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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 000-25003
REVENGE MARINE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3051776
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2051 NW 11TH STREET
MIAMI, FLORIDA 33125
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(Address of principal executive offices, including zip code)
(305) 643-0334
(Registrant's telephone number, including area code)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO [ ]
The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of March 31, 1998 was 9,054,600.
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REVENGE MARINE, INC.
<TABLE>
<CAPTION>
PART I-FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements:
Condensed Balance Sheets at March 31, 1999 ............................... 3
Condensed Statements of Operations for the nine month period
ended March 31, 1999 ..................................................... 4
Condensed Statements of Cash Flows for the nine month period ended
March 31, 1999 and for the six month period ending December 31, 1998...... 5
Notes to Unaudited Condensed Financial Statements ........................ 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 11-17
PART II-OTHER INFORMATION
Item 1. Legal Proceedings ........................................................ 18
Item 2. Changes in Securities .................................................... 18
Item 3. Defaults Upon Senior Securities .......................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ...................... 18
Item 5. Other Information ........................................................ 18
Item 6. Exhibits and Reports on Form 8-K ......................................... 20
Signatures ........................................................................ 24
</TABLE>
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVENGE MARINE, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
ASSETS
REVENGE MARINE, INC.
CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSETS
Cash $ (100,304)
Accounts receivable 497,971
Inventories 805,522
Work in progress 1,195,863
Prepaid expenses 34,555
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TOTAL CURRENT ASSETS 2,433,607
FIXED ASSETS
Shop equipment 376,907
Leasehold improvements 364,419
Automobiles 45,098
Office Equipment 89,098
Molds and prototypes 807,710
Less: Accumulated depreciation (328,087)
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TOTAL FIXED ASSETS 1,355,145
OTHER ASSETS
Investment in subsidiaries in
excess of book value 2,356,971
Security Deposits - Rent 35,000
Loan Fees 266,615
Less: Accumulated Amortization (22,721)
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TOTAL OTHER ASSETS 2,635,865
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TOTAL ASSETS $ 6,424,617
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REVENGE MARINE, INC
CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable $ 744,579
Progress payments 701,708
Accrued liabilities 17,129
Customer deposits
Inventory Floor Plan
Short term portion of long term debt 466,000
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TOTAL CURRENT LIABILITIES $1,929,416
LONG TERM DEBT
Notes payable - Stockholders 277,163
Notes payable - 3 year secured note 2,100,000
Other notes payable 75,000
Less: current portion (466,000)
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TOTAL LONG TERM DEBT $1,986,163
SHAREHOLDERS EQUITY
Common stock and paid in capital 3,027,568
Retained earings (deficit) (233,208)
Profit (Loss) for period (285,322)
TOTAL SHAREHOLDER EQUITY 2,572,038
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TOTAL LIABILITIES & SHAREHOLDERS EQUITY $6,424,617
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See accompanying notes.
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REVENGE MARINE, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
REVENGE MARINE, INC.
INCOME STATEMENTS
Actual
9 Months Ended
March 30, 1999
---------------
REVENUE
Blackfin $
Consolidated 2,724,209
Egret 1,816,139
Total Revenue 4,540,348
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COST OF GOODS SOLD
Blackfin --
Consolidated 1,504,154
Egret 1,110,259
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Total Cost of Goods Sold 2,614,413
GROSS PROFITS 1,925,935
OPERATING EXPENSES
Operating Expenses 872,759
Selling Expenses 258,820
Administrative Expenses 987,302
Royalty on Blackfin to Detroit Diesel --
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Total Operating Expenses 2,118,881
OPERATING PROFIT (192,946)
Sale of Assets (net) --
Interest Expense - Debt (89,876)
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NET INCOME BEFORE TAXES (282,822)
Income Tax Expense (2,500)
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NET INCOME $ (285,322)
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See accompanying notes.
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REVENGE MARINE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
REVENGE MARINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
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MARCH, 1999 DECEMBER, 1998
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Cash Flows from Operating Activities:
Net Income (Loss) $(650,407) $ 218,085
Adjustments to reconcile net Income (loss) to net
cash used by Operating Activities:
Depreciation 49,380 139,682
Amortization (15,315) 36,036
Increase in Customer Deposits 701,708 (64,500)
Increase in WIP (321,427) (813,936)
Increase in Prepaid Expenses (2,235) 144,288
Decrease in Accrued Liability (56,806) 64,652
Increase in Accounts Receivables (36,876) (461,095)
Increase in Inventories (398,724) (406,798)
Increase in Accounts Payables 50,172 614,705
Decrease in other Assets 17,000 (259,103)
Total Adjustments (13,123) (1,004,069)
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Net Cash Used in Operating Activities (663,530) (785,984)
Cash Flows from Investing Activities:
Additions to Plant, Property & Equipment 353,796 (1,658,583)
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Net Cash Used in Investing Activities $ 353,796 $(1,658,583)
Cash Flows from Financing Activities:
Paid in Capital withdrawn -- (27,214)
Increase in Additional Paid in Capital 187,249 --
Proceeds from Long Term Debt -- 2,358,104
Stock Receivable - Cashed -- 100,000
Decrease in Short Term Loan (66,935) --
Net Cash Provided by Financing Activities 120,314 2,430,890
Decrease in Cash (189,420) (13,677)
Cash at Beginning of Period 89,116 102,793
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Cash at End of Period $(100,304) $ 89,116
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</TABLE>
See accompanying notes.
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REVENGE MARINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Revenge Marine, Inc. (the "Company"), is a publicly traded Nevada
company that was incorporated December 28, 1979. The Company has operated under
various names since its incorporation, most recently operating as Global Energy
Organization Corporation ("Global").
The Company entered the development stage after it reorganized in
January 1998 (see Note 2) and changed its primary focus to acquiring yacht
manufacturing and marine technology companies, with future plans to produce and
market a full line of boats from 16 to 110 feet in length. Since that time, the
Company has devoted substantially all of its efforts to raising capital and
acquisition activities. As of June 30, 1998, the Company's principal operations
had not commenced and their only reported revenues were from a recently acquire
subsidiary. Because the Company is in the development stage, the accompanying
consolidated financial statements should not be regarded as typical for normal
operating periods.
LIQUIDITY CONSIDERATIONS
Since its reorganization, the Company has expended substantial
financial resources in its acquisition and capital raising activities. The
Company commenced its principal operations and began generating revenues in the
fiscal year ending June 30, 1999. As of March 31, 1999, the Company's
accumulated deficit was $518,536 which was funded primarily through short-term
borrowings and the proceeds from acquisitions. Management believes it can fund
planned operations through the proceeds of stock issues and from its anticipated
revenues or reductions in its operating expenses.
PRINCIPALS OF CONSOLIDATION
The March 31, 1999 consolidating balance sheet includes the accounts of
Revenge Marine, Inc. and its wholly owned subsidiaries, Revenge Marine, Inc.,
(an Oklahoma corporation), Egret Boat Company, Inc., (a Florida corporation),
Consolidated Marine, Inc. (a Florida corporation).
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REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
PRINCIPALS OF CONSOLIDATION (CONT.)
The March 31, 1999 consolidating statements of income, shareholders'
equity and cash flows include the accounts of Revenge Marine, Inc. (Nevada) from
July 1, 1998 through March 31, 1999 and the account of Egret Boat Company, Inc.
and Consolidated Marine, Inc. All material intercompany accounts and transaction
have been eliminated in consolidation.
The consolidating financial statements and notes of Revenge Marine,
Inc. are representations of the Company's management, who is responsible for
their integrity and objectivity. The accounting policies of the Company are in
accordance with generally accepted accounting principles and conform to the
standards applicable to development stage companies.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments (that are readily
convertible to cash) purchased with original maturity dates of three months or
less to be cash equivalents.
REVENUE RECOGNITION
The Company considers highly liquid investments through March 31, 1999
consists of the earnings of Egret Boat Company and Consolidated Marine from the
date of acquisition through March 31, 1999. Revenge Marine recognizes revenues
on a percentage of completion basis.
INTANGIBLE ASSETS
Intangible assets include organizational costs, costs associated with
developing a new line of yachts, and the Company's investment in its
subsidiaries in excess of the book value of the subsidiaries' net assets.
Intangible assets are amortized using the straight-line method based on the
economic useful lives of the assets, principally over five years.
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REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful life of the asset of five years.
When assets are retired or otherwise disposed of, the cost and accumulated
reflected in operations in the period realized.
INCOME TAXES
The Company uses the liability method of accounting of income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under the liability method, deferred taxes are determined
based on the differences between the financial statement and tax bases of assets
and liabilities at enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
USE OF 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 at the
date of the financial statements and the reported revenues and expenses during
the reporting period. Accordingly, actual results could differ from those
estimates.
EARNINGS (LOSS) PER SHARE
Primary income (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock of the Company and common
stock equivalents outstanding during the period (see Note 9). Common stock
equivalents represent the dilutive effect of the assumed exercise of certain
outstanding stock options and warrants.
The calculation of fully diluted income (loss) per share of common
stock assumes the dilutive effect of the Company's outstanding stock options and
warrants converted into common stock oat the later of the beginning of the
fiscal year or issue date. During a loss period, the assumed exercise of
outstanding stock options and warrants have an antidilutive effect. As a result,
these shares are not included in the weighted average shares of used in the
calculation of loss per share.
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REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
WORK IN PROGRESS
Work in Progress consist of customer deposits received by Revenge
Marine, Inc. these deposits have been advanced to Revenge Marine, Inc. as
progress payments on boats under construction at the balance sheet date (see
"Related Party Transactions", Note 6). These payments revenue is recognized on
the completed boats.
PREPAID EXPENSES
Prepaid expenses at March 31, 1999 consisted of prepaid insurance and
related expenses.
FISCAL YEAR END
The Company's fiscal year ends on June 30. The company's subsidiaries
previously had a December 31 year-end and will change their fiscal year to
coincide as a result of the acquisition by the Company.
NOTE 2 - REORGANIZATION AND ACQUISITIONS
Revenge Marine, Inc. (the Company) acquired the assets of Blackfin
Yachts on October 24, 1998 with a cash purchase of $900,000 and warrants to
Detroit Diesel valued at $3/share. The purchase price was allocated as follows:
Molds and prototypes $870,030
Equipment-Shop 27,360
Office Equipment 2,610
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REVENGE MARINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 1999:
Leasehold Improvements $ 364,419
Molds and prototype 807,710
Equipment 376,907
Automobiles 45,098
Office equipment 89,098
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Total consolidated property
and equipment 1,683,232
Less accumulated depreciation (328,087)
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Net property and equipment $ 1,355,145
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NOTE 4 - INTANGIBLE ASSETS
Intangible assets consists of the following at June 30, 1998:
ESTIMATED
USEFUL LIFE
-----------
Investment in subsidiaries
in excess of book value
Marine assets $ 35,000 5 years
Organizational costs 266,615 5 years
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Total intangible assets 301,615
Less accumulated amortization (22,721)
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Net intangible assets $ 278,894
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REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 5 - RELATED PARTY TRANSACTIONS
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following at June 30, 1998:
Notes payable to other entities:
Long term note due to CC for asset acquisition $ 272,163
Unsecured $75,000 operating line of credit with
First Union National Bank, with interest-only
payments due monthly at an interest rate equal to
the prime rate plus 2% (10.5% at June 30, 1998) 75,000
Note payable to Finova Corp-Blackfin Acquisition 2,100,000
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Total notes payable 2,447,163
Current portion (466,000)
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$ 1,981,163
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NOTE 7 - WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Common shares outstanding at March 31, 1999 $ 9,054,600
Effect of using weighted average common shares
outstanding
Fully diluted common shares outstanding 14,129,600
NOTE 8 - PROFESSIONAL SERVICES
The Company has entered into various agreements for consulting and
broker services relating to future planned acquisitions and other operations of
the Company. The agreements are with a variety of companies, most of whose
owners or officers are shareholders of Revenge Marine. In several of the
agreements, the Company has issued common stock, stock options, or stock
warrants as partial or, in some cases, total consideration for the services to
be performed. The terms of the significant agreements are highlighted as
follows:
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REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 9 - LEASE AGREEMENT
The Company leases its Miami, Florida facility under a non-cancelable
operating lease. The agreement, as amended on July 10, 1998, calls for monthly
lease payments of $37,333 beginning in July 1998, with a twelve month, interest
free option to purchase the property at a purchase price of $3,259,500. After
the initial twelve month period, the option to purchase will begin to accrue
interest at a rate of 6%, compounded daily. The Company is responsible for
paying insurance and real estate taxes on the property, which are estimated to
total $15,720 per month. Pursuant to the July 10, 1998 Amended Agreement,
$15,000 of the initial $50,000 deposit was refunded to the Company in July 1998.
The term of the lease is ten years with an option to extend the lease for an
additional five years.
The minimum obligations for the next five ears are as follows:
YEAR ENDED
JUNE 30
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1999 $ 516,636
2000 516,636
2001 516,636
2002 516,636
2003 516,636
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Total $2,583,180
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NOTE 10- SUBSEQUENT EVENTS-DEFAULTS
Revenge is in default under the Loan and Security Agreement with Finova
Capital Corporation ("Finova"). The above table assumes that Finova will not
choose to enforce an acceleration of the principal and interest pursuant to the
Loan and Security Agreement. Revenge is also in default under the Lease with
Miami River Partners, Ltd. Although management is in the process of ameliorating
certain of these defaults, there can be no assurance that either of these
defaults can be cured.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED IN PART 1- ITEM 1 OF THIS QUARTERLY REPORT AND REVENGE'S AUDITED
CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S REGISTRATION
STATEMENT ON FORM 10 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
OCTOBER 28, 1998.
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Predictions of future events are
inherently uncertain. Actual events could differ materially from those predicted
in the forward looking statements due to a number of factors including but not
limited to the risks set forth in the following discussion. Readers are also
encouraged to refer to the Company's Registration Statement on Form 10 (File No.
000-25003), filed with the Securities and Exchange Commission on October 28,
1998 for a further discussion of the Company's business and the risks attendant
thereto.
OVERVIEW
Revenge was originally founded in 1979 and, after undergoing several name
changes and a long period of inactivity, it commenced operations again on
September 5, 1997. In January, 1998, Revenge restated its purpose as engaging in
acquisition and consolidation in the yachting and Marine industries. Revenge's
primary focus is on the manufacture, sales, service and repair of vessels
ranging from 16 to 85 feet. Revenge has funded its activities primarily through
a combination of operating revenues, debt and through the private placement of
equity. Revenge's Revenue through March 31, 1999 has been primarily generated
from refurbishing, refitting and repair of vessels and from sales of its Egret
flats boats of less than 35 feet in length. Revenge's current focus is on
developing an improved capacity to efficiently repair and refurbish vessels in
its new Miami facility, to utilize a system of estimating and bidding on such
work such that profit margins are increased, fully integrating and streamlining
production in its Miami facility and ramping up for production of motor yachts
in its Miami facility. The Company acquired the assets of Blackfin Yacht
Corporation in a transaction which occurred in October, 1998 and which is
described on the Company's Registration Statement on Form 10. Management
believes that the production and sale of the Blackfin product will significantly
improve revenue growth, profitability and cash flow during the fourth quarter of
the current fiscal year. Revenge had sold four Blackfin products, in various
states of completion, as of March 31, 1999.
In March, 1999, Revenge merged with First Chance Marine Finance, Inc., a
Florida corporation ("First Chance"), which operates a small network of retail
marine dealer locations in Northern Florida (the "Merger"). Since March 14,
1999, the date of the Merger, Revenge and First Chance have operated largely as
distinct operating entities. At the time of the quarter end, March 31, 1999,
virtually no integration of the two companies had taken place and both were
operating in substantially the same manner as before the Merger. Effective June
4, 1999, First Chance and Revenge Rescinded the Merger. Revenge and First Chance
also agreed in a side letter agreement of even date with the rescission that
certain First Chance shareholders would retain 1,446,000 common shares in
Revenge in compensation for certain capital contributions made to Revenge by
First Chance during the period of the Merger. Revenge also received 500,000
shares of common stock First Chance by way of this same side letter agreement.
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Revenge has incurred net losses and experienced negative cash flow from
operations since inception through the end of the fiscal year ending June 30,
1998. During the first nine months of the fiscal year beginning July 1, 1998,
Revenge realized a net loss of $285,322. There can be no assurance that the
Company will be able to achieve or sustain revenue growth, profitability or
positive cash flow on either a quarterly or an annual basis.
Revenge experienced severe liquidity problems during the three month period
ending March 31, 1999. Management believes this liquidity problem was caused by
a lack of available working capital, a failure of management to engage an
underwriter for a secondary private offering of stock in Revenge, a failure of
the Merger with First Chance and a lack of adequate credit facilities.
Management has engaged in extensive cost-cutting measures during the three month
period ending March 31, 1999, including a more than 50% reduction in the
payroll. Management intends to continue aggressive cost-cutting measures to
reduce operating expenses during the remainder of the current fiscal year.
Management believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance.
Revenge may experience significant period-to-period fluctuations in operating
results depending upon factors such as the success of the Revenge's efforts to
expand production in its Miami facility, lower costs, lease space and dockage in
its Miami facility and retain and expand its customer base and third party
partnership and dealer base, changes in pricing and mix of products and services
offered by Revenge or its competitors, market acceptance of new products or the
Blackfin products offered by Revenge and changes in, and the timing of, expenses
relating to development and sales and marketing. Other factors that may
contribute to variability of operating results include the timely deployment and
implementation of expansion of the Revenge Marine, Inc. dealer network or
internal direct marketing capability, changes in demand for marine products and
services, the cyclical nature of marine expenditures and the overall health of
the regional and international economy. Additionally, management believes that
significant reductions in expense levels relative to revenue are achievable in
the short term and are based, in part, upon the Revenge's estimates of growth of
its business and the implementation of across-the-board cost-cutting measures
and increased internal cost controls.
RESULTS OF OPERATIONS
REVENUE. Revenue totaled approximately $4,540,348 for the nine months ended
March 31, 1999. Management expects losses to remain constant during the
remainder of the fiscal year ending on June 30, 1999 as Blackfin products are
sold, servicing work in the Miami facility expands and facility revenues are
developed. The foregoing expectation is a forward looking statement that
involves risks and uncertainties and the actual results could vary materially as
a result of a number of factors.
COST OF REVENUE. Cost of revenue consists primarily of labor and material
costs to manufacture new boats, as well as labor and material costs incurred
when Revenge does refurbishing and service projects. Revenge has incurred
significant capital improvement costs in preparing the Miami facility for
production, but expects to recoup certain of these costs in the form of
increased production efficiencies. Management believes that there is significant
room for reducing the relative cost of service and repair revenue through
improved estimation and supervision practices. In addition, because relative
costs of revenue are lower in larger motor yachts, the planned sales of Blackfin
could have a huge positive impact in lowering relative revenue costs. The
foregoing expectation is a forward looking statement that involves risks and
uncertainties and the actual results could vary materially as a result of a
number of factors.
MARKETING, SALES AND ADMINISTRATION. Marketing, sales and administration
expense consists primarily of personnel expenses, accounting, legal expenses and
marketing development, promotion and sales activities, including salary and
commissions, costs of marketing programs and the cost of attending various boat
shows and trade shows. Marketing, sales and administration expense was
approximately $2,118,881 for the nine months ended March 31, 1998. No historical
data is available for the corresponding period of the fiscal year ending June
30, 1998, as operations had not yet commenced. This expenditure reflects a
substantial investment in the customer support, marketing and sales
organizations necessary to support the Company's expanded customer base. The
Company expects marketing, sales and administration expenditures to continue to
increase in dollar amount, but to decline as a percentage of revenue.
Specifically, the administrative infrastructure of Revenge is designed to
anticipate future Blackfin sales that have not yet occurred. As these sales
occur, administrative expenses will not increase substantially and will decline
as a percentage of revenue. Revenge has also incurred significant administrative
costs in fulfilling its regulatory obligations as a public entity. Revenge
expects these expenses to remain constant and therefore decline as a percentage
of revenue. Together, therefore, management anticipates that marketing, sales
and administrative expenses will increase somewhat more modestly than in the
first six months of the current fiscal year, but decline sharply as a percentage
of revenue as sales of the Blackfin product increase. The foregoing expectation
is a forward looking statement that involves risks and uncertainties and the
actual results could vary materially as a result of a number of factors.
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NET LOSS. Revenge had a loss of approximately $ 285,322 for the quarter
ended March 31, 1999 as compared to approximately $333,551 for the quarter
ending December 31, 1998 or a loss of $318,932 for the fiscal year ending June
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has satisfied its cash requirements primarily through
debt, the sale of capital stock and through operating revenues. The Company's
principal uses of cash are to fund working capital requirements and capital
expenditures and to service its vendor, payroll and professional expenses. Net
cash used in operating activities for the nine months ended March 31, 1999 was
approximately $663,530. No historical data is available for the corresponding
period of the prior fiscal year, as operations had not yet commenced. Net cash
used in operating activities in the fiscal year ending June 30, 1998 was
$297,284. The amount of cash used in operating activities in both periods was
primarily impacted by the increased costs of consolidating operations in the
Miami facility and expenses associated with commencement of manufacturing of the
Blackfin product line. Additional cash expenditures were caused by increased
costs relating to the expansion of Revenge's manufacturing and organizational
infrastructure.
For the three months ended March 31, 1999 cash of approximately $120,314
was generated from financing activities. In the fiscal year ending June 30,
1998, cash of $472,485 was generated by the sale of Revenge's Common Stock and
debentures in various private placements. The net cash DECREASE for the three
month period ended March 31, 1999 was $189,420. At December 31, 1998, the
Company had a deficit of cash and cash equivalents of approximately $100,304.
The company does not presently have enough funding to meet its daily
working capital needs.
ADDITIONAL FACTORS THAT COULD AFFECT OPERATING RESULTS
The following factors, together with other risk factors discussed in the
"Overview" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations and other information contained elsewhere
herein, should be considered carefully in evaluating the Company and its
business.
NARROW GROSS MARGINS FOR PRODUCT SALES. Approximately 10% of the
Company's net revenues in fiscal 1998 were generated through service,
refurbishing and repair. As a result of intense price competition, the Company's
product gross margins on smaller boats will continue to be fairly low, projected
to be approximately 18% in fiscal 1999. The Company believes that competitive
conditions will continue to place pressures on its product gross margins. As a
result of the Company's narrow product gross margins, fluctuations in net
revenues and operating costs may have a disproportionate impact on the Company's
operating results. Further declines in the Company's product gross margins may
have a material adverse effect on the Company's business, financial condition
and operating results.
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DEPENDENCE ON MIAMI FACILITY, DANIA FACILITY. Disruption of operations
at Revenge's Miami facility for any reason, including power or
telecommunications failures, natural disasters such as hurricanes, fires,
tornadoes or floods, or work stoppages, would have a material adverse effect on
the Company's business, operating results and financial condition
INCREASED EMPHASIS SALES OF BLACKFIN PRODUCTS. Revenge's Blackfin
product sales and service and repair revenues are characterized by higher gross
margins than those attainable in small product sales, such as the Egret line. As
a result, the Company's goal is to increase the proportion of revenues derived
from the provision of services, Blackfin products, parts and large yacht sales
relative to small product sales. Revenge's success in increasing its service
revenues will depend primarily on the acceptance by the relatively small group
of large yacht owners and purchasers of the Revenge brand, identity, product and
reputation. To the extent that Revenge does not successfully increase the
proportion of revenues attributable to its large yacht and service/repair
business, the Company's operating margins may be adversely affected. The Company
has also recently implemented a more sophisticated cost-based methodology for
pricing its services. If service revenues do not increase sufficiently or the
Company fails to accurately price its services, the Company's business,
operating results and financial condition would be materially and adversely
affected. In addition, customer acceptance and strong sales of Blackfin products
and the ability to find an efficient retail mechanism or dealer network for
Blackfin sales will have a substantial impact on revenues.
NEED TO RECRUIT AND RETAIN MANAGEMENT, TECHNICAL AND SALES PERSONNEL.
The Company believes that its future success depends, to a large extent, upon
the efforts and abilities of its executive officers, managers, technical and
sales personnel. Failure by the Company to attract and train skilled managers,
technical and sales personnel on a timely basis, or the inability of the Company
to retain such personnel, could materially and adversely affect the Company's
business, operating results or financial condition.
MANAGEMENT OF GROWTH. The Company has experienced enormous growth since
its entry into the marine industry and its extensive acquisitions. This rapid
growth has placed, and is expected to continue to place, a significant strain on
the Company's management, financial, sales, technical and support systems and
personnel. Revenge's ability to manage its growth effectively will require it to
continue to develop and improve its operational, financial and other internal
systems and train, manage and motivate its employees. The Company has in the
past and will continue in the future to evaluate the acquisition of businesses
that complement or expand the Company's presence and profitability in the marine
industry. Integrating newly acquired companies could be costly and may result in
the loss of customers and key personnel and may disrupt operations.
Additionally, integrating newly acquired businesses may divert significant
management resources and attention from day to day operations. Historically,
Revenge has spent considerable amounts of its human and managerial capital on
the integration of acquisitions and streamlining of operations, a process that
is far from complete.
-17-
<PAGE> 18
INTENSE COMPETITION. The marine product and services industry is
intensely competitive. Revenge expects competition to intensify in the future.
As an integrated product and service provider, Revenge competes with sellers of
used motor boats and yachts, manufacturers of new products, and existing service
providers. Management is not aware of any company which would compete directly
in every phase of the Company's operations. Instead, Revenge faces competition
from a number of different sources and on different levels. Viking, Travis
Boats, Brunswick, and Cabo all compete with Revenge in boat products. In
addition to these large national companies, Revenge also competes against
numerous regional and local companies in the service, refurbishing and dockage
areas and many of these competitors have longstanding customer relationships.
For the smaller, less expensive boats, there is intense competition both from
other boat builders of similar size as well as from alternative craft that might
compete with flats-boats and small yachts.
Some of the Company's competitors have greater financial, technical and
marketing resources. As a result, such companies may be able to respond more
quickly to new or emerging technologies and changes in customer needs or devote
more resources to the development, promotion and sales of their boats, yachts or
services than Revenge. In addition, competition could result in price decreases
and depress gross margins in the industry. Further declines in the Company's
gross margins may exacerbate the impact of fluctuating net revenues and
operating costs on the Company's operating results and have a material adverse
affect on the Company's business, operating results and financial condition.
The principal competitive factors in the Company's industry include the
breadth and quality of product and service offerings, product availability,
pricing, and expertise of technical workforce, research and design innovations,
developments in marine architecture and the price of skilled labor in the local
market. Revenge believes that it competes favorably with respect to each of
these factors. However, there can be no assurance that Revenge will, in the
future, be able to compete successfully against existing or future competitors
or that such competition will not adversely affect Revenge's business, operating
results and financial condition.
WARRANTY RISKS. The Company has begun implementing and intends to
expand the use of quality and product consistency controls. Nevertheless,
Revenge incurs significant exposure with the introduction of new production
models. Revenge will in all likelihood be obligated to correct any design or
manufacturing imperfections for a long period and at great expense in order to
develop and maintain its reputation for quality, accountability and service As a
result, the Company must accurately estimate the resources required to provide
service on any warranty or repair work it is forced to provide. Failure by the
Company to estimate accurately support expenses or warranty costs could have a
material adverse effect on the Company's business, operating results or
financial condition.
HIGH DEGREE OF LEVERAGE; FUTURE CAPITAL NEEDS. The Company requires
substantial capital to fund its business and, in particular, to finance product
development, mold retooling, acquisition integration, accounts receivable,
capital expenditures, salaries and lease payments on its Miami and Dania
facilities. To date, the Company has relied on an influx of equity and debt to
finance its business and its expansion. As a result, the Company is highly
leveraged.
Substantially all of the Company's outstanding indebtedness is tied to
the prime rate. The Company is not currently a party to any financial
instruments which would mitigate the Company's exposure to increases in the
prime interest rate. Accordingly, increases in the prime rate could adversely
impact the Company's pretax income or otherwise materially and adversely affect
the Company's business, operating results or financial condition. Also, there
can be no assurance that the Company will be able to generate sufficient cash
from operations to satisfy future interest and principal payments. In the event
that the Company is unable to meet its payment obligations or needs additional
capital to fund its business, the Company would be required to seek alternative
sources of financing or attempt to refinance its existing credit facilities.
There can be no assurance that such alternative equity or debt funding would be
available on terms acceptable to the Company, if at all. Under such
circumstances, the Company's inability to procure additional funding or
refinance existing indebtedness would have a material adverse effect on the
Company's business, operating results and financial condition.
-18-
<PAGE> 19
ENVIRONMENTAL AND REGULATORY RISKS. The marine manufacture and repair
industry is highly regulated. The Company operates under a number of federal,
state and local environmental protection, river protection and worker safety
regulations. The Company's manufacturing processes employ a number of highly
toxic, hazardous substances. A spill or accident involving any of these
chemicals would have a serious and material effect on the Company's operations
and ability to continue as a going concern and could result in civil or criminal
penalties on behalf of the Company, its employees, officers and directors. While
the Company has substantially all regulatory permits for its business as
presently conducted, there can be no assurance that such permits will continue
to be available. The loss of these regulatory permits could cause the Company to
fail.
CONTROL BY PRINCIPAL STOCKHOLDERS. The directors and executive officers
of the Company own a majority of the outstanding Common Stock in Revenge. In
particular, Desai Robinson and entities under her beneficial ownership or
control constitute the largest shareholder of the Company's Common Stock. Desai
Robinson is the wife of William C. Robinson, an officer and director. As a
result, Mrs. Robinson may be able to control the election of members of the
Company's Board of Directors and generally exercise control over the Company's
corporate actions. Such concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company.
YEAR 2000. Based on a review of its existing information systems,
Revenge does not anticipate that it will incur significant costs in connection
with bring its information systems into compliance with Year 2000 requirements.
Most of Revenge's software is non-customized third-party software. However,
there is no guarantee that Revenge will not experience disruptions in its
operations due to a failure of its vendors, key suppliers, lenders, utility
providers or dealers in addressing their individual Year 2000 compliance issues
effectively.
-19-
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Revenge is a party to that certain Loan and Security Agreement entered
into with FINOVA Capital Corporation ("FINOVA") dated October 23, 1998 and filed
as Exhibit 4.2 to Revenge's report on Form 10 filed with the Securities and
Exchange Commission ("SEC") on October 28, 1998. Revenge has received multiple
notices of default from FINOVA and is in multiple defaults, including
non-payment of principal and interest under the Loan and Security Agreement.
Revenge is currently negotiating with FINOVA to allow the sale of part of the
assets of Revenge to pay off in full the FINOVA loan. There is no assurance that
this negotiation will be successful. FINOVA could enforce its rights regarding a
default at any time.
Revenge is in mutiple defaults, including non-payment of rent, under
its Lease with Miami River Parnters, Ltd. Revenge has received an acceleration
notice on the lease as well as a termination notice. Revenge is currently in
negotiations with Miami River Partners to cure the defaults. There can be no
assurance that the defaults will be cured. Miami River Partners could enforce
their rights under the Loan and Security Agreement at any time.
On February 11, 1999, Revenge entered into an Agreement and Plan of
Reorganization with First Chance Marine Finance, Inc., a Florida Corporation,
("First Chance") whereby Revenge would issue and exchange 9,363,693 shares of
Revenge common stock, par value $0.001, for all of the issued and outstanding
capital shares in First Chance. Revenge and First Chance entered into a
Rescission Agreement rescinding the Merger effective June 4, 1999. The
Rescission Agreement is attached hereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Reports on Form 8-K. 2 reports on Form 8-K were filed during the quarter
ended March 31, 1998. One report on Form 8-K regarding the execution of the
Agreement and Plan of Merger with First Chance was filed on February 26, 1999.
The other report on Form 8-K concerning the closing of the Merger with First
Chance was filed on March 29, 1999.
b. Exhibits
10.1 Rescission Agreement by and between First Chance Marine
Finance, Inc. and Registrant, effective June 4, 1999.
27.1 Financial Data Schedules
-20-
<PAGE> 21
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: July 20, 1999 REVENGE MARINE, INC.
By /s/ William C. Robinson
-------------------------------------
William C. Robinson
President and Chief Executive Officer
-21-
<PAGE> 1
RESCISSION AGREEMENT
This Rescission Agreement ("Agreement") dated June 4, 1999
("Agreement") by, between and on behalf of The Parties: First Chance Marine
Finance, Inc., a Florida corporation ("Controlled Corporation"), the former
holders of capital stock in First Chance ("First Chance Shareholders") and
together ("First Chance") and Revenge Marine, Inc., a Nevada corporation
("Dominant Corporation"), Revenge Marine, Inc., a Delaware corporation, and and
any affiliated or subsidiary entities related to the same (together "Revenge").
RECITALS
WHEREAS, Revenge and First Chance attempted to merge the Controlled
Corporation and the Dominant Corporation on or around March 14, 1999 ("Attempted
Merger" or "Merger");
WHEREAS, various aspects of the Attempted Merger were technically
flawed and the Merger Documents as filed with the Secretary of State of the
State of Florida were materially defective;
WHEREAS, Revenge and First Chance wish to rescind the Attempted Merger
and mutually release each other from any obligations or liabilities in
connection therewith;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Parties hereby agree as follows:
AGREEMENT
1. RESCISSION. The Parties agree to rescind the Attempted Merger and
that all capital stock in the Dominant Corporation issued to First Chance
Shareholders be returned to Revenge and cancelled and that all such authorized
but unissued shares remain unissued and the obligation to issue in the future
become extinguished. Revenge agrees to return all captial stock in the
Controlled Corporation to the Controlled corporation and all further claims for
issuance of the same become extinguished. The provisions of this paragraph 1
shall become effective immediately upon execution of this Agreement and no
further action shall be required by either Party to effect the same.
2. GENERAL RELEASE OF CLAIMS. The Parties agree that the consideration
in the Agreement represents settlement in full of all outstanding obligations
owed between the Parties. The Parties on behalf of themselves, and their
respective heirs, family members, executors, officers, directors, employees,
investors, shareholders, administrators, affiliates divisions, subsidiaries,
predecessor and successor corporations, and assigns, hereby fully and forever
release all other Parties and their heirs, family members, executors, officers,
directors, employees, former employees, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, predecessor and successor corporations, and
assigns from, and agree not to sue concerning any claim, duty, obligation or
cause of action relating to any matters of any kind, whether presently known or
unknown, suspected or unsuspected, that any Party may possess arising from any
omissions, acts or facts that have occurred up until and including the date of
execution of this Agreement including, without limitation,
(a) Any and all claims that were alleged or that could be
alleged regarding the Attempted Merger or the acquisition by Controlled
Corporation of Stuart Marine, Inc.;
(b) any and all claims for breach of contract, tort, fraud,
actions in equity, or any other action between the Parties;
(c) any and all claims for attorneys' fees and costs.
-22-
<PAGE> 2
(d) any employment obligation, debt, work-in-process line of
credit, account payable, stock issuance agreement
(e) any claim for an issuance of stock or options to acquire
stock from any Party in any other Party
The Parties agree that the release set forth in this section shall be
and remain in effect in all respects as a complete general release as to the
matters released.
3. WAIVER OF UNKNOWN CLAIMS. The Parties represent that they are not
aware of any other than the claims that are released by this Agreement. The
Parties further acknowledge that they have been advised by legal counsel and are
familiar with the provisions of Florida law, including the following:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH DEBTOR.
The Parties, being aware of said code section, agree to expressly waive
any rights they may have thereunder, as well as under any other statute or
common law principles of similar effect.
4. NO COOPERATION. The Parties agrees that it will not act in any
manner that might assist any other person not a party to this Agreement in any
claims against any Party. Each Party agrees that it will not counsel or assist
any attorneys or their clients in the presentation or defense of any disputes,
differences, grievances, claims, charges, or complaints to the detriment of any
other Party, unless under a subpoena or other court order to do so.
5. TAX ADJUSTMENT. The Parties agree to cooperate to achieve efficient
tax treatment concerning this Agreement and to structure and allocate accounting
for this transaction.
6. NO CONFLICT. Any provision of this Agreement to the contrary
notwithstanding, this Agreement shall in no way interfere or release the Parties
from any obligation contained in that certain Side Letter dated of even date
hereof. To the extent that provisions of this Agreement and the Side Letter
shall conflict, the Side Letter shall control.
-23-
<PAGE> 3
7. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
8. SUCCESSORS AND ASSIGNS. The Agreement shall be binding upon, the
Successors, assigns, heirs, executors and administrators of the Parties.
9. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Florida.
10. EFFECTIVE DATE. This Agreement is effective immediately upon
execution by both Parties.
11. COUNTERPARTS. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
12. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence, with the full intent of
releasing all claims. Each of the Parties acknowledges that:
(a) They have read this Agreement;
(b) They have been represented in the preparation,
negotiations and execution of this Agreement by legal counsel of their own
choice or that they have voluntarily declined to seek such counsel;
(c) They understand the tern-is and consequences of this
Agreement and of the releases it contains;
(d) They are fully aware of the legal and binding effect of
this Agreement.
13. AUTHORITY. The undersigned do specifically covenant, warrant and
represent that they have the authority to enter into this Agreement and that no
other consent, permission or authorization of any kind is necessary to bind and
perform any action required under this Agreement and to forever waive the claims
of each Party against any other Party.
-24-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below.
Dominant Corporation:
Revenge Marine, Inc.
A Nevada Corporation
Dated: ____________, 1999 By:
------------------------
William C. Robinson
Title:_________________
Controlled Corporation:
First Chance Marine Finance, Inc.
A Florida Corporation
Dated: ____________, 1999 By:
------------------------
Gerald C. Parker
Title:_________________
First Chance Shareholders
Dated: ____________, 1999 X
--------------------------
First Chance Shareholders
Dated: ____________, 1999 X
--------------------------
First Chance Shareholders
Dated: ____________, 1999 X
--------------------------
-25-
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<PERIOD-START> JAN-01-1999 JUL-01-1999 JUL-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1999 JUN-30-1998
<CASH> 0 (100,304) 329,401
<SECURITIES> 0 0 0
<RECEIVABLES> 0 497,971 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 805,522 60,500
<CURRENT-ASSETS> 0 2,433,607 389,901
<PP&E> 0 0 2,744,928
<DEPRECIATION> 0 (328,087) (314,479)
<TOTAL-ASSETS> 0 6,424,617 2,995,807
<CURRENT-LIABILITIES> 0 1,929,416 314,479
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0 0 0
<COMMON> 0 3,027,568 6,678
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<TOTAL-REVENUES> 2,466,671 4,540,348 142,286
<CGS> 2,127,211 2,614,413 124,352
<TOTAL-COSTS> 6,603,966 4,733,294 453,099
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 89,676 89,876 (8,134)
<INCOME-PRETAX> 0 282,822 0
<INCOME-TAX> 0 (2,500) 15
<INCOME-CONTINUING> 0 0 0
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<NET-INCOME> (503,486) (285,322) (318,932)
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