UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
For the quarterly period ended MARCH 30, 1996
-----------------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For the transition period from to
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Commission File number 33-94168
---------------------------
MAKO MARINE INTERNATIONAL, INC.
- ---------------------------------------------------------------------------
-
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0501535
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4355 NW 128TH STREET MIAMI, FLORIDA 33054
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(Address of principal executive offices)
(305) 685-6591
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(Issuer's telephone number)
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
--- ---
As of May 10, 1996, there were 2,655,000 shares of common stock, $0.01 par value
per share, outstanding.
1
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
Part 1. Financial Information
- ------- ---------------------
Item 1. Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 9-12
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
BALANCE SHEET
(UNAUDITED)
The Company
-----------
March 30,
1996
- --------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 87,108
Accounts receivable, less allowance for possible
losses of $42,013 1,020,945
Inventories 3,411,643
Prepaids and other 279,330
- --------------------------------------------------------------------------
Total current assets 4,799,026
Property and equipment, net 2,894,000
Other assets 141,653
- --------------------------------------------------------------------------
$ 7,834,679
- --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities
Accounts payable $ 2,013,857
Accrued expenses 638,950
Accrued interest payable 140,849
Current portion of indemnities 82,620
Current portion of long term debt 295,895
- --------------------------------------------------------------------------
Total current liabilities 3,172,171
Note payable, CreditAmerica Venture Capital, Inc.
(CAVC), an affiliate 900,000
Note payable, CreditAmerica, Inc., an affiliate 235,906
Indemnities, less current portion 243,612
Long term debt, less current portion 1,646,230
- --------------------------------------------------------------------------
Total liabilities 6,197,919
- --------------------------------------------------------------------------
Contingencies
- --------------------------------------------------------------------------
Stockholders' equity
Preferred stock; 2,000,000 shares authorized;
none issued
Common stock $.01 par value, 15,000,000 shares
authorized; 2,655,000 shares issued and
outstanding 26,550
Additional paid-in capital 6,317,873
Deficit (4,707,663)
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Total stockholders' equity 1,636,760
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$ 7,834,679
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See accompanying notes to financial statements.
3
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE><CAPTION>
The Company
------------------------------------------------
Three Three Nine Eight
months months months months Old Mako
--------
ended ended ended ended One Month
March April March April ended July
30, 1996 1, 1995 30, 1996 1, 1995 31, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,380,766 $ 4,047,594 $ 13,797,185 $ 9,653,056 $ 1,064,616
Cost of products sold 3,880,187 3,736,311 12,192,817 8,900,019 1,030,072
- ---------------------------------------------------------------------------------------------------
Gross profit 500,579 311,283 1,604,368 753,037 34,544
- ---------------------------------------------------------------------------------------------------
Expenses:
Selling, general and
administrative 1,389,219 965,851 3,473,727 2,098,439 224,490
Interest 73,534 105,170 244,881 220,814 29,371
Other 16,202 37,527 217,039 93,013 9,239
- ---------------------------------------------------------------------------------------------------
Total expenses 1,478,955 1,108,548 3,935,647 2,412,266 263,100
- ---------------------------------------------------------------------------------------------------
Loss before other income (978,376) (797,265) (2,331,279) (1,659,229) (228,556)
Other income 21,235 22,685 80,974 25,640 344
- ---------------------------------------------------------------------------------------------------
Net loss $ (957,141) $ (774,580) $(2,250,305)$(1,633,589)$ (228,212)
- ---------------------------------------------------------------------------------------------------
Net loss per common share $ (.35) $ (.83) $ (.94)$ (1.76)$ -
- ---------------------------------------------------------------------------------------------------
Average number of common
shares 2,735,345 930,000 2,395,286 930,000 -
- ---------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
The Company
-------------------------------
Nine months Eight months Old Mako
--------
ended ended One Month
March April ended July
30, 1996 1, 1995 31, 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Operating activities:
Net loss $ (2,250,305) $ (1,633,589) $ (228,213)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for depreciation 415,811 344,800 2,601
Amortization of deferred loan costs 165,054 128,422 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable (366,296) (64,874) 87,280
Increase in inventories (1,639,165) (209,542) (232,523)
Decrease (increase) in prepaids and
other assets 158,622 (552,161) (34,159)
Increase in accounts payable, accrued
expenses and accrued interest payable 405,092 918,901 573,928
- ---------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (3,111,187) (1,068,043) 168,914
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Investing activities:
Purchase of property and equipment (328,454) (438,220) -
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Net cash used in investing activities (328,454) (438,220) -
- ---------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from borrowings - 1,007,432 -
Principal payments on debt and indemnities (2,072,635) (500,000) (271,823)
Issuance of common stock, net 5,307,423 500,000
Capital contribution - 500,000 -
Decrease in restricted cash 200,000 - -
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 3,434,788 1,507,432 (271,823)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (4,853) 1,169 (102,909)
Cash and cash equivalents
(unrestricted), beginning of period 91,961 - 102,909
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents
(unrestricted), end
of period $ 87,108 $ 1,169 $-
- ---------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
5
<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.
Basis of Presentation
- ---------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10-QSB and Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
considered necessary for a fair presentation have been included. For further
information, refer to the audited financial statements and footnotes thereto
included in the prospectus that is part of the Company's Registration Statement
on Form SB-2 (SEC File no. 33-94168) filed with the Securities and Exchange
Commission in conjunction with the Company's initial public offering in August
1995. The results of operations for the nine months ended March 30, 1996 are
not necessarily indicative of the results of operations for the full year.
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.
Initial Public Offering
- -----------------------
On August 23, 1995, the Company successfully completed an initial public
offering of common stock. The Company sold 1,725,000 shares at $4.00 per share.
The net proceeds to the Company were $5,307,423 after deducting underwriting
fees and other expenses in the amount of $1,592,577.
6
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Approximately $2,110,000 of the net proceeds have been utilized to repay debt
and the remainder, approximately $3,200,000 have been used for working capital
purposes.
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 (August 23,
1995) have been included in the calculation of weighted average shares of common
stock outstanding for the nine months ended March 30, 1996.
Cash Equivalents
- ----------------
Cash equivalents consist of highly liquid investments with maturities of three
months or less.
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.
Reclassifications
- -----------------
Certain prior period amounts have been reclassified to conform to the current
financial statement presentation.
7
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
2. CONTINGENCIES
On or about August 22, 1995 the Company was joined as a defendant in two
lawsuits by the same party which allege the existence of judgments held by
certain plaintiffs against Old Mako aggregating approximately $400,000. The
Company does not believe it is subject to 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 successor
liability for such judgments. The complaint seeks to avoid such transfer or,
alternatively, that the Company and the former sole-stockholder of the Company
be held liable for the unpaid balance of the judgments, together with costs and
attorney's fees. The Company has filed a responsive pleading as well as a motion
for summary judgment. Management does not believe the outcome of this matter
will have a material effect on the operations of the Company.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, manufactures and sells offshore boats under the Mako
name for sportfishing and family recreational use and commenced active
operations in August 1994 when it acquired the boat manufacturing assets of 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 net losses. The Company recruited a new management team with the
objective of instituting operating efficiencies, improving its relationships
with dealers and expanding its dealer distribution network. For further
information, refer to the prospectus that is part of the Company's Registration
Statement on Form SB-2 (SEC File no. 33-94168) filed with the Securities and
Exchange Commission with the Company's initial public offering in August 1995.
The following table which combines the one month ended July 31, 1994 of Old
Mako and the eight months ended April 1, 1995 of the Company, is included solely
for use in comparative analysis of results of operations and to facilitate
management's discussion and analysis. For the results of operations for the
three months ended March 30, 1996 and April 1, 1995, see statements of
operations.
(unaudited) (unaudited)
March 30, April 1,
Nine Months Ended 1996 1995
- ---------------------------------------------------------------------------
Net sales $13,797,185 $10,717,672
Cost of products sold 12,192,817 9,930,091
- ---------------------------------------------------------------------------
Gross profit 1,604,368 787,581
- ---------------------------------------------------------------------------
Expenses
Selling, general and administrative 3,473,727 2,322,929
Interest 244,881 250,185
Other 217,039 102,252
- ---------------------------------------------------------------------------
3,935,647 2,675,366
- ---------------------------------------------------------------------------
Loss before other income (2,331,279) (1,887,785)
Other income 80,974 25,984
- ----------------------------------------------------------------------------
Net loss $(2,250,305) $(1,861,801)
- ----------------------------------------------------------------------------
9
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS AND NINE MONTHS ENDED MARCH 30, 1996
VERSUS THREE MONTHS AND COMBINED NINE MONTHS ENDED APRIL 1, 1995.
NET SALES
The Company's net sales for the quarter ended March 30, 1996 (the third
quarter of the fiscal year ending June 29, 1996) increased by $333,172 (or 8.2%)
to $4,380,766 from $4,047,594 for the corresponding quarter of the prior year.
During the current fiscal year the Company implemented strategies designed to
increase net sales. To that end the Company attracted approximately 19 new
dealers both in under performing markets and in new markets primarily in the
western United States. The Company believes that these new dealers are well
regarded in their respective marketplaces and have begun to actively market the
Company's products. The Company has increased the sales of its walkaround cabin
models due to improved appearance and the success of its 243 model introduced at
the end of fiscal 1995. The implementation of the forgoing strategies has
resulted in a modest increase in net sales for the quarter. However, sales for
the third quarter were below the Company's expectations. The Company attributes
this shortfall to a decline in total industry sales, which coincided with many
of the winter boat shows as well as a very cold lingering winter season.
Commencing in January 1996, the Company began to manufacture boats for inventory
in anticipation of the start of the spring selling season. During the third
quarter there was a buildup of approximately $1,300,000 of inventory that led to
a lack of liquidity (see Liquidity and Capital Resources). The buildup was in
part caused by a failure to increase sales and, to a lesser extent, by a lack of
sufficient tooling to manufacture a popular model. The Company has added
tooling to meet market demands. For the nine months ended March 30, 1996, net
sales increased $3,079,513 (or 28.7%) to $13,797,185 for the same period of the
prior year.
The Company realizes that in order to meaningfully reduce its losses, sales must
continue to increase.
COST OF PRODUCTS SOLD AND GROSS PROFIT
Gross profit for the quarter ended March 30, 1996 increased $189,296 to $500,579
(11.4% of net sales) from $311,283 (7.7% of net sales) for the corresponding
quarter of the prior year. For the nine months ended March 30, 1996, gross
profit increased $816,787 to $1,604,368 (11.6% of net sales) from $787,581 (7.3%
of net sales) for the same period of the prior year. The improved gross margin
percentage is the result of increased sales of boats with higher gross margins
and reductions in the overall cost of manufacturing the Company's products. For
example, the new 191 center console model introduced this quarter has a higher
gross margin than its predecessor. Although gross margin has improved,
manufacturing costs have exceeded standard by approximately $325,000 for the
quarter. For the nine months ended March 30, 1996 such excess aggregated
approximately $1,400,000 of which direct labor costs accounted for approximately
$800,000 and material usage for approximately $600,000. The Company endeavors
to reduce direct labor while maintaining production at a level adequate to
satisfy demand. The Company believes that a new inventory control system and
redirected personnel will control excess material usage.
The Company has not achieved its goals for reducing costs of manufacturing as
planned under its re-engineering program, begun earlier this year. The Company
realizes that in order to reduce its losses, gross margin must significantly
increase by a combination of higher sales and reduced manufacturing costs.
10
<PAGE>
OPERATING, INTEREST AND OTHER EXPENSES
Commencing in the late spring of 1995, the Company assembled a new management
team and began to implement new marketing strategies. However, the impact of
these strategies has affected significantly the Company's results of operations
for the third fiscal quarter and the fiscal year to date. Consequently,
selling, general and administrative expenses increased by $423,368 (or 43.8%) to
$1,389,219 for the quarter ended March 30, 1996, from $965,851 for the
corresponding quarter in the prior year. For the nine months ended March 30,
1996, selling, general and administrative expenses increased $1,150,798 (49.5%)
to $3,473,727 from $2,322,929 for the corresponding period of the prior fiscal
year. The major components of the increase in selling, general, and
administrative expenses were (A) the hiring of five new management personnel and
four new staff employees at an annual cost of approximately $800,000, (B)
additional advertising and marketing expenditures of $120,000 and, (C) costs
associated with holding a dealer meeting for the first time in many years of
$80,000. Additionally, variable sales and advertising expenses, such as
commissions and dealer programs increased in relation to increased sales. The
current level of selling, general and administrative costs are more than
adequate to service current sales activity as well as potential near term
growth.
Other expenses were substantially higher for the nine months ended March 30,
1996 due to the unamortized costs related to a bridge loan of approximately
$170,000 that were paid during the first quarter of fiscal year 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.
NET LOSS
For the reasons noted above, the net loss for the quarter ended March 30, 1996,
was $957,141 as compared to $774,580 for the corresponding quarter of the prior
fiscal year. For the nine months ended March 30, 1996, the net loss was
$2,250,305 as compared to $1,861,801 for the corresponding period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
During August 1995, the Company completed an initial public offering and
generated net proceeds of $5,307,423. For the nine monthes ended March 30,
1996, the Company used $2,072,635 for principal payments on debt, $328,454 for
capital expenditures and $3,111,187 to fund operations. The use of cash to fund
operating activities was a result of the Company's net loss of $2,250,305 offset
by depreciation and amortization totalling $580,865, an increase in accounts
receivable of $366,296 and an increase in inventories of $1,639,165 in
anticipation of increased sales. The Company incurred a decrease in prepaid and
other assets of $158,622 as well as an increase in current payables of $405,092
associated with higher inventory levels.
Since its inception, the Company's internally generated cash flow has not been
sufficient to finance its operations. As described above, the Company has met
its capital requirements primarily through the proceeds generated by the initial
public offering. The Company initially anticipated that the proceeds of the
offering, together with existing resources and cash generated from future
operations would be sufficient to satisfy the Company's contemplated cash
requirements for 18 to 24 months. As described in Net Sales (Results of
Operations), the Company's inventories have increased dramatically by
approximately $1,300,000 during the third quarter of fiscal year 1996 to
$3,400,000 at March 30, 1996.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
In order for the Company to meet its cash needs, as previously planned, the
Company must reduce its inventory promptly. Management believes that such
reduction should occur by sales of its products in the ordinary course of
business. If the Company is unsuccessful, in whole or part, in selling its
excess inventory then it would consider obtaining additional inventory
financing. There can be no assurances that the Company will be able to obtain
such additional financing, or, if such financing will be on acceptable terms.
The inability to obtain such financing would have a material adverse effect on
the Company.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to item 1 of the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
13
<PAGE>
In accordance with the requirements 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.
May 10, 1996 Douglas Baena
- -------------------- ----------------------------------------
Date Douglas Baena
Chief Executive Officer
May 10, 1996 Lawrence Tierney
- ------------------------- ---------------------------------------------
Date Lawrence Tierney
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at March 30, 1996 (Unaudited) and the
Statement of Operations for the Nine Months Ended March 30, 1996 (Unaudited)
and is qualified in its entirely by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
<CASH> 87,108
<SECURITIES> 0
<RECEIVABLES> 1,062,958
<ALLOWANCES> 42,013
<INVENTORY> 3,411,643
<CURRENT-ASSETS> 4,799,026
<PP&E> 3,783,911
<DEPRECIATION> 889,911
<TOTAL-ASSETS> 7,834,679
<CURRENT-LIABILITIES> 3,172,171
<BONDS> 3,025,748
<COMMON> 26,550
0
0
<OTHER-SE> 1,610,210
<TOTAL-LIABILITY-AND-EQUITY> 7,834,679
<SALES> 13,797,185
<TOTAL-REVENUES> 13,878,159
<CGS> 12,192,817
<TOTAL-COSTS> 12,192,817
<OTHER-EXPENSES> 3,672,766
<LOSS-PROVISION> 18,000
<INTEREST-EXPENSE> 244,881
<INCOME-PRETAX> (2,250,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,250,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,250,305)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
