JUPITER MARINE INTERNATIONAL HOLDINGS, INC. - 10KSB - ANNUAL REPORT
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934. (Fee required)
For the fiscal year ended July 31, 1999
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934. (No Fee Required)
For the transition period from ____________ to ______________.
Commission file number 0-26618
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0794113
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3391 S.E. 14th AVENUE
PORT EVERGLADES, FLORIDA 33316
(Address of principal executive offices)
(954) 523-8985
(Issuers telephone number)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Redeemable Common Stock Purchase Warrants
(Title of each class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB ( X )
State issuers revenues for the most recent fiscal year $1,201,375 .
As of November 15, 1999 the aggregate market value of the Issuer's voting stock
held by non-affiliates of the Issuer (2,401,500 shares of common stock) was
approximately $N/A.
As of November 12, 1999, the number of shares outstanding of the Issuer's common
stock was 4,033,500. Documents incorporated by reference: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
Jupiter Marine International Holdings, Inc. ("JMIH"), a Florida
corporation, was incorporated on May 19, 1998. JMIH's goal is to become a
consolidator as well as a builder in the highly fragmented marine industry. On
May 26, 1998, JMIH acquired all of the outstanding shares of common stock of
Jupiter Marine International, Inc. ("JMI"), a boat manufacturing company, which
was incorporated under the laws of the State of Florida on November 7, 1997.
JMIH and JMI will sometimes be collectively referred to as the "Company". The
Company's principle offices and manufacturing facilities are located in Port
Everglades, Florida.The Company's web site address is www.jupitermarine.com.
The Company believes that it has assembled a management team that is
not only capable of recognizing opportunities in the marine industry but can
also operate and enhance the value of opportunities in the marine industry.
Management believes that a tremendous number of potential consolidation
candidates can be found. Management also believes that "manufacturing customers"
or unrelated manufacturers that may build and supply the Company with
proprietary parts and supplies that it can use in the assembly and completion of
Jupiter boats can be found. The Company intends to locate consolidation
candidates and manufacturing customers primarily through its contacts within the
marine industry and through its professional affiliations and memberships in
nationally recognized marine associations such as the National Marine
Manufacturers Association and the Marine Industries Association of South
Florida.
PRODUCTS
The Company currently builds four outboard powered boats in three sizes
(the "Jupiter Line").
31' CENTER CONSOLE
The 31' Center Console is designed for the family fisherman and
provides what management of the Company believes is a quality offshore
performance while offering amenities and features not normally found in other
open boats. This model includes a private stand up compartment with 6'2"
headroom containing a vanity with sink and shower and room for optional marine
head.
31" CUDDY CABIN
This is the same basic boat as the 31" Center Console that includes a
small cuddy cabin forward with cruising amenities and a comfortable 4-place
dinette that converts to a queen berth for sleeping.
27" CENTER CONSOLE
This model is available in either single or twin engines. It was added
to the line in order to enable the entry level boat buyer to acquire a Jupiter
boat at an affordable price. New features in the 27' Center Console design
include an integrated engine mounting platform, above deck livewell, transom
door, and a 6'2" berth built into the console department.
21' SHALLOW WATER SKIFF
The 21' Shallow Water Skiff is unlike "typical" flats boats. This is
due to its size and weight. Most typical flats boats range from 14' to 18' and
are substantially lighter in weight and construction. The greater size and
weight of the Jupiter 21' Shallow Water Skiff allows it to carry more passengers
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and operate in rougher conditions than the typical flats boats. Light enough to
operate in shallow water, yet large and stable enough to run in open water or
offshore chop, this boat can also be marketed as a family runabout or a yacht
tender.
To further enhance its sport fishing boat line, the Company plans to
introduce a new 33' walk around cabin model based upon the proven 31' center
console hull design. This model will feature a deck design, which incorporates a
walk-in cabin, enclosed head with shower, and a full galley. With twin outboard
engine power this model will be offered as either a fishing boat for the serious
angler or as a purely recreational sport boat type cruiser. The Company is also
in the process of designing new 32 and 35 foot boats which the Company hopes to
eventually manufacture and sell as part of the Jupiter Line. The new boats will
feature diesel powered, inboard engines. The sale price of the new models will
range from approximately $160,000 to $300,000 depending on customization.
Although the boats are suitable for many different purposes, they are
primarily used for fishing and fishing related activities. The sales prices for
the boats range from $75,000 to $110,000 for the Jupiter 31 models, from $45,000
to $78,000 for the Jupiter 27, and from $24,000 to $39,000 for the Jupiter 21.
The Company provides each boat purchaser with a limited lifetime warranty.
MANUFACTURING
The Company's manufacturing plant is set up with five full length
assembly lines. Each line operates at a rate that is determined by sales and
demand. It is planned that each assembly line run at a consistent line rate so
that the work stations become repetitive and components can be assembled in
quantity more efficiently. A line rate can be increased or decreased by simply
adding or subtracting workers and material on the line. Production capacity is
sufficient to accommodate approximately 20 boats in various stages of
construction at any one time. Construction of a boat currently made, depending
on size, takes approximately five weeks.
The Company is currently on schedule to produce approximately 100 boats
annually and is operating at approximately 50% of its manufacturing capacity. In
order to build 200 boats annually, the Company would need to hire approximately
40 additional employees, both skilled and unskilled. Management believes its
relationship with its employees is good and does not foresee any difficulties in
hiring additional employees. The Company believes it can further expand its
manufacturing capacity by adding additional plant space, equipment and tooling.
The Company owns over 60 different molds which are used interchangeably
depending on which model of boat the Company has agreed to build. Through
September 1, 1999, the Company has built 38 boats, all of which are seaworthy.
Jupiter's management team has built approximately 3,000 boats over the last 25
years, all of which were seaworthy.
The first phase of manufacturing involves creating the hulls and decks
of the boats which is accomplished by the hand "laying-up" (taking sheets of
fiberglass material and laying them in place along the bottom and up the hull of
a boat) of vinylester blended resins and high quality stitched, bi-directional
and quad-directional fiberglass material over a foam core in the molds.
Bi-directional fiberglass is a fabric type material that is made of fiberglass
strands and distributed in rolls, much the same as cotton fabrics. There are
many types and styles of fiberglass cloth, the most common being bi-directional,
which means the structural strands of material are woven in two directions
normally at right angles to each other. Quad-directional fiberglass is basically
the same material as bi-directional fiberglass with the difference being that
the structural strands of fiberglass are woven or knitted in four different
directions in a variety of combinations.
This procedure and components create a composite structure with strong
out and inner skins with a thicker, lighter core in between. The "laying-up" of
fiberglass by hand rather than using chopped fiberglass and mechanical
applicators results in superior strength and appearance. The resin used to bind
the composite structure together is a vinylester type, which is stronger, better
bonding and more flexible than the polyester resins used by most other
fiberglass boat manufacturers.
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During the second phase of manufacturing, the fuel tanks and inner
liner (or deck), which is made of the same material as the hull, are installed
in the hull. Decks are bonded to the hulls using bonding agents, screws and
fiberglass to achieve a strong, unitized construction. The third phase involves
installing the console, wiring, electrical components, various accessories and
engines. The final segment involves installing custom accessories, upholstery,
seating, electronics and navigational aids.
The third phase involves installing the console, wiring, electrical
components, various accessories and engines. The final segment involves
installing custom accessories, upholstery, seating electronics and navigational
aids.
DESIGN
The Jupiter Line's Deep-V hulls are specifically designed to perform at
high speeds in offshore sea conditions, while providing their passengers a
smooth, comfortable and dry ride. There is no lean or cavitation (vibration and
inefficiencies caused by boat propeller slippage occurring when a boat propeller
does not have solid contact with the water) in a turn.
The Jupiter Line's performance characteristics result from its
"posi-stern" hull design, developed by JMI which reduces drag, planes faster,
turns sharper, and increases fuel economy. This hull design, combined with its
stern lifting strakes, creates a variable dynamic lift that provides a level,
stable, and soft ride.
The additional increase in stern lift balances the hull on its lines
and allows the boat to raise on plane very quickly without a loss of visibility
from the helm. The resulting running angle allows the bow to cut through the
water at a sharper angle, which results in deflecting spray out, not up and for
a softer and drier ride that reduces pounding or hopping commonly associated
with boats.
The design and tooling for new boat models and improvements to existing
models is an integral part of the Company's business and will be continuously
ongoing. The time involved will be dependent on the magnitude of the project and
could range from three to twelve months. It is anticipated that the costs of
these projects will be funded with additional financing as well as from cash
flows from operations. The Company does not anticipate that these costs will be
borne by its customers.
JMI SALES AND MARKETING
JMI's marketing efforts will focus on Carl Herndon's name and
reputation in the boat manufacturing industry. Mr. Herndon has over 25 years of
marine experience. His background includes building high quality boats ranging
in length from 16' up to 80' in length and being appointed the C.E.O. of
Blackfin Yacht Corporation and Bertram Yachts, two highly regarded companies
within the marine industry. In addition to his boat building expertise, Herndon
has served as the President of the Marine Industries Association of South
Florida, was appointed to the Boating Advisory Council by Florida's Governor,
has served on numerous committees for the National Marine Manufacturers
Association, and has lobbied in Washington, DC on behalf of the marine industry.
JMI intends to market its boats in nationally circulated magazines and
trade publications including Boating Magazine, Sports Fishing, Florida
Sportsman, Motor Boating and Sailing and Saltwater Sportsman. JMI intends to
attend most major boat shows and exhibitions, as well as possibly sponsoring
boats in fishing tournaments. Boats are sold and distributed through authorized
marine dealers throughout the United States. These dealers are not exclusive to
the Company and may carry the boats of other companies. The territories served
by any dealer are not exclusive to the dealer. However, the Company uses
discretion in locating new dealers in an effort to protect the interests of the
existing dealers. The Company normally does not manufacture boats for inventory.
Most boats are pre-sold to a dealer when entering the production line. The
Company currently has agreements with six boat dealers located in Dania,
Florida; Stuart, Florida; Wilmington, North Carolina; Neptune, New Jersey;
Mobile, Alabama; N. Weymouth, Massachusetts and is in the process of seeking
additional qualified boat retailers to act as dealers.
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The Company delivers boats to its dealers on a cash on delivery basis.
However, approximately one-half of the Company shipments are made pursuant to
commercial dealer "floor plan financing" programs in which the Company
participates on behalf of its dealers. Under these arrangements, a dealer
establishes lines of credit with one or more third-party lenders for the
purchase of showroom inventory. When a dealer purchases a boat pursuant to a
floor plan arrangement, it draws against its line of credit and the lender pays
the invoice cost of the boat, net of shipping charges, directly to the Company.
The Company sells all of its boats through retail dealers. The Company
has sold five 21' Shallow Water Skiffs, three 27' Center Consoles and an
aggregate of twenty-five 31' Center Consoles or Cuddy Cabins. Through September
1999, the Company has sold a total of 33 boats.
EMPLOYEES
JMIH currently has no employees other than its officers and directors
who are not being compensated. JMI currently employs a total of 37 people 32 of
whom are directly involved in the boat manufacturing process and 5 of who are
administrative and executive personnel. All officers and employees are
full-time. As JMI nears full operating capacity, estimated by the Company to be
in July 2000, JMI expects to employ 65 people in the boat manufacturing area.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases a 32,140 square foot facility located at 3391 S.E.
14th Avenue, Port Everglades, Florida. The facility houses the Company's boat
manufacturing operation and executive offices. The Company leases the facility
from Carl Herndon, the Company's President, Chief Executive Officer and
Director. The lease agreement requires the Company to pay monthly lease payments
of approximately $10,700.00 per month plus applicable taxes. The lease payments
are subject to a 5% annual increase. The lease terminates in May 2002. The
Company has an exclusive option to purchase the facility during certain periods
until November 1, 2001 at a price between $900,000 and $1,000,000.
ITEM 3. LEGAL PROCEEDINGS
There are no significant material legal proceedings filed, or to the
Company's knowledge, threatened against the Company. However, Jupiter 31, Inc.,
the company from which JMI purchased the assets the Company now uses to operate
its boat manufacturing business, is the subject of tax lien proceedings
instituted by the IRS. In addition, Jupiter 31, Inc. failed to satisfy certain
financial obligations with other parties which were delinquent. As such, both
the IRS and any other creditors of Jupiter 31, Inc. may have rights in the
assets of Jupiter 31, Inc. superior to those of the Company. While management of
the Company has been informed by the IRS that the liens will be discharged, the
Company has not received a formal discharge notice to date. Although management
of the Company believes that neither the IRS nor any potential third party
claims exist, there can be no assurance that claims will not be made against the
assets.
On October 4, 1999, Windjet Manufacturing, LLC ("Windjet") filed a
lawsuit against the Company alleging the negligent storage of its property which
resulted in a theft. Windjet claims losses of approximately $100,000. A written
agreement between the Company and Windjet required that Windjet procure its own
insurance on the property. The matter has been presented to the Company's
insurance carrier to determine coverage and defense costs.
On May 7, 1998 JMI filed a civil lawsuit against Joseph Maran and
Jupiter 31, Inc., for breach of contract, fraudulent inducement, conspiracy to
defraud, and breach of employment. While the Company is seeking damages in
excess of $250,000, the suit is not presently being pursued since Jupiter 31,
Inc., has no assets, and Joseph Maran has filed personal bankruptcy.
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On August 27, 1999, subsequent to JMI's action against Mr. Maran and
Jupiter 31, Inc., Mr. Maran and Sandra Carter, the former owner of Jupiter 31,
Inc. and girlfriend of Mr. Maran, respectively, filed a lawsuit against JMI
requesting rescission, specific performance and negligent infliction of
emotional distress related to the asset purchase of Jupiter 31, Inc. and Mr.
Maran's employment agreement with JMI. They are seeking the return of 1,000,000
shares of Common Stock of JMI which were revoked by the Company and other
damages. Mr. Maran filed a Chapter 7 Bankruptcy Petition on February 1, 1999.
Mr. Maran and Ms. Carter are being represented by counsel retained by the
bankruptcy trustee. The Company intends to vigorously defend the complaint. At
this date, the Company can not opine on any possible outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the fiscal
year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Although JMIH has made application to permit quotation to be made on
the Over-the-Counter Bulletin Board for its shares of Common Stock, there is
currently no public trading market for JMIH's Common Stock. The transfer agent
for JMIH's Common Stock is Florida Atlantic Stock Transfer, Inc., 7130 Nob Hill
Road, Tamarac, FL 33321.
JMIH has never paid cash dividends on its Common Stock. JMIH presently
intends to retain future earnings, if any, to finance the expansion of its
business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on JMIH's earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Management's discussion and analysis contains various "forward-looking
statements" within the meaning of the Securities and Exchange Act of 1934. Such
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or use of negative or other
variations or comparable terminology.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
The Company also notes that comparison of the results of operation for
the fiscal year ended July 31,1 999 to the fiscal year ended July 31, 1998
(approximately nine months) may not provide meaningful comparisons, as the
Company was not in normal business operation during all of fiscal 1998 and most
of fiscal 1999.
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PLAN OF OPERATIONS
Management's operating plan for the next twelve months is to be at a
slight loss. Sales are expected to be about $5,339,000 with a gross margin of
approximately $1,080,000 (20.2%). Selling, general and administrative expenses
are projected to be approximately $1,100,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since its inception, has experienced severe negative cash
flows and has met its cash requirements by issuing, through private placements,
its common and preferred stock. Additional funds were generated by borrowings of
$400,000. The Company anticipates that funds received from these sources, cash
generated from operations and additional financings of $1,000,000 should be
sufficient to satisfy the Company's contemplated cash requirements for at least
the next 12 months. After such time, the Company anticipates that cash generated
from operations will be sufficient to fund its operations, although there can be
no assurances that this will be the case.
The Company does not anticipate any significant purchase of equipment.
The number and level of employees at July 31, 1999 should be adequate to fulfill
the production schedule.
RESULTS OF OPERATIONS
From inception to May 1999 the Company was primarily involved in
relocating its manufacturing facility and producing boats that were an assumed
liability of Jupiter 31, Inc. Revenues through April 1999 were primarily related
to delivery of these boats. Consequently the Company suffered significant
operating and cash flow losses.
Effective May 1999 the Company delivered all but one boat pursuant to
the assumed liability of Jupiter 31, Inc. A $70,000 deposit received for this
boat partially accounts for why deposits exceed the Company's inventory and
cash. The remaining balance of approximately $178,000 at July 31, 1999 is due to
normal business practices and should be satisfied utilizing working capital. The
Company has begun to solicit new orders and has commenced delivering new boats
for sale to the Company's dealers.
Effective May 1999 the Company delivered all but one boat pursuant to
the assumed liability of Jupiter 31, Inc. A $70,000 deposit remains on this
boat. The remaining balance of approximately $178,000 at July 31, 1999 is due to
normal business practices and should be satisfied utilizing working capital. The
Company has begun to solicit new orders and has commenced delivering new boats
for sale to the Company's dealers.
As of September 30, 1999 all outstanding payroll taxes were paid and
the Company is current on all payroll taxes.
NET SALES
The Company had net sales of $1,019,385 for the quarter ended July 31,
1999. Management believes that it has started to recapture lost market share
through the restoration of dealer confidence in the new Jupiter products. Orders
for the Company's products continue to remain at about these levels.
COST OF PRODUCTS SOLD
The gross profit margin for the quarter ended July 31, 1999 was 23.9%
of net sales. The margin was slightly above management's expectation due to
lower material cost and increased labor efficiencies. Additionally, overhead
spending was also better than expected. The Company has identified certain
production inefficiencies which, when adjusted, should improve gross margin. The
Company believes there are various tooling constraints that, if improved, would
reduce labor costs. The Company is also exploring several purchasing
alternatives that may reduce the cost of material used.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses of $248,715, for the
quarter ended July 31, 1999, were about equal to management's projections.
Selling, General and Administrative expenses of approximately $224,500
were about equal to management's expectations. SG&A expenses consists primarily
of salaries and benefits ($90,400), Occupancy costs ($48,392), utilities
($10,600), marketing and advertising ($9,800), management fee ($15,000) and
depreciation ($50,300).
YEAR 2000 READINESS DISCLOSURE
Because of the start up nature of the Company it has not developed,
internally, any information technology systems, but has utilized software
packages purchased from reputable third party vendors. These vendors have
assured us that their systems are Year 2000 compliant. We do not believe that
the aggregate cost for the year 2000 issue on entities with which we transact
business, and there can be no assurance that the effect of the Year 2000 issue
on such entities will not have a material adverse effect on our business,
financial condition, or results of operations.
ITEM 7. FINANCIAL STATEMENTS
See the financial statements and supplementary data listed in the accompanying
index to the Financial Statements and Schedule on Page F-1 herein
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE UNDER SECTION 16(A) AT THE EXCHANGE ACT SIGNIFICANT EMPLOYEES
The following table sets forth the names, positions with JMIH and ages
of the executive officers and directors of JMIH. Directors will be elected at
JMIH's annual meeting of shareholders and serve for one year or until their
successors are elected and qualify. Officers are elected by the Board and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position Held
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<S> <C> <C>
Carl Herndon 60 Director, President and Chief Executive
Officer, Secretary
Lawrence S. Tierney 53 Director
SIGNIFICANT PERSONNEL
Carl Herndon, Jr. 32 Vice President
Sales & Marketing JMI
Paul Douglas 56 Production Manager JMI
</TABLE>
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CARL HERNDON - Mr. Herndon has been President, Chief Executive Officer
and a Director of JMIH since its inception on May 19, 1998. Mr. Herndon has also
been President, Chief Executive Officer and a Director of JMI since May 15,
1998. Between 1973 and 1997, Mr. Herndon was President, Chief Executive Officer,
Director and sole shareholder of Blackfin Yacht Corporation, a Fort Lauderdale,
Florida based designer, manufacturer and seller of Sportfishing boats
("Blackfin"). Between 1993 and 1995, Mr. Herndon was president and Chief
Executive Officer of Bertram Yacht Corporation in Miami, Florida. During Mr.
Herndon's tenure as officer and director of Blackfin, Blackfin filed for Chapter
11 Bankruptcy Reorganization protection. The bankruptcy proceeding was
subsequently converted to a Chapter 7 proceeding.
LAWRENCE TIERNEY - Mr. Tierney joined JMIH as a Director and Consultant
in January 1999. Since April 1997, Mr. Tierney is owner and operator of AAMCO
transmissions of Plant City, Florida. From March 1995 to March 1997, Mr. Tierney
was Chief Financial Officer of MAKO Marine International, Inc., a manufacturer
of high quality offshore fishing boats. From June of 1993 to March of 1995, Mr.
Tierney served as Chief Financial Officer of Chris Craft Boats, a wholly owned
subsidiary of Outboard Marine Corporation (OMC) a full line manufacturer of
power boats. From June 1991 to June 1993, Mr. Tierney acted as Chief Operating
Officer of Chris Craft boats. From August 1986 to June 1991, Mr. Tierney was Sr.
Vice President of Finance for Chris Craft.
CARL HERNDON, JR. - Mr. Herndon has been Vice President of Sales and
Marketing at JMI since October 1998 and joined JMI on a full-time basis in
January of 1999. From November 1997 to January 1998, Mr. Herndon was selling new
boats and brokering boats at Northside Marine Sales. From January 1992 to July
1997, Mr. Herndon was National Sales Manager for Blackfin Yacht Corporation.
From April 1987 to January 1992, Mr. Herndon was Production Manager for Blackfin
Yacht Corporation.
PAUL DOUGLAS - Mr. Douglas has been the Plant Manager for JMI since May
of 1998. From March 1987 to July 1996, Mr. Douglas was Facilities/Maintenance
Foreman for Blackfin Yacht Corporation. From 1980 to 1987, Mr. Douglas was
Maintenance Craftsman, First Class and Acting Foreman for Special Projects for
Tracor Marine.
EMPLOYMENT AGREEMENTS
In November 1998, JMI entered into a five-year employment agreement
with Mr. Herndon with 2 one-year renewal options. The agreement obligates Mr.
Herndon to devote all his time to supervising, designing and manufacturing boats
for JMI as president and chief executive officer of the JMI. Mr. Herndon will
earn a base salary of $72,000 per year. Mr. Herndon's salary adjustments are
tied to the Company successfully reaching specific financial milestones.
Subsequent salary adjustments will be decided by the board of directors of the
Company. The employment agreement also entitles Mr. Herndon to an aggregate of
options to purchase 600,000 shares of common stock of the Company at prices
between $.50 and $1.00 per share over a period of five years. The employment
agreement includes standard non-compete and confidentiality provisions. Due to
Mr. Herndon's experience, the business of JMI and the Company will be largely
dependent on Mr. Herndon's experience and ability to design, manufacture and
sell boats produced by JMI.
In May 1999, JMI entered into a five-year employment agreement with
Carl Herndon, Jr. with 2 one-year renewal options. The agreement obligates Mr.
Herndon to devote all his time to supervising the sales and marketing of the
Company's boats as Vice President of Sales and Marketing. Mr. Herndon will earn
a base salary of $70,000 for the first year of the agreement, $85,000 for the
second year of the agreement, $100,000 for the third year of the agreement and a
salary to be determined by the Board of Directors of JMIH for years four, five
and any renewal period. The employment agreement includes standard non-compete
and confidentiality provisions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the outstanding Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership on Form 3 and
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reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.
Based solely on its review of the copies of such reports furnished to
the Company or written representations that no other reports were required, the
Company believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the year ended July 31, 1999, except for Carl Herndon, Carl Herndon,
Jr., Triton Holdings International Corp., Donald Gasgarth, and Lawrence Tierney
who inadvertently were late in filing Form 3 for reporting initial beneficial
ownership of securities which Form 3's have been filed as of November 12, 1999.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information relating to the compensation
paid by the Company during the past two fiscal years to: (i) the Company's
President and Chief Executive Officer; and (ii) each of the Company's executive
officers who earned more than $100,000 during the period from May 19, 1998
(inception) through May 31, 1999 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------- -------- ----------------------------------- ----------------------------------------------
Annual Compensation Long-Term Compensation
- --------------------------- -------- ----------------------------------- ----------------------------------------------
Awards Payouts
- --------------------------- -------- --------- -------- ---------------- ----------------------- ----------------------
Securities
Under-
Other Restricted Lying All Other
Name and Principal Annual Stock Options/ LTIP Compen-
Position Year Salary Bonus Compensation Award(s) SARs Payouts sation
($) ($) (#) ($) ($)
- --------------------------- -------- --------- -------- ---------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C>
Carl Herndon, Director
CEO and President(1) 1998 $29,560
- --------------------------- -------- --------- -------- ---------------- ----------- ----------- ---------- -----------
1997 N/A
- --------------------------- -------- --------- -------- ---------------- ----------- ----------- ---------- -----------
1996 N/A
- --------------------------- -------- --------- -------- ---------------- ----------- ----------- ---------- -----------
</TABLE>
(1) Does not include 850,000 shares of Common Stock of the Company
issued to Mr. Herndon as founder's shares.
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<TABLE>
<CAPTION>
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------------------------------
Percent of
Number Of Total
Securities Options/
Underlying SARs Granted Exercise Of Expiration
Name Options/SARs To Employees Base Price Date
Granted (#) In Fiscal Year (S/Sh)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carl Herndon, 150,000 25% $ .50 11/10/03
Director CEO and
President(1)
---------------------------------------------------------------------------------
150,000 25% $ .625 11/10/03
---------------------------------------------------------------------------------
150,000 25% $ .75 11/10/03
---------------------------------------------------------------------------------
150,000 25% $1.00 11/10/03
---------------------------------------------------------------------------------
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise
of options to purchase shares of JMIH's common stock during the period from May
19, 1998 (inception) through May 31, 1999, of each person named in the Summary
Compensation Table and the unexercised options held as of the end of such
period.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs At Fiscal Year-
Shares At Fiscal Year-End End ($)
Acquired On Value (#) Exercisable/
Exercise (#) Realized Exercisable/ Unexercisable
Name ($) Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carl Herndon, Director, President N/A N/A 600,000 -0-
and CEO
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's common stock beneficially owned on October 1, 1999, for (i) each
shareholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding common stock, (ii) each of the Company's
executive officers and directors, and (iii) all executive officers and directors
as a group. On October 1, 1999, there were approximately 4,033,500 shares of
Company common stock, par value $.001 (the "Common Stock"), outstanding.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
BENEFICIALLY OWNED OUTSTANDING SHARES
NAME SHARES (1) BENEFICIALLY OWNED
<S> <C> <C>
Carl Herndon
3391 S.W. 14th Avenue
Port Everglades, FL 33316 1,487,500(2) 36.9%
Carl Herndon, Jr.
3391 S.W. 14th Avenue
Port Everglades, FL 33316 172,500 (3) 4.2%
Triton Holding International Corp.
700 S. Federal Highway, Suite 200
Boca Raton, FL 33433 500,000 (4) 12.3%
Donald B. Gasgarth
714 S.E. 8th Court
Delray Beach, FL 33483 666,000 (5) 16.5%
Jeffrey K. Zwitter
6680 Serena Lane
Boca Raton, FL 33432 216,000 (6) 5.3%
Four M International, Inc.
1980 Poison Oak, # 1850
Houston, TX 77004 300,000 (7) 7.4 %
Alan Lyons
2521 Vestal Parkway East
Vestal, NY 13850 300,000 (7) 7.4%
Richard Friedman
49 Front Royal Isle
Fort Lauderdale, FL 33308 150,000 (8) 3.7%
Richard Aulicino
1172 Hillsboro Mile, #3
Hillsboro, FL 33052 188,000 4.6%
Lawrence Tierney (9)
3391 S.W. 14th Avenue
Port Everglades, FL 33316 0 0.0%
Officers and Directors as a Group 1,660,000 41.2%
(3 persons)
</TABLE>
12
<PAGE>
(1) As of October 1, 1999, there were approximately 4,033,500 shares of
Common Stock outstanding not including: (i) an aggregate of 600,000
shares of Common Stock issuable upon the exercise of options; (ii)
984,000 shares of Common Stock issuable upon the conversion of 328,000
shares of the Company's Series A Preferred Stock; (iii) 615,000 shares
of the Company's Common Stock issuable upon the exercise of 205,000
shares of the Company's Series B Preferred Stock; and (iv) 885,000
shares of the Company's Common Stock issuable upon the conversion of
245,000 shares of the Company's Series B Preferred Stock issuable upon
the exercise of warrants exercisable at $1.00.
(2) Mr. Herndon is a Director, President and Chief Executive Officer of
both JMI and the Company. Includes (i) 37,500 shares of Common Stock
issuable upon the conversion of 12,500 shares of Series A Convertible
Preferred Stock; and (ii) up to 600,000 shares of Common Stock issuable
upon the exercise of options at exercise prices between $.50 and $1.00
per share over a five year period beginning November 10, 1998.
(3) Carl Herndon, Jr. is Mr. Herndon's son and is JMI's Vice President of
Sales and Marketing. Includes 22,500 shares of Common Stock issuable
upon the conversion of 7,500 shares of Series A Convertible Preferred
Stock.
(4) Mr. Gasgarth and Mr. Zwitter, principal shareholders of JMIH, are also
principal shareholders and Directors of Triton International Holding
Corp. ("Triton"). Does not include (i) up to 1,400,000 shares of Common
Stock that may be issued upon conversion of the Triton Note; (ii)
66,000 shares of Common Stock owned by Mr. Gasgarth; and (iii) 66,000
shares owned by Mr. Zwitter. Includes 50,000 shares of Common Stock
subject to an option granted to Mr. Tierney.
(5) Includes 300,000 shares of Common Stock issuable upon the conversion of
100,000 shares of Series A Convertible Preferred Stock of the Company,
and (ii) 300,000 shares of Common Stock issuable upon the exercise of
warrants to purchase 100,000 Series B Convertible Preferred Stock at
$1.00 until November, 2004, subsequently convertible into Common Stock
at a 3:1 ratio. Does not include 500,000 shares of Common Stock owned
by Triton Holding International Corp. in which Mr. Gasgarth is a
principal shareholder, and Director.
(6) Includes 75,000 shares of Common Stock issuable upon the conversion of
25,000 shares of Series A Preferred Stock of the Company, and (ii)
75,000 shares of Common Stock issuable upon the exercise 25,000
warrants to purchase Series B Convertible Preferred Stock at $1.00
until November, 2004, subsequently convertible into Common Stock at a
3:1 ratio. Does not include 500,000 shares of Common Stock owned by
Triton Holding International Corp., in which Mr. Zwitter is a principal
shareholder and Director.
(7) Includes 150,000 shares of Common Stock of the Company issuable upon
the conversion of 50,000 shares of Series A Preferred Stock and (ii)
150,000 shares of Common Stock issuable upon the exercise of 50,000
warrants to purchase Series B Convertible Preferred Stock at $1.00
until November, 2004, subsequently convertible into Common Stock at a
3:1 ratio.
(8) Includes 150,000 shares of common stock of the Company issuable upon
the conversion of 50,000 shares of Series B Convertible Preferred
Stock.
(9) Mr. Tierney is a Director of JMIH. Mr. Tierney is also employed by
Triton Holding International Corp. Does not include options to purchase
50,000 shares of Common Stock of JMIH at $.40 per share from Triton
Holding International Corp.
13
<PAGE>
ITEM 12. INTEREST OF MANAGEMENT AND OTHER CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
Mr. Herndon personally owns the Company's manufacturing facility in
Port Everglades, Florida (the "Manufacturing Facility"). On May 20, 1998, the
Company entered into a lease agreement (the "Lease Agreement") with Mr. Herndon
in which the Company leases the Manufacturing Facility for a period of five
years at $4.00 per square foot or $10,714 per month (the "Lease Amount"). The
Company believes that since the Lease Amount is at fair market value, the Lease
Agreement between the Company and Mr. Herndon was consummated on terms no less
favorable than with an unrelated party. On November 1, 1998 the Company
negotiated a three-year option with Mr. Herndon to purchase the property. During
year one, the price is $900,000, year two $950,000 and year three $1,000,000.
LOANS FROM TRITON HOLDINGS INTERNATIONAL CORP.
In November 1998, the Company initiated a loan for $350,000 from Triton
Holdings International Corp. ("Triton"). Two principal shareholders and
Directors of Triton are principal shareholders of the Company. The promissory
note ("the Note") issued to Triton by the Company evidencing the loan accrues
interest at 10% per annum. The note is convertible into shares of Common Stock
of the Company, at the option of Triton at $.50 per share before January 14,
2000, at $.375 per share between January 14, 2001 and January 14, 2002, and at
$.25 after January 14, 2003. The note matures on January 14, 2003; Triton also
received 500,000 shares of Common stock as additional incentive for making the
loan.
The Company also entered into a 5 year management agreement with Triton
under which Triton is to perform general business consulting services in
connection with the Company's conducting of its business, including, but not
limited to, development and maintenance of internal bookkeeping functions,
business planning, consulting and advice with respect to structure and expansion
of the Company. Don Gasgarth and Jeff Zwitter are directors and principle
shareholders of Triton. Messrs. Gasgarth and Zwitter are also principle
shareholders of the Company. Larry Tierney, a director of the Company, is an
employee of Triton. In consideration for its services, the Company will pay
Triton a monthly fee of $5,000. The Company and Triton arrived at this fee by
estimating Triton's service hours to the Company at 100 hours per month and
valuing their services at $50.00 per hour. The Company believes this fee is
competitive with consulting arrangements in the marine industry. To date, Triton
has provided services to the Company in excess of 100 hours per month.
Between February 1999 and March 1999, Premier Global, Inc., a company
controlled by Messrs. Zwitter and Gasgarth loaned the Company $59,000 pursuant
to the terms of a promissory note. The note accrued interest at 12% per annum.
On April 8, 1999, the Company paid $60,000 satisfying in full its obligation.
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description of Document
3.1 Articles of Incorporation of Jupiter Marine International
Holdings, Inc. (1)
3.2 Articles of Amendment to the Articles of Incorporation of
Jupiter Marine International Holdings, Inc. (1)
14
<PAGE>
3.3 Bylaws of Jupiter Marine International Holdings, Inc. (1)
10.1 Employment Agreement between Jupiter Marine International
Holdings, Inc. and Carl Herndon, Sr. dated November 10, 1998.
(1)
10.2 Employment Agreement between Jupiter Marine International
Holdings, Inc. and Carl Herndon, Jr. dated May 28, 1999. (1)
10.3 Management Agreement between Jupiter Marine International
Holdings, Inc. and Triton Holdings International Corp. dated
January 14, 1999. (1)
10.4 Secured Promissory Note issued by Jupiter Marine International
Holdings, Inc. and Triton Holdings International Corp. dated
January 14, 1998. (1)
10.5 Lease Agreement between Jupiter Marine International Holdings,
Inc. and Carl Herndon, Sr. dated May 19, 1998. (1)
21 Subsidiaries of Jupiter Marine International Holdings, Inc.
(1)
27 Financial Data Schedule.
(1) Filed previously in the Company's Registration Statement,
Registration No. ____under the same exhibit number.
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 of the Exchange Act of 1934, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JUPITER MARINE INTERNATIONAL
HOLDINGS, INC.
Date:______________, 1999 By:______________________________________
Carl Herndon, Director, CEO and President
Date:______________, 1999 By: ______________________________________
Lawrence Tierney, Director
Date:______________, 1999 By: ______________________________________
Carl Herndon, Jr., Vice President of Sales
and Marketing
15
<PAGE>
JUPITER MARINE
INTERNATIONAL HOLDINGS,
INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL
STATEMENTS
February 28, 1999
TABLE OF CONTENTS
PAGES
-----
Independent Auditor's Report F-1
Consolidated Balance Sheet F-2-3
Consolidated Statement of Loss F-4
Consolidated Statement of Changes in Stockholders' Deficiency F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Jupiter Marine International Holdings, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of Jupiter
Marine International Holdings, Inc. and subsidiary as of February 28, 1999, and
the related consolidated statements of loss, changes in stockholders' deficiency
and cash flows for the seven months then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jupiter
Marine International Holdings, Inc. and subsidiary as of February 28, 1999, and
the results of their operations and their cash flows for the seven months then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
12 to the consolidated financial statements, the Company has sustained net
operating losses, has deficit cash flows from operations, and working capital
and stockholders' deficiencies at February 28, 1999, all of which raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding these matters are described in Note 12. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
KEEFE, McCULLOUGH & CO., LLP
Fort Lauderdale, Florida
April 5, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
February 28, 1999
A S S E T S
<S> <C>
CURRENT ASSETS:
Cash $ 7,608
Inventories 244,600
Prepaid expenses 8,272
--------------
Total current assets 260,480
PROPERTY AND EQUIPMENT, at cost or allocated cost:
Boat molds $ 910,096
Leasehold improvements 93,837
Machinery and equipment 31,200
Office equipment 7,000
--------------
1,042,133
Less accumulated depreciation 211,795 830,338
-------------- --------------
Total assets $ 1,090,818
==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
February 28, 1999
L I A B I L I T I E S A N D S T O C K H O L D E R S ' D E F I C I E N C Y
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 53,583
Payroll taxes payable 95,104
Accrued expenses 89,760
Other current liabilities 163,001
Customer deposits 270,687
Current portion of debt 50,000
Warranty reserve 49,084
--------------
Total current liabilities 771,219
LONG-TERM DEBT, less current portion 350,000
--------------
Total liabilities 1,121,219
COMMITMENTS (Note 7) --
STOCKHOLDERS' DEFICIENCY:
Capital stock, 5,000,000 shares of $ .001
par value preferred stock authorized,
500,000 shares designated as 10% cumulative Series A preferred stock, $ .001
par value ($ 328,000 aggregate liquidation preference),
328,000 shares issued and outstanding $ 328
205,000 shares designated as 10% cumulative Series B preferred stock, $ .001
par value ($ 205,000 aggregate liquidation preference),
205,000 shares issued and outstanding 205
Capital stock, 50,000,000 shares of $ .001
par value common stock authorized,
2,085,000 shares issued and outstanding 2,085
Additional paid in capital 620,382
Accumulated deficit (653,401) (30,401)
-------------- --------------
Total liabilities and stockholders' deficiency $ 1,090,818
==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF LOSS
For the Seven Months Ended February 28, 1999
<S> <C>
SALES $ 96,651
COST OF SALES 158,611
--------------
Gross loss (61,960)
GENERAL AND ADMINISTRATIVE EXPENSES, including
interest expense of $ 12,570 and provision for depreciation
of $ 117,461 329,503
--------------
Loss from operations (391,463)
OTHER EXPENSE:
Loss on disposition of property and equipment (1,554)
--------------
Loss before provision (credit) for income taxes (393,017)
PROVISION (CREDIT) FOR INCOME TAXES --
--------------
Net loss $ (393,017)
==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
For the Seven Months Ended February 28, 1999
<TABLE>
<CAPTION>
Preferred Preferred Additional
Stock Stock Common Paid-In Accumulated
Series A Series B Stock Capital Deficit
-------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCES,
August 1, 1998 $ -- $ -- $ 2,130 $ 265,120 $ (260,384)
Cancellation of shares
issued to Atlantis
Capital Partners, Inc. -- -- (490) -- --
Issuance of 150,000
shares of common stock
to Carl Herdon, Jr. -- -- 150 -- --
Issuance of 295,000
shares of Series A
preferred stock in
exchange for canceling
$ 295,000 in promissory
notes 295 -- -- 294,705 --
Issuance of 33,000 shares
of Series A preferred
stock for services
rendered to the Company 33 -- -- 60,557 --
Issuance of 500,000
shares of common stock
to Triton Holdings
International Corp. in
connection with a loan
to the Company -- -- 500 -- --
Issuance of 205,000 shares
of Series B preferred
stock in exchange for
205,000 shares of common
stock -- 205 (205) -- --
Net loss for the period
ended February 28, 1999 -- -- -- -- (393,017)
------------- ------------- ------------- ------------- -------------
BALANCES,
February 28, 1999 $ 328 $ 205 $ 2,085 $ 620,382 $ (653,401)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Seven Months Ended February 28, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (393,017)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for depreciation 117,461
Loss on disposition of property and equipment 1,554
Changes in assets and liabilities:
Decrease in inventories 86,210
Decrease in prepaid expenses 7,113
Decrease in accounts receivable 411
Increase in accounts payable 34,013
Increase in payroll taxes payable 48,005
Increase in accrued expenses 51,295
Decrease in other current liabilities (385,988)
Increase in customer deposits 114,498
--------------
Net cash used in operating activities (318,445)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposition of property and equipment $ 5,600
Payments for purchase of property and equipment (93,836)
--------------
Net cash used in investing activities (88,236)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 400,000
Proceeds from issuance of common stock 61,750
Principal payments on debt (50,000)
--------------
Net cash provided by financing activities 411,750
--------------
Net increase in cash 5,069
CASH, August 1, 1998 2,539
--------------
CASH, February 28, 1999 $ 7,608
==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 1 - ORGANIZATION AND OPERATIONS
Jupiter Marine International Holdings, Inc. (the Company) is
located in Fort Lauderdale, Florida and is engaged in the manufacture and
sale of offshore fishing and pleasure boats.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Jupiter Marine International, Inc.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Provision for depreciation:
---------------------------
The Company provides for depreciation of its property and
equipment using the straight-line method over estimated useful lives of 5
and 7 years.
Additions and major renewals to property and equipment are
capitalized. Maintenance and repairs are charged to expense when incurred.
The cost and accumulated depreciation of assets sold or retired are removed
from the respective accounts and any gain or loss is reflected in income.
Revenue recognition:
--------------------
Revenue from the sale of boats is recognized when delivered.
Use of estimates:
-----------------
The presentation of a financial statement in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statement and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from
those estimates.
Inventories:
------------
<TABLE>
<CAPTION>
At February 28, 1999, inventories consisted of the following:
<S> <C>
Finished boats $ 99,646
Boats in process, including
overhead applied 136,026
Materials and parts 8,928
-----------
$ 244,600
===========
</TABLE>
Inventories are stated at the lower of cost or market. The cost of
boats in process and finished boats includes labor, materials and allocated
production overhead. The first-in, first-out method is used to cost parts
and supplies for production. Boats in process and finished boats are valued
using the average cost method.
Warranty reserves:
------------------
The Company furnishes limited warranties on its manufactured boats
and has accrued a reserve for anticipated future warranty costs.
F-7
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising costs:
------------------
The Company expenses advertising costs as they are incurred. For
the period ended February 28, 1999, advertising costs were approximately $
59,369.
Cash equivalents:
-----------------
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
NOTE 3 - LEASE COMMITMENTS
The Company leases office and manufacturing space from its
principle stockholder. The lease provides for monthly payments adjusted
annually for cost of living adjustments and space utilized until it expires
in May, 2002. The monthly rental was $ 13,184 at February 28, 1999,
including sales and real estate taxes.
The Company previously received four months rental in
consideration for making various leasehold improvements and modifications.
Rental expense for the period ended February 28, 1999 totaled approximately
$ 64,600.
The following is a schedule of approximate future lease payments
required:
Year ending
February 28
-----------
2000 $ 133,400
2001 $ 140,100
2002 $ 147,100
2003 $ 37,200
2004 $ NONE
In connection with the lease above, the Company has been granted
an option to purchase the building as discussed in Note 6.
NOTE 4 - DEBT
<TABLE>
<CAPTION>
At February 28, 1999, debt consisted of the following:
<S> <C>
Note payable to Triton Holdings International Corp., a
stockholder and related party, interest only at 10% through
January, 2003, at which time the principal balance is due.
The note is collateralized by substantially all of the assets
of the Company. The note is convertible into shares of common
stock of the Company, at the option of Triton at $ .50 per
share before January 14, 2000, at $ .375 per share from
January 14, 2000 to January 14, 2002, and at $ .25 thereafter
until January 14, 2003. $ 350,000
F-8
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 4 - DEBT (continued)
Note payable to Premier Global, Inc., a related party,
interest only at 12% through April, 1999, at which time the
principal balance is due, collateralized by certain assets of
the Company.
Less current portion
50,000
-------------
400,000
50,000
-------------
$ 350,000
=============
</TABLE>
Future debt principal payments in the aggregate under arrangements
existing at February 28, 1999, are as follows:
Year ending
February 28
-----------
2000 $ 50,000
2001 $ NONE
2002 $ NONE
2003 $ 350,000
Thereafter $ NONE
NOTE 5 - PROVISION (CREDIT) FOR INCOME TAXES
Deferred taxes, if applicable, are provided at the combined
effective Federal and state statutory rates on timing differences which
occur when certain income and expense items are recognized at different
times for financial reporting and tax purposes.
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and
assets at currently enacted tax rates for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. A valuation allowance is recognized to reduce the net
deferred tax asset to an amount that is more likely than not to be
realized. The tax provision (credit) shown on the accompanying statement of
loss is zero, because the deferred tax asset that is generated from net
operating losses through February 28, 1999 is offset in its entirety by a
valuation allowance. Net operating loss carryforwards for financial
reporting purposes through February 28, 1999 total approximately $ 653,000.
For tax purposes, these carryforwards expire in 2018 and 2019.
NOTE 6 - RELATED PARTY TRANSACTIONS
In connection with the lease agreement with its principle
stockholder (Note 3), the Company has been granted a purchase option on the
leased property for a three year period ending November 1, 2001. The option
price is as follows:
a. If option is exercised prior to November 1, 1999; purchase
price is $ 900,000
b. If option is exercised after November 1, 1999 but prior to
November 1, 2000; purchase price is $ 950,000
c. If option is exercised after November 1, 2000 but prior to
November 1, 2001; purchase price is $ 1,000,000
F-9
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
As more fully discussed in Note 4, the Company is obligated on
notes payable in the amounts of $ 350,000 and $ 50,000 to related parties.
Triton Holdings International Corp. is a stockholder of the Company and
several of its directors are also stockholders of the Company. In addition,
officers of Premier Global, Inc. are also stockholders of the Company.
In addition, the Company has entered into a management agreement
with Triton Holdings International Corp. which is more fully discussed in
Note 7.
NOTE 7 - COMMITMENTS
The Company entered into an employment agreement with its
President for his services until October, 2003 for $ 72,000 per year. The
agreement provides for an additional $ 2,500 per month when the Company has
a positive cash flow from operations for three consecutive months and $
2,000 per month when the Company has a net profit from operations for three
consecutive months. The agreement may be automatically renewed for up to
two successive one year periods by mutual agreement between the parties.
In addition, the employment agreement provides for the President
to receive options to purchase 150,000 shares of common stock at $ .50 per
share, 150,000 shares of common stock at $ .625 per share, 150,000 shares
of common stock at $ .75 per share and 150,000 shares of common stock at $
1.00 per share. The options vest equally and may be exercised over a period
of five years. The employment agreement includes non-compete and
confidentiality provisions.
Further, the Company also entered into a five year management
agreement with Triton Holdings International Corp., a stockholder and
related party, Notes 4 and 6, until December, 2003. The agreement calls for
a payment of $ 5,000 per month for general business consulting services
during the term of the agreement.
The Company has made commitments to sell boats at cost or at a
dealer discount to certain stockholders and other related parties.
NOTE 8 -LITIGATION
From time to time the Company is subject to legal proceedings and
claims in the ordinary course of business. Included in accrued expenses on
the balance sheet at February 28, 1999, is $ 28,160 in settlement fees for
various legal claims. The Company is not currently aware of any additional
legal proceedings or claims that the Company believes will have,
individually or in the aggregate, a material adverse effect on the Company.
NOTE 9 - CAPITAL STOCK
The capital stock structure of the Company is as follows:
Preferred stock, voting:
Series A, $ .001 par value, 10% cumulative, callable at $ 1.20 per
share, convertible into three shares of common stock until the
fifth anniversary of the date of issue at which time automatic
conversion will occur, 500,000 shares authorized and 328,000
shares issued.
F-10
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 9 - CAPITAL STOCK (continued)
Preferred stock, nonvoting:
Series B, $ .001 par value, 10% cumulative, callable at $ 1.20 per
share, convertible into three shares of common stock until the
fifth anniversary of the date of issue at which time automatic
conversion will occur, 205,000 shares authorized and issued.
Common stock, voting, $ .001 par value, 50,000,000 shares
authorized and 2,085,000 shares issued.
NOTE 10 - EQUITY TRANSACTIONS
In December, 1998, the Company issued 295,000 shares of the Series
A Preferred Stock along with warrants to purchase 295,000 shares of the
Series B Preferred Stock at $ 1.00 per share, exercisable for a period of
five years from the date of issuance. The stock was issued in consideration
for the cancellation of $ 295,000 in promissory notes. As of February 28,
1999, all of the warrants were still outstanding.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for -
Interest $ 31,584
Other Noncash Financing Activities:
Issuance of stock $ 356,750
Debt reduction in connection
with issuance of Series A
preferred stock (295,000)
-------------
Proceeds from issuance of stock $ 61,750
=============
</TABLE>
NOTE 12 - SUBSEQUENT EVENT
Subsequent to February 28, 1999, the Company finalized a second
private placement of its common stock issuing 1,948,500 shares at a
purchase price of $ .40 per share. The Company raised approximately $
600,000 net of offering expenses.
NOTE 13 - GOING CONCERN MATTERS
As shown in the accompanying financial statements, the Company
sustained net operating losses totalling $ 653,401 through February 28,
1999, and as of that date, had current liabilities exceeding current assets
by $ 510,739 and total liabilities exceeding total assets by $ 30,401.
These deficiencies, as well as deficit cash flows from operations, create
an uncertainty about the Company's ability to continue as a going concern.
F-11
<PAGE>
JUPITER MARINE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1999
NOTE 13 - GOING CONCERN MATTERS (continued)
The management and principal stockholders are committed to
subsidizing the operations of the Company until future profitable
operations can be achieved. In addition, the following actions have been
taken:
(1) The Company has obtained six new dealers with a total of
ten sales locations. Previously, the Company sold out of
its manufacturing facility without dealer participation.
The Company's effort in establishing a sound dealer base,
which is the customary selling method in the industry,
should have a positive effect on sales.
(2) During April, 1999, the Company completed a stock offering
which raised approximately $ 600,000 for working capital
purposes.
(3) The Company has completed improvements to its facility and
modifications to its production methods which should
improve efficiency and favorably impact future operations.
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 59,351
<SECURITIES> 0
<RECEIVABLES> 1,736
<ALLOWANCES> 0
<INVENTORY> 421,191
<CURRENT-ASSETS> 494,027
<PP&E> 1,130,965
<DEPRECIATION> 299,196
<TOTAL-ASSETS> 1,349,796
<CURRENT-LIABILITIES> 611,422
<BONDS> 350,000
533
0
<COMMON> 4,034
<OTHER-SE> 383,807
<TOTAL-LIABILITY-AND-EQUITY> 1,349,796
<SALES> 1,201,375
<TOTAL-REVENUES> 1,201,375
<CGS> 850,494
<TOTAL-COSTS> 850,494
<OTHER-EXPENSES> 993,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,563
<INCOME-PRETAX> (671,440)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.06)
</TABLE>
