration therefor, the Company agreed to issue to the lenders shares of
the Company's common stock at a rate of one share for each $2.00 of outstanding
indebtedness then due and owing. Further, the Company agreed to reduce the
conversion price from $1.50 per share to $1.00 per share and upon a ninety day
default, the conversion price is reduced from $1.00 per share to $0.75 per
share. Each lender has the right at its sole and exclusive option to convert the
outstanding indebtedness under the notes to common stock of the Company at any
time prior to the Company making payment and should such conversion rights be
exercised, the Company shall issue common stock to the lender at the rate of one
share for each $1.00 of indebtedness then due and owing. The loans may be
prepaid at any time, but must be repaid out of the proceeds of any financing in
excess of $2,000,000.
10.5% Convertible Promissory Notes. Since June 2000, the Company has issued
----------------------------------
10.5% Convertible Promissory Notes (the "10.5% Notes) in an aggregate principal
amount of $580,000. 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 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 $2.00 of the
indebtedness then due and
30
<PAGE>
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.
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 LHFF, 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
-------- -------------- -------------
2000 4/th/ Quarter $ 2.25 $ 1.75
3/rd/ Quarter 2.950 1.70
2/nd/ Quarter 3.00 1.25
1/st/ Quarter 3.062 0.50
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.
31
<PAGE>
The closing bid price of the Common Stock on the OTC Bulletin Board on
December 29, 2000, was $2.20 per share.
Holders
-------
As of December 6, 2000, there were approximately 125 holders of the
Company's Common Stock, who collectively held 6,645,587 issued and outstanding
shares.
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. ("NY Fast Ferry")
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 NY Fast Ferry's response to the City's Request
for Proposal ("RFP"), NY Fast Ferry was awarded the ferry route contemplated in
the RFP. As part of the RFP process, the City solicited NY Fast Ferry to spend
approximately $12,000,000 to build two ferries to serve the route. The City
provided data to NY Fast Ferry 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 NY Fast Ferry. The Agreement between NY Fast Ferry
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.
NY Fast Ferry claims that the City, for the most part, has not made the
improvements on the terminals. NY Fast Ferry 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 NY Fast Ferry's business. NY Fast
Ferry 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 NY Fast Ferry and 50% to debis Financial Services, Inc.
as a pledge of collateral against amounts owing to them pursuant to a note
payable.
On June 30, 2000, D. Weckstein & Co., Inc. ("Weckstein") filed suit against
the Company in the Supreme Court of the State of New 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
32
<PAGE>
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 against 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 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, Hazlett Investors Co. 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.
In October 1997 the Company issued 2,500 shares of its common stock to a
consultant, Hazlett Investors Co. (at a value of $1.00 per share), in lieu of
interest owed to the consultant. The
33
<PAGE>
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 (Gerald Kay) 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
Edward Meyer 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
Robert Corey and Oscar Perez 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. (John Koenig,
Paul Derecktor, and John Davis) 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 (debis Financial
Services, Inc.), 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 John Koenig. 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
Anthony F. Cappaze, 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 Joseph Giamanco, 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.
34
<PAGE>
In September 1999, a consultant (Raymond Wright) 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, 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 (Judi
Herkloz), 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
Michael Lauer and two companies controlled by that investor (Lancer Offshore and
the Viator Fund, Ltd.), all of them accredited investors, for gross proceeds of
$1,250,000 or $1.00 per share. The Viator Fund 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 Capital Research 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
35
<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:
Number of Shares
Name and Warrants
---- ------------
Arthur Anastasia and David Del Monaco 10,000
Trebor Trading & Investment Limited 25,000
Andrew Scott 5,000
John Gluszak 10,000
36
<PAGE>
The offering was conducted in reliance on Section 4(2) of the Act and Rule
506.
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,
Ltd., which acted as the finder in the transaction, received 25,000 shares. The
transaction was conducted in reliance on Section 4(2) of the Act and Rule 506.
In May 2000, the Company sold 21,000 shares of common stock, at $1.00 and
$1.25 per share, to the following three accredited investors. The offering was
conducted in reliance in Section 4(2) of the Act and Rule 506.
In May 2000, the Company sold 8,000 shares of common stock, at $1.00 and
$1.25 per share, to the following accredited investor. The offering was
conducted in reliance on Section 4(2) of the Act and Rule 506.
37
<PAGE>
Name Number of Shares
---- ----------------
Christopher Karounos 7,000
Jason Karounos 7,000
Peter Karounos 7,000
Dana Schwartz 8,000
======
29,000
During June 2000, the Company issued 3,500 shares, having a fair market
value on the date of issuance of $4,375, to the following purchasers of the
Company's convertible promissory notes. Each convertible promissory note holder
was issued 125 shares of common stock for each $5,000 of indebtedness owed to
the convertible promissory note holder at the date of issuance. The offering was
conducted in reliance on Section 4(2) of the Act and Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Robert Powless $20,000 500
Arthur Klowden $ 5,000 125
Herman and Danny Vaden $20,000 500
Steve Carcaterra $20,000 500
Edward Holst $ 5,000 125
Lowell Kupfer $10,000 250
Frederick Keifer $20,000 500
Herbert and Lois Rake $20,000 500
Loren and Judith Hanson $20,000 500
=====
3500
During June 2000, the Company issued 20,000 shares of common stock, having
a fair market value on the date of issuance of $40,000, to providers of
professional services. The shares were issued as follows: 10,000 were issued to
Colasanti & Scott, L.L.P. for outside legal services and 10,000 were issued to
Patricia Beene, CPA, for financial services rendered.
In June 2000, the Company sold 12,500 shares of common stock at $1.25 per
share, to the following accredited investor. The offering was conducted in
reliance on Section 4(2) of the Act and Rule 50
Name Number of Shares
---- ----------------
Dana Schwartz 12,500
======
12,500
38
<PAGE>
In June 2000, the Company sold 12,500 shares of common stock at $1.00 per
share, to the following accredited investor. The offering was conducted in
reliance on Section 4(2) of the Act and Rule 506.
Name Number of Shares
---- ----------------
Felice Barone 12,500
======
12,500
In June 2000, the Company issued 100,000 shares of common stock, in
satisfaction of debt outstanding on the discontinued operation, to the following
accredited investor. The offering was conducted in reliance on Section 4(2) of
the Act and Rule 506.
Name Number of Shares
---- ----------------
Nathan Plafsky 100,000
=======
100,000
During July 2000, the Company issued 2,000 shares, having a fair market
value on the date of issuance of $4,000, to the following purchasers of the
Company's convertible promissory notes and returned $5,000, in exchange for the
cancellation of 125 shares, having a fair value of $156, to Edward Holst. Each
convertible promissory note holder was issued 125 shares of common stock for
each $5,000 of indebtedness owed to the convertible promissory note holder at
the date of issuance. The offering was conducted in reliance on Section 4(2) of
the Act and Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Frederick Keifer $ 40,000 1,000
Charles Consagra $ 40,000 1,000
Edward Holst ($5,000) (125)
=====
1,875
39
<PAGE>
During July 2000, the Company issued 272,000 shares, having a fair market
value on the date of issuance of $544,000, to the following purchasers of the
Company's senior convertible promissory notes. The offering was conducted in
reliance on Section 4(2) of the Act and Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Joseph Giamanco $300,000 75,000
Lancer Offshore, Inc. $500,000 125,000
Capital Research, Ltd. $ 88,000 22,000
James Kelly $100,000 25,000
Joseph Roselle $100,000 25,000
========
272,000
During August 2000, the Company sold 6,667 common shares and warrants to
acquire 6,667 common shares at $2.00 per share to Thomas Coleman for $10,000 and
sold 20,000 shares to Robert Garcia for $25,000. Both investors were accredited
investors. The offering was conducted in reliance on Section 4(2) of the Act and
Rule 506.
During August 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 10.5% convertible promissory notes. The number of shares issued in
connection with the convertible promissory notes was negotiated on an individual
investor basis. The offering was conducted in reliance on Section 4(2) of the
Act and Rule 506.
Name Principal Amount 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
During September 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 10.5% convertible promissory notes. Each convertible promissory
note holder was issued 125 shares of common stock for each $5,000 of
indebtedness owed to the convertible promissory note holder at the date of
issuance. The number of shares issued in connection with the convertible
promissory notes was negotiated on an individual investor basis. The offering
was conducted in reliance on Section 4(2) of the Act and Rule 506.
40
<PAGE>
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Herman and Danny Vaden $ 20,000 1,000
Herbert and Lois Rake $ 20,000 500
Dorothy Bushnell $ 10,000 250
Dorothy Bushnell $ 10,000 250
John Head $ 20,000 500
========
2,500
During October 2000, the Company issued 138,750 shares, having a fair
market value on the date of issuance of $208,175, to the following purchasers of
the Company's senior convertible promissory notes. The offering was conducted in
reliance on Section 4(2) of the Act and Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Capital Research, Ltd. $ 55,000 13,750
Lancer Offshore, Inc. $200,000 50,000
Lancer Partner, L.P. $300,000 75,000
=======
138,750
During October of 2000, the Company issued 2,375 shares, having a fair
market value on the date of issuance of $3,126, to the following purchasers of
the Company's 10.5% convertible promissory notes. Each convertible promissory
note holder was issued 125 shares of common stock for each $5,000 of
indebtedness owed to the convertible promissory note holder at the date of
issuance. The offering was conducted in reliance on Section 4(2) of the Act and
Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Gary Von Bargen $ 5,000 125
Dorothy Bushnell $ 40,000 1,000
Frederick Keifer $ 40,000 1,000
Lynn J. or Raymond M. Flower $ 10,000 250
=======
2,375
41
<PAGE>
During November of 2000, the Company issued 36,500 shares, having a fair
market value on the date of issuance of $54,750, to the following purchasers of
the Company's 10.5% convertible promissory notes. The number of shares issued in
connection with the convertible promissory notes was negotiated on an individual
investor basis. The offering was conducted in reliance on Section 4(2) of the
Act and Rule 506.
Name Principal Amount of Note Number of Shares
---- ------------------------ ----------------
Frederick Keifer $60,000 20,000
Dorothy Bushnell $60,000 1,500
Dorothy Bushnell $20,000 15,000
======
36,500
In December 2000, the Company sold 16,000 shares to the following two
accredited investors at $1.25 per share. The offering was conducted in reliance
on Section 4(2) of the Act.
Name Number of Shares
---- ----------------
Michael and Eileen Graham 16,000
======
16,000
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
42
<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.
PART F/S
--------
Financial Statements
--------------------
II. The Company's audited financial statements for fiscal years ended December
31, 1999 and 1998, and the statements of operations, changes in stockholders'
equity and cash flows for the years then ended and the Company's unaudited
interim financial statements for the nine months ended September 30, 2000, the
unaudited statements of operations for the three and nine months ended September
30, 2000 and 1999 and the unaudited statements of changes in stockholders'
equity (capital deficiency) and cash flows for the nine months ended September
30, 2000 and 1999 are attached following the signature page of this Form 10-SB.
43
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS - RESTATED
DECEMBER 31, 1999
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS - RESTATED
<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-23
Lighthouse Landings, Inc. and Subsidiaries Pro Forma Financial Statements (Unaudited)
Pro Forma Financial Statement Headnote (Unaudited)........................................ F-24
Pro Forma Statement of Operations
For the Year Ended December 31, 1998 (Unaudited)....................................... F-25
Notes To Pro Forma Financial Statements (Unaudited)....................................... F-26
Pro Forma Adjustments (Unaudited)......................................................... F-27
Fast Ferry Holding Corp. and Subsidiaries
Independent Accountants' Report........................................................... F-28
Consolidated Balance Sheets As at October 6, 1998 December 31, 1997
And December 31, 1996.................................................................. F-29
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-30
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-31
Notes to Consolidated Financial Statements................................................ F-32 - F-35
Unaudited Consolidated Condensed Financial Statements for the Period Ended September 30, 2000
Consolidated Condensed Balance Sheets as at
September 30, 2000 and December 31, 1999 (Unaudited).................................. i-2
Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited)........... i-3
Consolidated Condensed Statement of Changes in Stockholders'
Equity and (Capital Deficiency)
For the Nine Months Ended September 30, 2000 (Unaudited)............................. i-4
Consolidated Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000 (Unaudited)............................. i-5 to i-6
Notes to Consolidated Condensed Financial Statements (Unaudited).......................... i-7 to i-17
</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.
As discussed in Note 12, the accompanying consolidated financial statements have
been restated to give effect to certain comments by the Securities and Exchange
Commission.
/s/ 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 - RESTATED
ASSETS
------
December 31,
-----------------------------
1999 1998
------------ ------------
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
============ ============
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - RESTATED
For the Years Ended
December 31,
--------------------------
1999 1998
------------ ------------
Revenues $ 3,285,978 $ 681,167
------------ ------------
Costs of services:
Ferry operations 1,597,574 287,116
Depreciation 896,008 222,626
------------ ------------
Total costs of services 2,493,582 509,742
------------ ------------
Gross margin 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 and local 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
============ ============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - RESTATED
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 - RESTATED
<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 904,837 253,489
Amortization of goodwill 80,945 331,161
Impairment loss - 78,007
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) (35,995)
Accounts payable 264,654 506,738
Accrued officers compensation (34,602) 137,236
Other taxes (36,673) -
------------ ------------
1,455,621 1,230,474
------------ ------------
Net cash provided by (used in) operating
activities of continuing operations (520,289) 560,840
Net cash provided by discontinued operations 147,923 -
------------ ------------
Net cash flows provided by (used in) operating activities (372,366) 560,840
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (90,192) -
Cash paid for acquisition - (141,257)
------------ ------------
Net cash used in investing activities (90,192) (141,257)
------------ ------------
Cash flows from financing activities:
Proceeds from loans 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) (642,001)
Proceeds from issuance of common stock 1,320,000 97,500
------------ ------------
Net cash provided by (used in) financing
activities of continuing operations 497,909 (494,722)
------------ ------------
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 - RESTATED (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 - RESTATED
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 ca pital 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.
F-7
<PAGE>
NOTE 1 - REALIZATION OF ASSETS - GOING CONCERN.
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.
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.
F-8
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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) 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. The tickets
which are dated expire ninety (90) days after issuance and are
nonrefundable and nonextendable. 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.
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.
F-9
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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.
(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.
F-10
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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.
(m) Stock Based Compensation:
The Company accounts for employee stock options in accordance
with Accounting Principles Board Opinion No. 25 (APB25),"Accounting
for stock issued to employees." Under APB 25, the Company recognizes
no compensation expenses related to employee stock options, as no
options are granted at price below the market price on the day of
grant.
(n) Stock Issued to Nonemployees for Services:
The Company accounts for stock issued to nonemployees for
services in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123. "Accounting for stock-based compensation".
SFAS No. 123 requires that all transactions in which goods or services
are the consideration received for the issuance of equity instruments
shall be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, which
ever is more reliably measurable.
F-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 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:
December 31,
----------------------
1999 1998
---------- ----------
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
========== ==========
F-12
<PAGE>
NOTE 3 - DISCONTINUED OPERATIONS. (Continued)
(a) The mortgage notes payable are summarized as follows:
December 31,
--------------------
1999 1998
--------- ---------
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
======== =========
(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:
December 31,
--------------------------
1999 1998
----------- -----------
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
=========== ===========
F-13
<PAGE>
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.
The assets acquired and the liabilities assumed in connection
with the aforementioned acquisition of the NY Fast Ferry group is as
follows:
Fair value of identifiable assets acquired $13,475,702
Fair value of liabilities assumed 13,207,673
-----------
268,029
Monority 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 indentifiable
assets purchased (goodwill) $ 1,214,174
===========
F-14
<PAGE>
NOTE 5 - ACQUISITIONS. (Continued)
The unaudited consolidated results of operations on a pro forma
basis, as if the NYFF Group had been acquired at the beginning of the
year ended December 31, 1998 is as follows:
Net sales $ 1,488,750
Costs and expenses - net 3,549,402
------------
Loss from continuing operations
before minority interest (2,060,652)
Minority interest 109,149
------------
Loss from continuing operations ($1,951,503)
============
Per Share Data:
Loss from continuing operations ($0.60)
------------
Weighted average number
of shares outstanding 3,244,417
============
NOTE 6 - INCOME TAXES.
The components of the provision (benefit) for income taxes are as
follows:
1999 1999
------ ------
Currently payable:
Federal $ - $ -
State and local 1,323 1,323
------ ------
1,323 1,323
------ ------
Deferred:
Federal - -
State and local - -
------ ------
- -
------ ------
Total provision $1,323 $1,323
====== ======
The deferred tax benefit results from differences in recognition
of expense for tax and financial statement purposes and for minimum
tax provision for the various state and local taxing authorities where
the Company and its subsidiaries are subject to tax. The Company has
deferred tax assets consisting of the following temporary differences:
Net operating loss carryforward $ 3,686,000
Differences between assigned values
and tax bases of the assets 4,190,648
Provision for discontinued operations 193,000
Goodwill 202,305
------------
8,271,953
Valuation allowance (8,271,953)
------------
$ -
============
F-15
<PAGE>
NOTE 6 - INCOME TAXES (Continued).
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-16
<PAGE>
NOTE 7 - LONG-TERM DEBT.
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Mortgage note payable, secured by the
vessel "Finest" due in monthly installments
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
=========== ===========
</TABLE>
(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-17
<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 whose fair value at the time of issuance
was $100,000.
During 1999, the Company issued 55,000 shares of its common stock
to an officer as payment for services rendered by him in 1999
aggregating $55,000. The fair market value of the shares on the date
of issuance of $55,000 had been charged to operations.
(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 1,550,000 shares of its
common stock for $1,320,000. Of the shares sold in 1999 a consultant
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 in fiscal 1999.
(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:
Exercise Price
Options Warrants Per Share
------- -------- --------------
Outstanding at December 31, 1997 47,500 - $4.00
Granted during 1998 10,000 200,000 $2.53 to $2.60
Expired in 1998 (47,500) - $4.00
------- ---------
Outstanding at December 31, 1998 10,000 200,000 $2.53 to $2.60
Cancelled (10,000) - $2.53
Granted during 1999 420,000 1,380,000 $1.00 to $1.75
------- ---------
Outstanding at December 31, 1999 420,000 1,580,000 $1.00 to $2.60
======= =========
F-18
<PAGE>
NOTE 9 - STOCK OPTIONS AND WARRANTS (Continued).
(a) Stock Options:
(i) 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 an employee/stockholder pursuant
to an employment contract to purchase 10,000 shares at a price of
$2.53 per share which was the fair value at date of grant. Such option
was cancelled.
(ii) Stock Options Granted in 1999:
The Company granted an option to a employee 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 1999, 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-19
<PAGE>
NOTE 9 - STOCK OPTIONS AND WARRANTS. (Continued)
(a) 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 a 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 in excess of 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, the fair market value at issuance, exercisable for one
year.
Management and the recipients believe that the value of the
warrants issued in 1999 was nominal and accordingly did not
reflect any value to these issuances.
F-20
<PAGE>
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.
(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 2000 at the fair market value of
the common stock on the date of grant of $1.00 per share. Messrs.
Cappaze and Colasanti also received as a condition of their contract
options to purchase 200,000 and 100,000, respectively, share 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.
F-21
<PAGE>
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 common stock 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 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.
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 from two private investment funds, both
of which are controlled by an individual stockholder of the Company.
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 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
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-22
<PAGE>
NOTE 12 - RESTATEMENT.
The consolidated financial statements have been restated to give
effect to certain comments by the Securities and Exchange Commission
regarding the Company's filing of amended Form 10-SB as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------- -------------------------
As As
Previously Previously
As Restated Filed As Restated Filed
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Consolidated balance sheets:
Inventories - reclassifications
of inventorable items to and
from prepaid expenses $ 40,948 $ 6,715 $ - $ 1,057
----------- ----------- ----------- -----------
Prepaid expenses and other
current assets - reclass 127,994 165,214 72,308 68,757
----------- ----------- ----------- ------------
Goodwill net of accumulated
amortization - change in
computation 1,112,935 1,127,433 1,193,830 1,201,174
----------- ----------- ----------- ------------
Other assets - reclass 51,764 34,279 19,091 19,091
----------- ----------- ----------- ------------
Current maturities of long-term
debt - reclassification of
interest to accrued expenses and
change in current maturities 1,879,764 1,981,100 1,332,601 1,282,822
----------- ----------- ----------- -----------
Notes payable - combined with
current maturities of debt - - - 49,779
----------- ----------- ----------- -----------
Current maturities of accounts
payable and accrued expenses -
reclassification of deferred
revenues and long-term debt 948,066 1,006,273 683,952 730,520
----------- ----------- ----------- -----------
Deferred revenues - segregated 68,765 - 46,566 -
----------- ----------- ----------- -----------
Long-term debt - change in
current maturities 10,064,110 9,973,872 11,301,455 11,301,455
----------- ----------- ----------- -----------
Common stock - transfer from
additional paid-in capital 49,058 48,358 32,508 32,508
----------- ----------- ----------- -----------
Additional paid-in capital -
transfer to common stock 5,312,588 5,313,288 3,809,138 3,809,138
----------- ----------- ----------- -----------
Per Share Data - Basic and Diluted:
Loss form continuing operations ($0.55) ($0.55) ($0.23) ($0.23)
Loss from discontinued operations ($0.15) ($0.15) ($0.16) ($0.16)
----------- ----------- ----------- -----------
Net loss ($0.70) ($0.70) ($0.39) ($0.39)
----------- ----------- ----------- -----------
</TABLE>
F-23
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
FORMA FINANCIAL STATEMENTS - HEADNOTE
(Unaudited)
The accompanying 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 the period presented, January 1, 1998.
Per share data for the year ended December 31, 1998 is based upon the
weighted average number of shares outstanding during the 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 statement of operations for the year ended
December 31, 1998 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 statements of operations, which
would have actually been obtained if the purchase of FFHC had been consummated
on the date indicated. In addition, the pro forma financial information does not
purport to be indicative of the 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" contained in the notes to pro forma financial
statements.
F-24
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS - RESTATED
FOR THE YEAR ENDED DECEMBER 31, 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 $ - $ 1,488,750 $ - $ - $ 1,488,750
---------------- ---------------- --------- ---------- -------------
Cost and expenses:
Cost of operations - 407,885 - - 407,885
Depreciation and amortization - 767,876 279,377 (A) - 1,113,386
- - 66,133 (B) - -
Selling, general and administrative - 773,592 - - 773,592
Interest - 1,254,539 - - 1,254,539
---------------- ---------------- --------- ---------- -------------
Total cost and expenses - 3,203,892 345,510 - 3,549,402
---------------- ---------------- --------- ---------- -------------
Loss from continuing operations before
minority shares in loss of subsidiary - (1,715,142) 345,510 - (2,060,652)
Minority shares in loss of subsidiary - - - 109,149 (C) 109,149
---------------- ------------ --------- ---------- -------------
Loss from continuing operations $ - ($1,715,142) $ 345,510 $ 109,149 ($1,951,503)
================ ============ ========= ========== =============
Per share data:
Pro forma net loss per share:
Loss from continuing operations ($0.60)
=============
Weighted average number of shares outstanding 3,244,417
=============
</TABLE>
F-25
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS - RESTATED
(Unaudited)
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 shares @ $5.00 per share).
Minority Interest:
The accompanying pro forma consolidated statements of operations for the year
ended December 31, 1998 reflect the acquisition as if it occurred on January 1,
1998. The minority interest at January 1, 1998 assessing the acquisition
occurred at that date, would be calculated as follows:
Fair value of identifiable assets acquired $13,475,702
Fair value of liabilities assumed at January 1, 1998 12,929,956
-----------
545,746
Pro forma minority interest as at January 1, 1998 109,149
-----------
Pro forma net fair value of 80% interest in
Fast Ferry Holding Corp. as at January, 1998 436,597
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
-----------
Pro forma excess of cost over net identifiable
assets purchased (goodwill) as at January 1, 1998 $ 991,999
===========
The pro forma 20% minority interest share in the loss of the ferry
subsidiary is limited to the pro forma minority interest at the assumed date of
acquisition, January 1, 1998.
F-26
<PAGE>
LIGHTHOUSE LANDINGS, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
(Unaudited)
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1998
-----------------------------------------------
(A) To reflect depreciation of $279,377 on the variant between the
historical carrying value of property assets and the appraised value
for the year ended December 31, 1998.
(B) To record amortization of goodwill of $66,133 which has an estimated
life of 15 years for the year ended December 31, 1998.
(C) To reflect minority interest in loss of Fast Ferry Holding Corp. of
$109,149 for the year.
F-27
<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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 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.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
January 24, 1999
F-28
<PAGE>
FAST FERRY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
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-29
<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-30
<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 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-31
<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
eliminated in consolidation.
(d) Accounts Receivable:
Accounts receivable have been adjusted for all known
uncollectible 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
assets.
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-32
<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. Advertising
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:
October 6, 1998 December 31, 1997 December 31, 1996
--------------- ----------------- -----------------
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
=============== ================= =================
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-33
<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 installments
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-34
<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-35
<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
=====
<TABLE>
<CAPTION>
Page No.
-------------
<S> <C>
Consolidated Condensed Balance Sheets
As at September 30, 2000 and December 31, 1999 (Unaudited)..... i-2
Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended September 30, 2000 and
1999 (Unaudited)............................................... i-3
Consolidated Condensed Statement of Changes in Stockholders'
Equity and (Capital Deficiency) For the Nine
Months Ended September 30, 2000 (Unaudited).................... i-4
Consolidated Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited).................................................... i-5 to i-6
Notes to Consolidated Condensed Financial Statements
(Unaudited).................................................... i-7 to i-17
</TABLE>
i-1
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 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.
i-2
<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 $2,550,701
---------- ---------- ---------- ----------
Costs of Services:
Ferry operations 824,837 443,725 2,127,745 1,169,577
Depreciation 215,511 223,099 689,843 667,957
---------- ---------- ---------- ----------
Total Costs of Services 1,040,348 666,824 2,817,588 1,837,534
---------- ---------- ---------- ----------
Selling, General & administrative 438,482 380,604 1,141,184 921,180
Marketing 18,682 8,431 60,608 19,323
Amortization of goodwill 20,236 20,236 60,708 60,708
---------- ---------- ---------- ----------
Loss from operations (201,279) (126,459) (1,120,648) (288,044)
---------- ---------- ---------- ----------
Other expenses:
Interest (net) 753,934 340,001 1,481,942 1,070,258
Provision for state income taxes - - - 1,687
---------- ---------- ---------- ----------
Total other expenses 753,934 340,001 1,481,942 1,071,945
---------- ---------- ---------- ----------
Loss from continuing operations before
minority share loss in subsidiary (955,213) (466,460) (2,602,590) (1,359,989)
Minority share in loss of subsidiary - - - 11,071
---------- ---------- ---------- ----------
Loss from continuing operations (955,213) (466,460) (2,602,590) (1,348,918)
Loss on discontinued operations - ( 67,065) (235,284) (114,788)
---------- ---------- ---------- ----------
Net loss (955,213) (533,525) (2,837,874) (1,463,706)
---------- ---------- ---------- ----------
Per share data:
Basic and diluted:
Loss from continuing operations ($.15) ($.12) ($.43) ($.41)
Loss from discontinued operations - ($.02) ($.04) ($.03)
---------- ---------- ---------- ----------
Net loss ($.15) ($.14) ($.47) ($.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.
i-3
<PAGE>
LIGHTHOUSE FAST FERRY, INC. AND SUBSIDIARIES
(Formerly Lighthouse Landings, Inc.)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' 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
Sale of Shares and
Warrants 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.
i-4
<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.
i-5
<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.
i-6
<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 cash of $482,600 through the sale of its securities
and $2,165,000 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.
i-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) 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.
(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
i-8
<PAGE>
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.
i-9
<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.
i-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. 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.
i-11
<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 installments
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.
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<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 $19,469 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 nineteen 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.
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<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 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 279,500 shares having a
fair market value on the date of issuance of $259,094. The shares were issued as
additional interest, and as payment of a consultant's finders fee, and this
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<PAGE>
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 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.
(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 666,167 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:
Exercise
Price
Per
Options Warrants Share
------- ---------- --------------
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 250,000 822,917 $ .50 to $2.00
------- ----------
Outstanding at September 30, 2000 670,000 2,352,917 $ .50 to $2.60
======= ==========
(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 150,000,
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 from 1.3 years to
7 years the expected volatility at
i-15
<PAGE>
400%, expected dividends are none, and the risk-free interest rate of
10%, the Company would have recorded compensation expense of $205,506 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) ($1,502,322)
=========== ===========
Loss per share as reported ($.47) ($.44)
=========== ===========
Adjusted loss per share ($.51) ($.45)
=========== ===========
(b) Warrants Granted in 2000:
As an inducement to purchase shares of the Company's common stock, warrants
to purchase 666,167 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.
Employees and a financial consultant were issued warrants to acquire 156,750
common shares for services at $2.00 per share which was the fair value of the
common stock on the date of issuance.
NOTE 9 - RESTATEMENT
The consolidated financial statements have been restated to give effect to
certain comments made by the Securities and Exchange Commission.
NOTE 10 - CONTINGENCIES
Litigation:
(a) On June 30, 2000, D. Weckstein & Co., Inc. ("Weckstein") filed suit
against the Company in the Supreme Court of the State of New 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 acceptable.
On July 28, 2000, the Company filed a Motion 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.
(b) 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 is 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 against 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, attorney's fees, and other relief.
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<PAGE>
PART III
--------
ITEM 1. EXHIBITS
3.1.a Certificate of Incorporation, as amended. /(1)/
3.1.b Certificate of Amendment effective September 19, 2000. /(1)/
3.2 Bylaws. /(1)/
10.1 Stock Purchase Agreement dated 9/9/98 for acquisition of Fast Ferry
Holding Corp. /(1)/
10.2 Lease Agreement dated 3/30/98 for Aragon Marina. /(1)/
10.3 Lease Agreement dated October 1999 for Stamford Property Marina. /(1)/
10.4 Letter of Intent for vessel construction. /(2)/
10.5.1 Employment Agreement with John Ferreira. /(1)/
10.5.2 Employment Agreement with Anthony Cappaze. /(1)/
10.5.3 Employment Agreement with Anthony Colasanti. /(1)/
10.6 Agreement with Robert E. Derecktor, Inc. for vessel construction. Filed
herewith.
10.7 Lease Agreement for Clam Hut site dated 12/15/00. Filed herewith.
10.8 Amendment to Senior Promissory Notes. Filed herewith.
21.1 Subsidiaries of the Registrant. /(1)/
23.1 Consent of Weinick Sanders Leventhal & Co., LLP. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
27.2 Financial Data Schedule. Filed herewith.
___________
(1) Filed previously.
(2) 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.
<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. 3
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIGHTHOUSE LANDINGS, INC.
Date: January 12, 2001 By: /s/ Anthony Cappaze
----------------------------------------
Anthony Cappaze, President, Chief
Executive Officer and Director
Date: January 12, 2001 By: /s/ John Ferreira, Jr.
----------------------------------------
John Ferreira, Chief Financial Officer
Date: January 12, 2001 By: /s/ Anthony Colasanti
----------------------------------------
Anthony Colasanti, Vice President,
Secretary and Director
Date: January 12, 2001 By: /s/ Francis P. Matusek
----------------------------------------
Francis P. Matusek, Director
Date: January 12, 2001 By: /s/ Gregory J. Hauke
----------------------------------------
Gregory J. Hauke
<PAGE>
EXHIBIT INDEX
3.1.a Certificate of Incorporation, as amended. /(1)/
3.1.b Certificate of Amendment effective September 19, 2000. /(1)/
3.2 Bylaws. /(1)/
10.1 Stock Purchase Agreement dated 9/9/98 for acquisition of Fast Ferry
Holding Corp. /(1)/
10.2 Lease Agreement dated 3/30/98 for Aragon Marina. /(1)/
10.3 Lease Agreement dated October 1999 for Stamford Property Marina. /(1)/
10.4 Letter of Intent for vessel construction. /(2)/
10.5.1 Employment Agreement with John Ferreira. /(1)/
10.5.2 Employment Agreement with Anthony Cappaze. /(1)/
10.5.3 Employment Agreement with Anthony Colasanti. /(1)/
10.6 Agreement with Robert E. Derecktor, Inc. for vessel construction. Filed
herewith.
10.7 Lease Agreement for Clam Hut site dated 12/15/00. Filed herewith.
10.8 Amendment to Senior Promissory Notes. Filed herewith.
21.1 Subsidiaries of the Registrant. /(1)/
23.1 Consent of Weinick Sanders Leventhal & Co., LLP. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
27.2 Financial Data Schedule. Filed herewith.
_____________
(1) Filed previously.
(2) 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.
