SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
(Amendment No. )
Check the appropriate box:
[X] Preliminary Information Statement |_| Confidential, For Use of the
Commission Only (as Per-
mitted by Rule 14c-5(d)(2))
|_| Definitive Information Statement
MAKO MARINE INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box): N/A
|_| No fee required
|_| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
<PAGE>
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
-2-
<PAGE>
MAKO MARINE INTERNATIONAL, INC.
4355 N.W. 128th Street
Miami, Florida 33504
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES ACT OF 1934
This Information Statement is being mailed on or about April 28, 1997,
to holders of record as of the close of business on April 15, 1997 of shares of
common stock, par value $.01 per share ("Common Stock") of Mako Marine
International, Inc., a Florida corporation ("Mako"). It is being furnished in
connection with the action taken by Tracker Marine, L.P., a Missouri limited
partnership ("Tracker") of executing and delivering to Mako Tracker's written
consent to an amendment of the Articles of Incorporation of Mako approving an
increase in the number of authorized shares of Common Stock as described below
(the "Amendment"). Tracker is currently the holder of approximately 80.9% of the
issued and outstanding Common Stock of Mako and has taken such action without a
meeting of shareholders under Florida law as described below. Florida law
requires that the Board of Directors authorize, and holders of a majority of the
outstanding shares of Common Stock approve, the Amendment.
The Amendment was authorized by the Board of Directors of Mako (the
"Board") on January 15, 1997, at which time the Board recommended that the
Amendment be submitted for shareholder approval. Tracker, as the holder of
approximately 80.9% of the outstanding Common Stock, has approved the Amendment
by written consent, dated April 15, 1997.
No further action is required by the shareholders of Mako in connection
therewith. However, Section 14(f) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), requires Mako to mail to the holders of its Common
Stock the information set forth in this Information Statement at least twenty
calendar days prior to the effectiveness of the Amendment, which effectiveness
shall occur upon the filing by Mako of the Amendment with the Secretary of State
of Florida.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
As of the close of business on April 15, 1997, Mako had outstanding
9,055,000 shares of Common Stock, of which 7,330,000 shares were beneficially
owned by Tracker and the remaining, 1,725,000 beneficially owned by the other
shareholders of Mako (the "Public Shareholders"). Additionally, warrants and
options to purchase 3,622,900 shares of Common Stock (collectively, the
"Derivative Shares"), including 3,100,000 publicly traded Redeemable Common
Stock Purchase Warrants, were outstanding. Mako's Articles of Incorporation
currently authorize a maximum of 15,000,000 shares of Common Stock and 2,000,000
shares of preferred stock. No shares of preferred stock have been issued.
AMENDMENT TO ARTICLES OF INCORPORATION
Background
On January 16, 1997, Tracker acquired control of Mako by means of
Tracker's purchase of 930,000 shares (the "CAVC Shares") of Common Stock from
CreditAmerica Venture Capital, Inc., immediately followed by Tracker's purchase
from Mako of 6,400,000 newly issued shares of Common Stock (the "Mako Shares").
With its acquisition of the CAVC Shares and the Mako Shares (the "Transaction"),
Tracker acquired a total of 7,330,000 shares of Common Stock (representing
approximately 80.9% of the then and currently outstanding shares of Common
Stock). The purchase price paid by Tracker for the Mako Shares consisted of cash
in the amount of $4,140,000 and assets relating to Tracker's salt-water boat
business, including exclusive rights over a five year period to advertise Mako's
salt water boat products in the "Off Shore Angler" catalog published by an
affiliate of Tracker.
<PAGE>
As previously disclosed, Mako had been seeking additional debt or
equity financing in order to meet its cash requirements and to continue as a
going concern. The Transaction provided not only an opportunity for Mako to
increase its equity by approximately $9,400,000 and obtain the needed infusion
of cash and assets, but also the opportunity to take advantage of Tracker's
marketing and management expertise and distribution network. In order to avoid
the delay in consummating the Transaction that would have resulted from seeking
shareholder approval prior to closing, and given the fact that, following the
Transaction, the number of shares of Common Stock owned by Tracker would be well
in excess of the minimum number required for shareholder approval, it was
determined that it would be in the best interest of Mako to effect the Amendment
following the consummation of the Transaction.
Reason for the Amendment
The purchase and sale of the Mako Shares was effected pursuant to a
stock purchase agreement dated January 16, 1997 between Tracker and Mako (the
"Stock Purchase Agreement"). In order to permit Tracker the ability to retain at
least an 80% interest in Mako (which was required by Tracker as a condition to
its entering into the Stock Purchase Agreement), the Stock Purchase Agreement
provided for the following:
(1) For a period commencing January 16, 1997 and ending August
23, 2000 (the "Period"), Mako will issue to Tracker (i) 1,800,000
shares of Common Stock, if, at any time during the Period, the market
price of the Common Stock is $5 or more during a period of ten
consecutive trading days, (ii) an additional 1,800,000 shares of Common
Stock, if, at any time during the Period, the price of the Common Stock
is $6 or more during a period of ten consecutive trading days, (iii) an
additional 3,629,000 shares of Common Stock, if, at any time during the
Period, the market price of the Common Stock is $7 or more during a
period of ten consecutive days (such shares being referred to herein as
the "Contingent Shares"); and
(2) The grant by Mako to Tracker of an option to acquire
additional shares of Common Stock at $1.50 per share (the
"Anti-Dilution Shares"), which option may only be exercised by Tracker
upon the issuance by Mako of any Derivative Shares, and only to the
extent required to permit Tracker to maintain an 80% interest in Mako
(without regard to Mako's issuance of any shares other than the
Derivative Shares).
Currently, there are 15,000,000 shares of Common Stock authorized by
Mako's Articles of Incorporation, of which 9,055,000 are issued and outstanding,
leaving 5,945,000 shares available for issuance. Of the 5,945,000 available for
issuance, a total of 3,622,900 shares of Common Stock are reserved for issuance
of the Derivative Shares. The remaining 2,322,100 shares of Common Stock which
are unreserved and available for future issuance are not sufficient to cover the
combined number of shares required to satisfy Mako's obligation with respect to
the issuance of Contingent Shares and Anti-Dilution Shares.
Mako has determined that the maximum number of shares of Common Stock
that would be required under any likely combination of occurrences or actions in
connection with the Derivative Shares, Contingent Shares and the Anti-Dilution
Shares will not exceed approximately 27,000,000 shares of Common Stock.
Increasing the authorized shares of Common Stock by 15,000,000 shares, to a
total of 30,000,000 authorized shares, should, in combination with the number of
shares currently outstanding and reserved for the issuance of Derivative Shares,
permit Mako to reserve sufficient shares to meet its obligations to Tracker with
respect to the Contingent Shares the Anti-Dilution Shares. Mako has no plans to
issue any shares of Common Stock other than with respect to the Derivative
Shares, the Contingent Shares and the Anti-Dilution Shares.
The Board of Directors of Mako, as constituted prior to the completion
of the Transaction authorized the Amendment to Mako's Articles of Incorporation
to increase the number of shares of Common Stock from 15,000,000 to 30,000,000,
subject to the closing of the Transaction, and has recommended that the
Amendment be submitted for shareholder approval. As indicated above, Tracker, as
the holder of 7,330,000 of Common Stock, constituting a majority of the
outstanding shares of Common Stock required to approve the Amendment, has
approved the Amendment pursuant to its written consent dated April 15, 1997.
2
<PAGE>
Terms of the Amendment
The Amendment approved by the written consent of Tracker will increase
the number of authorized shares of Mako Common Stock from 15,000,000 shares to
30,000,000 shares. The first paragraph of Article FOURTH of Mako's Articles of
Incorporation, as amended, will read as follows:
"FOURTH: the number of shares of capital stock that the
corporation is authorized to issue is 32,000,000, of which
2,000,000 shares shall be Preferred Stock and 30,000,000
shares shall be Common Stock."
Mako's Board recommended approval of the Amendment to Tracker, and
Tracker executed and delivered to Mako its written consent approving the
Amendment in accordance with Section 607.0704 of the Florida Business
Corporation Act, which provides that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting, without prior
notice and without a vote if the action is taken by holders of outstanding stock
entitled to vote thereon having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
voting shares entitled to vote thereon were present and voted. Under Florida
law, an amendment to articles of incorporation requires approval by a majority
of the votes entitled to be cast with respect to the amendment.
This Information Statement constitutes notice to the Public
Shareholders of the foregoing written consent received from Tracker. The action
consented to by Tracker is not an action for which dissenters' rights are
provided under the Florida Business Corporation Act.
Description of Common Stock
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that holders of more than 50% of the shares of Common Stock voted can elect all
of the directors then being elected. Since Tracker currently holds approximately
81% of the outstanding shares of Common Stock, it can generally authorize or
approve any action required to be authorized or approved by the shareholders of
Mako, including the election of the entire board of directors of Mako, without
any further shareholder approval. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the board of directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Mako, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock. Holders of shares of Common Stock, as
such, have no redemption, preemptive or other subscription rights, and there are
no conversion provisions applicable to the Common Stock.
Financial and Other Information
For a description of the financial information presented herein, see
the Index to Financial Statements and Other Information beginning on page F-1
hereof.
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND OTHER INFORMATION
FINANCIAL STATEMENTS AS OF AND FOR THE TWELVE MONTH PERIOD ENDED JUNE 29, 1996
OF MAKO, AND RELATED MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.
Report of BDO Seidman, LLP, independent certified public
accountants of Mako, dated August 21, 1996........................... F - 3
Balance Sheet as of June 29, 1996.................................... F - 4
Statements of Operations for the year ended June 29, 1996,
the eleven months ended July 1, 1995 and the one month ended
July 31, 1994........................................................ F - 6
Statements of Stockholders' Equity at June 29, 1996 and
July 1, 1995......................................................... F - 7
Statements of Cash Flows for the year ended June 29, 1996,
the eleven months ended July 1, 1995 and the one month ended
July 31, 1994........................................................ F - 8
Notes to Financial Statements........................................ F - 9
Management's Discussion and Analysis of Financial Condition..........F - 23
UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD ENDED DECEMBER
28, 1996 OF MAKO, AND RELATED MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION.
Unaudited Balance Sheet at December 28, 1996..........................F - 27
Unaudited Statements of Operations for the three-months and
six-months ended December 28, 1996 and 1995...........................F - 28
Statements of Cash Flows at December 28, 1996 and December 30,
1995..................................................................F - 29
Notes to Financial Statements.........................................F - 30
Management's Discussion and Analysis of Financial Condition...........F - 32
FINANCIAL STATEMENTS OF THE SALTWATER BOAT BUSINESS REGARDING THE COMBINED
ASSETS AND OPERATIONS OF THE SILVER KING AND SEACRAFT BOAT DIVISIONS OF TRACKER
AS OF AND FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 28, 1996.
Report of Independent Public Accountants..............................F - 36
Combined Statement of Net Assets as of December 28, 1996..............F - 37
Combined Statement of Operations and Changes in Net Assets
for the fiscal year ended December 28, 1996...........................F - 38
Combined Statement of Cash Flows for the fiscal year ended
December 28, 1996.....................................................F - 39
Notes to Combined Financial Statements................................F - 40
F-1
<PAGE>
UNAUDITED PROFORMA FINANCIAL STATEMENTS REGARDING THE COMBINATION OF MAKO AND
THE SILVER KING AND SEACRAFT BOAT DIVISIONS OF TRACKER AS OF AND FOR THE PERIODS
INDICATED.
Proforma Combined Balance Sheet at December 28, 1996..................F - 43
Proforma Combined Statement of Operations for the six-months
ended December 28, 1996...............................................F - 44
Proforma Combined Statement of Operations for the year
ended June 29, 1996...................................................F - 45
Notes to Unaudited Proforma Combined Financial Statements.............F - 46
F-2
<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.
/S/ BDO Seidman, LLP
August 21, 1996 BDO Seidman, LLP
West Palm Beach, Florida
F-3
<PAGE>
================================================================================
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
================================================================================
F-4
<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-5
<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-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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
certain of the Company's operations.
F-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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 unencumbered
titles which are in unused condition if the dealer defaults on its obligation to
repay the loan. The Company was contingently liable for approximately $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 any liability in this
complaint and is in the process of obtaining counsel to defend the matter.
F-18
<PAGE>
Mako Marine
International, Inc.
Notes to Financial Statements
================================================================================
9. Commitments
and
Contingencies
(Concluded)
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-19
<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-20
<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 warrants were issued to the
public. Each warrant entitles the holder to purchase one share of common stock
for $4.00 per share during 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 year.
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-21
<PAGE>
Mako Marine
International, Inc.
Notes to Financial Statements
================================================================================
11. Capital
Deficit,
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-22
<PAGE>
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
Cost of products
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)
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.
F-23
<PAGE>
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)
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.
F-24
<PAGE>
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
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 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-25
<PAGE>
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.
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 No. 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-26
<PAGE>
Mako Marine International, Inc.
Balance Sheet
(unaudited)
- --------------------------------------------------------------------------
December 28, 1996
- --------------------------------------------------------------------------
Assets
Current assets
Cash $ 162,118
Accounts receivable, less allowance for
doubtful accounts of $100,074 340,072
Inventories 2,361,496
Prepaid and other assets 362,894
- --------------------------------------------------------------------------
Total current assets 3,226,580
Property and equipment, net 2,849,416
Other assets 137,866
- --------------------------------------------------------------------------
$ 6,213,862
- --------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Liabilities
Current liabilities
Accounts payable $ 2,701,223
Accrued expenses 1,110,655
Accrued interest payable 238,105
Advance - Credit America, Inc., an affiliate 300,906
Current portion of note payable, CreditAmerica
Venture Capital, Inc., an affiliate 75,000
Current portion of indemnities 86,895
Current portion of long-term debt 573,508
- --------------------------------------------------------------------------
Total current liabilities 5,086,292
Note payable, CreditAmerica Venture
Capital, Inc., an affiliate 825,000
Indemnities, less current portion 183,261
Long-term debt, less current portion 1,239,798
- --------------------------------------------------------------------------
Total liabilities 7,334,351
- --------------------------------------------------------------------------
Stockholders' equity (deficit)
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
Accumulated deficit (7,464,912)
- --------------------------------------------------------------------------
Total stockholders' equity (deficit) (1,120,489)
- --------------------------------------------------------------------------
$ 6,213,862
- --------------------------------------------------------------------------
See accompanying notes to financial statements.
F-27
<PAGE>
<TABLE>
Mako Marine International, Inc.
Statements of Operations
(unaudited)
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
December 28, December 30, December 28, December 30,
1966 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,156,846 $ 5,549,726 $ 9,287,076 $ 9,416,419
Cost of products sold 4,043,149 4,627,036 8,469,674 8,312,625
- -----------------------------------------------------------------------------------------------------------------
Gross profit 113,697 922,690 817,402 1,103,794
- -----------------------------------------------------------------------------------------------------------------
Operating and other expenses:
Selling, general and administrative 1,318,280 1,149,351 2,544,895 2,084,513
Interest 105,380 79,459 185,661 171,347
Other 39,000 24,317 48,158 200,837
- -----------------------------------------------------------------------------------------------------------------
Total expenses 1,462,660 1,253,127 2,778,714 2,456,697
- -----------------------------------------------------------------------------------------------------------------
Loss before other income (1,348,963) (330,437) (1,961,312) (1,352,903)
Other income (expense) (95,286) 31,513 (90,466) 59,739
- -----------------------------------------------------------------------------------------------------------------
Net loss $ (1,444,249) $ (298,924) $(2,051,778) $(1,293,164)
- -----------------------------------------------------------------------------------------------------------------
Net loss per common share $ (.53) $ (.11) $ (.75) $ (.58)
- -----------------------------------------------------------------------------------------------------------------
Average number of common shares 2,724,048 2,730,600 2,724,048 2,220,512
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-28
<PAGE>
<TABLE>
Mako Marine International, Inc.
Statements of Cash Flows
(unaudited)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
December 28, 1996 December 30, 1995
<S> <C> <C>
Operating activities
Net loss $ (2,051,778) $ (1,293,164)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for depreciation 337,453 269,261
Provision for doubtful accounts 48,000 9,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 865,091 (638,818)
Increase in inventories (83,501) (321,755)
Decrease (increase) in prepaids and assets (182,831) 236,852
Increase in accounts payable, accrued
expenses and accrued interest payable 1,068,620 (265,605)
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating 1,054 (2,004,229)
activities
- ------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment (122,754) (207,894)
Purchase of marketable securities - (192,274)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (122,754) (400,168)
- ------------------------------------------------------------------------------------------------------------
Financing activities:
Principal payments on debt and indemnities (246,305) (1,969,956)
Issuance of common stock, net - 5,309,815
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (246,305) 3,339,859
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (368,005) 935,462
Cash and cash equivalents, beginning of
period 530,123 91,961
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 162,118 $ 1,027,423
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-29
<PAGE>
Mako Marine International, Inc.
Notes to Financial Statements
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 the normal recurring
adjustments) considered necessary for a fair presentation have been included.
For further information, refer to the audited financial statements as of June
29, 1996 and footnotes thereto filed on form 10-KSB (SEC File No. 0-26618) filed
with the Securities and Exchange Commission. The results of operations for the
six months ended December 28, 1996 are not necessarily indicative of the results
of operations for the full year.
Net Loss Per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin Topic
4-D, stock issued and stock options granted have been included in the
calculation of weighted average shares of common stock outstanding for the six
months ended December 28, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported 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.
F-30
<PAGE>
Subsequent Event
On January 16, 1997, the Company sold to Tracker Marine, L.P., a Missouri
limited partnership ("Tracker") 6,400,000 newly issued shares (the "Mako
Shares") of the Company's common stock, having a par value of $.01 per share
(the "Mako Common Stock"), for a purchase price consisting of cash in the amount
of $4,140,000 and assets relating to Tracker's saltwater boat business. The Mako
Shares, together with Tracker's contemporaneous purchase of 930,000 shares (the
"CAVC Shares") of Mako Common Stock from CreditAmerica Venture Capital, Inc.
("CAVC") resulted in Tracker's acquisition of a total of 7,330,000 shares of
Mako Common Stock, representing approximately 80.9% of the then outstanding
shares of Mako Common Stock. The results of the three and six month periods
ended December 28, 1996 do not reflect the Company's acquisition of Tracker's
Saltwater Boat Business.
F-31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements within the meaning of
Federal securities laws which, while reflective of management's beliefs or
expectations, involve certain risks and uncertainties, many of which are beyond
the control of the Company. Accordingly, the Company's actual results and the
timing of certain events could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, the significant losses incurred by the Company during the first six
months of fiscal 1997, those factors discussed in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below and the "Risk Factors" contained in the Company's prospectus
dated August 23, 1995.
Results of Operations for Three Months and Six Months Ended December 28, 1996
Versus Three Months and Six Months Ended December 30, 1995
Overview
On January 16, 1997, the Company sold to Tracker 6,400,000 newly issued Mako
Shares for a purchase price consisting of cash in the amount of $4,140,000 and
assets relating to Tracker's saltwater boat business, including Tracker's
manufacturing facility located in Punta Gorda, Florida, its "Seacraft" and
"Silver King" brands of off-shore fishing boats and the exclusive right over a
five-year period to advertise at preferred rates the Company's saltwater boat
products in a catalog published by an affiliate of Tracker that distributes
annually more than 40 million catalogs worldwide. The Mako Shares, together with
Tracker's contemporaneous purchase of the 930,000 CAVC Shares from CAVC resulted
in Tracker's acquisition of a total of 7,330,000 shares of Mako Common Stock,
representing approximately 80.9% of the then outstanding shares of Mako Common
Stock.
The Stock Purchase Agreement provides, among other things, that in addition to
the Mako Shares, during the period beginning on the Closing Date (January 16,
1997) and ending 90 business days following the exercise, redemption or
expiration of the Company's publicly-traded Redeemable Common Stock Purchase
Warrants, the Company will issue to Tracker (i) 1,800,000 shares, if the market
price of the Mako Common Stock is $5.00 or more during a period of ten
consecutive trading days, (ii) an additional 1,800,000 shares, if the price of
the Mako Common Stock is $6.00 or more during a period of ten consecutive
trading days, and (iii) an additional 3,629,000 shares, if the market price of
the Mako Common Stock is $7.00 or more during a period of ten consecutive
trading days. The expiration date of the aforementioned public warrants is
August 23, 2000.
F-32
<PAGE>
The Stock Purchase Agreement also provides Tracker with an option to acquire
additional shares of Mako Common Stock at $1.50 per share. The option is
designed to permit Tracker to maintain an 80% interest in the Company to the
extent that options and warrants to acquire shares of Mako Common Stock which
were outstanding on the Closing Date are exercised in the future. There are
currently outstanding options and warrants to purchase 3,622,900 shares of Mako
Common Stock, which expire at varying dates through 2001.
As indicated below, the currently low sales level of the Company's product is
not sufficient to support the Company's current fixed cost levels. Additionally,
certain variable costs incurred by the Company in connection with the
manufacture of its products are high. Management believes that the additional
boat brands and the Company's exclusive catalog rights discussed above should
result in increased sales. Management further believes that through its
affiliation with Tracker, certain efficiencies can be achieved and that the
Company could be able to obtain certain materials and components used in the
manufacture of its products from outside sources at lower prices.
Net Sales
The Company's net sales for the quarter ended December 28, 1996 (the second
quarter of the fiscal year ending June 28, 1997) decreased by $1,392,880 (or
25%) to $4,156,846 from $5,549,726 for the corresponding quarter of the prior
fiscal year. This decrease was primarily attributable to: (i) industry wide
slower retail sales; and (ii) manufacturing delays in producing two new models
(a 25 foot center console which replaced an older model and a 33 foot center
console).
The Company's net sales for the six months ended December 28, 1996, decreased by
$129,343 or (1.4%) to $9,287,076 from $9,416,419 for the corresponding period of
the prior year, which decrease is attributable to the decreased sales occurring
during the second quarter of fiscal 1997, discussed above.
Cost of Products Sold and Gross Profit
Gross profit for the quarter ended December 28, 1996 decreased by $808,993 to
$113,697 (2.7% of net sales) from $922,690 (16.6% of net sales) for the
corresponding quarter of the prior fiscal year. This decrease is a result of:
(i) the reduced sales volume referred to above; (ii) the spreading of fixed
overhead costs over decreased production volumes; (iii) labor inefficiencies due
in part to the unavailability of certain components and parts; and (iv) the sale
of boats with a lower gross profit margin.
F-33
<PAGE>
Gross profit for the six months ended December 28, 1996, decreased by $286,392
to $817,402 from $1,103,794 for the corresponding period of the prior year,
which decrease is attributable to the decreased gross profit occurring during
the second quarter of fiscal 1997, discussed above.
Operating Expenses
Selling, general and administrative expenses for the quarter ended December 28,
1996 increased by $168,929 (or 14.7%) to $1,318,280 from $1,149,351 for the
corresponding quarter of the prior fiscal year. The increase was primarily
attributable to: (i) increased sales incentive programs of $70,000 in the
quarter ended December 28, 1996 compared to the quarter ended December 30, 1995;
(ii) increased warranty costs of approximately $185,000; and (iii) an offsetting
decrease in miscellaneous general costs of approximately $85,000.
Selling, general and administrative expenses for the six months ended December
28, 1996, increased $460,382 (or 22.1%) to $2,544,895 from $2,084,513 for the
corresponding period of the prior year. The increase is a result of: (i)
increased sales incentive programs of $170,000 in the six months ended December
28, 1996 compared to the six months ended December 30, 1995; (ii) higher selling
and administrative salaries of approximately $65,000; (iii) approximately
$260,000 in increased warranty costs; (iv) increased professional fees amounting
to approximately $60,000; and (v) an offsetting decrease in advertising costs of
approximately $100,000.
Pursuant to the amendatory Letter Agreement, CAVC is obligated to satisfy
approximately $94,000 of Selling, general and administrative expenses accrued as
of December 28, 1996.
Other expenses for the six months ended December 28, 1996 decreased by $152,679
to $48,158 from $200,837 for the corresponding period of the prior year when the
Company expensed loan costs of approximately $170,000 associated with a bridge
loan.
F-34
<PAGE>
Other Income and Expenses
During the quarter ended December 28, 1996, the Company recorded a $100,000
provision relating to potential environmental issues discovered at the Company's
plant during the due diligence review in conjunction with the Stock Purchase
Agreement. By amendatory Letter Agreement dated January 16, 1997 among the
Company, CAVC and Tracker, it was agreed among the parties that CAVC would
deposit in escrow the sum of $1,310,000 to secure CAVC's obligations with
respect to any costs and expenses incurred in connection with remedial, clean-up
and other costs associated with the removal of any contamination in, on or under
the "Property" (hereinafter defined) to the extent required to meet regulatory
requirements (the "Remedial Costs"). Under the terms of such amendatory Letter
Agreement, the Company is obligated to pay the first $100,000 of Remedial Costs.
Thereafter, such costs are paid in consecutive increments of $200,000 and
$50,000 by CAVC and the Company, respectively, until the Remedial Costs reach
$1,710,000,. As a result of the foregoing, the Company is responsible for
payments of up to $400,000 in respect of the first $1,710,000 of Remedial Costs,
and for such amounts, if any, in excess of $1,710,000. While the final report of
the environmental engineers has not yet been completed, management believes,
based upon preliminary information received to date, that a majority of the
potential contamination on, in or under the Property comes from off-site
sources, and that the Company will not incur material losses as a result of its
limited obligation with respect to the Remedial Costs.
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
an initial public offering (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 six months ended December 28, 1996, the Company had cash flows from
operating activities of $1,054. The Company used $246,305 for principal
repayments of debt (financing activities) and $122,754 for capital expenditures
(investing activities).
The cash provided by operating activities resulted from an increase in accounts
payable and accrued expenses of $1,068,620, a decrease in accounts receivable of
$865,091 (also an increase in the allowance for doubtful accounts of $48,000)
and depreciation and amortization totaling $337,453. Uses of cash included the
Company's net loss of $2,051,778, and an increase in inventories and prepaid
assets (such as insurance and boat show costs) of $83,501 and $182,831,
respectively.
F-35
<PAGE>
As indicated in the "Overview" above, the Company received a cash infusion of
$4,140,000 as part of the purchase price for the sale of the Mako Shares to
Tracker. Management believes that this cash infusion should be sufficient to
satisfy the anticipated cash requirements of the Company for 12 to 18 months,
thereby affording the Company sufficient time to increase sales levels and
reduce expenses in order to operate profitably. No assurance can be given,
however, that the Company will be able to increase its sales and/or reduce its
costs to the extent necessary to operate profitably.
Income Taxes
At December 28, 1996, the Company had a net tax operating loss carryforward of
approximately $7,600,000 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.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tracker Marine, L.P.:
We have audited the accompanying combined statement of net assets of Silver King
and Seacraft Boats (divisions of Tracker Marine, L.P.) as of December 28, 1996,
and the related combined statements of operations and changes in net assets and
cash flows for the year ended December 28, 1996. These financial statements are
the responsibility of the management of Tracker Marine, L.P. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of Silver King and Seacraft Boats as of
December 28, 1996, and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Dallas, Texas,
February 5, 1997
F-37
<PAGE>
SILVER KING AND SEACRAFT BOATS
(Divisions of Tracker Marine, L.P.)
COMBINED STATEMENT OF NET ASSETS
DECEMBER 28, 1996
ASSETS:
Current assets-
Cash $ 10,070
Accounts receivable 266,618
Inventories 683,174
Prepaid expenses 85,007
----------
Total current assets 1,044,869
----------
Property and equipment, at cost-
Land and building 523,525
Fixtures and equipment 594,881
Construction in progress 101,604
----------
Total property and equipment 1,220,010
Less- Accumulated depreciation (353,959)
----------
Total property and equipment, net 866,051
Total assets 1,910,920
----------
LIABILITIES:
Accrued liabilities 34,825
---------
Total liabilities 34,825
---------
Total combined net assets $1,876,095
=========
The accompanying notes are an integral part of this combined financial
statement.
F-38
<PAGE>
SILVER KING AND SEACRAFT BOATS
(Divisions of Tracker Marine, L.P.)
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
NET SALES $1,544,943
COST OF GOODS SOLD 1,936,003
---------
GROSS MARGIN (391,060)
---------
OPERATING EXPENSES:
Administrative 235,892
Sales and marketing 124,323
Research and development 302,946
---------
Total operating expenses 663,161
---------
NET LOSS (1,054,221)
NET ASSETS, beginning of year 2,930,316
---------
NET ASSETS, end of year $1,876,095
=========
The accompanying notes are an integral part of this combined financial
statement.
F-39
<PAGE>
SILVER KING AND SEACRAFT BOATS
(Divisions of Tracker Marine, L.P.)
COMBINED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,054,221)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 134,403
Changes in-
Accounts receivable (263,702)
Inventories (630,753)
Prepaid expenses (84,094)
Accrued liabilities 1,492
----------
Net cash used in operating activities (1,896,875)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (376,480)
----------
Net cash used in investing activities (376,480)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Obligations funded by Tracker Marine, L.P. 2,283,425
----------
Net cash provided by financing activities 2,283,425
----------
INCREASE IN CASH 10,070
CASH, beginning of year -
----------
CASH, end of year $ 10,070
==========
The accompanying notes are an integral part of this combined financial
statement.
F-40
<PAGE>
SILVER KING AND SEACRAFT BOATS
(Divisions of Tracker Marine, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
The combined financial statements include the accounts of Silver King and
Seacraft Boats (the "Divisions"). The Divisions are owned by Tracker Marine,
L.P. ("Tracker"), a Missouri limited partnership. In January 1997, a stock
purchase agreement was entered into between Tracker and Mako Marine
International ("Mako") for the purchase of Mako common stock. As part of the
stock purchase agreement, the Divisions are being contributed to Mako.
Nature of Operations
The Divisions manufacture and sell saltwater boats by means of wholesale
distribution to authorized dealers.
Basis of Accounting
The financial statements are prepared on the accrual basis of accounting.
Fiscal Year
Tracker's, and therefore the Divisions', fiscal year ends on the last Saturday
of the year.
Revenue Recognition
Sales are recorded by the Divisions when products are shipped to dealers.
Provisions for approved sales incentive programs normally are recognized as
sales deductions at the time of sale. Sales incentive programs approved
subsequent to the time that related sales have been recorded are recognized when
the programs are approved.
Inventories
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) cost method. Raw materials inventories include purchased parts
and supplies to be used in manufactured products. Work in process and finished
good inventories include material, labor, and overhead costs incurred in the
manufacturing process.
F-41
<PAGE>
Property and Equipment
Property and equipment are depreciated over the estimated useful life of each
asset. Annual depreciation is computed using the straight-line method primarily
over the following estimated useful lives:
Depreciable Assets Lives (In Years)
------------------ ----------------
Buildings 15 - 30
Fixtures and equipment 3 - 5
Product Warranty Costs and Dealer Rebate Accruals
Anticipated costs related to product warranty are expensed at the time of the
sale of the products and are accounted for in cost of goods sold.
Research and Development Costs
Research and development costs related to both present and future products are
charged to expense as incurred. Such costs were approximately $303,000 for the
year ended December 28, 1996.
Fair Values of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and accrued
liabilities approximate fair value due to the short-term maturities of these
assets and liabilities.
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 these estimates.
2. DEALER FLOOR PLAN AGREEMENT:
Tracker has a financing and floor planning agreement with a commercial finance
company that provides wholesale financing for the authorized dealers' purchases
from the Divisions. Thus, the Divisions receive payments through dealer sales
from the commercial finance companies and therefore bear no risk on collections
through these types of sales.
F-42
<PAGE>
3. INVENTORIES:
Inventories consisted of the following at December 28, 1996:
Raw materials $209,736
Work in process 597
Finished goods and accessories 513,445
-------
723,778
Less- LIFO reserve (40,604)
-------
Total inventories $683,174
========
4. INCOME TAXES:
As the Company is a division of Tracker, a Missouri limited partnership, the
accompanying financial statements do not include a provision for income taxes
since the taxable income of Tracker (the Partnership) is included in the tax
returns of the individual partners.
5. RELATED PARTY:
Tracker assumes and pays all obligations of the Divisions. Total obligations
assumed and paid by Tracker in 1996 were approximately $2,283,000.
F-43
<PAGE>
<TABLE>
MAKO MARINE INTERNATIONAL, INC.
UNAUDITED PROFORMA COMBINED BALANCE SHEET
DECEMBER 28, 1996
<CAPTION>
Mako Silver King Proforma Proforma
Marine Seacraft Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash 162,118 10,070 4,140,000 #1 4,312,188
Accounts receivable 340,072 266,618 - 606,690
Inventories 2,361,496 683,174 - 3,044,670
Prepaid and other assets 362,894 85,007 - 447,901
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,226,580 1,044,869 4,140,000 8,411,449
Property and equipment 4,223,328 1,220,010 5,443,338
less accumulated depreciation (1,373,912) (353,959) 1,373,912 #2 (353,959)
- ----------------------------------------------------------------------------------------------------------------------------------
2,849,416 866,051 1,373,912 5,089,379
- ----------------------------------------------------------------------------------------------------------------------------------
Other assets 137,866 - (137,866) #3 -
Goodwill - - 4,483,964 #2 4,483,964
==================================================================================================================================
6,213,862 1,910,920 9,860,010 17,984,792
==================================================================================================================================
Liabilities and Stockholders' Equity
Liabilities
Current liabilities
Accounts payable 2,701,223 - (129,400) #4 2,571,823
Accrued expenses 1,110,655 34,825 1,145,480
Accrued interest payable 238,105 - - 238,105
Due from affiliates 375,906 - - 375,906
Current portion of long term debt 660,403 - - 660,403
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,086,292 34,825 (129,400) 4,991,717
Note payable, affiliate 825,000 825,000
Long term debt, less current portion 1,423,059 84,291 #3 1,507,350
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,334,351 34,825 (45,109) 7,324,067
Stockholders' equity
Net assets 1,876,095 (1,876,095) #5
Preferred stock
Common stock 26,550 64,000 #1 90,550
Additional paid-in capital 6,317,873 4,252,302 #1 10,570,175
Deficit (7,464,912) 7,464,912 #1 -
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (1,120,489) 1,876,095 9,905,119 10,660,725
- -----------------------------------------------------------------------------------------------------------------------------
6,213,862 1,910,920 9,860,010 17,984,792
=============================================================================================================================
The accompanying notes to unaudited proforma combined financial statements are
an integral part of this statement.
</TABLE>
F-44
<PAGE>
<TABLE>
MAKO MARINE INTERNATIONAL, INC.
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR SIX MONTHS ENDED DECEMBER 28, 1996
<CAPTION>
Mako Silver King Proforma Proforma
Marine Seacraft Adjustments Combined
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 9,287,076 998,867 - 10,285,943
Cost of products sold 8,469,674 1,087,612 - 9,557,286
- -------------------------------------------------------------------------------------------------------------------
Gross profit 817,402 (88,745) - 728,657
- -------------------------------------------------------------------------------------------------------------------
Operating and other expenses:
Selling, general and administrative 2,544,895 468,890 74,733 #2 3,088,518
Interest 185,661 - - 185,661
Other 48,158 - - 48,158
- -------------------------------------------------------------------------------------------------------------------
Total expenses 2,778,714 468,890 74,733 3,322,337
- -------------------------------------------------------------------------------------------------------------------
Loss before other income (1,961,312) (557,635) (74,733) (2,593,680)
Other Income (90,466) - - (90,466)
===================================================================================================================
Net loss (2,051,778) (557,635) (74,733) (2,684,146)
===================================================================================================================
Net loss per common share (0.75) N/A N/A (0.29)
===================================================================================================================
Average number of common shares 2,724,048 N/A 6,400,000 #2 9,124,048
===================================================================================================================
The accompanying notes to unaudited proforma combined financial statements are
an integral part of this statement.
</TABLE>
F-45
<PAGE>
<TABLE>
MAKO MARINE INTERNATIONAL, INC.
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 29, 1996
<CAPTION>
Mako Silver King Proforma Proforma
Marine Seacraft Adjustments Combined
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 19,863,331 550,326 - 20,413,657
Cost of products sold 17,817,667 951,673 - 18,769,340
- ------------------------------------------------------------------------------------------------------------
Gross profit 2,045,664 (401,347) - 1,644,317
- ------------------------------------------------------------------------------------------------------------
Operating and other expenses:
Selling, general and administrative 4,548,703 275,576 149,465 #2 4,973,744
Interest 312,174 - - 312,174
Other 243,827 - - 243,827
- ------------------------------------------------------------------------------------------------------------
Total expenses 5,104,704 275,576 149,465 5,529,745
- ------------------------------------------------------------------------------------------------------------
Loss before other income (3,059,040) (676,923) (149,465) (3,885,428)
Other Income 103,265 - - 103,265
============================================================================================================
Net loss (2,955,775) (676,923) (149,465) (3,782,163)
============================================================================================================
Net loss per common share (1.19) N/A N/A (0.43)
============================================================================================================
Average number of common shares 2,484,662 N/A 6,400,000 #2 8,884,662
============================================================================================================
The accompanying notes to unaudited proforma combined financial statements are
an integral part of this statement.
</TABLE>
F-46
<PAGE>
Mako Marine International, Inc.
Notes to Unaudited Proforma Combined Financial Statements
The audited proforma combined financial statements gives effect to the purchase
by Tracker L.P. ("Tracker") of 81% of the outstanding Common Stock of Mako
Marine International, Inc. ("Mako") for cash in the amount of $4,140,000 and the
simultaneous contribution by Tracker of its saltwater fishing boat manufacturing
divisions, Silver King / Seacraft, to Mako. The unaudited proforma combined
balance sheet as of December 28, 1996 and the unaudited proforma combined
statement of operations for the year ended June 29, 1996 and the six months
ended December 28, 1996 reflect adjustments to the Mako and Silver King /
Seacraft historical balance sheets and statements of operations to give effect
to the transaction discussed above as if such transaction had been consummated
at December 28, 1996, or at the beginning of the period presented. The
acquisition and simultaneous contribution will be accounted for under the
purchase method of accounting.
The unaudited proforma combined financial statements may not necessarily be
indicative of the results that would actually have been obtained had the
transaction occurred on the dates indicated or which may be obtained in the
future. In the opinion of the Company's management, all adjustments necessary to
present fairly such unaudited proforma combined financial statements have been
included.
1. Represents cash received in connection with the issuance to Tracker of
6,400,000 shares of Mako Common Stock.
2. Amount represents the step-up in cost basis of certain assets and the
accrual of certain transactional related liabilities discussed below in 5.
The excess of Tracker's purchase price over Mako's historical cost is
allocated based upon fair market values of such assets and the amount of
transactional related liabilities. That portion of the purchase price in
excess of the resulting book value of Mako has been allocated to Goodwill,
which will be amortized over a 30 year period. The amount included on the
Statement of Operations represents the amount of Goodwill allocated to the
period presented.
3. In connection with the transaction and the accompanying negotiations with
Mercury Marine, Mako's debt to Mercury Marine, and the associated deferred
asset related to this debt, was revalued.
4. In connection with the transaction, there has been a net reduction in
certain liabilities, primarily payables to vendors.
5. Represents the elimination of Silver King / Seacraft net asset. Such
amounts have been included as a component of Tracker's purchase price. See
note to 2 above.
F-47
<PAGE>
By Order of the Board of Directors,
Kenneth Burrough, Chairman of the Board,
President and Chief Executive Officer
Miami, Florida
April _____, 1997
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