<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 June 30, 2000
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 June 30, 2000, the Issuer had 13,022,267 shares of Common Stock, no par
value, outstanding.
<PAGE>
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at June 30, 2000 (un-audited)
Statement of Operations for the Six months ended June 30, 2000 and 1999
(un-audited)
Statements of Cash Flows for the Six months ending June 30, 2000 and
1999 (un-audited)
Notes to Consolidated Financial Statements (un-audited)
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 SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 (UN-AUDITED)
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONTENTS
JUNE 30, 2000 (UN-AUDITED)
--------------------------------------------------------------------------------
Page
FINANCIAL STATEMENTS
Consolidated Balance Sheet 1 - 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5 - 6
Notes to Consolidated Financial Statements 7 - 10
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 (UN-AUDITED)
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 133,714
Accounts receivable - trade 433,978
Inventories 758,209
Due from related party 354,584
Other current assets 6,345
-----------------
Total current assets 1,686,830
PROPERTY AND EQUIPMENT, net 3,663,305
OTHER ASSETS
Licensing rights 535,000
Other assets 84,461
-----------------
TOTAL ASSETS $ 5,969,596
=================
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 (UN-AUDITED)
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 249,784
Accrued payroll taxes 78,370
Accrued interest and other accrued liabilities 454,686
Current portion of capitalized lease obligations 1,303
Convertible debt - related party 1,643,023
-----------------
Total current liabilities 2,427,166
CAPITALIZED LEASE OBLIGATIONS, net of current portion 13,356
SUBORDINATED NOTE PAYABLE - RELATED PARTY 600,000
-----------------
Total liabilities 3,040,522
-----------------
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
13,022,267 shares issued and outstanding, including
432,500 held in treasury 4,327,777
Additional paid-in capital - stock warrant outstanding 928,178
Additional paid-in capital 864,000
Shares committed to be issued 143,872
Accumulated deficit (4,834,753)
-----------------
Total stockholders' equity 2,929,074
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,969,596
=================
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UN-AUDITED)
-------------------------------------------------------------------------------------------------------------
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(un-audited) (un-audited) (un-audited) (un-audited)
<S> <C> <C> <C> <C>
SALES $ 387,065 $ 196,321 $ 966,439 $ 766,021
COST OF SALES 373,840 48,778 819,801 320,892
------------- ------------- ------------- -------------
GROSS PROFIT 13,225 147,543 146,638 445,129
GENERAL AND ADMINISTRATIVE
EXPENSES 663,014 378,691 1,057,794 559,633
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (649,789) (231,148) (911,156) (114,504)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Write off of Inventory (385,082) (385,082)
Other income 4,587 2,004 9,670 2,004
Other expense 817 15,000 - -
Interest income 120 3,632 255 4,525
Interest expense (666,910) (30,000) (1,416,233) (30,000)
------------- ------------- ------------- -------------
Total other income (expense) (1,046,468) (9,364) (1,791,390) (23,471)
------------- ------------- ------------- -------------
LOSS BEFORE MINORITY INTEREST (1,696,257) (240,512) (2,702,546) (137,975)
MINORITY INTEREST - (2,585) - (1,825)
------------- ------------- ------------- -------------
NET LOSS $ (1,696,257) $ (243,097) $ (2,702,546) $ (139,800)
============= ============= ============= =============
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ (0.13) $ (0.02) $ (0.21) $ (0.01)
============= ============= ============= =============
WEIGHTED-AVERAGE COMMON SHARES
USED IN COMPUTATION OF BASIC
AND DILUTED LOSS PER SHARE 12,842,410 12,621,667 12,767,282 12,623,333
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UN-AUDITED)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional
Paid-In Accumulated
Capital - Shares Compre-
Preferred Stock Common Stock Stock Additional Committed hensive
--------------------- --------------------- Warrant Paid-In to be Income Accumulated
Shares Amount Shares Amount Outstanding Capital Issued (Loss) Deficit Total
---------- ---------- ---------- ---------- ----------- -------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER
31, 1999 1,600 $1,500,000 12,676,000 $3,618,194 $ 316,026 $272,000 $ 799,455 $ (4,943) $(2,132,207) $ 4,368,525
CAPITAL CHANGES DUE
TO DEBT FINANCING
(un-audited) 612,152 592,000 1,204,152
ISSUANCE OF COMMON
STOCK (un-audited) 346,267 709,583 (655,583) 54,000
CUMULATIVE TRANSLATION
ADJUSTMENT
(un-audited) 4,943 4,943
NET LOSS (un-audited) (2,702,546) (2,702,546)
---------- ---------- ---------- ---------- ----------- -------- ---------- --------- ------------ ------------
BALANCE, JUNE 30,
2000 (UN-AUDITED) 1,600 $1,500,000 13,022,267 $4,327,777 $ 928,178 $864,000 $ 143,872 $ - $(4,834,753) $ 2,929,074
========== ========== ========== ========== =========== ======== ========== ========= ============ ============
The accompanying notes are an integral part of these financial statements.
4
</TABLE>
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UN-AUDITED)
---------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Six Months Ended
June 30,
------------------------------
2000 1999
------------ ------------
(un-audited) (un-audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,702,546) $ (139,800)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 128,783 11,577
Loss on sale of property and equipment 3,071 -
Interest relating to beneficial conversion and warrants 1,302,140 -
Minority interest 8,910 (7,616)
Common stock issued for services 54,000 -
(Increase) decrease in
Inventories 373,690 (535,799)
Due from related parties 75,684 (104,944)
Accounts receivable (422,134) (53,403)
Prepaid inventories 20,000 140,919
Other receivables - (12,176)
Other current assets (2,195) 13,927
Increase (decrease) in
Accounts payable (197,913) 292,221
Accrued payroll taxes 9,967 10,050
Other accrued liabilities 56,333 65,368
Due to related parties - (20,589)
Accrued interest 108,160 34,887
------------ ------------
Net cash used in operating activities (1,184,050) (305,378)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (44,873) (575,187)
Proceeds from the sale of property and equipment 1,000 -
Sale of other assets 22,575 25,641
Costs of reorganization (88,089) -
------------ ------------
Net cash used in investing activities (109,387) (549,546)
------------ ------------
The accompanying notes are an integral part of these financial statements.
5
</TABLE>
<PAGE>
<TABLE>
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UN-AUDITED)
------------------------------------------------------------------------------------------------
<CAPTION>
For the
Six Months Ended
June 30,
------------------------------
2000 1999
------------ ------------
(un-audited) (un-audited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan $ - $ 500,000
Proceeds from subordinated note payable - related party - 281,370
Proceeds from convertible debt - related party 1,339,586 -
Proceeds from capitalized lease obligation (312) -
------------ ------------
Net cash provided by financing activities 1,339,274 781,370
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH 7,320 6,502
------------ ------------
Net increase (decrease) in cash 53,157 (67,052)
CASH, BEGINNING OF PERIOD 80,557 133,135
------------ ------------
CASH, END OF PERIOD $ 133,714 $ 66,083
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 5,811 $ 30,293
============ ============
INCOME TAXES PAID $ 800 $ -
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 2000, the Company recorded the retirement
of $731,700 (un-audited) in building and improvements and a reduction of $74,397
(un-audited) in accounts payable pursuant to the dissolution of a joint venture
agreement with China Guangxi Nanning Shipyard of Nanning, Guangxi, China
During the six months ended June 30, 2000, the Company issued 292,267 restricted
shares of common stock valued at $655,583 under a settlement agreement between
the Company and an officer of the Company.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
Sonic Jet Performance, Inc. ("SJPI"), a Colorado corporation, and
subsidiary (collectively, the "Company") are engaged in the design and
production of boats and accessories. The principal executive office is
located in Huntington Beach, California.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of SJPI and
its wholly owned subsidiary, Nanning Sonic Jet, LLC. All inter-company
balances and transactions are eliminated in consolidation.
Basis of Presentation
---------------------
The accompanying un-audited, condensed financial statements have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (which comprise only normal
recurring accruals) necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the
financial statements and notes thereto for the year ended December 31,
1999.
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.
Going Concern
-------------
The Company has received a report from its independent auditors that
includes an explanatory paragraph concerning the Company's uncertainty
to continue as a going concern. These consolidated financial statements
contemplate the ability to continue as such and do not include any
adjustments that might result from this uncertainty.
7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per Share
--------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common stockholders by
the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss 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 diluted.
Because the Company has incurred net losses, basic and diluted loss per
share are the same.
NOTE 2 - INVENTORIES
Inventories at June 30, 2000 consisted of the following:
(un-audited)
-----------------
Raw materials and supplies $ 509,378
Work in process 132,702
Finished goods 116,129
-----------------
TOTAL $ 758,209
=================
NOTE 3 - CASH
The Company maintains its cash balances at banks located in California.
Deposits at the banks are insured by the Federal Deposit Insurance
Corporation up to $100,000. At times, the Company holds cash with these
banks in excess of amounts insured by federal agencies. As of June 30,
2000, the uninsured portions of the balances held at the bank
aggregated to $71,000 (un-audited).
8
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 consisted of the following:
(un-audited)
---------------
Furniture and fixtures $ 12,883
Machinery and equipment 486,420
Tooling and molds 375,821
Tooling - new products 3,149,081
Vehicles 52,792
Leasehold improvements 32,933
---------------
4,109,930
Less accumulated depreciation and amortization 446,625
---------------
TOTAL $ 3,663,305
===============
A total of $2,236,148 of the tooling for new product has not been
depreciated during the six months ended June 30, 2000 as these items
will be used in production in the following year.
NOTE 5 - CONVERTIBLE DEBT - RELATED PARTY
Convertible debt - related party consists of three loan agreements with
the preferred stockholder to borrow up to $2,250,000 at 12% per annum,
payable quarterly. The loans mature in August 2000 and are secured by
all of the Company's assets. The outstanding principal and unpaid
interest are convertible at any time from the date of the note at 70%
of the average of the five lowest per share prices during the 15
trading days prior to conversion.
In accordance with FASB's Emerging Issues Task Force Topic No. D-60,
the Company accounts for the beneficial conversion feature of
convertible debt securities based on the difference between the
conversion price and the fair value of the common stock into which the
security is convertible, multiplied by the number of shares into which
the security is convertible. The amount attributable to the beneficial
conversion feature is recognized as additional interest expense over
the most beneficial conversion period using the effective interest
method. For the six months ended June 30, 2000, the Company recognized
the beneficial conversion feature by recording interest expense of
$732,000. For the three months ended June 30, 2000, the Company
recognized the beneficial conversion feature by recording interest
expense of $257,000. As of June 30, 2000, the Company had borrowed
$1,974,830 (un-audited).
9
<PAGE>
NOTE 5 - CONVERTIBLE DEBT - RELATED PARTY (CONTINUED)
In connection with the execution of these loans, the Company issued two
warrants to purchase a total of 1,500,000 shares of common stock at an
exercise price of $2.49 per share. The warrants are exercisable
immediately and expire on November 24, 2004. The fair value of the
warrants were calculated using the Black-Scholes option valuation model
with the following assumptions: dividend yield of 0%, risk-free
interest rate of 7%, expected volatility of 70%, and expected life of
approximately five years. As of June 30, 2000, the warrants were valued
at $0.99 and $1.269 per share and were still outstanding.
In addition, the Company issued one warrant to purchase a total of
750,000 shares of common stock at an exercise price of $1 per share.
The warrant is exercisable immediately and expires in May 2005. The
fair value of the warrant was calculated using the Black-Scholes option
valuation model with the following assumptions: dividend yield of 0%,
risk-free interest rate of 7%, expected volatility of 70%, and expected
life of approximately five years. As of June 30, 2000, the warrant was
valued at $0.54 per share and was still outstanding.
The Company allocates the proceeds received from debt or convertible
debt with detachable warrants using the relative fair value of the
individual elements at the time of issuance. The amount allocated to
the warrants is accounted for as a debt discount and is amortized to
interest expense over the expected term of the debt using the effective
interest method. The Company will record additional interest expense of
approximately $332,500 relating to these warrants in the third quarter
of 2000.
The carrying amount of the convertible debt has been reduced by any
related un-amortized debt discount.
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the Company incurred additional debt under
a loan agreement with the preferred stockholder. To recognize the
beneficial conversion feature relating to the additional debt, the
Company will record interest expense of approximately $117,000.
10
<PAGE>
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE SIX MONTHS ENDED JUNE 30, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED 6/30/00 VS. THE THREE AND SIX
MONTHS ENDED 6/30/99
The following table sets forth the company's consolidated statements of
operations and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- --------------------------------------------
2000 % 1999 % 2000 % 1999 %
----------- ------ ----------- ------ ----------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALE 387,065 100.0 $ 196,321 100.0 966,439 100.0 766,021 100.0
Cost of Sales 373,840 96.6 48,778 24.8 819,801 84.8 320,892 41.9
Gross profit (loss) 13,225 3.4 147,543 75.2 146,638 15.2 445,129 58.1
Selling, General 663,014 171.1 378,691 192.9 1,057,794 109.4 559,633 73.0
and Administrative
Gain/(Loss)from (649,789) (167.9) (231,148) (117.7) (911,156) (94.3) (114,504) (14.9)
operations
Interest Income 120 .0 3,632 1.8 255 .0 4,525 .6
Interest expenses (666,910) (172.3) (30,000) (15.3) (1,416,233) (146.5) (0,000) (3.9)
Other Income 4,587 1.2 2004 1.0 9,670 1.0 2,004 .3
Other 817 .2 15,000 7.6 - - - -
Write off Inventory (385,082) (99.5) (385,082) (39.8)
Minority Interest - - (2,585) (1.3) - - (1,825) (.2)
Net Income/(Loss) (1,696,257) 438.5 (243,097) (123.9) (2,702,546) (279.6) (139,800) (18.1)
</TABLE>
NET SALES
Net sales for the 3 months ended June 30, 2000 increased by $190,744 or 97.15%
to $387,065 from $196,321 for 3 the months ended June 30, 1999 and for the 6
Month ended June 30, 2000 increased by $200,418 or 26.16% to $966,439 from
$766,439 for the 6 months ended June 30, 1999. Management attributes this
increase to the increased sales of Vortex boats.
Sales of parts to Dalian Sonic Jet, a joint venture partner of Sonic Jet
Performance, Inc. ("the Company") amounted to $106,000 in the 3 months ended
June 30, 2000 as compared to $103,000 in the 3 months ended June 30, 1999 and
$106,000 in the 6 months ended June 30, 2000 as compared to $103,000 in the 6
months ended June 30, 1999.
COST OF SALES
Cost of Sales for the 3 months ended June 30, 2000 increased by $325,062 or
666.41% to $373,840 from $48,778 for the 3 months ended June 30, 1999 and for
the 6 months ended June 30, 2000 increased by $498,909 or 155.47% to $819,801
from $320,892 for the 6 months ended June 30, 1999. This is mainly attributed to
the cost of material & parts costs together with increased labor costs during 6
months ended June 30, 2000. The increase during 3 months ended June 30, 2000 is
attributed to costs of increased material & parts together with increased labor
cost on Vortex boats.
GROSS PROFIT
Gross profit for the 3 months ended June 30, 2000 decreased by $134,318 to
$13,225 from $147,543 for the 3 months ended June 30, 1999 and for the 6 months
ended June 30, 2000 decreased by $298,491 to $146,638 from $445,129 for the 6
months ended June 30, 1999. With the introduction of the Vortex model higher
cost parts and increased labor cost contributed to the lower gross profit
performance. The company also discounted previous quarter sales which has been
recorded in the current period.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the 3 months ended June 30,
2000 increased by 284,323 or 176.76% to $663,014 from $378,691 for the 3 months
ended June 30, 1999 and for the 6 months ended June 30, 2000 increased by
$498,161 or 89.0% to $1,057,794 from $559,633 for the 6 months ended June 30,
1999.
Insurance expenses for the 3 months ended June 30, 2000 decreased by $12,382 or
62.6% to $7,390 from $19,772 for the 3 months period ended June 30, 1999 and for
the 6 months ended June 30, 2000 expenses decreased by $2004 or 6.5% to $28,568
from $30,572 for the 6 months ended June 30, 1999 Medical benefits and life
insurance were provided to employees during the period ending June 30, 2000.
Directors and Officers liability insurance and workmen compensation insurance
for the period ending June 30, 2000 was paid.
Royalty expenses for the 3 months ended June 30, 2000 decreased by 6,499 or
51.9% to $6000 from $12,499 for the 3 months period ending June 30, 1999 and for
the 6 months ended June 30, 2000 decreased by $15,024 or 55.59% to $27,024 from
$12,000 for the 6 months period ending June 30, 1999. Royalty was paid at
minimum rate of $2,000 per month during the period ending June 30, 2000.
Travel expenses for the 3 months ended June 30, 2000 increased by $17,821 to
$17,821 from Zero for the 3 months ended June 30, 1999 and for the 6 months
ended June 30, 2000 increased by $11,323 or 57.7% to $30,942 from $19,619 for
the 6 months ended June 30, 1999. Travel expenses were incurred by the company
to close down Florida facility. Also travel expenses by sales personnel was
incurred during the period ending June 30, 2000, in the previous year, travel
expenses were incurred by Sonic Jet International, Inc., who were selling agents
of Sonic Jet performance, Inc. in the period ending June 30, 1999.
Salary expenses for the 3 months ended June 30, 2000 increased by $119,367 or
698.8% to $136,447 from $17,080 for the 3 months period ended June 30, 1999 and
for the 6 months ended June 30, 2000 expenses increased by $174,188 or 112.1% to
$329,553 from $155,365 for the 6 months ended June 30, 1999. Salary increase is
attributed to the staffing of new management during the period ending June 30,
2000.
Rent expenses for the 3 months ended June 30, 2000 increased by $3,238 or 17.6%
to $21,588 from $18,350 for the 3 months period ended June 30, 1999 and for the
6 months ended June 30, 2000 expenses increased by $5,248 or 12.8% to $46,248
from $41,000 for the 6 months ended June 30, 1999. Increase is attributed to
increase in rent as per the 3 year lease agreement.
Advertisement & trade show expenses for the 3 months ended June 30, 2000
increased by $31,869 or 2,046.0% to $33,426 from $1,557 for the 3 months period
ended June 30, 1999 and for the 6 months ended June 30, 2000 expenses increased
by $66,581 or 2,863.1% to $66,581 from $2,247 for the 6 months ended June 30,
1999. Selling and Marketing expenses were previously incurred by Sonic Jet
International, Inc. during the period ending June 30, 1999. Selling and
Marketing was restructured and brought in house by Sonic Jet Performance in the
fourth quarter of 1999.
Legal and Professional expenses for the 3 months ended June 30, 2000 decreased
by $4,540 or 64.5% to $2,500 from $7,040 for the 3 months period ended June 30,
1999 and for the 6 months ended June 30, 2000 expenses increased by $109 or .4%
to $27,831 from $27,722 for the 6 months ended June 30, 1999.
Commission on sales expenses for the 3 months ended June 30, 2000 increased by
$25,140 to $25,140 from $Zero for the 3 months period ended June 30, 1999 and
for the 6 months ended June 30, 2000 expenses increased by $43,342 to $43,342
from $Zero for the 6 months ended June 30, 1999. Sonic Jet International , Inc.
was our sole selling agents during the period ending June 30, 1999 and Sonic Jet
Performance, Inc. paid no commission during this period. . Selling and Marketing
was restructured and brought in house by Sonic Jet Performance in the fourth
quarter of 1999.
12
<PAGE>
OTHERS
Receivables from a related party and Sonic Marketing International, LLC were
written off during the 6 months ended June 30, 2000. Sonic Jet Nanning Jet ski
inventory which came back from China amounting to $385,082 were written off
during second quarter ending June 30, 2000. Florida operations were closed down
during the second quarter ending June 30, 2000. Loss incurred in the closing
down operation amounted to $30,073 was written off during the 2 quarter ending
June30, 2000.
The majority of above cost increases were the direct result of elimination of
the Sonic Jet International, Inc. company as the sales and marketing agent. In
addition, the companies closure of the Florida Manufacturing Plant was also a
large cost impact.,
NET INCOME/(LOSS)
Net (Loss) for 3 the month ended June 30, 2000 increased by $1,453,159 or 597.7%
to $1,696,257 from $243,098 and for 6 months ended June 30, 2000 increased by
$2,562,746 or 1,833.15% to $2,702,546 from $139,800. This increase in loss is
mainly attributable to increased costs associated with assuming the selling ,
general and administrative expenses which were previously the expense of Sonic
Jet International, Inc. Also the financial impact of the closure of the Florida
Operations contributed to the increased loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital have been cash flow from its
operations 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.
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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. 292,267 Shares were issued to
Albert Mardikian in exchange for
the debts due by the company.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item S. 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: August 15, 2000 SONIC JET PERFORMANCE, INC.
By: /s/ Madhava Rao Mankal
-------------------------------
Name: Madhava Rao Mankal
Title: Chief Finance Officer
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