<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1937
For the transition period from to
Commission file number: 000-22273
SONIC JET PERFORMANCE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
COLORADO 84-1383888
(State of Incorporation) (I.R.S. Employer Identification No.)
15662 COMMERCE LANE
HUNTINGTON BEACH, CALIFORNIA 92649
(Address of Principal Executive Offices)
(714) 895-0944
(Issuer's Telephone Number, including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [-]
As of September 30, 1999, the Issuer had 12,676,000 shares of Common Stock, no
par value, outstanding.
<PAGE>
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED September 30, 1999
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at September 30, 1999 (unaudited)
Statement of operations for the Nine months ended September 30,
1999 and 1998 (unaudited)
Statements of Cash Flows for the Nine months ending September 30,
1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis or Plan of operations
General
Results of operations
Liquidity and Capital Resources
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 10,862
Accounts receivable - trade 120,866
Inventories 1,892.970
Due from related parties 119,538
Prepaid inventories 38,757
Other receivables 21,647
Other current assets 750
------------
Total current assets 2,205,390
PROPERTY AND EQUIPMENT, net 2,875,082
OTHER ASSETS
Organization cost, net 22,000
Investment - Dalian 349,223
New Product Development Cost 1,812,443
------------
TOTAL ASSETS $ 7,264,138
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 585,971
Other accrued liabilities 139,711
Loans payable - bank 500,000
Due to shareholder 407,658
------------
Total current liabilities 1,633,340
NOTE PAYABLE - STOCKHOLDER 600,000
ACCRUED INTEREST PAYABLE 133,872
------------
Total liabilities 2,367,212
MINORITY INTEREST 668,408
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value
10,000,000 shares authorized
Series A Convertible Preferred stock
1,600 shares issued and outstanding 1,500,000
Common stock, no par value
100,000,000 shares authorized
12,676,000 shares issued and outstanding 3,887,194
Accumulated comprehensive income
Deferred Compensation (287,500)
Accumulated deficit (871,176)
------------
Total stockholders' equity 4,228,518
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,264,138
------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
3 Months Ended September 30, 9 Months Ended September 30,
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES $ 120,830 $ 486,368 $ 886,851 $ 589,256
COST OF SALES 76,013 124,645 396,905 242,246
------------- ------------- ------------- -------------
GROSS PROFIT 44,817 361,723 489,946 347,010
GENERAL AND ADMINISTRATIVE EXPENSES (301,024) (74,901) (860,657) (648,311)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (256,207) 286,822 (370,711) (301,301)
------------- ------------- ------------- -------------
OTHER (EXPENSE) (40,632) (40,632)
OTHER INCOME 25,283 49,066 27,287 58,021
INTEREST INCOME 34 15,273 4,559 21,088
INTEREST EXPENSE (26,205) (34,000) (56,205) (34,000)
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) (888) (10,293) (24,359) 4,477
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST (257,095) 276,529 (395,070) (296,824)
MINORITY INTEREST (1,190) (9,517) (3,016) 0
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (258,285) $ 267,012 $ (398,086) $ (296,824)
BASIC EARNINGS (LOSS) PER SHARE (0.02) (0.05) (0.04) (0.05)
DILUTED EARNINGS (LOSS) PER SHARE (0.02) (0.05) (0.03) (0.05)
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
BASIC 12,676,000 6,010,000 12,676,000 6,010,000
FULLY DILUTED 13,476,000 6,010,000 13,476,000 6,010,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated Accumulated Total
Preferred Stock Common Stock Comprehensive Deficit
Shares Amount Shares Amount Income
---------- ---------- ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 1,600 $1,500,000 12,620,000 $3,599,694 $ (10,157) $ (473,091) $4,616,446
Common Stock Issued 56,000 287,500 287,500
Accumulated Translation Adj.
Net income (unaudited) 10,157 (398,085) (387,928)
Deferred Compensation (287,500) (287,500)
---------- ---------- ---------- ----------- ------------ ----------- -----------
BALANCE
SEPTEMBER 30, 1999(unaudited) 1,600 $1,500,000 12,676,000 $3,599,694 $ - $ (871,176) $4,228,518
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------------
<CAPTION>
9 Months Ended September 30,
1999 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FPOM OPERATING ACTIVITIES
Net Income (Loss) ($387,928) ($296,824)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 19,935 25,190
Minority interest (12,498) 40,632
(Increase) decrease in inventories 574,616 (815,647)
Accounts Receivables (81,913) 0
Other Receivables 11,767
Other current assets 13,927 (206,161)
Prepaid Inventory 163,757 0
Accrued Interest payable 45,000 0
Accrued Payroll taxes 54,965 0
Other accrued liabilities 71,120 0
Due to related parties 332,409 0
Accounts Payable 455,516 (117,976)
------------ ------------
Net, cash provided by (used in) operating activities 1,260,673 (1,370,786)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (188,748) (73,160)
Proceeds from sale of property and equipment
Purchase of other assets (1,752,633) 0
Proceeds from the sale of other assets
Investment - Dalian Sonic Jet Performance (349,223)
------------ ------------
Net cash used in investing activities (2,290,604) (73,160)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 500,000
Issuance of Capital 1,499,590
Long Term Loans 407,658 148,166
------------ ------------
Net Cash provided by financing activities 907,658 1,647,756
------------ ------------
Net (decrease) in cash (122,273) 203,810
CASH BEGINNING OF PERIOD 133,135 663,940
------------ ------------
CASH END OF PERIOD $ 10,862 $ 867,750
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Sonic Jet Performance, Inc. ("SJPI"), a Colorado corporation, and subsidiaries
(collectively, the "Company") are engaged in the design and production of
personal watercrafts, jet boats, trailers, and accessories. The principal
executive office is located in Huntington Beach, California.
Sonic Jet Performance, LLC (the "Predecessor Company") was organized in
California on May 8, 1997 as a limited liability company.
In June 1998, Boulder Capital Opportunities III, Inc. ("BCO"), a Colorado
Corporation organized on November 27, 1996, entered into a Share Exchange
Agreement with the Predecessor Company to acquire all of the assets and business
of the Predecessor Company and assume the liabilities. The acquisition was
consummated and effective as of June 30, 1998. The transaction was treated as a
"purchase transaction" and has been accounted as a reverse acquisition of BCO by
Sonic Jet Performance, LLC, resulting in a re-capitalization of Sonic Jet
Performance, LLC. Subsequently, the name of the new entity became Sonic Jet
Performance, Inc.
On August 9, 1997, SJPI entered into a joint venture agreement with China
Guangxi Nanning Shipyard of Nanning, Guangxi, China to form the Nanning Sonic
Jet, LLC, a contractual limited liability company organized under the laws of
the People's Republic of China. The joint venture was formed to design,
manufacture, and sell a series of watercraft jet products internationally and in
China. The Company is responsible for providing technical personnel and
training. The Company shall receive 70% of the profits and shall share 70% of
the risks and losses under the venture.
Principles of Consolidation
The consolidated financial statements include the accounts of SJPI and its
subsidiaries, Nanning Sonic Jet, LLC and Sonic Jet Performance, Inc - Florida
("SJPF"), a wholly-owned subsidiary of SJPI. All inter-company balances and
transactions are eliminated in consolidation. Minority interest represents the
minority's share of the initial capital contribution in Nanning Sonic Jet, LLC
and 30% of the results of its operations. SJPI manages the day-to-day operations
of the subsidiary and is represented by three of the five directors of the
subsidiary.
Estimates
The preparation of financial statements is in conformity with generally accepted
accounting principles. It requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per Share
Loss per share is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding. Diluted earnings
per share is computed similar to basic earnings per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. Potentially dilutive securities
included in the computation of fully diluted earnings per share for the six
months ended September 30, 1999 consist of 800,000 shares of common stock
reserved for conversion of the Series A Preferred Stock. Because the company has
incurred net losses, basic and diluted loss per share are the same for the three
months ended September 30, 1998.
NOTE 2 - INVENTORIES
Inventories at September 30, 1999 consisted of the following:
(unaudited)
Raw materials and supplies $ 1,302,361
Work in process 512,903
Finished goods 77,706
------------
TOTAL $ 1,892,970
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 consisted of the following:
(unaudited)
Building and improvements $ 1,316,149
Furniture and fixtures 18,141
Office Equipment 38,207
Machinery and equipment 182,354
Test Skies 11,559
Tooling and molds 94,921
Tooling PWC/Engines 135,856
Tooling - new products 81,723
Molds - watercrafts 875,113
Vehicles 37,403
Intangible Asset 245,435
------------
3,036,861
Less accumulated depreciation and amortization (161,779)
------------
TOTAL $ 2,875,082
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
Tooling for new product and molds for watercrafts have not been depreciated
during the Nine months ended September 30, 1999 as these will be used in
production in the following year.
NOTE 4 - NOTE PAYABLE - STOCKHOLDER
Note payable - stockholder at September 30, 1999 consisted of the following:
Note payable, bearing interest at 10% per annum. Annual (Unaudited)
payments are to commence July 18, 2000 in an, amount equal
to 60% of cash available for distribution, as defined, for
the nearest preceding accounting period. All unpaid
principal is due July 18, 2001. The note is secured by Company assets. $600,000
Note payable to Mag Associates, a company owned by stock holder,
payable without interest at such time as Company raises additional
capital. $188,870
NOTE 5 - LOANS PAYABLE - BANK
On February 8, 1999, SJPF entered into a $375,000 commercial loan agreement with
a financial institution. The loan bears interest at 7.5% per annum and is
payable on demand. The loan is collateralized by substantially all of SJPF's
tangible property.
On February 26, 1999, SJPF also entered into a mortgage loan agreement in the
amount of $125,000. The loan is collateralized by SJPF's land and building and a
pledge of 15,000 shares of SJPI's common stock. The loan bears interest at 8.5%
per annum and is due on February 26, 2000.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Lease
The Company leases its facility under an operating lease agreement.
Future minimum lease payments are as follows:
Year Ending
December 31, (unaudited)
------------ ------------
1999 $ 60,750
2000 81,000
2001 81,000
2002 81,000
-----------
TOTAL, $ 303,750
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease (Continued)
Investment in Joint Venture - Dalian
The Company has entered into an agreement to invest in a joint venture in
Dalian, China for the design, manufacture, and selling of watercraft jet
products. The Company is committed to invest $1,000,000 in the form of molds,
tooling, and know-how. The Company will share 45% of the profits or loss from
this venture. This Joint venture has not yet commenced operation.
Employment Agreement
On June 19, 1998, the Company amended an employment agreement with its Design
Director and Chairman/Chief Executive Officer of International Operations that
originated with the Predecessor Company. The agreement calls for the Vice
President to be paid on a bimonthly basis the following annual salary:
Year Ending
December 31,
------------
1999 $ 120,000
2000 $ 140,000
2001 $ 175,000
2002 $ 200,000
Royalty Agreement
On August 3, 1998, the Company assumed royalty agreements with its Design
Director and Chairman/Chief Executive Officer of International Operations that
originated with the Predecessor Company. The royalty is for a maximum amount of
2% of Company sales for a period of five years commencing November 18, 1998.
Royalty amounts are to be paid on a quarterly basis with a minimum royalty of
$4,167 per month for the twelve-month period commencing January 18, 1999 and
increasing to $8,333 per month hereafter.
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS
Included in due from related parties are amounts due from the following related
parties as of September 30, 1999:
(unaudited)
------------
Dalian Sonic Jet, Ltd. $ 349,223
Sonic Marketing International, LLC 35,172
Sonic Jet International, Inc. 43,854
Majed Al Rashid 40,512
------------
TOTAL $ 468,761
Dalian Sonic Jet, Ltd. is a joint venture partner with SJPI, in which SJPI
shares 45% of the profit or loss of the joint venture. Sonic Marketing
International, LLC is owned by a stockholder of the Company. It used to market
the Company's products and has since ceased doing business. Sonic Jet
International, Inc. is owned by a stockholder and markets the Company's products
exclusively. Majed Al Rashid is a stockholder of the Company.
NOTE 8 - SERIES A CONVERTIBLE PREFERRED STOCK
On June 17, 1998, the Company issued 1,600 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") for $1,500,000, net of a discount
of $100,000. The holders of Series A Preferred Stock are not entitled to receive
dividends. The Series A Preferred Stock is convertible to common stock at the
option of the holders, subject to certain limitations, and is limited to a
formula of either a fixed conversion price of $4.00 per share or a variable
conversion price, as defined, not to exceed the fixed conversion price or at a
price that includes an unpaid premium if said premium is not paid in cash prior
to conversion. For conversion purposes, the Series A Preferred Stock
stockholders are entitled to an 8% premium from the day following the date of
issuance to the conversion date. If said premium is not paid in cash, the
premium is added to the face amount of $1,000 per share to determine the number
of common shares to be received on conversion. A total of 800,000 shares of
common stock have been reserved for the conversion of the Series A Preferred
Stock.
The Series A Preferred Stock is automatically convertible into common stock on
the fifth anniversary of the issuance date. If such conversion does not take
place at maturity, then the holders of the Series A Preferred Stock can require
the Company to purchase the shares for cash at a redemption amount as defined.
NOTE 9 - COMMON STOCK
On June 23, 1999 the Company issued 50,000 shares to JAG Enterprises as
consultant fee for services to be rendered in the 2nd and 3rd Quarter. The
shares have been valued at $5.75 per share which represent fair value at the
date of issue.
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1998
The following table sets forth the Company's consolidated statements
of operations and the percentages that such items bear to net sales:
THREE MONTHS ENDED, NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 % 1998 % 1999 % 1998 %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 120,830 100.0 $ 486,368 100.0 $886,851 100.0 $589,256 100.0
Cost of Sales 76,013 62.9 124,645 25.7 396,905 44.7 242,246 41.1
Gross profit (loss) 44,817 37.1 361,723 74.3 489,946 55.3 347,010 58.9
Selling, General and Administrative (301,024) (249.1) (74,901) (15.4) (860,657) (7.0) (648,311) (110.0)
Income/(Loss) from operations (256,206) (212.0) 286,822 58.9 (370,711) (41.7) (301,301) (51.1)
Interest Income 34 0.0 15,273 3.1 4,559 0.5 21,088 3.5
Interest expenses (26,205) (21.6) (34,000) (6.9) (56,205) (6.3) (34,000) (5.7)
Other Income 25,283 20.9 49,066 10.0 27,287 3.0 58,021 9.8
Other expenses -- -- (40,632) (8.3) -- -- -- --
Minority Interest (1,190) (1.0) (9,517) (2.0) (3,016) (0.3) (40,632) (6.9)
Net Income/(Loss) $(258,285) (213.7) $267,012 54.8 $(398,086) (44.8) $(296,824) (50.4)
</TABLE>
<PAGE>
NET SALES
Net sales for the 3 months ended September 30,1999 decreased by $365,538 or 75%
to $120,830 from $486,368 for 3 the months ended September 30, 1998 and for the
9 month ended September 30, 1999 increased by $297,595 or 50% to $886,851 from
$589,256 for the 9 months ended September 30, 1998. Management attributes the
decrease to the sale for 3 months ended September 30, 1999 to the setting up of
the Florida facility. Management attributes the increase to the sales for 9
months ended September 1999, to sale of parts to Dalian Sonic Jet, a joint
venture partner of Sonic Jet Performance, Inc. ("the Company") and Nanning Sonic
Jet performance, ltd. Subsidiary of the Company. Sales of parts amounted to
$40,780 in the 3 months ended September 30, 1999 as compared to $87,417 in the 3
months ended September 30, 1998 and $392,849 in the 9 months ended September 30,
1999 as compared to $87,417 in the 9 months ended September 30, 1998. COST OF
SALES Cost of Sales for the 3 months ended September 30, 1999 decreased by
$50,620 or 41% to $74,025 from $124,645 for the 3 months ended September 30,
1998 and for the 9 months ended September 30, 1999 increased by $152,671 or 63%
to $394,917 from $242,246 for the 9 months ended September 30, 1998. This is
mainly attributed to the increase of the raw material costs together with
increased labor costs during 9 months ended September 30, 1999. The decrease
during 3 months ended September 30, 1999 is due to costs adjustment of goods
transferred from Nanning operation and also reduced material cost and labor cost
on production of delta and Fire rescue jets compared to 3 months period ending
September 30, 1998. Further operations for the 3 months period ended September
30 1998 were at an early stage compared to the scale of operations for the same
period in 1999.
GROSS PROFIT
Gross profit for the 3 months ended September 30, 1999 decreased by $316,906 or
87% to $44,817 from $361723 for the 3 months ended September 30, 1998 and for
the 9 months ended September 30, 1999 increased by $142,936 or 41% to $489,946
from $347,010 for the 9 months ended September 30, 1998. Sales for the 9 months
ended September 30, 1999 includes the sales of parts to Dalian Sonic Jet Ltd.
The profit margin on sale of parts to Dalian is higher during the 3 and 9 months
period. Further, the Company is mainly engaged in the production of personal
watercraft and jet boats on which the gross profit margin is higher.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the 3 months ended September
30, 1999 increased by $226,123 or 302% to $301,024 from $74,901 for the 3 months
ended September 30, 1998 and for the 9 months ended September 30, 1999 increased
by $69,409 or 23% to $370,710 from $301,301 for the 9 months ended September 30,
1998.
Royalty expenses amounted to $10,475 for the 3 months ended September 30, 1999
compared to $37,500 for the 9 months ended September 30, 1999. No royalty was
payable for the 9 months ended September 30, 1998 as there were no royalty
agreement with the Company. Research and development expenses for the 3 months
ended September 30, 1999 increased by $2,399 or 100% to $2,399 from zero for the
3 months ended September 30, 1998 and as compared to the 9 months ended
September 30, 1999 increased by $2,399 or 100% to $2,399 from zero for the 9
months ended September 30, 1998. Travel expenses for the 3 months ended
September 30, 1999 increased by $25,682 or 261% to $15,854 from $(9,828) for the
3 months ended September 30, 1998 and for the 9 months ended September 30, 1999
increased by $37,149 or 528% to $44,183 from $7,034 for the 9 months ended
September 30, 1998. Travel expenses were incurred for the Florida trip to set up
the Company subsidiary during the first three quarters of 1999. Insurance
expenses for the 3 months ended September 30, 1999 decreased by $3,718 or 121%
to ($6,778) from ($3,060) for the 3 months period ended September 30, 1998 and
for the 9 months ended September 30, 1999 expenses increased by $21,058 or 353%
to $27,019 from $5,961 for the 9 months ended September 30, 1998.
<PAGE>
NET INCOME (LOSS)
Net Income(Loss) for 3 the month ended September 30, 1999 was ($258,285) as
compared to a profit of $267,012 for the 3 months ended September 30, 1998 and
net (loss) for the 9 months ended September 30, 1999 was ($398,086) as compared
to ($296,824) for the 9 the months ended September 30, 1998. This increase in
loss is mainly attributable to decrease in sales during three months ended
September 30, 1999 and the fact that selling, general and administrative
expenses were relatively increased for the same period ending September 30, 1999
by causing such expenses to be amortized over a greater sales base in the three
quarters of 1999 as compared to the three quarters of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital have been cash flow from its
operations, the sale of Series A Convertible Preferred Stock and loans on an
as-needed basis.
On June 17, 1998, the Company issued 1,600 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") for $1,500,000, net of a discount
of $100,000. The holders of Series A Preferred Stock are not entitled to receive
dividends. The Series A Preferred Stock is convertible to common stock at the
option of the holders, subject to certain limitations, and is limited to a
formula of either a fixed conversion price of $4.00 per share or a variable
conversion price, as defined, not to exceed the fixed conversion price or at a
price that includes an unpaid premium if said premium is not paid in cash prior
to conversion. For conversion purposes, the holders of Series A Preferred Stock
stockholders are entitled to an 8% premium from the day following the day of
issuance to the conversion date. If said premium is not paid in cash, the
premium is added to the face amount of $1,000 per share to determine the number
of common shares to be received on conversion. A total of 800,000 shares of
common stock have been reserved for the conversion of the Series A Preferred
Stock.
The Series A Preferred Stock is automatically convertible into common stock on
the fifth anniversary of the issuance date. If such conversion does not take
place at maturity, then the holders of the Series A Preferred Stock can require
the Company to purchase the shares for cash at a redemption amount as defined.
Subsequent to December 31, 1998, Sonic Jet International, Inc., which currently
has exclusive rights to market the Company's products in North and South
America, Europe, some Pacific Rim countries and the Middle East, loaned the
company approximately $400,000.
Based on its current operating plan, the Company anticipates that additional
financing will be required to finance its operations and capital expenditures.
The Company's currently anticipated levels of revenues and cash flow are subject
to many uncertainties and cannot be assured. Further, unforeseen events may
occur causing the Company to raise additional funds. The amount of funds
required by the Company will depend upon many factors, including without
limitation, the extent and timing of sales of the Company's products, future
product costs, the timing and costs associated with the establishment and/or
expansion, as appropriate, of the Company's manufacturing, development,
engineering and customer support capabilities, the timing and cost of the
Company's product development and enhancement activities and the Company's
operating results. Until the Company generates cash flow from operations which
will be sufficient to satisfy its cash requirements, the Company will need to
seek alternative means for financing its operations and capital expenditures
and/or postpone or eliminate certain investments or expenditures. Potential
alternative means for financing may include leasing capital equipment, obtaining
a line of credit, or obtaining additional debt or equity financing. There can be
no assurance that, if and when needed, additional financing will be available,
or available on acceptable terms. The inability to obtain additional financing
or generate sufficient cash from operations could require the Company to reduce
or eliminate expenditures for capital equipment, research and development,
production or marketing of its products, or otherwise curtail or discontinue its
operations, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, if the
Company raises funds through the sale of additional equity securities, the
Common Stock currently outstanding may be further diluted.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. 50,000 Shares were issued to Jag
enterprises on 6/23/99 in exchange
for services. See note 9 to the
consolidated financial statement.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 22, 1999 SONIC JET PERFORMANCE, INC.
By: /S/ VATCHE KHEDESIAN
------------------------------
Name: Vatche Khedesian
Title: Treasurer
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