<PAGE> 1
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 March 31, 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 May 10, 1999, the Issuer had 12,620,000 shares of Common Stock,no par
value, outstanding.
<PAGE> 2
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1999 (unaudited)
Statements of Operations for the three months
ended March 31, 1999 and 1998 (unaudited)
Statements of Cash Flows for the three months
ended March 31, 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
Signature
Exhibit Index
</TABLE>
1
<PAGE> 3
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 145,185
Accounts receivable - trade 86,297
Inventories 2,748,434
Due from related parties 398,922
Prepaid inventories 202,514
Other receivables 48,128
Other current assets 6,070
-----------
Total current assets 3,635,550
PROPERTY AND EQUIPMENT, net 3,210,698
OTHER ASSETS
Organization cost, net 25,000
Other 28,042
-----------
TOTAL ASSETS $ 6,899,290
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 272,622
Other accrued liabilities 23,543
Loans payable - bank 500,000
-----------
Total current liabilities 796,165
NOTE PAYABLE - STOCKHOLDER 600,000
ACCRUED INTEREST PAYABLE 103,872
-----------
Total liabilities 1,500,037
MINORITY INTEREST 679,510
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
12,620,000 shares issued and outstanding 3,599,694
Accumulated comprehensive income (10,157)
Accumulated deficit (369,794)
-----------
Total stockholders' equity 4,719,743
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,899,290
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
SALES $ 569,700 $ 76,065
COST OF SALES 272,114 23,268
------------ ------------
GROSS PROFIT 297,586 52,797
GENERAL AND ADMINISTRATIVE EXPENSES 180,942 187,820
------------ ------------
INCOME (LOSS) FROM OPERATIONS 116,644 (135,023)
------------ ------------
OTHER INCOME (EXPENSE)
Other income -- 4,897
Other expense (15,000) (6,000)
Interest income 893 --
------------ ------------
Total other income (expense) (14,107) (1,103)
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 102,537 (136,126)
MINORITY INTEREST 760 6,298
------------ ------------
NET INCOME (LOSS) $ 103,297 $ (129,828)
============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.13)
============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.13)
============ ============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC 12,620,000 10,000,000
============ ============
FULLY DILUTED 13,420,000 10,000,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Compre-
---------------------- ---------------------- hensive Accumulated
Shares Amount Shares Amount Income Deficit Total
---------- ---------- ---------- ---------- ----------- ----------- ----------
<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
NET INCOME (unaudited) 103,297 103,297
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1999 (UNAUDITED) 1,600 $1,500,000 12,620,000 $3,599,694 $ (10,157) $ (369,794) $4,719,743
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 103,297 $ (129,828)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 13,699 --
Minority interest (1,396) (6,573)
Common stock issued for services
(Increase) decrease in
Inventories (280,848) (131,565)
Due from related parties 73,614 (15,316)
Accounts receivable (47,344) 58,817
Other receivables (14,714) 8,413
Other current assets 8,607 1,200
Increase (decrease) in
Accounts payable 142,168 (77,779)
Accrued payroll taxes (9,627) 2,020
Other accrued liabilities 19,543 (65,568)
Due to related parties (20,589) --
Accrued interest payable 15,000 --
Accrued income tax -- 800
Other long-term accrued liabilities -- 73,500
------------ ------------
Net cash provided by (used in) operating activities 1,410 (281,879)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (502,277) --
Proceeds from the sale of property and equipment -- 6,615
Purchase of other assets -- (65,746)
Proceeds from the sale of other assets 12,917 --
------------ ------------
Net cash used in investing activities (489,360) (59,131)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 500,000 --
------------ ------------
Net cash provided by financing activities 500,000 --
------------ ------------
Net increase (decrease) in cash 12,050 (341,010)
CASH, BEGINNING OF PERIOD 133,135 729,506
------------ ------------
CASH, END OF PERIOD $ 145,185 $ 388,496
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - 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 recapitalization 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 intercompany
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 in conformity with generally
accepted accounting principles 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.
6
<PAGE> 8
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 three
months ended March 31, 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 March 31, 1998.
NOTE 2 - INVENTORIES
Inventories at March 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
(unaudited)
------------
<S> <C>
Raw materials and supplies $ 1,638,599
Work in process 521,524
Finished goods 588,311
------------
TOTAL $ 2,748,434
============
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
(unaudited)
------------
<S> <C>
Building and improvements $ 1,185,175
Furniture and fixtures 18,576
Machinery and equipment 492,784
Tooling and molds 268,452
Tooling - new products 464,936
Molds - watercrafts 878,071
Vehicles 32,403
Leasehold improvements 11,059
------------
3,351,456
Less accumulated depreciation and amortization 140,758
------------
TOTAL $ 3,210,698
============
</TABLE>
7
<PAGE> 9
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
Tooling for new product and molds for watercrafts have not been
depreciated during the three months ended March 31, 1999 as these will
be used in production in the following year.
NOTE 4 - NOTE PAYABLE - STOCKHOLDER
Note payable - stockholder at March 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
(unaudited)
------------
<S> <C>
Notepayable, bearing interest at 10% per annum. Annual
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
============
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ending
December 31, (unaudited)
------------ ------------
<S> <C>
1999 $ 60,750
2000 81,000
2001 81,000
2002 81,000
------------
TOTAL $ 303,750
============
</TABLE>
8
<PAGE> 10
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease (Continued)
Rent expense was $18,350 (unaudited) for the three months ended March
31, 1999.
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.
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:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 120,000
2000 $ 140,000
2001 $ 175,000
2002 $ 200,000
</TABLE>
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 thereafter.
9
<PAGE> 11
SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1999:
<TABLE>
<CAPTION>
(unaudited)
------------
<S> <C>
Dalian Sonic Jet, Ltd. $ 244,741
Sonic Marketing International, LLC 35,172
Sonic Jet International, Inc. 78,341
Majed Al Rashid 40,512
Michel Attias 156
------------
TOTAL $ 398,922
============
</TABLE>
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, and Michel Attias 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 the 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
the 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.
10
<PAGE> 12
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED 3/31/99 VS. THE THREE MONTHS ENDED 3/31/98
The following table sets forth the Company's consolidated statements of
operations and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C> <C> <C>
Sales $ 569,700 100.0% $ 76,065 100.0%
Cost of Sales $ 272,114 47.8% $ 23,268 30.6%
Gross Profit $ 297,586 52.2% $ 52,797 69.4%
Selling, general and administrative $ 180,942 31.8% $ 187,820 246.9%
Gain/(Loss) from Operations $ 116,644 20.5% $(135,023) 177.5%
Interest Income $ 893 0.16% $ 0 0.0%
Interest Expenses $ 15,000 2.63% $ 6,000 7.89%
Other Income $ 0 0.0% $ 4,897 6.44%
Net Income/(Loss) $ 103,297 18.1% $(129,828) 170.7%
</TABLE>
NET SALES
Net sales for the first quarter of 1999 increased by $493,635 or 649% to
$569,700 compared to $76,065 for the first quarter of 1998. Management
attributes this increase to the sales of parts to Dalian Sonic Jet, a joint
venture partner of Sonic Jet Performance, Inc. ("the Company"). Sales of parts
amounted to $238,000 in the first quarter of 1999 as compared to none in the
first quarter of 1998. Sales of rescue jets increased by $275,234 or 509% from
$54,075 in the first quarter of 1998 to $329,309 in the first quarter of 1999.
Sales of trailers decreased by $2,849 or 100% in the first quarter of 1999.
Sales of Delta Jets also decreased by $15,300 or 100% in the first quarter of
1999.
COST OF SALES
Cost of Sales for the first quarter of 1999 increased by $248,846 or
1,069% to $272,114 compared to $23,268 for the first quarter of 1998. This is
mainly attributed to the increase of the raw material costs together with
increased labor costs. Further, operations in the first quarter of 1998 were at
an early stage compared to the scale of operations in the first quarter of 1999.
GROSS PROFIT
Gross profit for the first quarter of 1999 increased by $244,789 or 464%
to $297,586 compared to $52,797 for the first quarter of 1998. Sales in the
first quarter of 1999 included the sales of parts to Dalian Sonic Jet Ltd. The
profit margin on sale of parts is smaller than the profit margin on sales of the
finished goods. Further, the
11
<PAGE> 13
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 first quarter of
1999 decreased by $6,878 or 3.7% to $180,942 compared to $187,820 for the first
quarter of 1998.
Insurance expenses increased by $16,186 or 276% from $5,861 in the first
quarter of 1998 to $22,047 in the first quarter of 1999. This was due to the
increase in workers' compensation expenses resulting from an increased workforce
as compared to the first quarter of 1998. Royalty expenses amounted to $12,500
in the first quarter of 1999 compared to none in the first quarter of 1998. No
royalty was payable in the first quarter of 1998 as there were no sales of
personal watercrafts. Marketing wages for the first quarter of 1999 decreased by
$10,541 or 100% to 0 compared to $10,541 for the first quarter of 1998.
Marketing salaries were paid to the salesmen for their efforts to initiate sales
in the first quarter of 1998. However, the sales were on track in 1999 and
therefore no marketing salaries were incurred in the first quarter of 1999.
Research and development expenses for the first quarter of 1999 decreased by
$61,005 or 100% in the first quarter of 1999 compared to the first quarter of
1998. This was because research and development of products was completed during
the first quarter of 1998. Travel expenses for the first quarter of 1999
decreased by $8,427 or 68% to $2,922 compared to $12,349 for the first quarter
of 1998. Travel expenses were incurred for the Miami Boat show in the first
quarter of 1998 to promote the Company's products. No such extensive promotional
activities took place in the first quarter of 1999.
NET INCOME
Net income for the first quarter of 1999 was $103,297 as compared to a
loss of ($129,828) for the first quarter of 1998, or an increase of $233,125.
This increase is mainly attributable to increased sales and the fact that
selling, general and administrative expenses were relatively the same for the
two periods, thereby causing such expenses to be amortized over a greater sales
base in the first quarter of 1999 as compared to the first quarter 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
<PAGE> 14
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. The Company expects to collect on its
receivable from Sonic Jet International, Inc., which stood at $366,123 as of
December 31, 1998, and pay off substantially all of the loan balance or settle
the amount by set-off.
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> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
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.
12
<PAGE> 16
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: May 24, 1999 SONIC JET PERFORMANCE, INC.
By: /s/ VATCHE KHEDESIAN
------------------------------------
Name: Vatche Khedesian
Title: Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 145,185
<SECURITIES> 0
<RECEIVABLES> 86,297
<ALLOWANCES> 0
<INVENTORY> 2,748,434
<CURRENT-ASSETS> 3,635,550
<PP&E> 3,351,456
<DEPRECIATION> (140,758)
<TOTAL-ASSETS> 6,899,290
<CURRENT-LIABILITIES> 796,165
<BONDS> 600,000
0
(1,500,000)
<COMMON> (3,599,694)
<OTHER-SE> 379,951
<TOTAL-LIABILITY-AND-EQUITY> (6,899,290)
<SALES> (569,700)
<TOTAL-REVENUES> (570,593)<F1>
<CGS> 272,114
<TOTAL-COSTS> 453,056<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> (103,297)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,297)<F3>
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
<FN>
<F1>Total revenue includes sales of $569,700 plus interest income of $893.
<F2>Total costs include cost of goods sold of $272,114 plus general and
administrative expenses of $180,942.
<F3>Net income of $103,297 includes income before minority interest of $102,537
plus minority interest of $760.
</FN>
</TABLE>
