U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d)
of the securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
HAWK MARINE POWER, INC.
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(Name of Small Business Issuer in its charter)
FLORIDA 59-1886450
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3025 N.E. 188TH STREET, AVENTURA, FLORIDA 33180
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (305) 932-9230
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: NONE
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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB (X).
State issuer's revenues for its most recent fiscal year: $1,003,446
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked process of such stock, as of a specified date within the past 60
days. The aggregate market value of the voting stock held by non-affiliates of
the registrant is approximately $16,237 as of April 15, 1997.
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State the number of shares outstanding of each of the registrant's classes of
common equity as of the latest practicable date 2,990,198 shares of the
registrant's common stock are issued and outstanding as of April 15, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424 (b) or
(c ) of the Securities Act of 1993 (the "Act"). None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS
Hawk Marine Power, Inc. (the "Company") is engaged in the design, production and
sale of high performance marine engines for installation in high speed
recreational powerboats and offshore racing boats. The Company manufactures its
own line of five high output, all gasoline V-8 engines for high speed
recreational powerboats and racing, as well as customized engines which are
produced solely for racing boats. The Company's engines are hand built from
component parts and are sold primarily to premium boat manufacturers. The Hawk
Marine high performance engine has established a distinctive reputation among
powerboat enthusiasts for performance, speed and endurance. The Hawk engine has
received critical acclaim in boating and other publications. The Company
regularly exhibits the Hawk engine at various international boat shows held
annually in Miami and Fort Lauderdale.
The Company was incorporated as Swift Development, Inc. under the laws of the
State of Utah on October 25, 1983, at which time it sold an aggregate of 750,000
shares of common stock to three individuals for total consideration of $15,000.
In March 1984, the Company consummated an initial offering of shares of common
stock which resulted in the sale of 752,850 shares of common stock from which
the Company received net proceeds of approximately $65,000. In August 1984, the
Company's original shareholders contributed an aggregate of 280,112 shares of
common stock of the Company.
On August 6, 1987, the Company acquired all of the outstanding common stock of
Hawk Marine Power, Inc. (a Florida corporation). In connection with the
acquisition, the Company changed its name from Swift Development, Inc. to Hawk
Marine Power, Inc. The Company was merged into its wholly owned subsidiary, Hawk
Marine Power, Inc. effective September 30, 1990. The effect of the transaction
was to reincorporate the Company in the state of Florida.
On December 11, 1989 and January 17, 1990, the Company completed the public
offering of an aggregate of 197,940 Units of its securities consisting of
593,820 shares of common stock and 197,940 warrants. The Company received net
proceeds of approximately $969,500 from the public offering.
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PRODUCTS
The Company designs, manufactures and sells high output gasoline V-8 engines and
also performs custom work on engines produced by other manufacturers. The Hawk
engine was initially produced in 1979 for use in the offshore speedboat racing
circuit which was attaining initial popularity. It was produced to accommodate
participants in the offshore racing circuit who required a high performance
engine. In 1981, Hawk powered speedboats attained international prominence by
winning the U.S. Championship and the World Championship of speed boat racing in
conjunction with Cigarette Racing Team.
The success of the Hawk engine in international competition generated more
widespread interest among speedboat as well as other racing enthusiasts. Despite
its reputation, the Company has never been able to attain consistent profitable
operations or capitalize on a commercial basis from critical recognition
received by Hawk engines. The Company intends to continue to focus its
operations to serve the upper segment of the powerboat market.
Following is a more detailed description of the Hawk engines offered by the
Company directly and through its authorized dealer network:
HAWK 525: An 8-cylinder, four-stroke, 496 cubic inch engine which produces
approximately 525 horsepower and is liquid-cooled.
HAWK 750: A 9-cylinder, four-stroke, 588 cubic inch engine which produces
approximately 750 horsepower and is liquid-cooled.
HAWK 800: An 8-cylinder, four-stroke, 589 cubic inch engine which produces
approximately 800 horsepower and is liquid-cooled.
HAWK 900: An 8-cylinder, supercharged four-stroke, 572 cubic inch engine which
produces approximately 900 horsepower and is liquid-cooled.
HAWK 1000: An 8-cylinder, four-stroke, 698 cubic inch engine which produces
approximately 1000 horsepower and is liquid-cooled.
The Hawk engines described above may be used for recreational or offshore racing
boats, although the Company manufactures custom engines utilized solely for
racing. Hawk engines, which usually sell in sets of two or three, range in price
from $23,000 to $69,000 per engine.
The Hawk engine to management's best knowledge, has been produced for the
longest continuous period of any high performance marine engine. Apart from
success in various offshore racing events, Hawk engines have received critical
recognition in various boating publications including BOATING MAGAZINE, MOTOR
BOATING AND SAILING and POWERBOAT MAGAZINE, as well as in various consumer
publications not specifically published for the benefit of speedboat
enthusiasts.
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MANUFACTURING OPERATIONS
Hawk engines are manufactured at the Company's production facility in Aventura,
Florida. The engines are hand built from component parts and in certain
instances, are custom designed for individual customers. The Company believes
the recognition for its high performance engines is attributable to the
accumulated experience, knowledge and know-how related to the innovation,
design, balancing, assembly and testing of the engine.
The manufacture of the Hawk engine consists of three stages: (i.) hand tooling
and modification of component parts; (ii.) assembly of the engine; and (iii.)
testing of the engine. The Company orders most of the components used in the
Hawk engine directly from manufacturers, distributors and specialty automobile
parts suppliers. With the exception of General Motors, which manufactures the
engine blocks used in most Hawk engines, the Company does not regard any single
supplier as essential to its operations. Most of the components the Company
utilizes are available from multiple sources at competitive prices.
Following assembly of the Hawk engine, a rigorous tuning and testing program is
utilized. The testing is performed both manually and through use of advanced
computer technology. At the present time, the normal production period and the
manufacture of the Hawk engine is from five to ten working days. The Company has
present production capacity of approximately sixteen (16) engines per month. The
Company believes its extensive know-how and experience at all stages of
production has enabled it to establish a position of leadership.
The Company warrants its engines for up to one year against defects in materials
and workmanship, and to date has not experienced more than a limited number of
warranty claims.
At September 30, 1996, the Company accrued approximately $10,000 for anticipated
future warranty cost. See "Item 3, Legal Proceedings".
MARKETING AND SALES
The Company concentrates its sales of Hawk engines in the high performance
recreational speedboat and racing market. Management believes the
high-performance segment of the market represents no more than 5% of the entire
recreational market, of which the Company is one of the largest and best know
manufacturers. The Company sells Hawk engines directly to premium boat
manufacturers including Cigarette Racing Team, Apache Performance Boats, Pantera
U.S.A., and Jaguar Marine.
For the years ended September 30, 1996 and 1995, sales of Hawk engines to
Cigarette amounted to approximately 24% and 33% of total sales. Craig Barrie,
the Company's Chairman of the Board, President, and a principal shareholder, is
the President of Cigarette.
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The Company regularly exhibits Hawk engines at various international boat shows
held annually in Miami and Fort Lauderdale. The Company receives extensive
publicity in editorial articles appearing in various boating publications as
well as consumer and upscale lifestyle magazines.
PATENTS AND TRADEMARKS
Patents are generally not significant to the powerboat industry, and it is
unlikely the Company would be able to obtain any patents with respect to the
Hawk engine or elements of its assembly. While the Company believes that the
sense of know-how and knowledge regarding the assembly of the Hawk engines
represents a trade secret, it is not placing primary reliance on any particular
proprietary protection as a means of preserving its competitive position.
Trademarks carry greater importance because there is a relatively high brand
recognition for high quality products.
GOVERNMENT REGULATION AND PRODUCTION LIABILITY
Certain materials used in engine manufacturing that are toxic, flammable,
corrosive or reactive are classified by both federal and state governments as
"hazardous materials". Control of these substances is regulated by the
Environmental Protection Agency, and state and local pollution control agencies,
which may require reports and undertake inspections of facilities to monitor
compliance. In addition, under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, any generator of hazardous waste
sent to a hazardous waste disposal site is potentially responsible for the
clean-up, remediation and response costs required for such site in the event the
site is not properly closed by the owner or operator, irrespective of the amount
of hazardous waste which the generator sent to the site. The Company has sent
hazardous waste including cleaning solvents and waste oil to sites through
specialized environmental concerns which are responsible for removal and
selection of sites for hazardous wastes. The Company's cost of compliance with
environmental regulations, including, but not limited to costs associated with
hazardous waste disposal sites, has not been and is not expected to be material
in relation to its overall operations.
While management of the Company believes that the Hawk engine is safe in normal
operation, any motorized product can give rise to product liability claims. The
Company maintains product liability insurance in the amount of $500,000. The
Company has never been the subject of any claim or lawsuit regarding product
liability of associated with the Hawk engines, although there can be no
assurance that product liability claims associated with injury to property or
persons directly or indirectly attributable to the Hawk engine may not be
asserted at a future date.
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EMPLOYEES
In addition to its two executive officers, the Company employs a total of six
people, of whom one is in administration and five are production. All of the
Company's employees are non-union, and the Company believes its relationship
with employees is excellent. The south Florida area has a large pool of skilled
mechanics, and the Company believes it will be able to hire additional skilled
employees, although no assurances can be given in this regard.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's manufacturing facilities together with associated office space in
Aventura, Florida, aggregate approximately 8,000 square feet, all of which are
leased by the Company. The Company has been leasing its facilities on a month to
month basis since May 1, 1992 when the previous lease expired. The Company
decided not to execute a long-term commitment at its current location while
searching for alternative locations. The monthly payment is $11,000 which
includes rent, utilities and maintenance.
ITEM 3. LEGAL PROCEEDINGS
In January 1992, the Company was named as a defendant in a lawsuit by certain
note holders of the company who had participated in the Company's private
financing undertaken in September 1988. In Petrocelli Electric Company, Inc., et
al v. Hawk Marine Power, Inc. (Case No. 92-00240), a suit filed in the 11th
Judicial Circuit for Dade County, Florida, the plaintiff's requested repayment
of such promissory notes together with interest and attorneys' fees.
On April 16, 1992, the Company entered into settlement agreements with the
plaintiff's along with substantially all of the other note holders pursuant to
which each of the participants who accepted the terms of the settlement
agreement would receive a cash payment equal to 86% of their entire investment.
Pending consummation of such settlement, further pleadings in such lawsuit have
been held in abeyance.
The payment would represent full satisfaction of amounts payable under their
notes. In consideration for repayment of the notes, those participants accepting
the terms of the settlement agreement agreed to assign their shares of common
stock received pursuant to the private placement to Mr. Craig Barrie. An amount
equal to 68% of the original investment was paid at the time each settlement
agreement was executed. The remaining 18% was due August 15, 1992.
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Due to insufficient cash flow, the Company was unable to make the August 15
installment pursuant to the settlement dated April 16, 1992. On October 8, 1992,
the Company made a partial payment of $9,026 to the plaintiff's leaving a
balance of $58,673 pursuant to the settlement, which is technically in default.
The note holders retain a security interest in various collateral of the Company
until the amounts due under the promissory notes and settlement agreements are
paid. The Company made a payment of $5,000 toward the settlement in September,
1994 and is continuing negotiations with the note holders. See Item 6,
Management's discussion and Analysis of Financial condition or Plan of operation
and Item 12, Certain Relationships and Related Transactions.
The Company, subsequent to year end, has reached an agreement with said note
holders for retirement of such promissory notes for the sum of $50,000.
Consummation of the debt retirement is expected to take place in the Company's
third fiscal quarter of 1997 through the arrangement of interim financing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock, $.001 par value, is traded on a limited basis in the
over-the-counter market, "pink sheets". The following table sets forth the high
and low bid quotations for the Common Stock during the periods indicated. These
quotations reflect market prices between dealers, do not include retail
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions. There can be no assurances that any future sales of Common Stock
of the Company can be made at or near the quotations reported.
HIGH BID LOW BID
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December 1994 $ .0312 .0312
March 1995 .0312 .0312
June 1995 .0312 .0312
September 1995 .0312 .0312
December 1995 .0312 .0312
March 1996 .0312 .0312
June 1996 .0312 .0312
September 1996 .0312 .0312
On April 15, 1997, the high bid price for the Common Stock was $.01.
As of April 15, 1997, the approximate number of record holders of the Company's
Common Stock was 204. However, by virtue of the number of shares held in street
name, there may be more beneficial owners of the Company's stock.
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The Company has never paid cash dividends on its Common Stock. The Company
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. Future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULT OF OPERATIONS
For the year ended September 30, 1996, the Company reported a net loss of
$252,041. This compared to net loss of $8,820 for the 1995 fiscal year.
The increase in loss from operations resulted primarily from decreased sales and
higher overhead and administrative costs. Sales of $1,003,446 during the current
fiscal year decreased by $802,274 or 44.4% from $1,805,720 for the prior year.
Gross profit for 1996 was $157,488 or 16% compared to $294,763 or 16% in 1995.
The gross margin remained constant during the current and past fiscal years.
Selling, general and administrative expenses for 1996 were $409,707, an increase
of $105,609 or 35% from $304,098 in 1995. Selling, general and administrative
expenses represented 41% of sales in 1996 and 17% in 1995. The increase in
expenses from the prior year was primarily due to the write off of bad debts.
Interest expense decreased 86% to $87 during the 1996 fiscal year from $644 in
1995. The change resulted from reduced engine financing costs.
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Interest income decreased 78% to $265 from $1,159 in 1995. The change in
interest income resulted from lower interest rates and the use of cash on hand
for working capital during the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash on hand in the amount of $85,737 at September 30, 1996
compared to $89,013 at September 30, 1995. At September 30, 1996 there was
working capital of $11,605 compared to working capital of $256,419 at September
30, 1995. The working capital decrease was related principally to the decrease
in accounts receivable and inventory.
The Company does not anticipate any significant capital expenditures during the
1997 fiscal year. However, the Company was obligated to retire at November 1,
1991, $405,000 principal amount of its 11% secured promissory notes issued to a
group of private investors in October 1988. On April 16, 1992, the Company
agreed to enter into settlement agreements with the note holders pursuant to
which the participants who accepted the terms of the settlement agreement would
receive a cash payment equal to 86% of their entire investment. To date, the
holders of 10 units in the private placement (representing $337,500 of notes)
have accepted the Company's settlement offer. In order to finance the settlement
agreement, the Company borrowed $200,000 from three private investors. See Item
12. Certain Relationships and Related Transactions.
The Company made the first payment to the note holders in April 1992. However,
due to insufficient cash flow, the Company was unable to make the August 15
installment pursuant to the settlement agreements. On October 8, 1992, the
Company made a partial payment of $9,026 to certain note holders who had
initiated litigation. In September, 1994, the Company made another partial
payment of $5,000 to the note holders, leaving a balance of $53,673 pursuant to
the settlement. The Company, subsequent to year end, has reached an agreement
with said note holders for retirement of such promissory notes for the sum of
$50,000. Consummation of the debt retirement is expected to take place in the
Company's third fiscal quarter of 1997 through the arrangement of interim
financing.
ITEM 7. FINANCIAL STATEMENTS
Please see the attached consolidated financial statements.
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PART III
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information concerning directors and
executive officers of the Company as of the date hereof. Officers and Directors
are elected on an annual basis.
The present term for each Director will expire at the next annual meeting of
shareholders or at such time as his successor is duly elected. Executive
officers are elected annually and except to the extent governed by employment
contracts, serve at the discretion of the Board of Directors.
NAME POSITIONS(s) AGE
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Craig Barrie Chairman of the Board, President 47
and Chief Executive Officer
Berton Lorow Vice President, Treasurer and 41
Director
CRAIG BARRIE - CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Barrie has been the Company's Chairman of the Board and a Director since
August 1987 and President since November 1990. Mr. Barrie founded Hawk Marine
Power, Inc. (a Florida corporation) in February 1986 and has served as its
Chairman of the Board since that time. Mr. Barrie was elected to the position of
President of Cigarette Racing Team, Inc., Miami, Florida during 1992. From 1985
to 1992, Mr. Barrie was the Director of Sales of Cigarette. Between 1968 and
1985, Mr. Barrie was employed by Faberge, Inc., a manufacturer and distributor
of cosmetics and other beauty products. He served in various executive
capacities, including executive vice president - advertising, and was a member
of the Board of Directors of that company. Mr. Barrie currently races powerboats
for Cigarette which are powered by Hawk engines.
BERTON LOROW - VICE PRESIDENT, TREASURER, DIRECTOR
Mr. Lorow has been employed by the Company or its predecessors since January
1984 in various technical capacities. He has been employed in the marine
industry since 1982, acquiring experience in boat building, rigging and engine
assembly. In may 1989, Mr. Lorow was elected Vice President of the Company, and
in November 1990 was elected a Director of the Company.
Mr. Lorow is a full time employee of the Company. Mr. Barrie devotes
approximately 20 hours a week to the Company's operations. It is not anticipated
any Directors will receive an annual fee or other compensation for their duties.
Directors will be reimbursed for reasonable expenses incurred in connection with
their attendance at meetings.
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ITEM 9. EXECUTIVE COMPENSATION
Total cash compensation paid to all executive officers as a group for services
provided to the Company and its subsidiaries in all capacities during the fiscal
year ended September 30, 1996 aggregated $81,385. Set forth below is a summary
compensation table prepared in accordance with the applicable rules of the
Securities and Exchange Commission.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
NAME AND OTHER RESID. ALL
PRINCIPAL ANNUAL STOCK LTIP OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
- -------- ---- ------ ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Craig Barrie 1996 $ 26,000 None None None None None None
1995 26,000 None None None None None None
1994 26,200 None $ 17,947 None None None None
Berton Lorow 1996 $ 55,385 None None None None None None
1995 58,520 None None None None None None
1994 56,848 None None None None None None
</TABLE>
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COMPENSATION PURSUANT TO PLANS
In addition to the compensation previously described, the Company will create a
bonus pool equal to 15% of the Company's net income before taxes in excess of
$250,000 up to a maximum yearly bonus pool of $300,000. Each of the Company's
executive officers and other key management personnel will be entitled to
participate in the bonus pool. Participating in the bonus pool and the
allocation of amounts thereunder will be determined at the sole discretion of
the Company's Board of Directors. No bonus has been paid or accrued under this
plan to date.
EMPLOYMENT AGREEMENT
The Company entered into an Employment Agreement dated October 1, 1988 with
Craig Barrie. The agreement expired on September 30, 1991, and is automatically
renewable on a year-to-year basis unless written notice of termination is
provided by either party and provides for a minimum annual compensation of
$25,000. Under the terms of the Agreement, Mr. Barrie is obligated to devote at
least 10% of his working time to the affairs of the Company. In addition, the
Agreement provides for Mr. Barrie to receive on a quarterly basis during the
term of his employment incentive compensation equal to 1.5% of the sales price
of each engine sold by the Company as a result of Mr. Barrie's efforts. Mr.
Barrie's employment agreement also presently requires him to reimburse the
Company for all expenses directly incurred by the Company for parts provided to
him in support of his racing activities. However, as provided in such agreement,
in the event the Company decides to sponsor offshore powerboat racing, the
Company will provide parts and related expenses to Mr. Barrie in connection with
such sponsorship.
The employment agreement precludes Mr. Barrie from competing with the Company
for a period of twenty-four (24) months following the termination of his
employment for cause or by reason of his voluntarily leaving the employ of the
Company. Such agreement also requires Mr. Barrie to maintain the confidentiality
of information and proprietary data relating to the Company and its products.
The agreement also provides for certain executive perquisites such as
reimbursement of business expenses, health insurance and related executive
benefits.
INCENTIVE STOCK OPTION PLAN
In August 1988, the Company adopted the 1988 Incentive Stock Option Plan (the
"Plan") under which 100,000 shares of Common Stock (adjusted in part for the
Company's twelve-for-one reverse stock split effective August 25, 1989) have
been reserved for issuance to employees of the Company upon exercises of options
designed as "Incentive Stock Options" within the meaning of Section 422A of the
Internal Revenue Code of 1986. The primary purpose of the plan is to attract and
retain capable executives and employees by offering certain officers and
employees a greater personal interest in the Company's business by encouraging
stock ownership. Unless and until an executive committee of the Company's Board
of Directors is appointed, the Plan will be
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administered by the Company's Board of Directors which will determine, among
other things, the persons to be granted options, the number of shares subject to
each option and option price. The exercise price of any stock option granted
under the Plan to an eligible employee must be equal to the fair market value of
the shares on the date of the grant, and with respect to persons owning more
than 10% of the outstanding Common Stock, the exercise price may not be less
that 110% of the fair market value of the shares underlying such option on the
date of grant. The Board will determine the term of each option and the manner
in which it may be exercised provided that no option may be exercisable more
than ten (10) years after the date of grant except for optionees who own more
than 10% of the Company's Common Stock, in which case the option may not be for
more than five (5) years. Further, a director of the Company will not be
eligible to receive benefits unless such director is an employee of the Company.
From the date of grant until three months prior to the exercise, the optionee
must be an employee of the Company in order to exercises any options. Options
are not transferable except upon the death of the option. The Board of Directors
has the power to impose additional limitations, conditions and restrictions in
connection with the grant of any option. The Company has not awarded any options
to date under the Plan.
STOCK OPTION PLAN
In May 1991, the Company adopted a Stock Option Plan under which options to
purchase 295,000 shares of Common Stock were granted to management and other
employees. The options were non-qualifying, exercisable at $0.20 per share, and
are valid for five years. The options expired in May, 1996 without having been
exercised.
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock beneficially owned by each officer and director of the Company and all
officers and directors as a group and each shareholder who holds more than 5% of
the outstanding common stock of the Company. Unless specifically indicated
otherwise, all such ownership interest are direct.
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AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT OF
TITLE OF CLASS OWNER OWNER CLASS
- ------------------------------------------------------------------------------
Common Stock Craig Barrie (1) (2) 1,305,172 43.6%
3025 NE 188th St.
North Miami,
Florida 33180
Berton Lorow (1) (3) 62,500 2.1%
3025 NE 188th St.
North Miami,
Florida 33180
All Directors and 362,672 43.9%
Officers as a group
(2 persons)
Gerald Josephson 230,624 7.7%
Cloister Drive
Box N732
Paradise Island,
Nassau, Bahamas
(1) Does not include shares of Common Stock issuable pursuant to the Company's
Incentive Stock Option Plan.
(2) Mr. Barrie is Chairman of the Board, President and Chief Executive Officer
of the Company. Includes options to purchase 75,000 shares of the Company's
Common Stock.
(3) Mr. Lorow is Vice President and a Director of the Company. Includes options
to purchase 50,000 shares of the Company's Common Stock.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had sales to Cigarette Racing Team, Inc. of $242,332, representing
24% of total sales for the year. Mr. Craig Barrie, the Company's Chairman of the
Board, President and Chief Executive Officer, is President of Cigarette.
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In October 1988, in conjunction with the private placement of units of the
Company's securities, an aggregate of $405,000 principal amount of its 11%
secured promissory notes due November 1, 1991 and 575,000 shares of Common Stock
of the Company were issued to the participants. In January 1992, certain of the
aforementioned noteholders filed a lawsuit against the Company which requested
repayment of such promissory notes together with interest and attorney's fees.
On April 16, 1992, the Company agreed to enter into settlement agreements with
these noteholders pursuant to which the participants who accepted the terms of
settlement agreement would receive a cash payment from the Company and Mr. Craig
Barrie (the Company's Chairman, President and Chief Executive Officer and a
principal shareholder of the Company) equal to 86% of their entire investment.
Pending consummation of such settlement, further pleadings in such lawsuit have
been held in abeyance. An amount equal to 68% of the original investment was
paid at the item each settlement agreement was executed. The remaining 18% was
due August 15, 1992. Due to insufficient cash flow, the Company was unable to
make the August 15 installment pursuant to the settlement. Partial payments were
made to the plaintiffs in October 1992 and September 1994 for $9,026 and $5,000,
respectively, leaving a balance due of $53,673. The noteholders retain a
security interest in various collateral of the Company until the amounts due
under the promissory notes and settlement agreements are paid. The Company,
subsequent to year end, has reached an agreement with said note holders for
retirement of such promissory notes for the sum of $50,000. Consummation of the
debt retirement is expected to take place in the Company's third fiscal quarter
of 1997 through the arrangement of interim financing.
As part of the Company's product development and testing, and advertising and
promotion programs, the Company has previously paid for certain parts and
provided labor for the Hawk engines in Mr. Barrie's offshore racing boat.
Commencing October 1, 1988, Mr. Barrie agreed to reimburse the Company for such
expenses, and they have been repaid in full. Under the terms of Mr. Barrie's
Employment Agreement, at such time as the Company allocates funds to sponsor
offshore powerboat racing, the Company will provide certain parts and labor for
Hawk engines for use by Mr. Barrie without reimbursement. Such expenses are not
expected to exceed $50,000 in any fiscal year.
ITEM 12. EXHIBIT AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
2.0 Agreement and Plan of Reorganization (1)
2.1 Agreement of Merger (1)
3.0 Certificate of Incorporation of Hawk Marine Power, Inc. (a Utah
corporation) as Amended (1)
3.1 Certificate of Incorporation of Hawk Marine Power, Inc. (a Florida
corporation) as Amended (1)
17
<PAGE>
3.2 Bylaws of Hawk Marine Power, Inc. (a Utah corporation) (1)
3.3 Bylaws of Hawk Marine Power, Inc. (a Florida corporation) (1)
3.4 Specimen Certificate of Common Stock (1)
4.0 Form of 11% Secured Promissory Note (1)
10.0 Employment Agreement with Craig Barrie (1)
10.1 Form of Warrant to be sold to Palm Beach Financial, Inc. (1)
10.2 Form of Warrant Agency Agreement (1)
(1) Filed as the same encumbered exhibit to the Registration's Registration
Statement (File No. 33-30906-A) previously filed.
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 15, 1997 HAWK MARINE POWER, INC.
By: /s/ CRAIG BARRIE
-------------------------------------
Craig Barrie, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
date indicated.
/s/ CRAIG BARRIE - President and Chief Executive Officer,
- ---------------- Director May 2, 1997
Craig Barrie
/s/ BERTON LOROW - Vice President, Director May 2, 1997
- ----------------
Berton Lorow
19
<PAGE>
HAWK MARINE POWER, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
F-1
<PAGE>
TABLE OF CONTENTS
PAGE
----
ACCOUNTANT'S REPORT 3 - 4
BALANCE SHEETS 5
STATEMENTS OF OPERATIONS 6
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY 7
STATEMENTS OF CASH FLOW 8
NOTES TO THE FINANCIAL STATEMENTS 9 - 16
F-2
<PAGE>
JERE J. LANE
Certified Public Accountant
2901 N.W. 112 Avenue
Coral Springs, Florida 33065
(954) 340-2848
To the Board of Directors and Stockholder's
Hawk Marine Power, Inc.
3025 N.E. 188 Street
Aventura, Florida 33180
I have audited the accompanying balance sheet of Hawk Marine Power, Inc. as of
September 30, 1996 and 1995, and the related statements of operations, changes
in stockholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Hawk Marine Power, Inc. as of
September 30, 1996 and 1995 and the results of its operations, changes in
stockholder's equity and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, a significant
part of the Company's business has been dependent upon one customer, and the
loss of that customer may have a material adverse effect on the Company. There
are no formal contracts to continue business with this customer.
F-3
<PAGE>
The financial statements have been prepared assuming the company will continue
as a going concern. As discussed in Note 3 to the financial statements, the
liquidity of the Company has been adversely affected by losses from operations
and the Company is past due on its obligations to certain note holders pursuant
to a settlement agreement dated April 16, 1992 (see Note 6). All of the
foregoing raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans concerning these matters are described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ JERE J. LANE
- --------------------
Jere J. Lane, C.P.A.
April 15, 1997
F-4
<PAGE>
HAWK MARINE POWER, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS:
CASH $ 85,737 $ 89,013
ACCOUNTS RECEIVABLE (NET OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $2,246 AND $3,408 AT
SEPTEMBER 30, 1996 AND 1995 8,321 167,014
INVENTORY 247,610 295,715
PREPAID EXPENSES 2,968 4,140
PURCHASE DEPOSITS -- 38,525
OTHER CURRENT ASSETS -- 3,519
----------- -----------
TOTAL CURRENT ASSETS 344,636 597,926
PROPERTY AND EQUIPMENT (NET OF
ACCUMULATED DEPRECIATION OF $211,866
AND $204,358 AT SEPTEMBER 30, 1996 AND 1995 22,874 30,101
----------- -----------
TOTAL ASSETS $ 367,510 $ 628,027
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 83,169 $ 68,992
ACCRUED EXPENSES 26,989 35,286
CUSTOMER DEPOSITS 121,700 136,056
NOTES PAYABLE 101,173 101,173
----------- -----------
TOTAL CURRENT LIABILITIES 333,031 341,507
----------- -----------
TOTAL LIABILITIES 333,031 341,507
----------- -----------
STOCKHOLDER'S EQUITY
COMMON STOCK 2,990 2,990
ADDITIONAL PAID IN CAPITAL 1,604,045 1,604,045
ACCUMULATED DEFICIT (1,572,556) (1,320,515)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 34,479 286,520
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 367,510 $ 628,027
=========== ===========
SEE ACCOUNTANT'S REPORT AND THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-5
<PAGE>
HAWK MARINE POWER, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
----------- -----------
NET SALES $ 1,003,446 $ 1,805,720
COST OF SALES 845,958 1,510,957
----------- -----------
GROSS PROFIT 157,488 294,763
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 409,707 304,098
----------- -----------
OPERATING INCOME (LOSS) (252,219) (9,335)
----------- -----------
OTHER INCOME (EXPENSES)
INTEREST EXPENSE (87) (644)
INTEREST INCOME 265 1,159
----------- -----------
TOTAL OTHER INCOME 178 515
----------- -----------
NET (LOSS) $ (252,041) $ (8,820)
=========== ===========
NET (LOSS) PER COMMON SHARE $ (.084) $ (.003)
=========== ===========
NUMBER OF SHARES USED IN COMPUTATION
OF NET (LOSS) PER SHARE 2,990,198 2,990,198
=========== ===========
SEE ACCOUNTANT'S REPORT AND THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-6
<PAGE>
HAWK MARINE POWER, INC.
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $(252,041) $ (8,820)
ADJUSTMENTS TO RECONCILE NET LOSSES
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
DEPRECIATION 7,509 14,661
INCREASE (DECREASE) IN PROVISION FOR BAD DEBTS (1,162) 3,408
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE 159,855 67,443
(INCREASE) DECREASE IN INVENTORY 48,105 283,089
DECREASE IN PREPAID EXPENSES 1,172 12,869
DECREASE IN PURCHASE DEPOSITS 38,525 5,261
(INCREASE) DECREASE IN OTHER CURRENT ASSETS 3,519 1,451
(DECREASE) IN ACCOUNTS PAYABLE 14,177 (202)
INCREASE (DECREASE) IN ACCRUED EXPENSES (8,297) (18,336)
INCREASE (DECREASE) IN CUSTOMER DEPOSITS (14,356) (393,491)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (2,994) (32,667)
--------- ---------
CASH UTILIZED FOR INVESTING ACTIVITIES:
PURCHASE OF EQUIPMENT FOR CASH (282) (730)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(DECREASE) IN NOTES PAYABLE -- (250,000)
INCREASE IN ADDITIONAL PAID IN CAPITAL -- 250,000
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES -- --
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,276) (33,397)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 89,013 122,410
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 85,737 $ 89,013
========= =========
SEE ACCOUNTANT'S REPORT AND THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-7
<PAGE>
<TABLE>
<CAPTION>
HAWK MARINE POWER, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
SEPTEMBER 30, 1996 AND 1995
TOTAL
COMMON STOCK STOCKHOLDER'S
$.001 PAR VALUE ADDITIONAL ACCUMULATED EQUITY
ISSUED AMOUNT PAID IN CAPITAL DEFICIT (DEFICIT)
----------- ----------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 2,990,198 $ 2,990 $ 1,354,045 $(1,311,695) $ 45,340
RECLASSIFICATION OF NOTE
PAYABLE TO STOCKHOLDER 250,000 250,000
NET (LOSS) - YEAR ENDED
SEPTEMBER 30, 1995
(8,820) (8,820)
----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1995 2,990,198 2,990 1,604,045 (1,320,515) 286,520
NET (LOSS) - YEAR ENDED
SEPTEMBER 30, 1996 (252,041) (252,041)
----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1996 2,990,198 $ 2,990 $ 1,604,045 $(1,572,556) $ 34,479
=========== =========== =========== ----------- -----------
</TABLE>
SEE ACCOUNTANT'S REPORT AND THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
F-8
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - ORGANIZATION
Hawk Marine Power, Inc. (the Company is engaged in the design, production and
sale of high performance marine engines for installation in high speed
recreational powerboats and offshore racing boats. The Company's engines are
custom designed and hand built from component parts and sold primarily to
premium boat manufacturers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of 90 days of
less to be cash equivalents.
INVENTORY
Inventory is valued at lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, which range from 5 to 10 years, except for leasehold
improvements which are depreciated over prescribed useful lives. Expenditures
for maintenance and repairs are charged against operations as incurred.
WARRANTIES
The Company's products are generally under warranty against defects in material
and workmanship for a period of 90 days to one year from date of sale. The
Company has established an accrual for these anticipated future warranty costs.
NET INCOME (LOSS PER SHARE)
The warrants issued pursuant to a public offering (See Note 11) as well as stock
options issued by the Company have not been included in the calculation of
(loss) per share for the years ended September 30, 1996 and 1995 as they are
anti-dilutive.
F-9
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109. Under such standard,
deferred taxes are computed based on the tax liability or benefit in future
years of the reversal of temporary differences in the recognition of income or
deduction of expenses between financial and tax reporting purposes. The
principal item resulting in the difference is depreciation and amortization and
the net operating loss carryforward. The net difference, if any, between the
provision for taxes and taxes currently payable is reflected in the balance
sheet as deferred income taxes. Deferred tax assets and/or liabilities are
classified as current or noncurrent based on the classification of the related
asset or liability for financial reporting purposes, or on the expected reversal
date for deferred taxes that are not related to an asset or liability. A
valuation allowance is provided for deferred tax assets that do not meet a "more
likely than not" criterion.
SALES REVENUE RECOGNITION
Revenues for the sale of products is recognized upon shipment to the customer.
Service revenue is recognized when the service is performed.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and temporary investments and accounts
receivable. The Company invests its excess cash in both deposits and high
quality short-term liquid money market instruments with major financial
institutions and the carrying value approximates market value. The Company has
not incurred losses related to these investments.
MAJOR CUSTOMER
For the years ended September 30, 1996 and 1995, one customer accounted for 24%
and 33% of net sales. (See Note 10.)
F-10
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 3 - BASIS OF PRESENTATION AND CONTINUED EXISTENCE
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company reported net losses
of $252,041 for the year ended September 30, 1996, and cumulative losses since
inception of $1,572,556. In addition, as disclosed in Note 6, the Company's
notes payable (principal balance of $101,173at September 30, 1995) were due in
November 1991. As a result of the losses and debt service requirements, the
Company's working capital has been diminished, borrowing requirements have
increased, and financial position has been significantly impaired. The Company
is past due on its obligations to certain noteholders pursuant to a settlement
agreement dated April 16, 1994. The Company's ability to continue operations is
dependent upon its ability to reach a satisfactory level of profitability and to
obtain suitable, sufficient financing or the restructuring of existing
obligations. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
The Company's continued existence as a going concern is substantially dependent
on achieving its 1997 operating plans which include the following:
The Company's commenced cost-savings measures and is otherwise seeking to
improve the Company's cash flow. In this regard, the Company reduced factory and
corporate overhead by implementing payroll efficiencies and reduced rent costs
upon expiration of the operating lease. The Company has plans to reduce other
operating and overhead costs, including, but not limited to reduction in
production costs (direct labor and raw materials ) through increased labor and
purchasing efficiencies.
The Company has obtained deposits from customers in connection with firm
purchase orders which it believes will further help finance operating costs.
NOTE 4 - INVENTORY
Inventory consists of the following:
SEPTEMBER 30,
1996 1995
-------- --------
Parts & Accessories $130,411 $190,515
Work-In Process 117,199 87,700
Finished Goods - 17,500
-------- --------
$247,610 $295,715
======== ========
F-11
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30,
1996 1995
-------- --------
Office Furniture and Equipment $ 40,193 $ 40,193
Shop Equipment 166,026 165,745
Leasehold Improvements 28,521 28,521
-------- --------
234,740 234,459
Less: Accumulated Depreciation 211,866 204,358
-------- --------
Total Property and Equipment $ 22,874 $ 30,101
======== ========
Depreciation expense was $7,509 and $14,661 for the years ended September 30,
1996 and 1995, respectively.
NOTE 6 - NOTES AND LEASES PAYABLE
Note and Leases Payable consists of the following:
SEPTEMBER 30,
1996 1995
-------- --------
Notes payable originally due November 1, 1991,
collateralized by all of the Company's assets,
accruing interest at 11% payable semiannually $101,173 $101,173
Accrued Interest 13,031 13,031
-------- --------
Total Debt 114,204 114,204
Less: Current Maturities 114,204 114,204
-------- --------
$ -- $ --
======== ========
Interest expense for the years ended September 30, 1996 and 1995 amounted to $87
and $644 respectively.
F-12
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 7 - CONTINGENT LIABILITIES
In January 1992, The Company was named as a defendant in a lawsuit by certain
note holders (which represents $27,080 of the outstanding balance) of the
Company who had participated in the Company's private financing undertaken in
September 1988. In Petrocelli Electric Company, Inc., et al v. Hawk Marine
Power, Inc. (Case No. 92-00240), a suit filed in the 11th Judicial Circuit for
Dade County, Florida, the plaintiffs are requesting repayment of such promissory
notes together with interest and attorneys' fees. Effective April 16, 1992, the
Company entered into settlement agreements and made initial payments to these
plaintiffs. In October 1992 a second payment of $9,027 was made towards
effecting this settlement. A third payment of $5,000 was made in September 1995.
The noteholders retain a security interest in various collateral of the Company
until the amounts due per the settlement agreements and notes payable are paid.
The company, subsequent to year end, has reached an agreement with said note
holders for retirement of such promissory notes for the sum of $50,000.
Consummation of the debt retirement is expected to take place in the Company's
third fiscal quarter of 1997 through the arrangement of interim financing.
NOTE 8 - COMMITMENTS
Lease Commitments
The Company leases office and service bay space for its premises in Aventura,
Florida pursuant to an operating lease. As of September 30, 1996 and 1995, the
Company is paying rent on a month-to-month basis. Rent expense, excluding common
overhead, for the years ended September 30, 1996 and 1995 amounted to $94,800
and $94,800 respectively.
COMPENSATION PLANS
a. An agreement with an officer provides for compensation of $25,000 per year
for three years and incentive compensation equal to 1.5% of sales generated by
the officer. The agreement automatically renews on a year to year basis unless
written notice of termination is delivered by either party to the other no later
than thirty days prior to any renewal term. The agreement was renewed for the
year ended September 30, 1996.
b. The Company has created a management bonus pool for key management personnel
equal to 15% of the income in excess of $250,000 up to a maximum yearly bonus of
$300,000.
F-13
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 8 - COMMITMENTS (CONTINUED)
COMPENSATION PLANS (CONTINUED)
c. 1988 Incentive Stock Option Plan - In August 1988, the Company adopted the
1988 Incentive Stock Option Plan (the "Plan") under which 100,000 shares of
common stock have been reserved for issuance to employees of the Company upon
exercise of options designated as "Incentive Stock Options" within the meaning
of Section 422A of the Internal Revenue Code of 1986. The Exercise price of any
stock option granted under the Plan to an eligible employee must be equal to the
fair market value of the shares on the date of grant and, with respect to
persons owning more than 10% of the outstanding common stock, the exercise price
may not be less than 110% of the fair market value of the shares underlying such
option on the date of grant. The Board will determine the term of each option
and the manner in which it may be exercised provided that no option may be
exercisable more that ten (10) years after the date of grant except for
optionees who own more than 10% of the Company's common stock, in which case the
option may not be for more than five (5) years. Further, a director of the
Company will not be eligible to receive benefits unless such director is also an
employee of the Company.
The Company has not awarded any options to date under the Plan.
d. Non-statutory Employee Stock Option Program - On May 1, 1991, the Company
adopted a non-statutory employee stock option program. The plan provided for the
allocation of 295,000 options, all of which were issued, each exercisable for a
five year period for one share of common stock. The options were exercisable at
$0.20 per share and expired April 30, 1996. As of September 30, 1996, no options
were exercised.
NOTE 9 - MAJOR CUSTOMER AND RELATED PARTY TRANSACTIONS
Of the Company's total sales for the years ended September 30, 1996, and 1995,
approximately $242,332 and $600,552 or 24% and 33%, respectively, were with one
customer, Cigarette Racing Team, Inc. A principal shareholder and the chief
executive officer of the Company is also an officer and employee of this
customer. At September 30, 1996 and 1995, there were balances of $ -0- and
$42,816 due from this customer, respectively.
F-14
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 10 - SHAREHOLDERS' EQUITY
In connection with a public offering in 1989, the Underwriter received warrants
to purchase up to 59,382 shares of the Company's common stock at a price of
$2.40 per share for a four year period commencing November 5, 1990. The warrants
expired as of November 5, 1994.
On October 5, 1992, in consideration of a loan, the Company issued 200,000
shares of the Company's $.001 par value common stock to a third party. The
valuation of the shares was at $.03 per share based on the approximate market
value.
NOTE 11 - INCOME TAXES
Income taxes are computed at statutory rates on pretax income. Deferred taxes
would be recorded based on differences in financial statements and taxable
income. To date, the Company has incurred tax operating losses and therefore,
has generated no income tax liabilities. As of September 30, 1996, the Company
has generated net operating loss carryforwards totaling approximately $1,490,961
which are available to offset future taxable income through 2011. As utilization
of such an operating loss for tax purposes is not assured, the deferred tax
asset has been fully reserved through the recording of a 100% valuation
allowance.
The components of the net deferred tax asset as of September 30, 1996 are as
follows:
Deferred Tax Assets:
Net operating Loss Carry forward $506,925
Investment Credit 7,712
--------
514,637
Valuation Allowance (514,637)
--------
Net Deferred Tax $ -
========
F-15
<PAGE>
HAWK MARINE POWER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 11 - INCOME TAXES (CONTINUED)
Net operating loss carry forwards are scheduled to expire as follows:
EXPIRATION DATE AMOUNT
------------------ ----------
September 30, 2003 $ 80,900
September 30, 2004 20,300
September 30, 2005 357,400
September 30, 2006 333,000
September 30, 2007 259,500
September 30, 2008 179,000
September 30, 2110 8,820
September 30, 2111 252,041
----------
Total $1,490,961
==========
The Company also has investment credit carry forwards of $7,712 which will
expire on September 30, 2001 if not utilized.
F-16
<PAGE>
EXHIBIT INDEX
EXHIBIT
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 85,737
<SECURITIES> 0
<RECEIVABLES> 8,321
<ALLOWANCES> 0
<INVENTORY> 247,610
<CURRENT-ASSETS> 344,636
<PP&E> 22,874
<DEPRECIATION> 7,509
<TOTAL-ASSETS> 367,510
<CURRENT-LIABILITIES> 333,031
<BONDS> 0
0
0
<COMMON> 2,990
<OTHER-SE> 1,604,045
<TOTAL-LIABILITY-AND-EQUITY> 367,510
<SALES> 1,003,446
<TOTAL-REVENUES> 1,003,446
<CGS> 845,958
<TOTAL-COSTS> 409,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (252,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> (252,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,041)
<EPS-PRIMARY> (.084)
<EPS-DILUTED> 0
</TABLE>
