UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. [Fee required]
For the fiscal year ended June 29, 1996.
[ ] 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
MAKO MARINE INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0501535
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4355 NW 128TH STREET MIAMI, FLORIDA 33054
(Address of principal executive offices)
(305) 685-6591
(Issuers telephone number)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock , $.01 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 $19,863,331.
As of September 20, 1996 the aggregate market value of the Issuer's voting stock
held by non-affiliates of the Issuer (1,698,000 shares of common stock ) was
approximately $5,094,000.
As of September 20, 1996, the number of shares outstanding of the Issuer's
common stock was 2,655,000. Documents incorporated by reference: Portions of the
Proxy Statement for the Company's Annual Meeting of Shareholders to be held
November 14, 1996, are incorporated by reference into Part III.
1
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
FISCAL YEAR 1996 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1. Description of Business ........................................ 3
Item 2. Description of Properties ...................................... 11
Item 3. Legal Proceedings .............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters ...................................................... 13
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 14
Item 7. Financial Statements ........................................... 19
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure .......................... 19
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of
the Exchange Act ............................................. 19
Item 10. Executive Compensation ......................................... 19
Item 11. Security Ownership of Certain Beneficial Owners and
Management ................................................... 19
Item 12. Certain Relationships and Related Transactions ................. 19
Item 13. Exhibits and Reports on Form 8-K ............................... 19
2
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Mako Marine International, Inc. ("Mako" or the "Company") was incorporated in
Florida in June 1994. Its principal executive offices are located at 4355 N. W.
128th Street, Miami, Florida 33054.
The Company designs, manufactures and sells offshore boats under the Mako name
for sportfishing and family recreational use. The Mako name has been well known
in the boating industry for many years. The Company's principal product lines
are center console, walkaround cabin and flats fishing boats, which range from
17 to 33 feet in length. During fiscal 1996, the Company's marketed 18 models
ranging in retail price from $14,000 to $95,000 through a network of independent
dealers. Sales are concentrated on the eastern coast of the United States, with
particular emphasis on Florida. The balance of the Company's sales are made in
the Gulf Coast, Great Lakes and West Coast regions and in foreign markets.
Acquisition
The Company commenced active operations in August 1994 when it acquired the boat
manufacturing assets of Mako Marine, Inc. ("Old Mako") from an affiliate. Old
Mako began producing quality fiberglass boats for the serious sports fisherman
in 1967. However, from 1989 until it ceased operations in 1994, Old Mako
experienced severe negative cash flows and substantial losses as a result of a
significant downturn in the motorized pleasure boat industry shortly after it
completed a program of expansion.
In February 1994, CreditAmerica Venture Capital, Inc. ("CAVC") was formed by an
investor group, headed by Douglas W. Baena, to facilitate the financing of Old
Mako's operations. Thereafter, CAVC acquired Old Mako's defaulted long-term debt
and, in an August 1994 foreclosure sale, acquired substantially all of the boat
manufacturing assets of Old Mako. The Company then purchased such assets from
CAVC.
CAVC presently owns 930,000 shares of the Company's common stock (approximately
35% of the issued and outstanding shares). Douglas W. Baena, the Chairman of the
Board, President and Chief Executive Officer of the Company, is a substantial
stockholder of CAVC.
Public Offering and Company Strategy
During August 1995, the Company completed an initial public offering (the "IPO")
in which it issued and sold 1,725,000 units each consisting of one share of
common stock and one warrant to purchase a share of common stock at the exercise
price of $4.00 per share. The Company received net proceeds of $5,307,423,
including net proceeds of $389,700 from the exercise of an over allotment
option.
3
<PAGE>
The Company's initial strategy was to take advantage of what it perceived as the
early stages of a recovery within the boating industry. To accomplish this
objective the Company, through a new management team, sought to improve its
relationship with dealers, expand its dealer network, and institute operating
efficiencies in the manufacturing process. The Company believes that during the
fiscal year ended June 29, 1996, it was successful in improving dealer relations
and restoring dealer confidence in Mako products. As a result the Company's
fiscal 1996 revenues increased by 31% to $19.86 million. However, the Company
has not achieved similar success in reducing its excessive manufacturing costs
and selling, general and administrative expenses were significantly increased.
Accordingly, the Company suffered a net loss of $2.95 million in fiscal 1996.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Products
The Company's product lines are principally center console models and, to a
lesser extent, walkaround cabin, flats and dual console fishing boats. Its
commercial division manufactures and sells various patrol and other boats for
federal, state and local as well as foreign governmental use. For the year ended
June 29 1996, center console models accounted for approximately 76% of the units
sold.
All of the Company's boats are laminated with hand-laid fiberglass to insure
consistent quality and strength. The hulls of Mako boats are designed to give a
soft, dry ride while providing a stable platform at rest or when moving at a
slow trolling speed. Unlike most boats manufactured by other companies, the
Company's boats are fully foamed with two-pound density urethane to enhance the
safety, flotation, strength and shock absorbency of the boat. For superior
safety, Mako boats exceed the United States Coast Guard standards for flotation
and all Mako fuel tanks are installed in fiberglass compartments beneath the
boat decks and encapsulated in foam. While there is no demonstrable evidence,
the Company believes that the Mako brand name is recognized by consumers as the
mark of a high quality, durable offshore fishing boat.
Center Console. The Company's center console series, on which the Mako
reputation among serious sportfisherman was built, consists of models ranging
from 17 to 33 feet in length. In an attempt to improve manufacturing
efficiencies, the Company reduced the number of center console models from 12 to
eight during fiscal year 1996. In addition, during the fiscal year the Company
spent approximately $460,000 to tool and build three new models, including the
Company's flagship, the Attack 333, a 33 foot deluxe center console cabin boat.
Two of the models were introduced midway through fiscal 1996, while the Attack
333, was introduced after the fiscal year, at the Company's July 1996 dealer
meeting.
The Company's center console models have a two-piece hull, featuring an integral
stringer system and deck with built-in storage, livewells and fishboxes, which
4
<PAGE>
provides a large cockpit area. Some of the Company's center console models
incorporate Mako's patented C-Pak electronic storage system which allows for
easy installation and use of the boat's electronics. The C-Pak system also
enables owners to safeguard their boat's electronics by allowing them to remove
the C-Pak system when leaving the boat. The Mako center console boats, with
their large capacity fuel tank, allow anglers to reach remote fishing areas.
Walkaround Cabin. The Company recognizes that many consumers generally use their
boats for cruising, diving and enjoying the water with family and friends. For
these enthusiasts, the Company manufactures four walkaround cabin models,
ranging from 22 to 29 feet in length, each of which provides 360 degree access
to the boat, the comfort of a cabin area and, in most models, a stand-up head
compartment. The comforts offered by the walkaround models include a V-bunk,
galley, a dinette table and storage areas which make these boats suitable for
overnight trips. In addition, the walkaround models offer cockpit space suitable
for fishermen and divers.
Professional Flats Boats. The Company's professional flats boats now consist of
two models, 17 and 18 feet in length, which offer the protected shallow water
angler a shallow draft fishing platform. Flats boats can come equipped with
poling platforms that enable the users to maneuver the boats in very shallow
water. To meet the angler's needs, these models offer stable, soft, dry riding
hulls with built-in livewells, release wells and storage compartments.
Dual Console and Inboards. The dual console and inboard models have been
discontinued for fiscal 1997.
Commercial and Governmental Products
The Company has reinvigorated its Commercial Products Division, which markets
Mako patrol and other boats to federal, state and local as well as foreign
governments and commercial entities. In many cases, the Company works with a
government agency to design a customized boat suitable to such customer's
specific needs. During the year, the Company developed an on-going relationship
with a foreign government involving the production and sale of patrol boats.
Marketing, Sales and Distribution
For the year ended June 29, 1996, approximately 46% of the Company's sales were
made in Florida and 39% were distributed geographically on the eastern seaboard
from Maine to Georgia.
Domestic sales of the Company's boats are made through a network of independent
dealers throughout the United States. These dealers are not exclusive to the
Company and carry the boats of other companies, including some which may be
competitive with the Company's products. The territories served by any dealer
are usually exclusive to that dealer and in an effort to protect the interests
of existing dealers, the Company uses discretion in locating new dealers. No
single domestic dealer accounted for more than ten percent of the Company's
sales in the year ended June 29, 1996. Management does not believe that the
loss of any particular dealer would have a materially adverse effect on the
Company's business.
5
<PAGE>
Prior to the IPO in August 1995, management recognized that dealer confidence in
the Mako name had eroded largely due to a decline in the quality of workmanship
in the fit and finish of shipped boats in the later years of Old Mako's
existence. To improve relationships and restore confidence during fiscal 1996,
management expanded communications with its existing dealer network and
personally visited most dealers. The Company also renewed its presence at
certain important trade shows and increased the exchange of product development
and marketing ideas with its dealers and retail customers. In fiscal 1996, the
Company held an annual dealer meeting in order to encourage dealers to plan
their purchases for the ensuing model year and in order to solicit new business
and attempt to facilitate a more orderly production schedule. The Company also
instituted additional procedures to assure the quality of its finished products.
In late fiscal 1995, the Company added three sales representatives to cover new
territories and replaced one sales representative. In late fiscal 1995 and into
fiscal 1996, the Company reorganized its domestic sales territories and enhanced
the quality of its dealer network by terminating certain unproductive dealers
and adding new dealers that management believes will outperform their
predecessors.
Most boats are pre-sold to a dealer before entering the production line.
Although a sales order can be canceled prior to the start of construction, it is
uncommon for a dealer to do so. The Company generally has been able to sell to
another dealer any boat for which an order has been canceled. Historically,
cancellations have not had a material effect on the Company.
In most cases, boats are sold to dealers under "floor plan" financing
arrangements through one of two third-party financing companies, or on a
cash-on-delivery basis. The arrangements provide financing to dealers to buy
inventory at wholesale from the Company and resell such inventory. Each
agreement allows the Company to request the respective lender to finance the
sale of inventory by the Company to a dealer, subject to the dealer having an
approved credit line with the lender. If the lender should foreclose on any
inventory because a dealer fails to repay financing provided by the lender, the
Company is obligated to repurchase such inventory from the lender at a price
equal to the amount then due and owing on the financing instrument. If the
Company accepts for return from a dealer any inventory subject to a financing
instrument, whether or not any substitution is made for such returned inventory,
the Company must reimburse the lender for the original amount of the invoice on
which financing was given. During the year ended June 29, 1996 and the eleven
months ended July 1, 1995, returns were insignificant.
The marine industry is highly seasonal, with retail sales strongest in the
months of February through July. The Company's business is also affected by
weather patterns. Unseasonably cool weather and prolonged winter conditions may
lead to a shorter selling season, particularly in the Northeast. The Company
attempts to affect the level and timing of sales to dealers by the use of a
variety of programs and incentives.
6
<PAGE>
The Company's "Mako Partners Program" supports the Company's relationship with
its dealers. Under the Program, domestic dealers elect representatives to meet
with the Company's management and staff on a periodic basis. These
representatives convey to the Company information gathered from the dealers
based on experience in their showrooms and contact with customers. New products,
improvements to existing products, advertising concepts and financing programs
which respond to the needs of dealers and consumers are identified by the
representatives and discussed with the Company's management.
The Company believes that it must actively assist dealers in the growth of their
dealerships to further solidify their relationships. During the year, the
Company implemented training programs both for company personnel and dealer
sales representatives to enhance sales to customers.
In addition to emphasizing its relationship with dealers, the Company also
devotes resources to customer relations. The Company sponsors approximately 26
family fishing tournaments each year to bring Mako owners and their families
together for a fun and educational event. Children are shown the art of offshore
fishing and, through the Company's catch and release program, learn
environmental responsibility.
Many Mako owners belong to one of the approximately 20 Mako owners' clubs around
the United States and Europe. Most clubs host monthly meetings, invite speakers
and educate members on marine safety and other boating-related topics. Clubs
also hold fishing tournaments, barbecues and weekend excursions. The Company
maintains a consumer service department to answer questions and to advise
consumers about the use of its products. An independent company has been
retained to conduct customer satisfaction surveys with dealers and retail
purchasers.
Until late August of 1995, the Company's boats were sold internationally through
a Florida based distributor. At that time the relationship with the distributor
was terminated and since then, the Company has sold its products directly to
international dealers. The Company believes that the termination of the
relationship did not have a material adverse effect on its operations.
Advertising
Advertising consists of space in printed media, such as boating magazines, and
point-of-sale product literature, as well as annual participation in
approximately 25 large boat shows nationwide. The marketing of boats to retail
customers is the direct responsibility of the dealer whose efforts are
supplemented by the Company through advertising in boating magazines and
participation in regional, national, and international boat shows. The Company
promotes Mako boats not only for fishing, but for family recreational use
capable of a broad variety of uses. Additionally, the Company's advertisements
stress the high resale value of Mako boats.
Design, Engineering and Development
The Company's design, engineering and development activities are conducted by a
small highly experienced staff and are closely linked to the process of
marketing the Company's products. Consistent with the Company's strategy, during
the 1996 fiscal year, the Company developed new products, including the Attack
333, and improved existing models in response to the perceived needs and demands
of consumers, as ascertained through the Mako Partners Program and the Mako
family tournaments (See Description of Business-Products-Center Console).
7
<PAGE>
Manufacturing
The manufacturing process for the hulls and decks consists primarily of the
"laying-up" by hand of resins and high quality fiberglass materials in molds
designed and in many cases constructed by the Company's engineering and tooling
department. Decks are bonded to the hulls using bonding agents, screws, and
fiberglass to achieve a strong, unified construction. The Company manufactures
some metal parts used in the construction of its boats. The Company does not
manufacture the engines used on its boats.
Manufacturing capacity is sufficient to accommodate the Company's current and
anticipated future needs. The Company believes that it has the potential to
expand its manufacturing capacity and, should demand dictate, the capacity of
the existing plant could be increased substantially by employing additional
shifts. Management believes that it currently has excess capacity, and it
intends to continue to pursue opportunities to absorb this excess capacity.
Recreational power boats must be certified by the manufacturer to meet the
United States Coast Guard specifications. In addition, safety is subject to
federal regulation under the Boat Safety Act of 1971, as amended, pursuant to
which boat manufacturers may be required to recall products for replacement of
parts or components that have demonstrated defects affecting safety. The Company
has never had to conduct a product recall under the Act. The Company also
requires its boats to meet the industry standard set by the National Marine
Manufacturers Association Certification Program, which is broader than the
United States Coast Guard specifications.
Product Liability
The Company warrants its products against defects in material and workmanship
for periods of one to five years. Pursuant to the warranties such products can
be returned to the Company, its dealers or authorized service centers for
repair. Engines included on the boats are warranted by the engine manufacturer.
While the Company endeavors to sell safe products, it is possible that someone
could claim personal injury or environmental damage resulting from use of
products purchased from the Company. Historically, product liability awards did
not have a material impact on Old Mako. While the Company maintains third-party
product liability insurance which it believes to be adequate, there can be no
assurance that the Company will not experience legal claims in excess of its
insurance coverage or claims which are ultimately not covered by such insurance.
Furthermore, if any significant claims are brought against the Company, the
Company's business might be adversely affected by the related negative
publicity.
8
<PAGE>
Suppliers
The Company uses a variety of raw materials in the manufacture of its boats.
Resin, fiberglass, foam and gelcoat are available from a limited number of
suppliers at competitive prices. Certain of the Company's raw materials are
purchased from single suppliers, but such materials are readily available from
others at competitive prices.
The Company has entered into an agreement with the Mercury Marine Division of
Brunswick Corporation ("Brunswick") which requires the Company to use primarily
Mercury engines on its boats and provides for increased pricing if a minimum
number of engines is not purchased each year. The Company anticipates that it
will not purchase the minimum number of engines specified during calendar year
1996; however, its failure to meet this requirement will not result in a
termination of the agreement nor have any material adverse effect on its results
of operations. The agreement expires on December 31, 1998 or at an earlier date
if the Company has purchased a specified number of engines. At June 29, 1996,
the Company was indebted to Brunswick in the amount of approximately $617,000,
which debt is collateralized by a security interest in certain of the Company's
patents and trade names. The loan is repayable, in part, from rebates on the
purchase of engines under the agreement. The agreement also provides to
Brunswick a right of first offer in connection with the proposed sale of
substantially all of the Company's assets or the sale of 50% or more of any
class of voting securities to a person or entity engaged in the marine industry.
Competition
The industry in which the Company operates is highly competitive. Competition is
based on quality of product, innovation, price and customer service. The
Company's competitors vary according to product line. Included among the
Company's competitors are several major manufacturers of boats for fishing and
family use. These companies are well-established, have reputations for success
in the development and sales of products, and have significantly greater
financial, marketing, distribution, personnel and other resources than the
Company. There can be no assurance that the Company will be able to compete
successfully. Manufacturers that compete directly with the Company in its market
segment include Brunswick, Grady White, and Outboard Marine Corporation.
Patents
The Company believes that its patents and Mako trademarks are valuable assets,
as they are identified with and are important to the sale of its products. The
Company's trademarks are registered with the United States Patent and Trademark
office and in a number of foreign countries. Substantially all of the Company's
assets, including its patents and trademarks, are pledged to secure
indebtedness. If the Company defaults on its indebtedness and one or more of the
Company's creditors foreclose upon its security interest in the Company's
assets, in particular its patents and Mako trademarks, such loss would have a
material and adverse effect on the Company's
9
<PAGE>
business and operations. In management's opinion, the Company is in compliance
with all loan covenants.
Environmental
The Company's operations are subject to numerous federal, state and local laws
and regulations relating to the environment and health, safety and other
regulatory matters. Certain materials used in boat manufacturing, such as resin
and various cleaning solvents, are classified by federal and state governments
as "hazardous material." Control of these substances is regulated by the EPA and
state environmental protection agencies which require reports and inspect
facilities to monitor compliance. In addition, under "CERCLA" any generator of
hazardous waste sent to a hazardous waste disposal site is potentially
responsible for the clean up, remediation and response costs required at such
site in the event that the site is not properly closed by the owner or operator,
irrespective of the amount of waste sent to the site. The Company believes that
it has obtained all material permits and that its facilities and operations are
in substantial compliance with all material applicable environmental laws and
regulations. Nevertheless, future events, such as changes in or modified
interpretations of existing laws or regulations or enforcement policies may give
rise to additional compliance costs that could have a material adverse effect on
the Company.
Pursuant to the 1990 Amendments to the Clean Air Act, the EPA has been studying
the impact of marine engines on the environment. The Company anticipates that by
1998 the EPA will adopt regulations establishing air emissions standards for new
marine engines. To the extent that such regulations, when finally adopted, make
it more costly to acquire a marine vessel equipped with an engine, such
regulations could have a material adverse effect on the Company's business.
Employees
The Company has engaged Vincam Human Resources, Inc. ("Vincam") to provide human
resource management services. Vincam employs approximately 200 full-time workers
at the Company's manufacturing facility, and is responsible for providing all
employee benefits, including workers compensation insurance coverage, and
certain other services. The Company's contract with Vincam is for a term of one
year, and is automatically renewed unless terminated pursuant to its terms,
however, such contract may be terminated at any time upon 30 days written notice
by the Company and under certain other circumstances. The Company believes that
a termination of this contract would not have a material adverse effect on the
Company.
10
<PAGE>
Item 2. PROPERTY
The Company's 10 acre, 220,000 square foot manufacturing facility located in
Miami, Florida is leased under a triple net lease which expires on July 31,
2001, from Robert Schwebke, the founder of Old Mako. The Company pays an annual
aggregate base rental of $542,400 and is responsible for taxes associated with
the property. The lease also provides for two seven-year renewal options. The
Company believes the terms of the lease are at market rate. The lease is
encumbered by mortgages in the aggregate amount of approximately $2.4 million.
Payments by the Company under the lease approximate payments required for debt
service and real estate taxes. Both before and after the acquisition of the
assets of Old Mako, there have been, and continue to be, defaults relating
primarily to payment of real estate taxes under the mortgages. The holder of the
first mortgage has agreed to forbear from exercising its remedies (including
foreclosure) until February, 1997 as long as no further events of default occur.
At that time, consideration will be given to reinstatement of the original
maturity date of February 1999. The holder of the second mortgage for which the
last payment is owed in June 2000, has not waived past defaults consisting
primarily of the failure to pay Old Mako's real estate taxes.
Item 3. LEGAL PROCEEDINGS
On September 27, 1994, an action was commenced in St. Lucie County, Florida by
Compton & Associates, P.A., against Old Mako, the Company and John Doe, Inc., an
unknown corporation, seeking recovery of approximately $209,500 for legal
services performed on behalf of Old Mako and asserting successor liability
against the Company. In addition, a further count was asserted against the
Company alleging fraudulent transfer of assets of Old Mako to the Company and
seeking an avoidance of the transfer of such assets, an injunction prohibiting
the future disposition of such assets and for an appointment of a receiver for
the business operation of each of the defendants. Answers have been interposed
by Old Mako denying that the amounts claimed due are in fact owing to the
plaintiff and by the Company denying any transferee liability. The litigation is
in the discovery stage.
On December 12, 1994, an action was commenced in Dade County, Florida, by
Aristech Chemical Corp. against Old Mako, the Company, Okam Holdings, Inc. and
Douglas Baena , seeking recovery of the sum of $157,000, plus interest and
costs, arising from the sale of certain materials to Old Mako. The plaintiff
alleges that on and after August 2, 1994, the Company wrongfully and
intentionally exercised dominion and control, and diverted to its own use, the
materials sold to Old Mako and committed fraud in that it made false statements
to plaintiff to obtain the materials. The Company filed a motion to dismiss the
complaint, and the complaint was dismissed. Thereafter, Aristech filed an
amended complaint which alleged solely a conversion claim against the Company.
Because the Court had dismissed the previous complaint, which included
Aristech's conversion claim against the Company, the Company filed a motion to
dismiss the amended complaint. The court has not yet ruled on the motion to
dismiss.
11
<PAGE>
On or about August 2, 1995, an amended impleader complaint was filed in the
Circuit Court for Dade County, Florida, by Coy D. Barbee, Virginia Barbee and
Atlantic Marine Sales and Service, Inc. suing the Company; CAVC; CreditAmerica,
Inc.; Robert Schwebke; his wife; and Brett Schwebke, a former officer of the
Company. The Company was served on August 22, 1995. The complaint alleges the
existence of judgments held by the plaintiffs against Old Mako aggregating
approximately $400,000 and related to the sale of a boat to the Barbees by Old
Mako. The Company is not the subject of those judgments and was not a party to
the actions resulting in the judgments. The complaint further alleges that the
manner in which the Company acquired the assets of Old Mako engendered a
fraudulent transfer by Old Mako and further results in the Company's having
successor liability for such judgments. The complaint seeks to avoid such
transfers or, alternatively, that the Company and CAVC be held liable for the
unpaid balance of the judgments, together with costs and attorneys' fees. The
Company answered the complaint , asserting affirmative defenses, and filed a
motion for summary judgment on all claims made in the impleader complaint
asserted against the Company. The court entered summary judgment in favor of the
Company with respect to successor liability claims, and deferred ruling upon the
fraudulent transfer claims until a future hearing. A date for the future hearing
has not been set.
An action was commenced on June 14, 1996 against the Company by Richard and
Jacqueline Axt d/b/a Southern Marine Associates in the Chancery Court of
Franklin County, Tennessee seeking damages against the Company in the amount of
$501,800. The plaintiff allege that the Company is liable under a successor
liability theory for an alleged breach of a sales representation agreement
between Old Mako and Southern Marine Associates. The Company is in the process
of obtaining counsel to defend the matter and attempt to remove the action to
federal court.
On July 22, 1996, an action was commenced in Circuit Court in Palm Beach County,
Florida by Tuppens Marine against the Company seeking an unspecified amount.
Plaintiff alleges that the Company wrongfully failed to renew its dealer
agreement.
The Company believes that all of the aforementioned actions are without merit.
CAVC has agreed to indemnify the Company from any losses and expenses in excess
of $150,000 arising out of claims against the Company for liabilities of Old
Mako that were not assumed in August 1994. CAVC acknowledges that the Aristech,
Barbee and Compton lawsuits are within the scope of the indemnity and the
Company has no reason to believe that CAVC will not fulfill its obligations
under such indemnity. While there can be no assurance as to the ultimate outcome
of these actions, the Company believes that such actions will not have a
material adverse effects on the Company's financial position or operations.
12
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
These were no matters submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants are listed and traded on the Nasdaq
SmallCap Market under the symbols "MAKO" and "MAKOW", respectively. The
following table sets forth the high and low sales prices as reported on Nasdaq
SmallCap Market for the Company's Common Stock and Warrants for each of the four
quarters of the fiscal year ended June 29, 1996. The Company's Common Stock and
Warrants began trading on August 23, 1995.
Fiscal Year Ended June 29, 1996 High Low
- ------------------------------- ---- ---
Common Stock
First Quarter (from August 23).................. $4.500 $4.000
Second Quarter .................................. 4.500 3.125
Third Quarter ................................... 4.375 3.000
Fourth Quarter .................................. 5.000 3.625
Warrants
First Quarter (from August 23)................... $1.375 $ .750
Second Quarter .................................. 1.125 .625
Third Quarter ................................... 1.188 .625
Fourth Quarter .................................. 1.125 .625
As of the close of business on September 19, 1996, there were approximately 19
registered holders of record of the Company's Common Stock.
The Company has not declared a cash dividend on its Common Stock subsequent to
the IPO. The Company does not anticipate that any dividends will be declared on
its Common Stock in the foreseeable future. The timing, amount and form of
dividends, if any, will depend, among other things, on the Company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.
13
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company commenced active operations in August 1994 when it acquired the boat
manufacturing assets of Old Mako from an affiliate. Old Mako ceased operations
in late July 1994.
The following table is included solely for use in comparative analysis of
results of operations and to facilitate management's discussion and analysis.
The financial information for the year ended July 1, 1995 is comprised of the
one month ended July 31, 1994 of Old Mako (unaudited), and the eleven months
ended July 1, 1995 of the Company (audited). The financial information for the
year ended June 29, 1996 is audited.
Year ended Year ended
June 29, July 1,
1996 1995
- --------------------------------------------------------------------------------
Net sales $19,863,331 $15,133,403
Cost of products 17,817,667 14,128,971
- --------------------------------------------------------------------------------
Gross profit 2,045,664 1,004,432
- --------------------------------------------------------------------------------
Expenses
Selling, general and administrative 4,548,703 3,261,888
Interest 312,174 349,608
Other 243,827 137,661
- --------------------------------------------------------------------------------
5,104,704 3,749,157
- --------------------------------------------------------------------------------
Loss before other income (3,059,040) (2,744,725)
Other Income 103,265 59,154
- --------------------------------------------------------------------------------
Net loss $ (2,955,775) $ (2,685,571)
================================================================================
14
<PAGE>
Results of Operations
Year ended June 29, 1996 compared with combined year ended July 1, 1995
Net Sales
Net sales were $19,863,331 and $15,133,403 for fiscal years ended 1996 and 1995,
respectively, an increase of $4,729,928 or 31.3%. This sales increase is
attributable to the restoration of dealer confidence in the Company resulting
from the improved quality of its products, expansion of its internal and
external sales staff and implementation of dealer feedback from the "Mako
Partners Program". Expanding the advertising efforts also had a positive effect
on sales. Additionally, the Company has enhanced the quality of its dealer
network by terminating certain unproductive dealers and adding new dealers that
management believes are well regarded in their respective market places. These
new dealers have actively begun to market the Company's products. The
introduction of two new models and the improved appearance and quality of the
Company's walkaround cabin models have also contributed to the sales increase.
The Company made a strategic decision not to increase its prices during the
year, as some of its competitors did, in its effort to re-acquire its market
share. However the Company increased its selling prices in July 1996, the start
of the 1997 model year. Management does not believe that this increase will
have a material effect on unit sales.
Cost of Products Sold and Gross Profit
Gross profit was $2,045,664 (10.3% of net sales) and $1,004,432 (6.6% of net
sales) for the fiscal years 1996 and 1995, respectively, an increase of
$1,041,232 or $100.4%. The Company's inadequate gross profit margin is a result
of excessive costs of products sold in relation to net sales. Cost of products
sold, which were $17,817,667 in fiscal 1996 as compared to $14,128,971 in fiscal
1995, continued to be abnormally high. The Company's manufacturing cost
structure is comprised of relatively high fixed costs as a result of Old Mako's
1989 expansion of its manufacturing capacity. The most significant components of
the Company's embedded fixed costs include depreciation expense of equipment,
real estate taxes, property insurance and maintenance expense. The increase in
net sales was not sufficient to fully absorb these fixed costs. The Company has
also integrated new workers into the manufacturing process in order to meet the
increased sales demand. The new workers had not been employed long enough to be
as efficient as longer term employees. As mentioned above, the Company's
strategy was not to increase selling prices during the year even though the
Company experienced vendor price increases.
In an effort to improve its gross profit, the Company has done the following:
(i) dropped six slow-selling boats from its product line during 1996, (ii)
15
<PAGE>
implemented a new inventory control system during May 1996 and (iii) instituted
Quality Teams, whereby groups of employees are assigned certain models of boats
to build as a team. Management believes that the implementation of this concept
will significantly reduce labor hours required to build each model while also
reducing material usage on a per boat basis. Additionally, a continued increase
in sales would result in the spreading of fixed overhead costs over a larger
sales base.
Operating and Other Expenses
Commencing in the late spring of 1995, the Company assembled a new management
team and began to implement new marketing strategies. The impact of these
strategies has significantly affected the Company's results of operations for
the fiscal year. Consequently, operating expenses were $4,548,703 (22.9% of net
sales) and $3,261,888 (21.6% of net sales) for the fiscal years ended 1996 and
1995, respectively, an increase of $1,286,815 or 39.4%. The major components of
the increase in operating expenses were primarily a result of (i) the hiring of
five new management personnel and four new staff employees at an annual cost of
approximately $800,000, (ii) additional advertising and marketing expenditures
of approximately $120,000 and, (iii) costs associated with holding a Dealer
Meeting of $80,000. Additionally, variable selling and advertising expenses such
as commissions and dealer programs, as well as other operating expenses,
increased approximately $270,000.
Other expenses were substantially higher for fiscal 1996 due to the unamortized
costs related to a bridge loan of approximately $170,000 that were paid during
the first quarter of fiscal 1996 and expensed over the life of the loan, April
1995 to August 1995. The bridge loan was repaid out of the proceeds of the
initial public offering.
Liquidity and Capital Resources
Historically, the Company's internally generated cash flow has not been
sufficient to finance its operations. During August 1995, the Company completed
the IPO which generated net proceeds of $5,307,423. The Company initially
anticipated that the IPO proceeds, together with existing resources and cash
generated from future operations would be sufficient to satisfy the anticipated
cash requirements of the Company for 18 to 24 months from the date of the IPO.
During the year ended June 29, 1996, the Company sustained losses of $2,955,775
and negative cash flows from operations of $2,477,919. In addition, the Company
used $2,226,225 for principal repayments of debt and $645,117 for capital
expenditures.
The use of cash to fund operating activities was primarily a result of the
Company's net loss of $2,955,775 and an increase in accounts receivable and
inventories of $598,514 and $505,517, respectively, due to increased sales and
16
<PAGE>
offset by the increase in accounts payables of $592,798 associated with the
higher inventory levels and depreciation and amortization totaling $726,413.
The Company's Independent Certified Public Accountants' Report for the year
ended June 29, 1996 states that the Company's continued losses and negative cash
flows "raise substantial doubt about the Company's ability to continue as a
going concern".
In order for the Company to meet its cash requirements and continue as a going
concern, the Company must achieve profitable operations and/or obtain additional
debt or equity financing. Management's plans in this regard are as follows: (i)
the Company is reviewing potential acquisitions to gain market share and absorb
more overhead; (ii) the Company is seeking both debt and equity financing to
improve cash flow; (iii) through an improved and expanded network of dealers,
the Company has increased its sales from comparable periods in the prior year.
Management believes that the Company's improved dealer network, along with more
effective advertising, will result in a continued increase of expansion of the
Company's sales base during fiscal 1997. Due to the Company's continuing sales
efforts and as a result of its July 1996 Dealer Meeting, the Company has a
backlog of orders for 221 boats, representing $3,951,000, as of September 13,
1996, compared to a backlog of 195 boats, representing $3,155,000, as of the
same time in the prior year; (iv) during fiscal 1996, the Company implemented a
re-engineering plan, with an emphasis on cost control. Pursuant to this plan,
during the first quarter of fiscal 1997, the Company reduced management salaries
by approximately $200,000. Further, as previously mentioned, management has
instituted Quality Teams. Management believes that the implementation of these
cost saving strategies will help improve its cash position.
There can be no assurance that these anticipated improvements in operations or
the aformentioned financing can be acheived or available to the Company on
acceptable terms. If the Company is unable to improve operations or obtain
adequate additional financing, management will be required to sharply curtail or
suspend certain of the Company's operations.
Income Taxes
At June 29, 1996, the Company has a net tax operating loss carryforward of
approximately $5,800,000 to offset future taxable income. Due to the ownership
change caused by the IPO, under Section 382 of the Internal Revenue Code, the
amount of net operating loss carryforwards originating prior to the date of the
IPO (approximately $2,500,000) which may be utilized in any one year, is limited
to approximately $219,000.
17
<PAGE>
Inflation
Although the effects on the Company cannot be accurately determined, inflation
has affected the Company's costs since it did not increase it selling prices
during fiscal 1996. The Company does not believe that inflation has had a
significant impact on the results of operations for the periods presented. In
previous years, the Company believes it has been able to minimize the effects of
inflation by improving its purchasing efficiency, and to a lesser degree,
increasing selling prices of its products.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of" (SFAS 121), which
is effective for fiscal years beginning after December 15, 1995. SFAS 121
requires losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the asset's carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt SFAS 121 in fiscal 1997 and, based on
current circumstances, the Statement will not have a material impact on the
financial condition, operations or cash flows of the Company.
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation". SFAS 123 allows companies to continue to account for their stock
option plans in accordance with APB Opinion 25 but encourages the adoption of a
new accounting method which requires the recognition of compensation expense
based on the estimated fair value of employee stock options. Companies electing
not to follow the new fair value based method are required to provide expanded
footnote disclosures, including pro forma net income and earnings per share,
determined for fiscal years beginning after December 15, 1995. Management
intends to continue to account for its stock option plans in accordance with
APB Opinion 25 and provide supplemental disclosures as required by SFAS 123
beginning in fiscal 1997.
18
<PAGE>
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
The information required by Part III, Items 9 through 12, of Form 10-KSB are
incorporated by reference from the registrant's definitive proxy statement for
its 1996 annual meeting of shareholders, which is to be filed pursuant to
Regulation 14A no later than 120 days following the end of the fiscal year
reported upon.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits are submitted as a separate section of this Report
immediately following the "exhibit Index."
(b) During the fourth quarter of the Company's fiscal year ended June 29,
1996, the Company filed a report on Form 8-KSB announcing the
resignation of Joseph J. Messina from his positions as President and
Chief Operating Officer of the Company.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAKO MARINE INTERNATIONAL, INC.
(Registrant)
By: /s/ Douglas Baena
----------------------------
Douglas Baena
Chief Executive Officer, Chairman
of the Board and President (Signing
as Principal Executive Officer and
Director)
Date: September 24, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints DOUGLAS W. BAENA as his attorney-in-fact, with power of
substitution for him in any and all capacities, to sign any amendments to this
report on Form 10-KSB and to file the same, with exhibits thereto and other
documents in connection therewith, with Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute, may do or cause to be done by virtue hereof.
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
dates indicated.
By: /s/ Douglas Baena By: /s/ Joseph Messina
--------------------------- ---------------------------
Douglas Baena Joseph Messina, Director
Chief Executive Officer, Chairman
of the Board and President (Signing Date: September 24, 1996
as Principal Executive Officer and
Director) By: /s/ Jeffrey Bleustein
---------------------------
Jeffrey Bleustein, Director
Date: September 24, 1996
Date: September 24, 1996
By: /s/ Lawrence Tierney
---------------------------
Lawrence Tierney By: Bruce S. Foerster
Chief Financial Officer (signing as ---------------------------
Principal Financial Officer and Bruce S. Foerster, Director
Principal Accounting Officer
Date: September 24, 1996
Date: September 24, 1996
20
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Index
----------------------------------------
================================================================================
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheet F-3
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Mako Marine International, Inc.
Miami, Florida
We have audited the accompanying balance sheet of Mako Marine International,
Inc. as of June 29, 1996 and the related statements of operations, stockholders'
equity and cash flows for the year ended June 29, 1996 and the eleven months
ended July 1, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Company's financial statements referred to above present
fairly, in all material respects, the financial position of Mako Marine
International, Inc. at June 29, 1996 and the results of its operations and its
cash flows for the year ended June 29, 1996 and the eleven months ended July 1,
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses and negative
cash flow from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
August 21, 1996 BDO Seidman, LLP
West Palm Beach, Florida
F-2
<PAGE>
================================================================================
----------------------------------------
Mako Marine
International, Inc.
Balance Sheet
----------------------------------------
June 29, 1996
- --------------------------------------------------------------------------------
Assets (Note 6)
Current
Cash $ 530,123
Accounts receivable, less allowance for
possible losses of $58,279 1,253,163
Inventories (Note 4) 2,277,995
Prepaids and other 178,902
- --------------------------------------------------------------------------------
Total current assets 4,240,183
Property and equipment, net (Note 5) 3,064,115
Other assets 139,027
- --------------------------------------------------------------------------------
$ 7,443,325
================================================================================
See accompany note to financial statements.
F-3
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Balance Sheet
----------------------------------------
================================================================================
June 29, 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities
Current liabilities
Accounts payable $ 2,256,428
Accrued expenses 541,199
Accrued interest payable 183,736
Advance-CreditAmerica (Note 6) 385,906
Indemnities-current portion (Note 7) 85,178
Long-term debt-current portion (Note 6) 500,550
- --------------------------------------------------------------------------------
Total current liabilities 3,952,997
Note payable-CAVC (Note 6) 900,000
Indemnities, less current portion (Note 7) 227,142
Long term debt-less current portion (Note 6) 1,431,897
- --------------------------------------------------------------------------------
Total liabilities 6,512,036
- --------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
Stockholders' equity (Note 11)
Preferred stock, 2,000,000 shares authorized;
none issued --
Common stock, $.01 par value, 15,000,000
shares authorized; 2,655,000
shares issued and outstanding 26,550
Additional paid-in capital 6,317,873
Deficit (5,413,134)
- --------------------------------------------------------------------------------
Total stockholders' equity 931,289
- --------------------------------------------------------------------------------
$ 7,443,325
================================================================================
See accompanying notes to financial statements.
F-4
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Statements of Operations
----------------------------------------
<TABLE>
<CAPTION>
=============================================================================================
The Company | Old Mako
---------------------------- | ----------
Year Ended Eleven Months | One Month
June 29, Ended July | Ended July
1996 1, 1995 | 31, 1994
- -------------------------------------------------------------------------------|--------------
|
| (unaudited)
<S> <C> <C> | <C>
Net sales (Note 12) $19,863,331 $14,068,787 | $1,064,616
Cost of products sold 17,817,667 13,098,899 | 1,030,072
- -------------------------------------------------------------------------------|--------------
|
Gross profit 2,045,664 969,888 | 34,544
- -------------------------------------------------------------------------------|--------------
|
Expenses: |
Selling, general and administrative 4,548,703 3,037,398 | 224,490
Interest 312,174 320,237 | 29,371
Other 243,827 128,422 | 9,239
- -------------------------------------------------------------------------------|--------------
|
Total expenses 5,104,704 3,486,057 | 263,100
- -------------------------------------------------------------------------------|--------------
|
Loss before other income (3,059,040) (2,516,169) | (228,556)
Other income 103,265 58,810 | 344
- -------------------------------------------------------------------------------|--------------
|
Net loss $(2,955,775) $(2,457,359) | $ (228,212)
===============================================================================|==============
|
Net loss per common share $ (1.19) $ (2.43) | $ --
===============================================================================|==============
|
Average number of common shares 2,484,662 1,010,625 | --
===============================================================================|==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Statements of Stockholders' Equity
----------------------------------------
<TABLE>
<CAPTION>
===============================================================================================
Common Stock Additional
---------------- Paid-in
Shares Amount Capital Deficit Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock,
August 2, 1994 930,000 $ 9,300 $ 490,700 $ -- $ 500,000
Capital contribution -- -- 500,000 -- 500,000
Sale of warrants (Note 11) -- -- 37,000 -- 37,000
Net loss, eleven months ended
July 1, 1995 -- -- -- (2,457,359) (2,457,359)
- ----------------------------------------------------------------------------------------------
Balance, July 1, 1995 930,000 9,300 1,027,700 (2,457,359) (1,420,359)
Net proceeds from
Initial public offering 1,725,000 17,250 5,290,173 -- 5,307,423
Net loss, year ended
June 29, 1996 -- -- -- (2,955,775) (2,955,775)
- ----------------------------------------------------------------------------------------------
Balance, June 29, 1996 2,655,000 $26,550 $6,317,873 $(5,413,134) $ 931,289
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Statements of Cash Flows (Note 10)
----------------------------------------
================================================================================
<TABLE>
<CAPTION>
The Company | Old Mako
---------------------------- | ----------
Year Ended Eleven Months | One Month
June 29, Ended July | Ended July
1996 1, 1995 | 31, 1994
- -------------------------------------------------------------------------------|--------------
|
| (unaudited)
<S> <C> <C> | <C>
Operating activities: |
Net loss $(2,955,775) $(2,457,359) | $ (228,212)
Adjustments to reconcile net loss |
to net cash used in operating activities: |
Provision for depreciation 562,359 474,100 | 2,601
Amortization of deferred loan cost 164,054 128,422 | --
Changes in operating assets and |
liabilities, exclusive of the |
acquisition of Old Mako (Note 3): |
Decrease (increase) in accounts |
receivable (598,514) (313,727) | 87,280
Increase in inventories (505,517) (439,723) | (232,524)
Decrease (increase) in prepaids |
and other assets 262,676 (769,498) | (34,159)
Increase in accounts payable, |
accrued expenses and |
accrued interest payable 592,798 1,466,987 | 573,928
- -------------------------------------------------------------------------------|--------------
|
Net cash provided by (used in) |
operating activities (2,477,919) (1,910,798) | 168,914
- -------------------------------------------------------------------------------|--------------
|
Investing activities: |
Net cash used in investing activities -- |
Purchase of property and equipment (645,117) (451,932) | --
- -------------------------------------------------------------------------------|--------------
|
Financing activities: |
Proceeds from borrowings 280,000 2,117,691 | --
Principal payments on debt and |
indemnities (2,226,225) -- | (271,823)
Issuance of common stock 5,307,423 -- | --
Capital contribution -- 500,000 | --
Decrease (increase) in restricted cash 200,000 (200,000) | --
Proceeds from sale of warrants -- 37,000 | --
- -------------------------------------------------------------------------------|--------------
|
Net cash provided by (used in) |
financing activities 3,561,198 2,454,691 | (271,823)
- -------------------------------------------------------------------------------|--------------
|
Net increase (decrease) in cash 438,162 91,961 | (102,909)
Unrestricted cash, beginning of period 91,961 -- | 102,909
- -------------------------------------------------------------------------------|--------------
|
Unrestricted cash, end of period $ 530,123 $ 91,961 | $ --
===============================================================================|==============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
1. Summary of
Significant
Accounting
Policies
Business
Mako Marine International, Inc. (the Company) is engaged in the manufacture
and sale of offshore fishing and pleasure boats. Sales are concentrated on the
eastern coast of the United States, with a particular emphasis on Florida. The
balance of the Company's sales are made in the Gulf Coast, Great Lakes Regions,
West Coast and foreign markets.
Basis of Presentation
On August 2, 1994, the Company acquired the boat manufacturing assets of Mako
Marine, Inc. ("Old Mako") and assumed and incurred certain liabilities and
indemnities from an affiliate in a transaction accounted for as a purchase. The
financial statements presented for the one month ended July 31, 1994 have been
derived from the financial statements of Old Mako and exclude the business
operations of that company that were not acquired as a result of the
acquisition.
The Company has chosen the Saturday closest to June 30 as its year-end.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated on the cost basis. Depreciation is computed on
the straight-line method over the estimated useful lives of the respective
assets, five to seven years.
Revenue Recognition
Revenue from the sale of boats is recognized upon shipment. No sales return
provision has been recorded based on the Company's historical experience.
F-8
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
1. Summary
of Significant
Accounting
Policies
(Continued)
Net Loss Per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4-D, stock issued and stock options and warrants granted during the twelve month
period preceding the date of the Company's initial public offering
(the "IPO") (August 23, 1995) have been included in the calculation of weighted
average shares of common stock outstanding for the year ended June 29, 1996.
Income Taxes
The Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
rates that will be in effect when the differences are expected to reverse.
Warranty Reserves
The Company furnishes warranties on its manufactured products for periods
ranging from one to five years and provides for warranty related expenses and
accruals as a percentage of net sales based on historical experience.
Advertising Expense
Advertising expenses are charged to operations during the year in which they are
incurred. Advertising expenses for the year ended June 29, 1996 and the eleven
months ended July 1, 1995 were approximately $1,036,000 and $840,000.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-9
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
1. Summary
of Significant
Accounting
Policies
(Concluded)
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
financial statement presentation.
Fair Value of Financial Instruments
The Company's current assets and certain current liabilities approximate fair
value as of June 29, 1996. Due to the Company's financial position, the fair
value of debt including amounts due to related parties cannot be estimated.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of" (SFAS 121), which is effective for fiscal years
beginning after December 15, 1995. SFAS 121 requires losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying amount. SFAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company will
adopt SFAS 121 in fiscal 1997 and, based on current circumstances, the Statement
will not have a material impact on the financial condition, operations or cash
flows of the Company.
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation". SFAS 123 allows companies to continue to account for their stock
option plans in accordance with APB Opinion 25 but encourages the adoption of a
new accounting method which requires the recognition of compensation expense
based on the estimated fair value of employee stock options. Companies electing
not to follow the new fair value based method are required to provide expanded
footnote disclosures, including pro forma net income and earnings per share,
determined for fiscal years beginning after December 15, 1995. Management
intends to continue to account for its stock option plans in accordance with APB
Opinion 25 and provide supplemental disclosures as required by SFAS 123
beginning in fiscal 1997.
F-10
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
2. Going Concern
and
Management's
Plans
The Company's financial statements for the year ended June 29, 1996 have been
prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company sustained net losses of $2,955,775 and $2,457,359 for the
year ended June 29, 1996 and the eleven months ended July 1, 1995, and negative
cash flow from operations of $2,477,919 and $1,910,798 for the year ended June
29, 1996 and the eleven months ended July 1, 1995. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
As a result of the Company's losses and negative cash flow from operations, the
Company needs to achieve profitable operations and/or obtain additional debt or
equity financing. Management's plans in this regard are as follows: (i) the
Company is considering both debt and equity offerings that might or might not be
part of acquisitions that the Company is reviewing; (ii) through an expanded
network of dealers, the Company has increased its sales from comparable periods
in the prior year. Management believes that this, along with more effective
advertising, will allow for an expansion of its sales base for 1997; (iii)
during 1996, the Company implemented a re-engineering plan, with an emphasis on
cost control. Pursuant to this plan, during the first quarter of 1997, the
Company reduced management salaries by $200,000 by restructuring
responsibilities. Further, management has instituted Quality Teams, whereby
groups of employees are assigned certain models of boats to build as a team.
Management believes that this concept will significantly reduce the labor hours
required to build each model while also reducing material usage on a per boat
basis.
There can be no assurance that these anticipated improvements in operations or
the aforementioned financing can be achieved or available to the Company on
acceptable terms. If the Company is unable to improve operations or obtain
adequate additional financing, management will be required to sharply curtail
or suspend certain of the Company's operations.
F-11
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
3. Acquisition
In February 1994, CreditAmerica Venture Capital ("CAVC") agreed to provide Old
Mako with working capital advances and, upon certain conditions, to acquire Old
Mako's defaulted bank debt. Thereafter, CAVC acquired such defaulted debt by
paying the bank $500,000 in cash and giving the bank a promissory note in the
principal amount of $1.5 million. On August 2, 1994, CAVC foreclosed the
defaulted bank debt and acquired substantially all of the boat manufacturing
assets of Old Mako, concurrently assuming certain liabilities of approximately
$281,000, incurring certain transactional liabilities of $783,000 and
indemnifying the former principal stockholder of Old Mako in the amount of
approximately $816,000. CAVC then conveyed the acquired assets, assumed and
incurred liabilities and indemnifications to the Company at cost, including the
recording of a note payable of $900,000 to CAVC by the Company, in exchange for
930,000 shares of the Company's common stock. The transaction was accounted for
by the Company as a purchase. Accordingly, the cost basis of CAVC was assigned
to the assets acquired based on their estimated fair values (primarily based on
an appraisal of the property, equipment and molds) at the date of acquisition
(See Note 10).
4. Inventories
As of June 29, 1996, inventories by major classification is as follows:
- --------------------------------------------------------------------------------
Finished products $ 607,986
Work-in-process 560,973
Raw materials and supplies 1,109,036
- --------------------------------------------------------------------------------
$ 2,277,995
================================================================================
5. Property
and
Equipment
As of June 29, 1996, property and equipment by major classification is as
follows:
- --------------------------------------------------------------------------------
Furniture and fixtures $ 264,606
Machinery and equipment 732,085
Molds 3,055,669
Vehicles and trailers 48,214
- --------------------------------------------------------------------------------
4,100,574
Less accumulated depreciation 1,036,459
- --------------------------------------------------------------------------------
$ 3,064,115
================================================================================
F-12
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
6. Debt
The Company's $900,000 note payable to CAVC bears interest at 9% and is payable
in 24 equal monthly installments, commencing November 1997. The obligation is
collateralized by accounts receivable, inventory, property and equipment and
intangibles and is partially subordinate to the note payable to CreditAmerica,
Inc., note payable to bank and to supplier discussed below.
The note payable to CreditAmerica, Inc. (an entity controlled by an individual
who is an officer of the Company and a stockholder of CAVC) amounting to
$385,906 is payable on or after September 1, 1996 with interest at 9%. Accrued
interest is due on demand. The obligation is collateralized by accounts
receivable and inventories.
As of June 29, 1996, long-term debt consists of the following:
- --------------------------------------------------------------------------------
Note payable to bank bearing interest
at 9% (see below) $ 1,315,744
Non-interest bearing note payable to supplier,
interest imputed at 9.5% (see below) 616,703
- --------------------------------------------------------------------------------
1,932,447
Less current portion 500,550
- --------------------------------------------------------------------------------
$ 1,431,897
================================================================================
The 9% note payable to bank is payable interest only monthly through August
1995, $93,413 principal and interest payable quarterly thereafter with a balloon
payment due June 1999, collateralized by substantially all assets, partially
subordinated to the note payable to related party and partially subordinate to
the note payable to CAVC (Note 9).
The non-interest bearing note payable to supplier is payable from a) rebates on
purchases of marine engines from the supplier through January 1999 or b) by a
combination of rebates and cash payments through January 1999 in the event that
certain minimum engine purchase requirements are not met, collateralized by
marine engine inventory and patents and trademarks (Note 9).
F-13
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
6. Debt
(Concluded)
As of June 29, 1996, approximate maturities of long-term debt are as follows:
Year ending
- --------------------------------------------------------------------------------
1997 $ 501,000
1998 548,000
1999 435,000
2000 448,000
- --------------------------------------------------------------------------------
$1,932,000
================================================================================
7. Indemnities
In connection with CAVC's conveyance of substantially all of the business and
assets of Old Mako to the Company and the Company's assumption of certain
liabilities as discussed in Note 3, the Company indemnified the former principal
stockholder of Old Mako against a Small Business Administration (SBA) loan of
$387,488 and certain payroll tax liabilities limited to $342,759. The SBA loan
bears interest at 4% and is payable $8,010 monthly including interest through
November 1999. The payroll tax liability was paid during the year ended June 29,
1996.
F-14
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
8. Income Taxes
As of June 29, 1996, the tax effects of temporary differences that give rise to
deferred tax assets and liabilities are as follows:
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 2,155,000
Allowance for possible losses
and other 52,000
Warranty reserves 90,000
- --------------------------------------------------------------------------------
2,297,000
Less valuation allowance 2,025,000
- --------------------------------------------------------------------------------
Net deferred tax asset 272,000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (272,000)
- --------------------------------------------------------------------------------
Total deferred tax liability (272,000)
- --------------------------------------------------------------------------------
Net deferred income taxes $ --
================================================================================
At June 29, 1996, the Company has a tax net operating loss carryforward of
approximately $5,800,000 to offset future taxable income. The tax net operating
loss carryforward will expire as follows:
Fiscal year ending
- --------------------------------------------------------------------------------
2010 $ 2,500,000
2011 $ 3,300,000
================================================================================
Due to the effect of the IPO on the Company's ownership, under Section 382 of
the Internal Revenue Code, the amount of net operating loss carryforwards
originating prior to the date of the IPO (approximately $2,500,000) which may be
utilized in any one year, is limited to approximately $219,000.
F-15
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
9. Commitments
and
Contingencies
The Company leases its plant and office facilities from the principal
stockholder of Old Mako under an operating lease, requiring monthly payments
aggregating $542,400 annually and taxes associated with the property. The lease,
which expires July 2001, provides for two seven-year renewal options. For the
year ended June 29, 1996, and the eleven months ended July 1, 1995, rental
expense under the operating lease aggregated $577,656 and $517,203.
Both before and after the acquisition of the assets of Old Mako, there have
been, and continue to be, defaults by its landlord relating primarily to payment
of real estate taxes under the mortgages. The holder of the first mortgage has
agreed to forbear from exercise its remedies (including foreclosure) until
February, 1997 so long as no further events of default occur. At such time
consideration will be given to reinstatement of the original maturity date of
February 1999. The holder of the second mortgage for which the last payment is
owed in June 2000, has not waived past defaults consisting primarily of the
failure to pay Old Mako's real estate taxes.
If there are defaults under the mortgages on the manufacturing facility or the
Company defaults under its lease, the Company's lease could be terminated. Any
such termination would require the Company to relocate to new premises with
significant production delays and at substantial expense.
In connection with an agreement with a supplier of marine engines, the Company
may be liable for a deficiency penalty amounting to a maximum of approximately
$80,000 if it is unable to meet certain purchase commitments required to
amortize the note payable to the supplier (Note 6). At June 29, 1996, the
Company did not expect to meet the minimum engine purchase requirements under
the terms of the agreement and the Company anticipates that it will not purchase
the minimum number of engines specified during calendar 1996. Management
believes that the failure to meet this purchase requirement will not result in
the termination of the contract nor have any material adverse effect on its
results of operations.
F-16
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
9. Commitments
and
Contingencies
(Continued)
The Company sells its boats to independent dealers who typically finance the
purchases through "floor plan" financing arrangements with lenders. In
connection with the floor plan financing with certain dealers, the Company
guarantees directly to lenders that they will repurchase boats with unencum-
bered titles which are in unused condition if the dealer defaults on its obliga-
tion to repay the loan. The Company was contingently liable for approxi- mately
$5,700,000 under the terms of these agreements. During the year ended June 29,
1996 and the eleven months ended July 1, 1995, returns were insignificant. The
Company pays certain floor plan fees as part of this arrangement. Floor plan
fees totaled approximately $246,000 and $111,000 for the year and eleven months
ended June 29, 1996 and July 1, 1995.
The Company has been named as a defendant in several lawsuits involving the
operations of Old Mako. They are as follows: (i) On September 27, 1994, an
action was commenced in St. Lucie County, Florida seeking recovery of $209,500
for legal services performed on behalf of Old Mako. The complaint asserts
successor liability against the Company alleging the fraudulent transfer of
assets of Old Mako to the Company and seeking the avoidance of the transfer of
such assets. The Company denies any transferee liability. The litigation is in
the discovery stage. (ii) On December 12, 1994, an action was commenced in Dade
County, Florida seeking recovery of the sum of $157,000 plus interest and costs.
The complaint alleges that the Company wrongfully and intentionally exercised
dominion and control, and diverted to its own use, the materials sold to Old
Mako and committed fraud in that it made false statements to the plaintiff to
obtain the materials. The Company filed a motion to dismiss the complaint, and
the complaint was dismissed. An amended claim was filed and the Company has
filed a motion to dismiss the amended complaint. The court has not yet ruled on
the motion to dismiss. (iii) On August 2, 1995, an amended impleader complaint
was filed in Dade County, Florida seeking aggregated recovery of approximately
$400,000. The complaint alleges that the manner in which the Company acquired
the assets of Old Mako resulted in a fraudulent transfer by Old Mako and further
results in the Company having successor liability for such judgements. The
complaint seeks to avoid such transfers or liable the Company for the unpaid
balance of the judgments. The Company has filed a motion to dismiss the case
claiming that the assets were rightfully transferred. The court entered summary
judgment in favor of the Company with respect to successor liability claims, and
deferred ruling upon the fraudulent transfer claims until a future hearing. (iv)
During June 1996, the Company was named as a defendant in a suit alleging that
the Company is liable under a successor liability theory for an alleged breach
of a sales representation agreement by Old Mako. The complaint seeks relief of
$501,800. Management does not believe that it has
F-17
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
9. Commitments
and
Contingencies
(Concluded)
any liability in this complaint and is in the process of obtaining counsel to
defend the matter.
Additionally, during July, 1996, an action was commenced in Palm Beach County,
Florida against the Company seeking an unspecified amount. The Plaintiff alleges
that the Company wrongfully failed to renew its dealer agreement. Management
does not believe that it has any liability in this complaint.
The Company believes that all of the aforementioned actions are without merit.
CAVC has agreed to indemnify the Company from any losses and expenses in excess
of $150,000 arising out of claims against the Company for liabilities of Old
Mako that were not assumed in August 1994. CAVC acknowledges that the lawsuits
described in (i), (ii) and (iii) above are within the scope of the indemnity and
the Company has no reason to believe that CAVC will not fulfill its obligations
under such indemnity. While there can be no assurance as to the ultimate outcome
of these actions, the Company believes that such actions will not have a
material adverse effects on the Company's financial position or operations.
As of January 1, 1995, the Company entered into an employment agreement with its
Chairman of the Board. The agreement expires three years from the date of the
consummation of the IPO (August 23, 1995). Pursuant to the employment agreement,
the Chairman of the Board is entitled to receive a salary totalling $170,000
annually. In addition, the Chairman of the Board is entitled to receive an
annual bonus of not less than three quarters of one percent of the Company's net
revenues for the prior fiscal year in excess of $20 million; the bonus is
payable only if the Company earns pre-tax profits, and then only up to 10% of
the pre-tax profits for such year.
The Company has employment arrangements with aggregate annual base payments of
$200,000, expiring through June 1998. Additionally, the Company has entered into
a consulting agreement with a former officer of the Company expiring June 30,
1997 for $50,000.
F-18
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
10. Supplemental
Cash Flow
Information
During the year ended June 29, 1996 and the eleven months ended July 1, 1995,
cash of approximately $270,000 and $179,000 was paid for interest.
Noncash Investing and Financing Activities:
On August 2, 1994, the Company acquired the boat manufacturing business of Old
Mako. In conjunction with the acquisition, assets were acquired and liabilities
were assumed and incurred as follows:
- --------------------------------------------------------------------------------
Fair value of assets acquired:
Accounts receivable $ 340,922
Inventories 1,332,755
Prepaids and other 103,583
Property and equipment 3,003,525
- --------------------------------------------------------------------------------
4,780,785
- --------------------------------------------------------------------------------
Liabilities assumed and incurred:
Accounts Payable:
Assumed 281,000
Incurred 783,417
Indemnities 816,368
Debt 2,400,000
- --------------------------------------------------------------------------------
4,280,785
- --------------------------------------------------------------------------------
Common stock issued to CAVC,
valued at amount of CAVC's cash
consideration paid upon the
acquisition of Old Mako (Note 3) $ 500,000
================================================================================
F-19
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
11. Initial Public Offering,
Warrants and
Stock Option
Plans
On August 23, 1995, the Company successfully completed its IPO for 1,725,000
units (consisting of one share of common stock and one stock warrant) which
generated net proceeds of $5,307,423, net of expenses of $1,592,577.
In connection with the Company's IPO, 1,725,000 redeemable common stock purchase
warrants were issued to the public. Each warrant entitles the holder to purchase
one share of common stock for $4.00 per share during redeemable common stock
purchase the four-year period commencing August 23, 1996. Additionally,
1,375,000 redeemable common stock purchase warrants were issued to certain
persons upon exchange of warrants received in connection with the Company's
April 1995 bridge financing. These warrants are exercisable at $4.00 per share
commencing on August 23, 1996. With the IPO underwriter's prior consent, the
Company may redeem the foregoing warrants at a price of $.01 per warrant, at any
time once they become exercisable upon not less than 30 days prior written
notice if the last sale price of the Common Stock has been at least 175% of the
exercise price of the Warrants on 20 of the 30 consecutive trading days ending
on the third day prior to the date on which the notice is given.
In connection with the IPO, the Company sold to its underwriter for a nominal
consideration a unit purchase option, consisting of the right to purchase
150,000 of the IPO units. Each unit consists of one share of common stock and
one redeemable common stock purchase warrant. The unit purchase option is
exercisable at a per unit price of $5.76 for a period of four years commencing
August 23, 1996.
On November 10, 1995, 5,000 warrants were granted to consultants exercisable at
$4.00 per share commencing on November 10, 1996 for a period of five years.
During fiscal 1995, CAVC contributed an additional $500,000 to the Company's
capital in a series of transactions.
In connection with the acquisition of the Company (Note 3), warrants to purchase
70,000 shares of the Company's common stock were issued to a bank. The warrants
are exercisable at prices ranging from $.43 to $.71 per share over the period
commencing August 31, 1997 and ending six months after the Company has satisfied
all requirements of the $1,500,000 note payable to the bank (Note 6).
Pursuant to the Company's Stock Option Plan, a total of 225,000 shares of common
stock have been reserved for issuance at prices to be determined by the Stock
Option Committee at the date of issuance.
F-20
<PAGE>
----------------------------------------
Mako Marine
International, Inc.
Notes to Financial Statements
----------------------------------------
================================================================================
11. Initial Public Offering
Warrants and
Stock Option
Plans
(Concluded)
Options have been granted as follows:
Exercise
Number of Price per Date of Exercise
Shares Share Grant Period
- --------------------------------------------------------------------------------
25,000 $2.50 03/01/95 5 years
15,000 $4.00 06/01/95 5 years
15,000 $4.00 08/23/95 5 years
15,000 $1.00 08/23/95 5 years
15,000 $4.00 01/16/96 5 years
41,400 $4.00 01/22/96 5 years
25,000 $4.25 06/28/96 5 years
- --------------------------------------------------------------------------------
Total 151,400
================================================================================
12. Major
Customer
During the year ended June 29, 1996, the Company had no customers with net sales
in excess of 10%. For the eleven months ended July 1, 1995, the Company had net
sales to one customer amounting to approximately $1,560,000 (11.1% of net
sales).
F-21
<PAGE>
INDEX TO EXHIBITS
Exhibits No. Description Page *
1.1 Form of Underwriting Agreement between the Company and the
Underwriter
1.2 Form of Selected Dealers Agreement
1.3 Form of Financial Consulting Agreement between the Company
and the Underwriter
1.4 Underwriter's Purchase Option
2.1 Purchase Agreement dated February 25, 1994 between Barnett
Bank of South Florida, N.A. and CAVC
2.2 Agreement dated as of August 2, 1994 between CAVC and the
Company.
2.3 Non-Competition Agreement dated February 29, 1994 between
CAVC and Robert Schwebke
2.4 Bill of Sale dated August 2, 1994 from CAVC to the Company
3.1 Articles of Incorporation of the Company, as amended.
3.2 By-Laws of the Company
3.3** Amendment to By-Laws of the Company
4.1 Specimen stock certificate of the Company's Common stock
4.2 Form of Warrant and Warrant Agreement
4.3 Form of Warrant included as part of Underwriter's Purchase
Option
4.4 Warrants issued in connection with Bridge Financing
4.5 Warrant dated August 2, 1994 of the Company issued to
Barnett Bank of South Florida, N.A.
4.6 Forms of Secured Promissory Note, Security Agreement
(Inventory and Accounts), Trademark Collateral Security
Agreement, and Subscription Agreement, each dated April 18,
1995, issued in connection with the Bridge Financing
4.7 Note and Security Agreement dated August 2, 1994 between the
Company and Barnett Bank of South Florida, N.A.
4.8 Loan Agreement dated August 2, 1994 between the Company and
CAVC, as amended by letter dated November 21, 1994
4.9 Loan Agreement dated August 2, 1994 between the Company and
CreditAmerica
4.10 Letter dated April 18, 1995 to the Company from
CreditAmerica and CAVC with respect to the repayment of
insider indebtedness
4.11 Basic Agreement dated November 21, 1994 by and between
Brunswick and the Company
4.12 Secured Note dated November 21, 1994 from the Company to
Brunswick in the original principal amount of $825,000,
together with Security Agreement dated November 21, 1994
between the Company and Brunswick and Intercreditor
Agreement dated November 21, 1994 between Barnett Bank of
South Florida, N.A. and Brunswick
4.13 Salt Water Joint Marketing Agreement dated November 21, 1994
between Mercury Marine, a division of Brunswick and the
Company, as supplemented and amended on November 21, 1994,
together with addendum to supplement and amendment dated
November 22, 1994
4.14** Letter Agreement dated August 8, 1996 between the Company
and Barnett Bank
- --------
* Except as otherwise noted, each exhibit listed herein is incorporated by
reference to the exhibit of the same number filed by the Company with its
Form SB-2 Registration Statement, Commission File Number 33-94168, on June
30, 1995 and as amended on August 15, 1995 and August 21, 1995.
** Filed herewith.
<PAGE>
10.1 Employment Agreement dated as of January 1, 1995 between the
Company and Douglas W. Baena
10.2 Employment Agreement dated as of January 1, 1995 between the
Company and Joseph J. Messina
10.3 Employment Agreement dated as of March 1, 1995 between the
Company and Lawrence Tierney
10.4 Employment Agreement dated as of May 9, 1995 between the
Company and Edward Kunuty
10.5 Letter dated June 21, 1995 from the Company to Jeffrey
Bleustein.
10.6 Agreement dated July 26, 1994 between the Company and Vincam
Human Resources, Inc.
10.7 Floor Plan Repurchase Agreement dated December 14, 1994
between the Company and Bombardier Capital Corp.
10.8 Manufacturers Financing Agreement dated July 28, 1994
between the Company and TransAmerica Commercial Financial
Corp.
10.9 Inventory Repurchase Agreement dated August 1, 1994 between
the Company and Nations Credit Commercial Corporation, Inc.
10.10 Shareholders' Agreement dated February 23, 1994 among
Douglas W. Baena, Harry Bresky, Buy America, Inc., Wilmont
Holdings Corp., Joseph O'Sullivan, Robert Sponheimer and
Brett Schwebke and CAVC as amended on August 15, 1994 and
October 14, 1994
10.11 Warrant to purchase shares of Common Stock of CAVC
10.12 Agency Agreement between the Company and the Underwriter
dated March 30, 1995, as amended April 7, 1995
10.13 Letter dated April 18, 1995 from CAVC to the Company with
respect to the Bridge Financing
10.14 Letter dated April 18, 1995 from CreditAmerica to the
Company with respect to the Bridge Financing
10.15 Letter dated April 17, 1995 from Brunswick to the Company
with respect to the Bridge Financing
10.16 Agreement dated April 18, 1995 by and among Robert C.
Schwebke, Douglas Baena, H. Harry Bresky, the Company and
CAVC
10.17 Agreement dated April 18, 1995 between CAVC and the Company
with respect to certain loans to and indemnifications of the
Company
10.18 Lock-up letter dated April 17, 1995 from Barnett Bank of
South Florida, N.A. to the Company
10.19 Agreement by and among the Company, CAVC and the Underwriter
dated April 18, 1995 pursuant to which certain agreements
may not be amended without the prior consent of the
Underwriter
10.20 Form of Independent Dealer Agreement
10.21 Amendment to Baena and Messina Employment Agreements
10.22 Lock-up agreements dated
10.23 The Company's 1995 Stock Option Plan
10.24 Amended Triple Net Lease dated April 18, 1995 between Robert
C. Schwebke and the Company
10.25 Florida Mortgage and Security Agreement dated January 23,
1979 by and between Robert C. Schwebke and Judith A.
Schwebke and The Prudential Insurance Company of America
10.26 Mortgage and Security Agreement dated July 24, 1986 between
Robert C. Schwebke and Barnett Bank of South Florida, N.A.
- --------
* Except as otherwise noted, each exhibit listed herein is incorporated by
reference to the exhibit of the same number filed by the Company with its
Form SB-2 Registration Statement, Commission File Number 33-94168, on June
30, 1995 and as amended on August 15, 1995 and August 21, 1995.
** Filed herewith.
<PAGE>
10.27 Mortgage and Security Agreement dated July 24, 1986 between
Robert C. Schwebke and Barnett Bank of South Florida, N.A.
10.28 Mortgage Spreader and First Modification to Note and
Mortgage dated February 25, 1994 between Robert C. Schwebke
and Barnett Bank of South Florida, N.A.
10.29 Form of Agreement for Sales Representation
10.30 Employment Agreement Dated as of August 2, 1994, as
amended, between the Company and Brett Schwebke
10.31 Employment arrangement dated as of June 24, 1995 between the
Company and Daniel Chips
10.32 Promissory note dated as of June 1, 1995 from the Company to
CAVC
10.33 Promissory note dated as of June 30, 1995 from the Company
to CreditAmerica
10.34** Termination Agreement dated April 3, 1996 between the
Company and Brett Schwebke
10.35** Letter Agreement dated April 10, 1996 amending Termination
Agreement with Brett Schwebke
10.36** Letter Agreement Dated March 27, 1996 between the Company and
Brett Schwebke
24 Power of Attorney (included on the signature page of the
Company's Annual Report on Form 10-KSB)
27** Financial Data Schedule
- --------
* Except as otherwise noted, each exhibit listed herein is incorporated by
reference to the exhibit of the same number filed by the Company with its
Form SB-2 Registration Statement, Commission File Number 33-94168, on June
30, 1995 and as amended on August 15, 1995 and August 21, 1995.
** Filed herewith.
EXHIBIT 3.3
MAKO MARINE INTERNATIONAL, INC.
AMENDMENT TO BY-LAWS
--------------------
Article II, Section 2 of the By-Laws is hereby amended to read as follows:
"2. Qualifications and Number. A director need not be a
-------------------------
shareholder, a citizen of the United States, or a resident of the
State of Florida. The initial Board of Directors shall consist
of two persons, which shall be the number of directors until
changed. Thereafter, the number of directors shall be fixed by
the Board of Directors or by the shareholders if not fixed by the
Board; provided, however, that the number of directors shall not
be less than two nor more than seven."
Adopted by the Board of Directors
January 16, 1996
BARNETT BARNETT BANKS, INC.
BANK
Special Assets Division
100 North Laura Street
Post Office Box 40789
Jacksonville, FL 32202
August 8, 1996
Mako Marine International, Inc.
7308 Pine Forest Circle
Lake Worth, Florida 33767
Dear Sir:
Reference is made to (a) a certain Security Agreement dated June 30, 1994,
as amended, between us (the "Security Agreement"), and (b) the stock purchase
warrant of that date, as amended, issued by you to the Bank ("Warrant").
1. Section 2.3 of the Security Agreement is amended by deleting the
phrase "for a period of two (2) years from the Escrow Closing Date" and
inserting the following in lieu thereof:
"for the period through and including August 31, 1997".
2. Paragraph B., "Expiration", of the Warrant is amended by providing
that, in not event shall the Warrant expire before the later of (a) August 31,
1997, or (b) the date six months after the Company has fully satisfied its loan
obligations to the Bank as set forth in the Promissory Note of June 30, 1994.
3. Notwithstanding the foregoing, all of the other terms and conditions
of the Security Agreement and Warrant shall remain in full force and effect.
<PAGE>
Mako Marine International, Inc.
August 8, 1996
Page 2
IN WITNESS WHEREOF, this Amendment has been executed by Secured Party and
Borrower as of the date set forth above.
SECURED PARTY:
BARNETT BANK, N.A., a national banking
association, formerly known as Barnett Bank of
Jacksonville, successor by merger to Barnett Bank
of South Florida, N.A.
BY: BARNETT BANKS, INC., attorney in fact for Barnett
Bank, N.A. pursuant to that certain Power of
Attorney dated as of March 1, 1992.
Robert J. Gummig, Jr.
By: _____________________________
Print Name: Robert J. Gummig, Jr.
Title: Special Assets Officer
BORROWER:
---------
MAKO MARINE INTERNATIONAL, INC.
Douglas W. Baena
By: _____________________________
Print Name: Douglas W. Baena
Title: CEO/President
EXHIBIT 10.30
AMENDMENT NO. 1
TO THE
1995 STOCK OPTION PLAN
OF
MAKO MARINE INTERNATIONAL, INC.
WHEREAS, Mako Marine International, Inc. (the "Corporation") has
adopted the 1995 Stock Option Plan of Mako Marine International, Inc. (the
"Plan"); and
WHEREAS, Section 16 of the Plan permits the Board of Directors of the
Corporation to amend the Plan; and
WHEREAS, the Board of Directors of the Corporation now desires to
amend the Plan in certain respects;
NOW, THEREFORE, the Plan is hereby amended as follows:
FIRST: The first sentence of Section 3 of the Plan is hereby amended
to read as follows:
"The Plan shall be administered by a Committee of two or more
Directors."
SECOND: Section 11 of the Plan is hereby amended by (i) deleting the
------
last two sentences of the third paragraph thereof and (ii) deleting the last
paragraph thereof.
THIRD: The provisions of this Amendment shall be effective as of June
-----
28, 1996.
FOURTH: Except to the extent hereinabove set forth, the Plan shall
------
remain in full force and effect.
IN WITNESS WHEREOF, the Board of Directors of the Corporation has
caused this Amendment to be executed by a duly authorized officer of the
Corporation on the 28th day of June, 1996.
---- ----
MAKO MARINE INTERNATIONAL, INC.
By:
----------------------------
Title:
----------------------------
EXHIBIT 10.34
Law Offices
HOLLAND & KNIGHT
701 Brickell Avenue
Miami, Florida 33131
April 3, 1996
Via Fax No. (212) 308-5945
Alan C. Winick, Esq.
919 Third Avenue
New York, NY 10022
Re: Brett Schwebke
Dear Mr. Winick:
Thank you for your prompt response to my letter of March 29, 1996. As we
discussed today, Mr. Brett Schwebke will agree to the following settlement
terms:
1. Mr. Schwebke will tender his resignation to Mako Marine International,
Inc. ("MMI") effective March 29, 1996.
2. MMI pays Mr. Schwebke the total sum of $100,000, payable in sixteen
equal monthly installments of $6,250.00 each beginning April 15, 1996. MMI will
make each payment to Mr. Schwebke on or before the fifteenth of each month.
3. The covenant not to compete shall remain in effect for a period of two
(2) years after the effective date of Mr. Schwebke's resignation, so long as the
compensation referred to in paragraph 1 above is timely paid as required by
paragraph 1 above as within 5 days after receipt of notice of nonpayment by MMI.
4. MMI will allow Mr. Schwebke to remove and keep the drafting table
(including accompanying stool), and three fish tanks (including the related fish
tank equipment and fish tank housing) located in MMI's offices.
5. The parties will execute mutual releases within 20 days, but Mr.
Schwebke's release of MMI will only be as to matters arising from his employment
agreement with MMI, and will specifically exclude matters related to Mr.
Schwebke's status and/or rights as shareholder of Credit America Venture
Capital, Inc.
<PAGE>
Alan C. Winick, Esq.
April 3, 1996
Page 2
This letter is an attempt to amicable resolve a dispute, and as such, this
is a confidential settlement communication and its contents are not to be
construed as admissions of any kind.
If MMI agrees with the five numbered terms set forth above, please have Mr.
Douglas Baena sign on behalf of MMI on the line
provided below and return a signed copy via facsimile to my attention.
Sincerely,
Holland & Knight
Stephen Stallings
Stephen S. Stallings
For Mako Marine International, Inc.
by its attorney
Winick & Rich, P.C.
_______________
EXHIBIT 10.35
WINICK & RICH, P.C.
Attorneys at Law
919 Third Avenue
New York, N.Y. 10028
Tel. (212)935-9260
Fac. (312)308-5945
(212)935-2315
April 10, 1996
Stephen S. Stallings
Holland & Knight
701 Brickell Avenue
P.O. Box 015441
Miami, Florida
Re: Mako Marine International, Inc. ("MMI") with Brett
Schwebke
Dear Mr. Stallings:
You and we have hereto executed on behalf of our above referenced clients a
letter agreement dated April 3, 1996 which contains certain ink changes
initialed by us. Notwithstanding that such Agreement is effective in accordance
with its terms, you requested that we provided you with a clean copy of such
letter with the ink changes incorporated plus some additional language that you
and we requested. Accordingly, MMI and Schwebke agree as follows:
1. Schwebke acknowledges that he has resigned from MMI effective March
29, 1996 and except as provided in paragraph 3 hereof the Employment Agreement
including the proposed amendment between Schwebke and MMI is hereby terminated
effective as of such date.
2. MMI shall pay Schwebke the total sum of $100,000 in full settlement of
all of its obligations to Schwebke under his Employment Agreement and otherwise
in connection with his employment payable in sixteen (16) equal monthly
installments of $6,250.00 each beginning April 15, 1996 and thereafter on the
15th day of each month until the total sum is paid.
3. The terms of Schwebke's covenant not to compete set forth in the
Employment Agreement shall remain in effect for a period of 2 years from and
after March 29, 1996, unless MMI fails to pay any installment provided in
paragraph 2 hereof when due
<PAGE>
and such default continues for five (5) days following receipt by MMI of written
notice of default. Notice of default shall be sent by mail to MMI at its
address 4355 N.W. 128th Street, Miami, Florida 33054, or fax at (305) 769-0940
Attn: Lawrence S. Tierney, Chief Financial Officer. (1) On reasonable prior
notice, Schwebke may remove and keep the drafting table (including accompanying
stool) and three fish tanks (including the related fish tank equipment and fish
tank housing) located at MMI's offices.
4. Except for the obligations of MMI and Schwebke pursuant to this
Letter Agreement each of MMI and Schwebke hereby for themselves and their heirs,
executors, successors, and assigns, (and in the case of MMI its officers,
directors and shareholders) release, remise and discharge, any claims, loss,
damage, actions, causes, liabilities or matters of any kind which each of the
parties has or may have against the other relating to the employment of Schwebke
by MMI. This release specifically excludes any matters related to Schwebke's
status and/or rights as a shareholder of CreditAmerica Venture Capital, Inc., a
shareholder of MMI.
Sincerely,
Alan C. Winick
ACW/tdb
____________________________
Brett Schwebke
Mako Marine International, Inc.
Douglas W. Baena
By:____________________________
Douglas W. Baena,
Chief Executive Officer
Exhibit 10.36
4355 N.W. 128TH STREET
MIAMI, FLORIDA 33054
TELEPHONE: (305)685-6591
FACSIMILE: (305)769-0940
MAKO MARINE INTERNATIONAL, INC.
March 27, 1996
Brett Schwebke
5010 NW 54th Street
Coconut Creek, Florida 33075
Dear Brett:
As a consequence of the differences and disagreements that have arisen between
us relating to the performance of your duties, we are herewith terminating your
employment with the Company effective as of March 29, 1996.
Considering our relationship with you and your family it is our desire to agree
upon satisfactory termination arrangements with you.
Accordingly, we are prepared to offer to you either of the following termination
plans:
4. Payment of the sum of $6,250.00 per month (pro-rated for partial months)
until July 24, 1997 provided your covenant not to compete shall remain in
effect so long as your compensation is paid.
5. Payment of the sum of $1,000.00 per month (pro-rated for partial months)
until July 24, 1997 and your covenant not to compete will be released.
Under either plan, we shall each release one another from any claims, other than
obligations under the termination agreement.
Since we do not wish you to lose any of your medical insurance coverage, please
contact Esther Prout to make arrangements for COBRA coverage to be effective
following your termination.
Please call me to resolve this matter.
Sincerely,
Douglas Baena
Douglas W. Baena
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE STATEMENT OF
FINANCIAL CONDITION AS OF AND FOR THE YEAR ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<CASH> 530,123
<SECURITIES> 0
<RECEIVABLES> 1,311,442
<ALLOWANCES> 58,279
<INVENTORY> 2,277,995
<CURRENT-ASSETS> 4,240,183
<PP&E> 4,100,574
<DEPRECIATION> 1,036,459
<TOTAL-ASSETS> 7,443,325
<CURRENT-LIABILITIES> 3,952,997
<BONDS> 1,659,039
0
0
<COMMON> 26,550
<OTHER-SE> 904,739
<TOTAL-LIABILITY-AND-EQUITY> 7,443,325
<SALES> 19,863,331
<TOTAL-REVENUES> 19,966,596
<CGS> 17,817,667
<TOTAL-COSTS> 17,817,667
<OTHER-EXPENSES> 4,756,530
<LOSS-PROVISION> 36,000
<INTEREST-EXPENSE> 312,174
<INCOME-PRETAX> (2,955,775)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,955,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,955,775)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
