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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 SEPTEMBER 30, 1999
OR
[ ] 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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3051776
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2051 NW 11TH STREET
MIAMI, FLORIDA 33125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(305) 643-0334, EXT. 127
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 September 30, 1999 was 10,898,810.
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REVENGE MARINE, INC.
PART I-FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Item 1. Financial Statements:
Condensed Balance Sheets at September 30, 1999 ............................................3-4
Condensed Statements of Operations for the three month period
ended September 30, 1999 ................................................................5
Condensed Statements of Cash Flows for the three month period ended
September 30, 1999 ................................................................6
Notes to Unaudited Condensed Financial Statements..........................................7-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................18-31
PART II-OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 32
Item 2. Changes in Securities......................................................................32
Item 3. Defaults Upon Senior Securities............................................................32
Item 4. Submission of Matters to a Vote of Security Holders........................................32
Item 5. Other Information..........................................................................32
Item 6. Exhibits and Reports on Form 8-K...........................................................32
Signatures..........................................................................................33
</TABLE>
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVENGE MARINE, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
ASSETS
CURRENT ASSETS
Cash $ 485
Securities 1,000,000
Inventories 0
Work in progress 0
Prepaid expenses 52,500
-----------
TOTAL CURRENT ASSETS 1,052,985
FIXED ASSETS
Office Equipment 4,145
Less: Accumulated depreciation (328)
-----------
TOTAL FIXED ASSETS 3,817
OTHER ASSETS
Less: Accumulated Amortization
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TOTAL OTHER ASSETS 0
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TOTAL ASSETS $ 1,056,802
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REVENGE MARINE, INC
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable 893,116
Accrued liabilities 82,611
Contingent Liabilities 79,000
-----------
TOTAL CURRENT LIABILITIES 1,054,727
LONG TERM DEBT 0
-----------
TOTAL LONG TERM DEBT 0
SHAREHOLDERS EQUITY
Common stock and paid in capital 4,558,360
Retained earnings (deficit) (4,669,787)
Profit (Loss) for period 91,611
-----------
TOTAL SHAREHOLDER EQUITY 2,075
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TOTAL LIABILITIES & SHAREHOLDERS EQUITY 1,056,802
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See accompanying notes.
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REVENGE MARINE, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
Actual
3 Months Ended
September 30,
1999
--------------
REVENUE
Blackfin $1,943,771
Consolidated 0
Egret 550,000
----------
Total Revenue 2,493,771
----------
COST OF GOODS SOLD
Blackfin 1,576,766
Consolidated 0
Egret 550,000
----------
Total Cost of Goods Sold 2,126,766
GROSS PROFITS 367,005
OPERATING EXPENSES
Operating Expenses 170,394
Selling Expenses 15,000
Administrative Expenses 0
Consulting Fees 90,000
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Total Operating Expenses 275,394
----------
OPERATING PROFIT 91,611
NET INCOME BEFORE TAXES 91,611
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NET INCOME $ 91,611
----------
Net and Basic Earnings Per Share $ 0.01
==========
See accompanying notes.
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REVENGE MARINE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
SEPTEMBER, 1999
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<S> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $91,611
Adjustments to reconcile net Income (loss) to net 0
cash used by Operating Activities: 0
Depreciation 0
Amortization 0
Increase in Customer Deposits 0
Increase in WIP 0
Increase in Prepaid Expenses 37,500
Decrease in Accrued Liability 0
Increase in Accounts Receivables 0
Increase in Inventories 0
Increase in Accounts Payables (313,878)
Decrease in other Assets (2,200,000)
Total Adjustments 0
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Net Cash Used in Operating Activities (275,394)
Cash Flows from Investing Activities:
Additions to Plant, Property & Equipment 0
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Net Cash Used in Investing Activities 0
Cash Flows from Financing Activities:
Paid in Capital withdrawn 0
Increase in Additional Paid in Capital 203,437
Proceeds from Long Term Debt 0
Stock Receivable - Cashed 0
Decrease in Short Term Loan 75,000
Net Cash Provided by Financing Activities 278,437
Decrease in Cash 0
Cash at Beginning of Period (3,656)
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Cash at End of Period $485
</TABLE>
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NOTES TO REVENGE MARINE, INC.
UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Revenge Marine, Inc. (hereinafter referred to as "Revenge" or
"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 had no significant
operations from January 1995 through January 1998.
The Company entered the development stage after it reorganized in
January 1998 and changed its primary focus to acquiring yacht
manufacturing and marine technology companies. In July 1998, the
Company commenced its principal operations and was no longer considered
to be in the development stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of
Revenge Marine, Inc. and its wholly owned subsidiaries, Revenge Marine,
Inc., (an Oklahoma corporation), Egret Boat Company, Inc., (a Florida
corporation), and Consolidated Marine, Inc. (a Florida corporation),
after elimination of all material intercompany transactions and
balances.
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.
Cash overdraft positions may occur from time to time due to
the timing of making bank deposits and releasing checks in accordance
with the Company's cash management policies.
REVENUE RECOGNITION
Revenue from newly manufactured boats is recognized when the
completed boat is delivered and title is transferred to the customer.
Revenue from other projects is recognized upon completion of the
project. Revenues are recorded net of returns, allowances and
discounts.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 over their
estimated useful life (generally 5 to 15 years) using the straight-line
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated
using the straight-line method for financial reporting and accelerated
methods for income tax purposes over the estimated useful life of the
asset, typically 5 to 10 years. Leasehold improvements are amortized
over the shorter of the useful life of the improvement or the remaining
term of the lease. When assets are retired or otherwise disposed of,
the cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in operations in the period
realized.
INCOME TAXES
The Company uses the liability method of accounting for 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. Presently, the Company files its tax returns on a calendar
year basis, which may result in temporary differences in book and tax
reporting. 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.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of SFAS No. 128,
"Earnings per Share", which requires presentation on the face of the
income statement of both basic and diluted earnings per share. Basic
and diluted earnings per share have replaced the previously presented
primary and fully diluted earnings per share. Basic earnings per share
is computed by dividing net income attributable to common shares by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed based on the assumption that all
of the Company's outstanding common stock options, warrants, and
convertible preferred stock are converted into common shares.
In years where the Company recognizes a loss from continuing
operations, the assumed exercise of outstanding stock options,
warrants, and convertible preferred stock has an antidilutive effect
(i.e., it increases net loss per share). As a result, these items are
not included in the weighted average number of shares used in the
calculation of earnings per share.
PREPAID EXPENSES
Certain expenses are routinely paid that cover more than the
current fiscal period. Prepaid expenses at September 30, 1999 consisted
of consulting services.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement
requires certain investments to be recorded at fair value or amortized
cost. The appropriate classification of the investments in marketable
equity securities is determined at the time of purchase and
re-evaluated at each balance sheet date. The Company's investment in
First Chance Marine Finance, Inc. is recorded at cost, as the fair
market value of the equity securities could not be readily determined.
INVENTORIES
Inventories are stated at cost, determined by the first-in, first-out
method.
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Leases
Leases that transfer substantially all of the risks and
benefits of ownership are capital leases. Other leases are operating
leases. Capital leases are included in fixed assets and are amortized
using the straight-line method over their respective terms. Operating
leases are expensed over the terms of the leases using the
straight-line method.
ADVERTISING
The Company expenses all advertising costs as they are
incurred.
NOTE 3 - DISCONTINUED OPERATIONS
In June 1999, the Company resolved to discontinue its marine
operations and to sell substantially all of its assets. The assets were
disposed of through the rescission of the Consolidated Yacht
Corporation ("CYC") acquisition (see Note 4) and through two cash sales
totaling $2,200,000 in August 1999. Accordingly, the results of the
Company's operations and the loss on the disposal of assets have been
reflected as discontinued operations on the income statement. The
balance sheet reflects the assets remaining after the disposal of
assets was complete.
NOTE: BECAUSE THE COMPANY HAS DISCONTINUED ITS MARINE
OPERATIONS, NO USEFUL COMPARISON WITH RESULTS FOR THE PREVIOUS PERIOD
CAN BE MADE. Therefore, information from the previous period is
omitted.
NOTE 4 - REORGANIZATION AND ACQUISITIONS
GLOBAL ENERGY ORGANIZATION CORPORATION
In January 1998, Revenge Marine, Inc. (formerly Revenge
Yachts, Inc.), an Oklahoma corporation, executed a Stock Exchange
Agreement (the "Agreement") with Global Energy Organization Corporation
("Global"), a publicly traded Nevada corporation, which had been
inactive for the previous five years.
Pursuant to the Agreement dated January 23, 1998, Global
issued 3,240,000 shares of its $.001 par value common stock in exchange
for 100% of the issued and outstanding common stock of Revenge Marine,
Inc. As a result of this "reverse acquisition", Revenge Marine, Inc.
became a wholly owned subsidiary of Global. In accordance with the
terms of the agreement, Global (the Nevada parent) adopted the name
"Revenge Marine, Inc."
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NOTE 4 - REORGANIZATION AND ACQUISITIONS (CONTINUED)
FIRST CHANCE MARINE FINANCE, INC.
On June 4, 1999, the Company entered into an agreement to
rescind an attempted merger with First Chance Marine Finance, Inc.
("First Chance"), a Florida corporation. Pursuant to this agreement,
the Company issued a total of 1,696,000 shares of its common stock,
valued at $1,450,000 to First Chance and its associates. First Chance,
which had previously advanced the Company $450,000 in cash, issued
500,000 of its common stock, valued at $1,000,000 to Revenge. The
500,000 shares issued to Revenge equate to approximately 7% of First
Chance's total outstanding common stock at September 30, 1999.
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NOTE 5 - RELATED PARTY TRANSACTIONS
ALLIED CAPITAL CORPORATION
Since inception, Allied Capital Corporation ("Allied") has
periodically advanced cash to the Company and has directly paid legal
and other expenses on behalf of the Company. Allied owns 40,000 shares
of the Company's common stock and is the owner of Capital Markets
Alliance, Inc., which is the Company's
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NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
principal shareholder, owning 1,954,431 of the 10,898,810 shares of
common stock outstanding at June 30, 1999. Allied is wholly owned by
the Desai Robinson Trust Fund. Desai Robinson is the former president
of Revenge Marine and is the wife of William C. Robinson, President and
Chief Executive Officer of the Company. Thomas Schroeder, who resigned
as Vice President and Chief Financial Officer of Revenge Marine, Inc.
effective June 30, 1998, is President of Capital Markets Alliance. At
June 30, 1999 and September 30, 1999, the Company's total debt to
Allied was $145,528.
NOTE 7 - CAPITALIZATION
The capital stock of the corporation at September 30, 1999 was
as follows:
Series B 10 % Cumulative Convertible Preferred Stock, $40 par
value, convertible into Common Stock based on a 40% discount to the bid
price as listed on the NASDAQ Bulletin Board on the day of conversion;
authorized 75,000 shares; 17,330 shares issued and 2,718 shares
outstanding at September 30, 1999; liquidation preference equal to the
par value of any outstanding shares plus accrued dividends, if any
prior to any distributions to Common Stock holders.
Common Stock, $0.001 par value, 50,000,000 shares authorized,
10,898,810 shares issued and outstanding at September 30, 1999.
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NOTE 8 - INCOME PER COMMON SHARE
The computations of basic and dilutive income per share from
continuing operations were as follows:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Income (loss) attributable to common shares $ 91,611 $ (318,932)
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Weighted average common shares outstanding 7,129,680 4,325,237
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Basic and dilutive income (loss) per share $ 0.01 $ (0.07)
============== ============
</TABLE>
The Company's outstanding common stock options, warrants and
convertible preferred stock were not included in the computation of
diluted loss per share because the effect of their inclusion would be
antidilutive.
NOTE 9 - STOCK OPTIONS AND WARRANTS
In December 1998, the Company adopted its 1998 Incentive Stock
Plan ("the Plan") under which 2.8 million options to purchase common
stock were granted to substantially all full-time employees. The
options granted under the Plan extend for 5 years from the date of
grant and vest in monthly increments over a period of up to two years.
The exercise price was equal to the stock price on the grant date. The
Plan is considered to be a non-compensatory plan, as defined by
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation". Accordingly, no compensation cost has been
recognized for the period ending September 30, 1999.
In June 1999, the Company issued a warrant to purchase up to
1,500,000 shares of the Company's common stock at an exercise price of
$0.37 per share. The warrant expires June 30, 2002.
In June 1999, the Company issued a warrant to purchase up to
250,000 shares of the Company's common stock at an exercise price of
$0.37 per share in exchange for consulting services relating to the
BYC asset acquisition. The warrant expires June 30, 2002.
In May 1998, the Company granted stock options pursuant to a
consulting agreement to purchase 175,000 shares of common stock at
$1.00 per share, 175,000 shares of common stock at $1.50 per share,
and 175,000 shares of common stock at $2.00 per share. The options
expire December 31, 2000.
In May 1998, the Company issued a warrant to purchase up to
20,000 shares of the Company's common stock at an exercise price of
$1.50 per share as partial consideration for consulting services.
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Information with respect to all stock options and warrants is
summarized below:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at inception -- $ --
Granted 1998 545,000 1.50
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Outstanding at June 30, 1998 545,000 1.50
Granted 1999 4,550,000 0.37
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Outstanding at September 30, 1999 5,095,000 0.49
========= ========
Options exercisable, June 30, 1998 545,000 1.50
Options exercisable, September 30, 1999 4,373,054 0.51
NOTE 10 - COMMITMENTS AND CONTINGENCIES
PROMISSORY NOTE
On July 14, 1999, the Company signed a promissory note to pay
a related party $100,000 in exchange for funds advanced by the payee
to complete the construction of various boats. The note, which is
collateralized by a Blackfin boat, bears interest at a rate of 10% per
annum and is due on January 1, 2000.
LEGAL PROCEEDINGS
The Company is engaged in legal proceedings arising from
normal business activities. In the opinion of legal counsel, the
maximum future liability arising from these proceeding would not
exceed $79,000.
LEASE OBLIGATIONS
In 1999, the Company was obligated under operating and capital
leases for its operating facility and certain office equipment, most
of which were cancelled or assumed by other parties after the Company
decided to discontinue its marine operations (see Note 3). Amounts
capitalized under a capital lease were charged to discontinued
operations upon transfer of the lease to another party.
The lease on the Company's operating facility was assumed by
Consolidated Yacht Corporation, pursuant to an October 1999 agreement
with the owner of the
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property. In a related settlement agreement with the landlord, the
Company co-signed a promissory note for $178,000, which is to be paid
by CYC. In consideration for paying the promissory note, the Company
agreed to nullify the cancellation of 895,333 shares of Revenge Marine
common stock owned by CYC's president. These shares were to be
cancelled pursuant to the June 30, 1999 rescission agreement.
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The Company is obligated under a non-cancelable lease for
computer equipment. The Company entered into an agreement to sublease
the computer equipment to Consolidated Yacht Corporation. The
Company's future minimum obligation under the computer lease and the
amount to be received under the subleasing agreement is as follows:
FISCAL YEAR
ENDED JUNE 30,
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2000 $ 5,283
2001 5,283
2002 5,283
2003 4,403
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$20,252
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Total rental expense under all leases was $623,672 and $ -0-
in 1999 and 1998, respectively.
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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 ANNUAL REPORT ON FORM 10K FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 Filings with the Securities and Exchange
Commission for a further discussion of the Company's business and the risks
attendant thereto.
OVERVIEW
Revenge Marine, Inc., a Nevada corporation ("Revenge" or the "Company")
was originally incorporated as a Nevada Corporation in December, 1979 as
Contracap, Inc. Revenge then changed its name several times. In November, 1994,
Revenge changed its name to Global Energy Organization Corporation. In January,
1998, Global Energy Organization Corporation entered into a stock exchange
agreement with Revenge Marine, Inc., (formerly Revenge Yachts, Inc.), an
Oklahoma corporation subsequent to which Global Energy Organization Corporation
changed its name to Revenge Marine, Inc. Prior to January, 1998, neither Revenge
Yachts, Inc. nor Global Energy Organization Corporation had any significant
assets. Prior to January, 1998, Revenge had not engaged in significant activity
involving the Yachting or Marine Industries. In January, 1998, Revenge restated
its purpose as providing consulting services and investment opportunities in the
Yachting and Marine industries.
Revenge began a strategy of identification, acquisition and
consolidation of marine industries. In May of 1998 Revenge entered into a stock
exchange agreement with Consolidated Marine, Inc., a Florida Corporation
("Consolidated"), whereby Revenge acquired all of the outstanding stock of
Consolidated in exchange for 636,934 shares of common stock in Revenge.
Consolidated was a custom and production yacht builder, as well as a re-fitter
and repairer of large watercraft. Revenge acquired Consolidated as the first
acquisition in a series of acquisitions of marine manufacturers with the purpose
of creating a leading marine manufacturing, repair and marketing organization
that could serve diverse customer demands and offer a wide-range of products and
services efficiently.
Revenge entered into a stock exchange agreement with Egret Boat
Company, a Florida Corporation ("Egret"), whereby Revenge acquired all the
outstanding stock of Egret in exchange for 955,414 shares of common stock in
Revenge. Egret was a production manufacturer of advanced composite motorized
flats boats of less than 35 feet in length. In August, 1998, 180,692 additional
shares were issued to Egret and Consolidated to complete the combined
transactions and the full payment of the consideration specified in the stock
exchange agreements.
In September, 1998, Revenge entered into an agreement to purchase
Consolidated Yacht Corporation, which contained within it certain assets that
were not included in the Consolidated Marine, Inc. acquisition, but which added
refurbishing, repair and production capability to what had been acquired in the
Consolidated Marine, Inc. acquisition.
In October of 1998, Revenge incorporated a wholly-owed subsidiary
Revenge Marine, Inc., a Delaware corporation ("Revenge Delaware"). At the time
of its incorporation, Revenge Delaware
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was not intended to be a wholly-owned subsidiary. It was intended that stock
from Revenge Delaware be issued to shareholders of Revenge in exchange for the
marine assets of Revenge which were to be vended into Revenge Delaware under an
asset purchase agreement. Revenge then intended, once the divestiture of its
marine holdings was complete, to merge with a telecommunications corporation.
However, no aspect of this transaction was ever consummated in any fashion and
the Board of Directors of Revenge elected to keep Revenge Delaware as a wholly
owned subsidiary of Revenge. For the reasons stated in this paragraph, certain
of the commitments of Revenge, to Finova Capital Corporation and Detroit Diesel
Corporation, were issued jointly from Revenge and Revenge Delaware or just from
Revenge Delaware. However, at all times from the inception of Revenge Delaware
it has been operated as a wholly owned subsidiary of Revenge and no stock was
ever issued to any entity other than Revenge.
In October of 1998, Revenge had an option to purchase the assets of
Blackfin Yacht Corporation ( the "Blackfin Assets") from Detroit Diesel
Corporation. The option expired. Subsequent to the expiration of the option,
Revenge sold the option to Revenge Delaware for its purchase price, $100,000.
Detroit Diesel honored the expired option and on Friday, October 23, 1998,
Revenge Delaware purchased the Blackfin Assets for a purchase price of
$1,005,445 in cash and 545,455 warrants to acquire Revenge common stock
exercisable at an exercise price of $6.44 per share. In addition, Revenge
Delaware granted Blackfin Yacht Corporation a 2% fee of the per unit sale price
for each vessel produced from the Blackfin Assets. Revenge Delaware also granted
certain demand and piggyback registration rights to Blackfin Yacht Corporation
for the warrants issued in the asset purchase. The Blackfin Assets provided a
line of mid-size fiberglass yachts, from 27 to 48 feet. In addition, there was a
dealer network for Blackfin products, which are visually unique and have a high
level of brand identification. The completion of the three acquisitions outlined
above gave Revenge or Revenge Delaware the capability to produce a wide range of
high technology motor yachts and motor boats, ranging from 110 foot custom
yachts to 16 foot flats boats.
Consistent with its philosophy of acquiring and streamlining
synergistic marine enterprises, Revenge entered into a long-term lease with an
option to purchase on an 8.67 acre marine facility in Miami, Florida in July of
1998. Revenge or Revenge Delaware consolidated its acquisitions and many of its
operations in the Miami facility and therefore felt itself positioned to take
advantage of economies of scale, improved production efficiencies and
elimination of redundancies. In addition to the Miami facility, Revenge
maintained a facility in Dania, Florida. Revenge or Revenge Delaware continued
to identify and explore other marine acquisitions that were consistent with its
objectives.
In February of 1999, in an effort to further streamline operations,
Revenge closed its facility in Dania and consolidated its operations in the
Miami facility. It was hoped that this move would lower operating costs and
allow Revenge to begin to operate its Blackfin and Egret manufacturing
facilities profitably, while utilizing the extensive capacity of the Miami
facility to significantly increase the volume of repair and refurbishing of
yachts being done by its Consolidated Marine division.
In December of 1998, Revenge became aware that South Florida Yacht
Sales and Harbor Yacht Sales were not going to provide sufficient dealer
organization and resources to promote the Revenge products. Therefore, Revenge
began seeking candidates to act as dealers for its products. Consistent with its
long term vision of consolidation in the marine industry, the decision was made
to acquire a network of existing dealerships in order to stabilize the revenue
stream of Revenge, to
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diversify the outlets for its products and to capture the additional margin
normally retained by retail dealers from sales of Revenge products.
On February 11, 1999, Revenge entered into an agreement and plan of
reorganization (the "Merger Agreement") with First Chance Marine Finance, Inc.,
a corporation organized under the laws of the State of Florida ("First Chance"),
and First Chance Marine Finance Acquisition, Inc., a corporation organized under
the laws of the State of Delaware ("Merger Sub") and a direct wholly owned
subsidiary of Revenge. Pursuant to the Merger Agreement, (i) Merger Sub was to
be merged (the "Merger") with and into First Chance and First Chance was to
become a wholly owned subsidiary of Revenge, and(ii) each issued and outstanding
share of capital stock of First Chance would be converted into the right to
receive shares of common stock, par value $.001 per share, of Revenge ("Revenge
Common Stock")or shares of preferred Stock of Revenge ("Revenge Preferred
Stock"), par value $.001 per share, upon the terms set forth in the Merger
Agreement. A total of approximately 9,363,693 shares of Revenge Common Stock or
Revenge Preferred Stock convertible into Revenge Common Stock were to be issued
to former holders of capital stock of First Chance pursuant to the Merger. The
Merger was concluded on March 16, 1999. However, no integration of First Chance
and Revenge ever took place and the companies were operated as separate
entities. It was the intention of Revenge that the combined companies would
engage an underwriter to conduct a secondary offering of convertible preferred
or common stock of Revenge in the range of $10,000,000 and that this sum would
be used to develop and implement a marketing strategy for the Internet, to fund
the expansion of a more robust retail network, to target, initiate and
consummate other strategic acquisitions, to retire its $2.1 million dollar
indebtedness from Finova Capital Corporation, to service approximately $750,000
in accounts payable and to make substantial capital and infrastructure
improvements.
At the time of the Merger, Revenge was experiencing severe liquidity
problems and had difficulty remaining current in its financial obligations. The
principals of First Chance had committed to a best efforts interim financing of
$2 to $3 million dollars and an initial capital contribution to Revenge of
$1,000,000, $666,666 of which was to be used to fund the marine operations of
Revenge. Only $450,000 of these funds were ever delivered and First Chance was
unable to procure any interim financing for the combined companies. In addition,
the underwriter which was to complete the secondary offering indicated in April
of 1999 that they were no longer interested in providing any assistance to the
combined companies. The board of directors of Revenge concluded in May of 1999
that the rescission of the merger would be in the best interests of the
shareholders of Revenge.
On June 4, 1999, Revenge entered into an agreement to rescind an
attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a
Florida corporation. Pursuant to this agreement, Revenge issued a total of
1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and
its associates. First Chance, which had previously advanced Revenge $450,000 in
cash, issued 500,000 shares of its common stock, valued at $1,000,000 to
Revenge. The 500,000 shares issued to Revenge equate to approximately 7% of
First Chance's total outstanding common stock at June 30, 1999.
Revenge had been approved in the winter of 1998 for an Industrial
Revenue Bond issue for approximately $9,000,000 from Miami-Dade County, subject
to Revenge's ability to find credit enhancement for the bond issue. Revenge
attempted to find such credit enhancement, but was unsuccessful. Without the
bond proceeds, without any interim financing proceeds, with insufficient sales
of its marine products and with less than anticipated revenue from service and
repair,
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Revenge was unable to meet many of its obligations. In July of 1999, Revenge was
no longer able to service the lease payments for the Miami facility. Although
Revenge's payments to Finova were on an interest only basis through June 30,
1999, Revenge was unable to resume either principal or interest payments to
Finova and the Finova loan was accelerated in July of 1999.
In June 1999, Revenge resolved to discontinue its marine operations and
to sell substantially all of its assets. The assets were disposed of through the
rescission of the Consolidated Yacht Corporation ("CYC") acquisition and through
two cash sales totaling $2,200,000 in August 1999. Virtually all of the marine
assets were disposed of during these sales and Revenge was left with 500,000
shares of common stock in First Chance as its only significant asset.
In August of 1999, the Board of Directors and officers of Revenge
resigned, with the exception of President and director William C. Robinson. As
of September, 1999, Revenge had no full-time employees other than Mr. Robinson.
Mr. Robinson is presently engaged in settling the previous payable obligations
of the marine operations of Revenge.
On August 24, 1999, Revenge entered into a letter of intent ("LOI")with
Reel Fishing Corporation ("Reelfishing"), a Delaware corporation, concerning a
merger between Revenge and Reelfishing. Under the terms of the LOI, Revenge
would acquire all of the issued and outstanding shares of Reelfishing in
exchange for (1) a loan of $250,000 and (2) 65% of the capital stock of Revenge.
There were a number of conditions to the merger, including the funding of a loan
of $250,000 from Revenge to Reelfishing. Under the LOI, Revenge was to have made
the loan to Reelfishing on or before September 7, 1999. This transaction has
been abandoned by the parties and will not proceed.
Revenge now intends to concentrate its efforts on the Internet and
information technology sectors of the marine and other recreational products
industries. The long term plan of Revenge is to leverage international
relationships with marine entities and with existing marine manufacturers to
create a business to business e-commerce internet site for the marine industry
and a related site for consumers and sport fishing enthusiasts. Revenge is
actively seeking acquisition candidates in the marine and recreational products
industries who have a desire to enhance the internet presence of their
businesses. Revenge is actively involved in negotiating joint venture and
collaboration agreements with high profile web design companies, e-fulfillment
and e-shipping concerns and other entities involved in the internet commerce
industry.
Revenge has incurred net losses and experienced negative cash flow from
operations since inception through the end of the fiscal year ending June 30,
1999. Although Revenge earned approximately $0.01 per share during the three
month period ending September 30, 1999, these earnings can not be considered
indicative of any trend toward profitability, since the bulk of the Revenge
assets were sold during the three month period ending September 30, 1999.
Revenge experienced less severe liquidity problems during the three
month period ending September 30, 1999 than during the fiscal year ending June
30, 1999. Management believes that the partial amelioration of the liquidity
problem was due in part to the reduction in overhead caused by disposal of the
marine assets and the success of other cost cutting measures.
Management believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance.
Furthermore, as the substantial bulk of Revenge's operations have been
discontinued in the three month period ending September 30, 1999, such
comparisons may be misleading. Therefore, Revenge has omitted period-to-period
comparisons in its financial statements attached hereto.
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Results of Operations
REVENUE. Revenue totaled approximately $2,493,711 for the three months
ended September 30, 1999. Presently, Revenge has no source of Revenue other than
any possible gains from the sale of First Chance Marine Stock or income derived
from planned strategic acquisitions. Management expects losses to continue
during the remainder of Fiscal 2000, unless Revenge is successful in acquiring
an entity which would bring profitability and increased revenue to the combined
operations. 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 consisted primarily of labor and material
costs to manufacture new boats, as well as labor and material costs incurred
when Revenge did refurbishing and service projects. Now that Revenge has no
marine operations and no revenue, there is no present revenue and no cost
associated therewith. Until such time as a strategic acquisition is consummated,
management expects this trend to continue. 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. As the Revenge operations are
substantially discontinued, the only expenses presently incurred are related to
consulting, legal, accounting and due diligence expenses in the course of
pursuing strategic acquisitions and meeting Revenge's filing requirements to the
Securities and Exchange Commission.
NET INCOME. Revenge had earnings of approximately $ 91,611 for the quarter
ended September 30, 1999 as compared to approximately a loss of $4,350,855 for
the fiscal year ended June 30, 1999. These earnings are considered by management
to be non-typical, as the bulk of the marine assets were liquidated in this
quarter. Unless Revenge is successful in consummating a strategic acquisition
during fiscal 2000, management expects losses to result in the rest of the
periods for the year.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has satisfied its cash requirements primarily through
equity investments, debt, loans from shareholders and service providers and
lines of credit.
For the three months ended September 30, 1999 cash of approximately
$278,437 was generated from financing activities. The net cash INCREASE for the
three month period ended September 30, 1999 was $4141. At September 30, 1999,
the Company had cash and cash equivalents of approximately $456.
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.
PRODUCT SALES. Presently, the company has no product sales.
DEPENDENCE ON MIAMI FACILITY, DANIA FACILITY AND ALLIED CAPTIAL CORP.
The Company presently has office space at Allied Capital Corp. and some
space at the Miami facility which it formerly occupied. It does not pay any rent
for either space and is therefore not entitled to remain except for the
continued consent of the respective parties. There is no guarantee that such
consent will continue to be forthcoming and therefore the Company could find
itself without facilities or the resources to procure the same. Management
anticipates that facilities will be provided in the context of planned strategic
acquisitions, though there can be no assurance of the same.
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NEED TO RECRUIT AND RETAIN MANAGEMENT, TECHNICAL AND SALES PERSONNEL.
As Revenge currently has one employee, William C. Robinson, future growth and
strategic acquisitions will be dependent on Revenge's ability to attract and
retain new employees. There can be no assurance of the same.
Fluctuations in Operating Results
Revenge's operating results have varied in the past, and Revenge
expects its operating results to continue to fluctuate. Revenge's net revenues
may fluctuate due to a variety of factors, including the success of Revenge at
attracting new investment and new customers, the rate at which Revenge hires new
employees, the amount Revenge is required to spend on development of its super
portals and the amount of indebtedness Revenge is able to settle for equity.
Once Revenge's internet operations commence, Revenge's operating results may be
especially sensitive to changes in the margin mix of services sold and the level
of its operating expenses. Revenge's operating expenses may fluctuate as a
result of numerous factors, including the timing and rate of new employee
hiring, the utilization rate of service personnel and competitive conditions.
Revenge's costs are unknown in the near term, and Revenge may be unable to
adjust spending in a timely manner to compensate for an unexpected revenue
shortfall. As a result, revenue shortfalls may have an immediate and
disproportionate adverse effect on operating results. In addition, if Revenge
spends to build its capabilities to support higher revenue levels, Revenge's
near term operating results will suffer until it achieves its revenue goals. Due
to all of these factors, Revenge believes that its operating results are likely
to vary.
Intense Competition
Boating.com, Yachting.com, the dupontregistry.com, boatstore.com,
powerboats.com and fishing.com compete in the segment that Revenge intends to
enter. These are established websites whose infrastructure has already been
built and who have already built significant relationships with resellers and
manufacturers. There are significant barriers to entry for Revenge in competing
with well-financed, established marine e-commerce sites.
Most of Revenge's competitors have greater financial, technical and
marketing resources and have in-country operations to service international
customers. 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 services than the
Company. In addition, competition could result in price decreases and depress
gross profit margins in the industry. Further declines in Revenge's gross
margins may exacerbate the impact of fluctuating net revenues and operating
costs on Revenge's operating results and have a material adverse effect on
Revenge's business, operating results and financial condition.
Need to Recruit and Retain Management, Technical and Sales Personnel
Revenge believes that its future success depends, to a large extent,
upon the efforts and abilities of its executive officers, managers, technical
and sales personnel which it intends to hire shortly. Failure by Revenge to
attract and train skilled managers, technical and sales personnel on a timely
basis, or the inability of Revenge to attract such personnel, could materially
adversely affect Revenge's business, operating results and financial condition.
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Control by Principal Stockholders
The President of Revenge, William C. Robinson and his family and trusts
related to his family beneficially own substantially in excess of a majority of
the outstanding shares of common stock, $.0001 par value, of Revenge (the
"Common Stock"). As a result, Mr. Robinson is able to control the election of
members of Revenge's Board of Directors and generally exercise control over
Revenge's corporate actions.
Year 2000 Readiness
Revenge intends to use a significant number of computer software
programs and operating systems in its internal operations, including
applications used in internet web design, web hosting and financial business
systems and various administration functions. As the Year 2000 approaches, each
of these computer systems may be affected in some way by the rollover of the
two-digit year value to "00". If these systems are unable to properly recognize
date sensitive information when the year changes to 2000, they could generate
erroneous data or fail. Revenge intends to utilize both internal and external
resources to identify, correct or reprogram, and test the systems for Year 2000
compliance.
Revenge intends to classify its Year 2000 project into five phases:
inventory, assessment, renovation, validation and implementation. Inventory is
the process in which all electronic/computer components are defined for all
systems (information technology and non-information technology). Assessment is
the process in which all components are classified as either "Y2K-ready" or not.
Renovation is the process in which systems undergo necessary upgrades or
replacements or are retired. Validation is the process in which renovated
systems are tested within Revenge's infrastructure to validate that either the
readiness assessment is correct or that the renovated system or component can be
integrated without causing or being affected by a Year 2000 impact.
Implementation is the process in which a prepared system is installed into the
Company's production environment and is utilized to support business operations.
Revenge has not yet completed any of the above steps and may not be
able to do so before December 31, 1999. Revenge has no basis, since its
information technology operations have not yet commences, of what it will spend
on Year 2000 remediation.
In addition to intending to upgrade its own systems, Revenge intends
to contact certain significant customers and suppliers to determine their Year
2000 readiness profile if there are customers and suppliers in time to make such
an inquiry relevant.
All potential risks and uncertainties associated with the Year 2000
issue cannot be fully and accurately quantified. Contingency plans will be
developed if third party data interchange partners fail compliance testing or if
the replacement or renovation of other existing systems is not on schedule.
Although Revenge does not believe that any additional costs or potential loss in
revenue associated with Year 2000 readiness initiatives will have a material
adverse effect on Revenge's business, operating results or financial condition,
there can be no assurance that the costs associated with updating software or
recovering from potential systems interruptions would not have a material
adverse effect on Revenge's business, operating results and financial condition.
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Risk Factors Related to Revenge's Internet Plan
Revenge intends to launch its web site in December, 1999. Revenge has
virtually no operating history in the Internet, e-commerce or travel industries
available to evaluate its business and prospects. There are many risks, expenses
and uncertainties that may be encountered by development stage companies,
particularly in the new and emerging Internet market:
o An evolving and unproven business model;
o Management of an expanding business in a rapidly changing market;
o Attract new customers and maintain customer satisfaction;
o Introduce new and enhanced sites, services, products, content, and
alliances;
o Maintain its profit margins notwithstanding price competition or
rising wholesale prices; and
o Minimize technical difficulties, system downtime and the effect of
Internet brownouts.
To address these risks Revenge must successfully:
o Develop and extend relationships with manufacturers for
merchandise;
o Develop its web site into a web "community";
o Develop alliances with celebrities and parties in the recreational
products business to provide web site content;
o Implement an evolving and unproven business model;
o Establish internal accounting systems and controls;
o Manage growth; if any;
o Develop and manage an efficient distribution system;
o Develop and implement an efficient transaction processing system;
and
o Successfully develop and market its new web site.
If Revenge does not successfully manage these risks, its business will
suffer. Revenge cannot assure that it will successfully address these risks or
that its business strategy will be successful.
REVENGE HAS INCURRED LOSSES AND EXPECTS TO INCUR SUBSTANTIAL LOSSES FOR
THE FORESEEABLE FUTURE.
Since inception, Revenge has been operating at a loss for virtually all
periods since its inception. Revenge expects that operating losses and negative
cash flow will continue for the foreseeable future as Revenge must invest in
marketing and promotional activities, technology and operating systems in order
to change its revenue model from manufacturing to service related industries.
Revenge believes that increasing its revenues will depend in large part on its
ability to:
o Develop and increase consumer awareness of its online community and
develop effective marketing and other promotional activities to
drive traffic to its web site;
o Generate advertising revenues from its online community;
o Develop and Enhance its online travel agency, on-line store,
transaction-processing systems and network infrastructure to
support increased traffic;
o Provide its customers with quality content and e-commerce
experiences; and
o Develop strategic relationships.
Revenge's future profitability depends on generating and sustaining
high revenue growth while maintaining reasonable expense levels. Slower revenue
growth than Revenge anticipates or operating expenses that exceed its
expectations would harm its business. If Revenge achieves profitability, Revenge
cannot be certain that Revenge would
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be able to sustain or increase profitability in the future. Revenge cannot be
certain when or if it will achieve sufficient revenues in relation to expenses
to become profitable
REVENGE WILL NEED ADDITIONAL CAPITAL TO FUND ITS BUSINESS.
Revenge requires substantial working capital to fund its new business
ventures into the internet and recreational products service industry and may
need more in the future. Revenge will likely experience negative cash flow from
operations for the foreseeable future. Revenge does not presently have
sufficient working capital to implement its on-line strategy and there can be no
assurance that such capital will be forthcoming on terms that Revenge will find
acceptable. Revenge needs to raise additional funds through the issuance of
equity, equity-related or debt securities and therefore the current
shareholders' stock ownership percentage will be diluted. If Revenge is unable
to obtain adequate additional financing on reasonable terms, its operations may
never commence and Revenge may never become profitable. Revenge cannot be
certain that additional financing will be available.
REVENGE MAY BE UNABLE DEVELOP A COMPELLING WEBSITE OR SUPPORT THE
VOLUME ON ITS WEB SITE.
A key element of Revenge's strategy is to develop a website which will
generate a high volume of traffic However, if Revenge is successful in creating
such a site, growth in the number of users of its online community may strain or
exceed the capacity of its computer systems and lead to declines in performance
or systems failure. Revenge has no present systems and is not certain if it will
be able to acquire adequate capacity to accommodate rapid growth in user demand.
Revenge will therefore need to add hardware and software and to develop and
after development, to improve and enhance the functionality and performance of
its community, e-commerce, customer tracking and other technical systems.
Revenge intends to develop on-line systems and implement new systems as Revenge
anticipates new demand. Failure to implement these systems effectively or within
a reasonable period of time would result in a failure of Revenge's on-line
strategy.
Revenge must also introduce additional or enhanced features and
services to attract and retain customers to its web site. If a new service is
not favorably received, its customers may visit its web site less frequently.
These new services or features may not function well, and Revenge may need to
modify the design of these services significantly to correct errors. If users
encounter difficulty with or do not accept its services or features, its
business, operating results and financial condition would be adversely affected.
REVENGE NEEDS TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND
RETAIN ITS KEY PERSONNEL IN ORDER FOR ITS BUSINESS TO SUCCEED.
Its ability to develop and maintain its web site and other necessary
systems depends on its ability to attract, retain and motivate highly skilled
technical, managerial and marketing personnel. Competition for skilled software
engineers has greatly increased with the emergence of a number of internet
retailers and other electronic commerce developments. If Revenge is unable to
attract and retain the necessary personnel, its web site and other systems may
not operate efficiently. These difficulties could materially and adversely
affect its business and results of operations.
REVENGE'S BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH COMPETITION IN
THE MARKETPLACE.
Revenge can make no assurance that Revenge will be able to compete
successfully or that competitive pressures will not damage its business. Its
competition includes:
o Web sites maintained by other online retailers of recreational
sports, boating and travel products;
o Other retailers offering products comparable to those being sold by
Revenge; and
o Internet portals and on-line service providers that feature travel
and recreation, such as Expedia, Preview Travel, Travelocity,
Cheaptickets.com and Priceline.
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Revenge's competitors are larger than Revenge and have substantially
greater financial, distribution and marketing resources. In addition, its
competitors may be able to secure products, including airfare, resort
accommodations and tour packages from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than Revenge can. Traditional store-based retailers also
enable customers to see products in a manner that is not possible over the
Internet. Some online competitors may be able to use the Internet as a marketing
medium to reach significant numbers of potential customers more effectively than
Revenge can.
REVENGE MAY HAVE DIFFICULTY OBTAINING CONTENT AND MERCHANDISE.
Revenge wants to offer content to its customers to develop an Internet
community. There can be no assurance that Revenge will be able to obtain such
content or that Revenge will develop a viable Internet community. If Revenge is
not able to develop a viable recreational products and travel based web
community, its business, operating results and financial condition may never
improve from the present state of virtual non-operation.
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GENERAL ECONOMIC CONDITIONS AND DISCRETIONARY CONSUMER SPENDING MAY
AFFECT REVENGE'S PERFORMANCE.
Revenge's operations depend upon a number of factors relating to or
affecting consumer spending for discretionary goods, such as Revenge's products.
Revenge's operations may be adversely affected by unfavorable local, regional,
or national economic developments or by uncertainties regarding future economic
prospects that reduce consumer spending in the markets served by Revenge.
Consumer spending on non-essential goods can also be adversely affected as a
result of declines in consumer confidence levels, even if prevailing economic
conditions are favorable. In an economic downturn, consumer discretionary
spending levels generally decline, often resulting in disproportionately large
reductions in the purchase of discretionary goods. There can be no assurance
that Revenge's results of operations would not be significantly adversely
affected during any such period of adverse economic conditions or low consumer
confidence
REVENGE'S BRAND MAY NOT ATTAIN SUFFICIENT RECOGNITION.
Revenge believes that establishing, maintaining and enhancing its brand
is a critical aspect of its efforts to attract and expand its online traffic.
The number of Internet sites that offer competing services and products increase
the importance of establishing and maintaining brand name recognition. Promotion
of its web site will depend largely on its success in providing a high-quality
online experience supported by a high level of customer service, which cannot be
assured. To attract and retain online users, and to promote and maintain its web
site in response to competitive pressures, Revenge may find it necessary to
increase substantially its financial commitment to creating and maintaining a
strong brand loyalty among customers. This will require significant expenditures
on advertising and marketing. If Revenge were unable to provide high-quality
online services or customer support, or otherwise fails to promote and maintain
its web site and online community, or if Revenge incurs excessive expenses in an
attempt to promote and maintain its web site, its business prospects, operating
results and financial condition would be materially adversely affected.
REVENGE'S BUSINESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE.
Its future revenues and profits, if any, will depend substantially upon
the acceptance and use of the Internet and other online services as an effective
medium of community and commerce by its target customers. Rapid growth in the
use of and interest in the Internet and online services is a recent phenomenon.
Acceptance and use of the Internet and other online services may not continue to
develop at historical rates and a sufficiently broad base of consumers may not
adopt, and continue to use, the Internet and other online services as a medium
of commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty and there
exist few proven services and products. Revenge's target customer has
historically used traditional means of commerce to purchase recreational sports
products, services, travel, vacation packages and related merchandise and to
obtain recreational products, boating, sports and travel information. For
Revenge to be successful, these customers must accept and utilize its online
program to provide them recreational products and information.
In addition, the Internet may not be accepted as a viable long-term
marketplace for information and products for a number of other reasons beyond
Revenge's control, including potentially inadequate development of the necessary
network infrastructure or delayed development of enabling technologies and
performance improvements. To the extent that the Internet continues to
experience significant expansion in the number of users and bandwidth growth
requirements, the infrastructure for the Internet may be unable to support the
demands placed upon it. In addition, the Internet could lose its viability due
to delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity or more sophisticated levels of
content (such as streaming video), or due to increased governmental regulation.
Changes in or insufficient availability of telecommunications services to
support the Internet also could result in slower response times and adversely
affect usage of the Internet generally and its online community in particular.
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REVENGE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGES THAT AFFECT
ELECTRONIC COMMERCE.
To remain competitive, Revenge must continue to enhance and improve the
responsiveness, functionality and features of its online operations. The
Internet and the electronic commerce industry are characterized by:
o Rapid technological change;
o Changes in user and customer requirements and preferences;
o Frequent new product, service, and content introductions embodying
new technologies; and
o The emergence of new industry standards and practices.
The evolving nature of the Internet could render Revenge's intended
online community, technology, and systems obsolete. Its success will depend, in
part, on its ability to:
o License leading technologies useful in its business;
o Develop content, products, and services that appeal to its
customers;
o Develop new services and technology that address the increasingly
sophisticated and varied needs of its customers; and
o Respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of Revenge's web site and other technology entails
significant technical and business risks. Revenge may not use new technologies
effectively or adapt its online community, technology, and
transaction-processing systems to customer requirements or emerging industry
standards. If Revenge were unable, for technical, legal, financial or other
reasons, to adapt in a timely manner, in response to changing market conditions
or customer requirements, its business, financial condition and results of
operations could be seriously harmed.
REVENGE DEPENDS ON THIRD PARTY SHIPPERS, CONTENT SOURCES,
COMMUNICATIONS PROVIDERS AND VENDORS TO OPERATE ITS BUSINESS.
Revenge depends on a number of third parties to deliver goods and
services to Revenge and its customers. For example, Revenge will rely on the
United States Postal Service, United Parcel Service, Federal Express and other
carriers to ship merchandise to its customers. Strikes or other service
interruptions affecting one or more of its shippers could impair its ability to
deliver merchandise on a timely basis.
Revenge will depend on communications providers to provide its Internet
users with access to its online community. Its online community could experience
disruptions or interruptions in service due to failures by these providers. In
addition, its users depend on Internet service providers and web site operators
for access to its online community. Each of these groups has experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to its systems. These types of
occurrences could cause users to perceive its web site as not functioning
properly and therefore cause them to stop using its services.
Revenge depends on the ability of third-party vendors to provide it
with recreational products, travel and vacation products and related merchandise
at competitive prices and in sufficient quantities. Revenge has no relationships
presently with such suppliers. Revenge may never develop such relationships.
Even if Revenge is successful in developing such relationships, Revenge's
suppliers may have limited resources, production capacities and operating
histories. Revenge's business could be harmed if its ability to procure products
becomes limited.
REVENGE MAY BE SUBJECT TO SALES AND OTHER TAXES.
Revenge may not collect sales or other similar taxes for physical
shipments of goods into states other than the state where its on-line operations
would be based. One or more local, state or foreign jurisdictions may seek to
impose sales tax collection obligations on Revenge. In addition, any new
operation in states outside Revenge's base of
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operations could subject Revenge's shipments in such states to state sales taxes
under current or future laws. If one or more states or any foreign country
successfully asserts that Revenge should collect sales or other taxes on the
sale of its products, the resulting tax liability could impair Revenge's
business. Any such liability could also include liability for back taxes and
penalties, which could cause significant harm to Revenge's financial condition
and may require it to restate earnings for prior periods.
CONFLICTS OF INTEREST MAY OCCUR IN TRANSACTIONS WITH AFFILIATES.
Revenge may enter into transactions with its affiliates that involve
conflicts of interest. Such arrangements would not be negotiated on an arms'
length basis. While Revenge intends to enter into any future related party
transactions on terms no less favorable than those Revenge could obtain from
unrelated third parties, the interests of directors or officers of Revenge or
holders of more than 5% of its Common Stock, in their individual capacities or
capacities with related third-party entities, may conflict with the interests of
such persons in their capacities with Revenge.
ELECTRONIC COMMERCE IS SUBJECT TO SECURITY RISKS.
A fundamental requirement of electronic commerce and communications is
the secure transmission of confidential information over public networks.
Revenge will rely on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary for secure
transmission of confidential information, such as customer credit card numbers.
In addition, Revenge intends to maintain an extensive confidential database of
customer profiles and transaction information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the methods used by Revenge
to protect customer transaction data. If any such compromise of its security
were to occur, it could seriously harm Revenge's reputation, business, financial
condition and results of operations. A party who is able to circumvent Revenge's
security measures could misappropriate proprietary information or cause
interruptions in Revenge's operations.
Revenge may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of the Internet and other
online transactions and the privacy of users may also inhibit the growth of the
Internet and other online services, especially as a means of conducting
commercial transactions. To the extent that activities of Revenge or third-party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers, security breaches could damage its reputation and
expose Revenge to a risk of loss or litigation and possible liability. Revenge's
security measures may not prevent security breaches and failure to prevent such
security breaches may seriously harm its business, financial condition and
results of operations.
Revenge cannot assure that others will not independently develop
substantially equivalent proprietary information and techniques. In addition,
Revenge may be required to obtain licenses to certain intellectual property or
other proprietary rights of third parties. Revenge cannot assure that any such
licenses or proprietary rights would be made available to under acceptable
terms, if at all. If Revenge does not obtain required licenses or proprietary
rights, Revenge could encounter delays in product development or find that the
development or sale of products requiring such licenses could be foreclosed.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN ITS
BUSINESS.
The adoption or modification of laws or regulations applicable to the
Internet could harm Revenge's future on-line business. The U.S. Congress
recently passed laws regarding children's online privacy, copyrights and
taxation. The law governing the Internet, however, remains largely unsettled.
New laws may impose burdens on companies
30
<PAGE> 31
conducting business over the Internet. Although its online transmissions
generally originate in California, the governments of other states or foreign
countries might attempt to regulate its transmissions or levy sales or other
taxes relating to its activities. It may take years to determine whether and how
existing laws governing intellectual property, privacy, libel and taxation apply
to the Internet and online advertising. In addition, the growth and development
of online commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad. Revenge also may be subject to regulation
not specifically related to the Internet, including laws affecting direct
marketers.
31
<PAGE> 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Multiple pieces of ordinary course of business litigation not exceeding
in total $79,000 is noted as contingent, though management is disputing these
claims.
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Reports on Form 8-K. 1 report on Form 8-K was filed during the
quarter ended September 30, 1999, consisting of a current Report on
Form 8-K dated September 9, 1999, reporting the terms of a letter
of intent for merger with Reel Fishing Corporation, the sale of the
Blackfin Assets, the sale of the Egret Assets and the sale of the
Consolidated Yacht Assets.
b. Exhibits.
Financial Data Schedule
Exhibit 27.1
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999 REVENGE MARINE, INC.
By /s/ William C. Robinson
-----------------------------------
William C. Robinson
President and Chief Executive Officer
33
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