As filed with the Securities and Exchange Commission on May 07, 2002
Registration No. 000-22273
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Sonic Jet Performance, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 3730 84-1383888
-------- ---- ----------
(State or Other Jurisdiction of (Primary (I.R.S. Employer
Incorporation or Organization) Standard Identification No.)
Industrial
Classification
Code Number)
15662 Commerce Lane, Huntington Beach, CA 92649
(Zip Code)
(Address of Registrant's Registered
Offices)
Madhava Rao Mankal
President
Sonic Jet Performance, Inc.
15662 Commerce Lane, Huntington Beach, CA 92649
(714) 895-0944
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
---------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. {X}
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. { }
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. { }
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. { }
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. { }
CALCULATION OF REGISTRATION FEE
======================= === =================== ======= ================ ==== ================ == ==============
Proposed Proposed
Maximum Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share Offering Price Fee
----------------------- --- ------------------- ------- ---------------- ---- ---------------- -- --------------
Shares of Common 5,613,456 (1) $0.004 $22,453.82 $2.06
Stock underlying
Series B, assuming
the preferred stock
converted into common
stock on May 2, 2002
Shares of Common
Stock underlying 4,000,000 (2) $0.05 $200,000.00 $18.40
Series C preferred
stock that have been
converted to common
stock at $0.05
Shares of Common
stock underlying
Series C, assuming 4,117,647 (3) $0.10(3) $411,764.70 $37.88
the preferred stock
converted into common
stock on May 2, 2002
======================= === =================== ======= ================ ==== ================ == ==============
(1) 5,613,456 shares represent shares of common stock underlying all outstanding
shares of Series B preferred stock, assuming the preferred stock converted into
common stock on May 2, 2002. The number of shares of common stock into which
each share of Series B preferred stock will convert will vary depending on the
number of outstanding shares of common stock on the day of conversion. Each
share of Series B preferred stock outstanding converts into shares of common
stock equaling two percent of the outstanding shares of common stock on the date
of conversion.
(2) 4,000,000 shares represent shares of common stock underlying all outstanding
shares of Series C preferred stock that has been converted into common stock at
$0.05 as of May 2, 2002.
(3) 4,117,647 shares represent shares of common stock underlying all outstanding
shares of Series C preferred stock, assuming the preferred stock converted into
common stock on May 2, 2002. The number of shares of common stock into which
each share of Series C preferred stock will convert will vary depending on the
market price of our common stock during the ten trading days immediately
preceding the date of conversion. Each share of C preferred stock is convertible
into a number of shares of our common stock that equals the sum of (i) the
quotient obtained by dividing $10,000 by eighty-five percent (85%) of the
average of the lowest three (3) intra-day bids on our common stock on the
primary exchange, quotation system or market on which it is listed, over the ten
trading days immediately preceding the date of the conversion (which we are
obligated to register), and (ii) twenty percent (20%) of such quotient (which we
are not obligated to register). For example, if the conversion price (i.e., the
average of the three lowest intra-day bids during the 10 trading days preceding
the conversion date) is $0.05 per share, one share of Series C preferred stock
would convert into 282,353 shares of common stock of which 235,294 shares would
be covered under this registration statement.
(4) Estimated solely for the purpose of computing the registration fee required
by Section 6(b) of the Securities Act and computed pursuant to Rule 457(c) under
the Securities Act based upon the average of the high and low prices of the
common stock on May 2, 2002, as reported on the OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 2, 2002
PROSPECTUS
13,731,103 Shares
SONIC JET PERFORMANCE, INC.
Common Stock
----------------
This prospectus relates to an aggregate of 13,731,103 shares of common stock of
Sonic Jet Performance, Inc., subject to certain adjustments as set forth below,
which may be offered for sale by persons who have acquired such shares in
certain private transactions and by persons who may acquire shares of common
stock upon converting convertible securities. 13,731,103 shares represent shares
of common stock we agreed to register that are issuable as of May 2, 2002, upon
the conversion of all outstanding shares of our Series B preferred stock and
Series C preferred stock. However, the number of shares of common stock into
which each share of Series C preferred stock will convert, will vary depending
on the number of common stock shares outstanding on the date of conversion. Each
share of Series B preferred stock outstanding converts into shares of common
stock equaling two percent of the outstanding shares of common stock on the date
of conversion. Furthermore, the number of shares of common stock into which each
share of Series C preferred stock will convert, will vary depending on the
market price of our common stock during the ten trading days immediately
preceding the date of conversion. Each share of Series C preferred stock is
convertible into a number of shares of our common stock that equals the sum of
(i) the quotient obtained by dividing $10,000 by eighty-five percent (85%) of
the average of the lowest three (3) intra-day bids on our common stock on the
primary exchange, quotation system or market on which it is listed, over the ten
trading days immediately preceding the date of the conversion (which we are
obligated to register), and (ii) twenty percent (20%) of such quotient (which we
are not obligated to register). For example, if the conversion price (i.e., the
average of the three lowest intra-day bids during the 10 trading days preceding
the conversion date) is $0.05 per share, one share of Series C preferred stock
would convert into 282,353 shares of common stock of which 235,294 shares would
be covered under this registration statement.
We have registered the aggregate number of shares under the Securities Act
of 1933 on behalf of these stockholders so that they can sell them in a public
offering or other distribution. We will not receive any of the proceeds from the
offer and sale of the shares.
Our common stock currently trades on the OTC Bulletin Board under the symbol
"SJET."
See "Risk Factors" beginning on page 4 to read about risks that you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved these securities or passed upon the adequacy or accuracy
of this prospectus. Any representation to the contrary is a criminal offense.
----------------
The date of this prospectus is May 2, 2002
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
SUMMARY FINANCIAL DATA 3
RISK FACTORS 4
FORWARD LOOKING STATEMENTS 8
USE OF PROCEEDS 9
DIVIDEND POLICY 9
PRICE RANGE OF COMMONSTOCK 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 11
AND RESULTS
BUSINESS 16
MANAGEMENT 22
PRINCIPAL STOCKHOLDERS 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 29
SELLING STOCK HOLDERS 33
PLAN OF DISTRIBUTION 35
DESCRIPTION OF CAPITAL STOCK 37
SHARES ELIGIBLE FOR FUTURE SALE 39
LEGAL MATTERS 41
EXPERTS 41
WHERE CAN YOU FIND MORE INFORMATION 42
INDEX TO FINANCIAL STATEMENTS F-1
Prospectus Summary
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors" and our financial
statements and related notes included elsewhere in this prospectus.
Our Company
We design, manufacture and distribute high performance commercial and
recreational boats. Our boats combine sleek and innovative designs with power,
safety, handling and stability. We believe our patented "V" hull design, and our
other proprietary designs, make our boats safer and more stable in rough water
and at high speeds. We have three commercial models and one recreational model.
We market and sell our commercial boats directly to municipalities and other
government entities such as fire departments, police departments, and the
military, and we sell our recreational boats directly to consumers through our
sales force and select distributors and dealers in both the United States and
abroad.
Our Address and Telephone Number
The address of our principal executive office is 15662 Commerce Lane,
Huntington Beach, CA. 92649. Our telephone number is (714) 895-0944. Our website
address is www.sonicjet.com. Information contained on our website does not
constitute part of this report and our address should not be used as a hyperlink
to our website.
---------------
This prospectus contains trademarks and names of persons other than Sonic
Jet Performance, Inc., which are the property of their respective owners.
The Offering
Common stock being offered by Selling Stockholders........ 13,731,103 shares
Common stock outstanding after this offering.............. 45,340,048 shares
OTC Bulletin Board symbol................................. SJET
The total number of shares outstanding after the offering is based on
31,608,945 shares outstanding as of May 2, 2002, and 13,731,103 shares of common
stock attributable to our Series B and Series C convertible preferred stock
which would be outstanding as of May 2, 2002, assuming all outstanding shares of
our Series B and Series C convertible preferred stock were converted on that
date.
None of the common stock issuable upon the conversion of outstanding Series B
preferred stock and Series C preferred stock may be sold until the preferred
stock is converted and the underlying shares are issued.
All of the shares are being offered by selling stockholders, who must
deliver a copy of this prospectus to persons who buy them. The selling
stockholders will probably sell the shares at prevailing market prices, through
broker-dealers, although they are not required to do so. The selling
stockholders will retain all of the proceeds of their sales, except for
commissions they may pay to broker-dealers. We will not receive any money when
they sell. We are paying the costs of registering the shares.
Financial Summary Information.
Because this is a only a financial summary, it does not contain all the
financial information that may be important to you. You should also read
carefully all the information in this prospectus, including the financial
statements and their explanatory notes.
Statements of Operations
2001 2000
---- ----
Sales $1,199,047 $1,032,355
Cost of sales 896,084 870,676
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Gross profit 302,963 161,679
------- -------
Operating expense (1,501,864) (5,451,082)
---------- ----------
Loss from operations (1,198,901) (5,289,403)
----------- ----------
Other income (expense), net (238,917) (2,168,643)
--------- ----------
Net loss $(1,437,818) $(7,458,046)
=========== ==========
Basic and diluted loss per share $(0.09) $(0.58)
---------- ----------
Balance Sheet
2001 2000
---- ----
Total current assets 624,966 1,260,653
------- ---------
Property and equipment, net 1,221,313 1,359,910
--------- ---------
Other assetsv 267,500 267,500
------- -------
Total assets $2,113,779 $2,888,063
========== ==========
Total current liabilities 938,864 3,750,474
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Due to related party - 600,000
----------- -------
Total liabilities 938,864 4,362,710
------- ---------
Total stockholders' deficit 1,174,915 (1,474,647)
---------- ---------
Total liabilities and stockholders' $2,113,779 $2,888,063
========== ==========
Risk Factors
An investment in our common stock involves a high degree of risk. You should
read the following risk factors carefully before purchasing our common stock.
The risks and uncertainties described below are not the only ones we face. Other
risks and uncertainties, including those that we do not currently consider
material, may impair our business. If any of the risks discussed below actually
occur, our business, financial condition, operating results or cash flows could
be adversely affected. This could cause the trading price of our common stock to
decline, and you may lose all or part of your investment.
We have a history of losses and negative cash flows. We expect these losses and
negative cash flows to continue in the future. If we are unable to generate
sufficient revenue from our operations or raise additional operating capital, we
may not be able to continue to operate our business, and you may lose your
investment.
We have experienced net losses and negative cash flows and our net
losses and our negative cash flows will continue for the foreseeable future.
Unless we increase our revenues or are able to obtain additional operating
capital, we may not be able to operate profitably in the future or generate
positive cash flows. If we cannot operate profitably or generate positive cash
flows we may be unable to continue to operate our business, and you may lose
your investment.
If we are unable to raise additional capital, we will not be able to achieve our
current business strategy and you could lose your investment.
We need to raise additional funds through public or private debt or
equity financing to be able to fully execute our business plan. Any additional
capital raised through the sale of equity may dilute your ownership interest. We
may not be able to raise additional funds on favorable terms, or at all. If we
are unable to obtain additional funds, we will be unable to execute our business
plan and you could lose your investment.
If all or a substantial portion of the shares of our common stock offered for
sale by this prospectus are sold in a short period of time, our stock price may
be adversely affected. Our stock price may also be adversely affected by the
perception that such sales could occur.
13,731,103 or 30 % of our outstanding shares of common stock, on a
fully diluted basis, are registered under this prospectus. The number of shares
could increase depending on the market price of our common stock at the time the
preferred shareholders convert their stock. We cannot control when the selling
stockholders will sell their shares. If all or a substantial portion of the
shares of common stock offered for sale by this prospectus are sold in a short
period of time, the common stock available for sale may exceed the demand and
the stock price may be adversely affected. In addition, the mere perception that
such sales could occur may depress the price of our common stock.
If we are unable to retain our key employees we may be unable to execute on our
business plan.
Our success depends in significant part on the continued services of
our key employees, including Albert Mardikian, our director of design, and
chairman and chief executive officer of our international operations. Mr.
Mardikian holds the patents on the designs we use to build our boats and is
integral to designing and supervising the construction of the boats. Losing Mr.
Mardikian or one or more of our other key personnel may seriously impair our
ability or could cause us to fail to successfully implement our business plan.
This may have a material adverse effect on our business, results of operations
and financial condition and you could lose your investment.
We face competition and we may not be able to compete effectively.
The boat industry is very competitive and competition is increasing in
the United States and abroad. We may not be able to compete successfully against
either current or future competitors. Many of our competitors have substantially
greater financial, technical and marketing resources, larger customer bases,
longer operating histories, greater name recognition and more established
relationships in the industry than we do. As a result, these companies may be
able to develop and expand their market share more rapidly, adapt to changes in
customer requirements more quickly, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than we can. In addition, competition could result in
significant price erosion, reduced revenue, lower margins or loss of market
share, any of which would significantly harm our business. If we are unable to
successfully compete, we will be unable to achieve our business plan and you
could lose your investment. See "Competition."
To date, we have sold only small quantities of our boats and accessories. There
can be no assurance that our products will be widely accepted.
To date, we have sold only small quantities of our boats and
accessories. We intend to generate sales through our dealer network and our
direct sales force, both of which we are seeking to expand throughout the United
States and abroad. We cannot assure you that we will be able to successfully
maintain or expand our dealer network or sales force to distribute our products
or that we will generate enough sales. Our failure to do so could have a
material adverse effect on our business, results of operations and financial
condition and you could lose your investment.
We do not own our designs.
We do not own our designs. We license them from Mardikian Marine
Design, LLC, which holds the rights to patents related to our designs. Mardikian
Marine Design, LLC is controlled by Albert Mardikian, the beneficial owner of
over 20% of our outstanding common stock, our design director, and chairman and
chief executive officer of our international operations. The other member of
Mardikian Marine Design, LLC, is a principal of Ashford Capital, LLC, which
holds all of the outstanding shares of our Series B Convertible preferred stock,
which is convertible into 20% of our outstanding common stock, on a fully
diluted basis.
In the future, litigation may be necessary to enforce our license
rights or to determine the validity and scope of the proprietary rights of
others. Any such litigation could be time-consuming and costly. There can be no
assurance that any patent relating to our products or our license rights, will
not be challenged, in-validated, or circumvented or that the rights granted to
us will give us a competitive advantage.
We have potential liability for personal injury and property damage claims which
could result in a negative impact on our buisness.
We may be exposed to liability for personal injury or property damage
claims relating to the use of our products. A wrongful death action was filed
against us in September 2000. Although we settled that lawsuit and it did not
materially affect our business, any future claim against us for personal injury
or property damage could adversely affect our business, financial condition, and
results of operations, and could result in negative publicity. We maintain
product liability and other liability insurance which we believe is adequate.
However, there can be no assurance that we will not experience legal claims in
excess of our insurance coverage or that our insurance will not cover.
We are susceptible to fluctuations in the economy. If fewer boats are purchased
in response to general slowdowns in the economy, our business could be adversely
affected.
Sales of recreational boats generally fluctuate with the economy. In
the United States, for example, the sale of recreational boats has been steadily
declining since 1995. Sales have gone from approximately 200,000 units in 1995
to approximately 83,000 units in 2001. Fluctuations in the growth of the market
for recreational boats could cause fluctuations in our operating results and a
stagnation or decline in the growth of the recreational boats market could have
a material adverse effect on our business, financial condition, and results of
operations.
If we are unable to obtain certain components or raw materials that we use to
manufacture our boats, we may be unable to build new boats.
We depend on certain vendors to provide us with key components and raw
materials we use to build our boats. While we believe our current vendor
relationships are sufficient to provide the materials necessary to meet present
production demands, we cannot assure that these relationships will continue or
that the quantity or quality of materials available from these vendors will be
sufficient to meet our future needs. Disruptions in current vendor relationships
or our inability to continue to purchase construction materials or components in
sufficient quantities and of sufficient quality could lower our sales or
increase our cost of goods. Additionally, current or future price increases in
construction materials or components could cause a reduction in our profit
margins or reduce the number of boats we can manufacture and sell. If this
occurs, our business, financial condition, and results of operations would be
adversely affected, and you could lose your investment.
The hulls on our boats are molded to fit engines and pumps manufactured
by Mercury Marine. Although there are other engines and pumps available on the
market, if we are unable to obtain Mercury Marine engines and pumps in a timely
manner, at an acceptable cost, or at all, we may need to redesign and
reconstruct the molds we use to build the hulls for our boats, which we believe
would take a minimum of one month. If we do not have a sufficient inventory of
Mercury Marine engines or pumps, or we are unable to find a suitable
replacement, we may not be able to manufacture any boats for a period of time,
which could adversely affect our business, results from operations and financial
condition, and you could lose your investment.
If we are unable to comply with environmental and other regulatory laws, our
business may be exposed to liabilities and fines.
Our operations and our products are subject to extensive regulation,
supervision, and licensing under various federal, state, local and foreign
statutes, ordinances, and regulations, including, but not limited to,
environmental regulations, health and safety regulations and labor regulations.
While we believe we maintain all requisite licenses and permits and are in
compliance with all applicable regulations, there can be no assurance that we
will be able to maintain all requisite licenses and permits, and maintain
compliance with applicable regulations. Our failure to satisfy those and other
regulatory requirements, or the adoption of additional laws, rules, and
regulations could have a material adverse effect on our business, financial
condition, and results of operations.
Our manufacturing business involves the use, handling, storage, and
contracting for recycling or disposal of, hazardous or toxic substances or
wastes, including environmentally sensitive materials, such as batteries,
solvents, lubricants, degreasing agents, gasoline, and resin. We must comply
with certain requirements for the use, management, handling, and disposal of
these materials. We use small amounts of these materials at our Huntington Beach
facility and large amounts at our factory in Nanning, China. We, however, do not
maintain insurance for pollutant cleanup and removal. If we are found
responsible for any hazardous contamination, any fines or penalties we may be
required to pay, or any clean up we are required to perform, could be very
costly. Even if we are charged, and later found not responsible, for such
contamination or clean up, the cost of defending the charges could be high. If
either of the foregoing occurs, our business, results from operations and
financial condition could be adversely affected, and you could lose your
investment.
In addition, the EPA has passed various air emissions regulations for
outboard marine engines that impose stricter emissions standards for two-cycle,
gasoline outboard marine engines. Emissions from such engines must be reduced by
approximately 75% over a nine-year period that began in 1998. The California
legislature has enacted similar regulations that are already effective, and with
which the engines we install in most of our commercial boats do not comply. We,
therefore, equip boats we sell for use in California with a different engine. We
expect other states will pass similar laws. If future emissions standards or
other regulations materially increase the cost of engines, or if manufacturers
are unable to comply with such standards or regulations, our business, results
from operations and financial condition could be adversely affected, and you
could lose your investment.
We have a dispute with one of the partners of our joint venture in Dalian,
China.
We own 45% of Dalian Sonic Jet Co., Ltd., a joint venture company
organized under the laws of the People's Republic of China, which was formed for
the purpose of manufacturing the shells of our boats in Dalian, China. In June
2000, we stopped purchasing shells from the joint venture because we believed
there were quality control problems with the manufacturing process. Soon
thereafter, Dalian Sonic Jet Co., Ltd. ceased all operations. The joint venture
claims we owe it $60,000 for boat shells we allegedly ordered and did not pay.
We do not intend to purchase any more products from the joint venture. We are
currently negotiating a settlement with the joint venture, which would include
its dissolution. Although we do not believe we have any substantial liability
associated with the joint venture, if any litigation is commenced against us, it
would likely be commenced in China, and we would need to spend significant money
and management time in our defense. If a court determined that we have breached
our obligation to the joint venture by discontinuing our performance under the
joint venture, we could be liable for damages. This could materially and
adversely affect our business, results from operations and financial condition,
and you could lose your investment.
If China's favorable trade status with the United States ceases, or import
tariffs or taxes otherwise increase, our cost of goods could substantially
increase.
The hulls for our boats are manufactured in Nanning, China. The United
States has designated China as a most favored nation, which has resulted in low
tariffs on imports into the United States from China. Each year, the United
States reconsiders the renewal of China's status as a most favored nation. If
import tariffs or taxes increase because the United States does not renew or
revokes China's most favored nations status, or for any other reason, our cost
of goods would substantially increase, and our business, financial condition,
and results of operations would likely be adversely affected, and you could lose
your investment.
Changes in China's political, social and economic environment may affect our
financial performance.
Our financial performance may be affected by changes in China's
political, social and economic environment. We have been able to
cost-effectively produce our boats, in part, by manufacturing the hulls for our
boats in China. The role of the Chinese central and local governments in the
Chinese economy is significant. Chinese policies toward economic liberalization,
and laws and policies affecting foreign companies, foreign investment, currency
exchange rates and other matters could change, resulting in greater restrictions
on our ability to do business and operate our manufacturing facilities in China.
The Chinese government could impose surcharges, increase our tax rates, or
revoke, terminate or suspend our operating licenses without compensating us.
Also, China has from time to time experienced instances of civil unrest and
hostilities. Confrontations have occurred between the military and civilians. If
for these or any other reason, we lose our ability to manufacture our products
in China, or our cost of doing business in China increases, our business,
financial condition, and results of operations would be materially and adversely
affected, and you could lose your investment.
Forward-Looking Statements
This prospectus contains forward-looking statements. We have identified
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," and similar statements. These statements are
based on our beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section of this
prospectus. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
Use of Proceeds
We will not receive any of the proceeds from the sale of the shares offered
and sold for the accounts of the selling stockholders.
The selling stockholders will not pay any of the expenses that are incurred
in connection with the registration of the shares, but they will pay all
commissions, discounts, and other compensation to any securities broker-dealers
through whom they sell any of the shares.
Dividend Policy
We currently intend to retain all of our future earnings, if any, for use in
our business and therefore we do not anticipate paying any cash dividends on our
common stock in the foreseeable future. In addition, our current credit
agreement contains a covenant which restricts our ability to pay cash dividends
on our common stock. Any future determination to pay cash dividends will be at
the discretion of our board of directors and will depend upon our financial
condition, operating results, capital requirements, restrictions contained in
our agreements and other factors which our board of directors deems relevant.
Price Range of Our Common Stock
Our common stock is traded on the OTC Bulletin Board under the symbol
"SJET.OB" Our common stock began trading on the OTC Bulletin Board on December
29, 1998. Before our listing on the OTC Bulletin Board none of our securities
were traded in the public market. The table below shows, for the periods
indicated, the high and low closing sales prices per share of our common stock
as adjusted to reflect the two-for-one stock split affected on March 26, 1999.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
High Low
2000
First Quarter $3.56 $0.75
Second Quarter $1.75 $0.59
Third Quarter $0.63 $0.31
Fourth Quarter $0.41 $0.03
2001
First Quarter $0.22 $0.05
Second Quarter $0.17 $0.05
Third Quarter $0.20 $0.04
Fourth Quarter $0.12 $0.02
The public market for our common stock has been limited, sporadic and highly
volatile. Between November 2001 and April 2002, the closing trading price of our
common stock ranged from a low of $0.02 to a high of $0.20 per share. As of May
2, 2002, the last sale price of the Common Stock was $0.12. There can be no
assurance that a more active trading market for our common stock will develop or
be sustained. Even if a more active trading market does develop, the market
price of the common stock is likely to be highly volatile and could fluctuate
widely in response to factors such as:
o actual or anticipated variations in our revenues, earnings and cash
flow,
o announcements of new products and services by us or our competitors and
consumer acceptance of such new products and services,
o sales of shares of our common stock by existing shareholders,
o adoption of new accounting standards affecting our industry, and
o general market conditions and other factors.
Further, the stock markets have recently experienced extreme price and volume
fluctuations that have affected the market prices of equity securities of many
companies. Some of these fluctuations have been unrelated or disproportionate to
the operating performance of such companies. These broad market factors may
adversely affect the market price of our common stock. Such fluctuation may
adversely affect our ability to raise additional capital and your ability to
liquidate your investment at a favorable price.
Holders
As of May 2, 2002, there were approximately 600 holders of record of the
Company's common stock.
Dividends
We have never declared or paid a cash dividend on our common stock. We currently
intend to retain all of our future earnings, if any, for use in our business and
therefore we do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Any future determination to pay cash dividends will be
at the discretion of our board of directors and will depend upon our financial
condition, operating results, capital requirements, restrictions contained in
our agreements and other factors which our board of directors deems relevant.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of our financial condition and results of
operations should be read with the consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements the accuracy of which involves risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements for many reasons including, but not limited
to, those discussed in "Risk Factors" and elsewhere in this prospectus. We
disclaim any obligation to update information contained in any forward-looking
statement.
Overview
We design and manufacture high performance commercial and recreational
boats. Our boats combine power, safety, handling and stability in rough water
along with high-speed performance. We believe our patented "V" hull design makes
our boats safer and more stable that other boats, at speeds in excess of 55 mph.
We operate both in the United States and internationally.
Results of Operations
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
Revenue
Revenue for the twelve months ended December 31, 2001 was $1.20
million.
Revenue for the twelve months ended December 31, 2000 was $1.03
million.
Cost of Goods Sold
Cost of goods sold for the twelve months ended December 31, 2001 was
$0.90 million.
Our cost of goods sold for the twelve months ended December 31, 2000
was $0.87 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses include payroll,
advertising, and marketing expenses, as well as facilities, insurance, legal and
travel costs incurred in the normal course of conducting business. Selling,
general and administrative expenses for the twelve months ended December 31,
2001, decreased $1.55 million to $1.55 million, from $3.10 million in the
comparable period in 2000. The selling, general and administrative expenses
decreased primarily because of a decrease in administrative wages that resulted
from a reduction in force, a decrease in insurance expense that resulted from
the cancellation of our director's and officer's liability insurance policy, and
a reduction in advertising expenses.
Our selling, general and administrative expenses for the year ended
December 31, 2000, were $3.10 million.
Interest Expense
For the twelve months ended December 31, 2001, our interest expense was
$24,938. This includes $4,937 in interest we paid on a $110,936 loan we received
from an entity owned by the nephew of Albert Mardikian, the beneficial owner of
over 20% of our common stock. It also includes $20,001 in interest related to
our equipment leases, our financing arrangement with Bombardier Capital, and the
outstanding balance we owe to our accountants.
For the twelve months ended December 31, 2000, our interest expense was
$2.19 million. This included $0.22 million we paid to JNC Opportunity Fund,
Ltd., $0.06 million we paid to Sheikh Mohammed Al Rashid, and $1.89 million
charged for the difference between the market value and the discounted rate on
warrants we issued to JNC Opportunity Fund, Ltd., in connection with funds they
advanced us during 2000. The sharp decrease in interest expense during 2001
resulted from the satisfaction of our outstanding loans to JNC Opportunity Fund,
Ltd. and Sheikh Mohammed Al Rashid.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Revenue
Revenue for the twelve months ended December 31, 2000 was $1.03
million.
Revenue for the twelve months ended December 31, 1999 was $0.97
million.
Cost of Goods Sold
Cost of goods sold for the twelve months ended December 31, 2000 was
$0.87 million.
Our cost of goods sold for the twelve months ended December 31, 1999
was $0.58 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses include payroll,
advertising, and marketing expenses, as well as facilities, insurance, legal and
travel costs incurred in the normal course of conducting business.
Selling, general and administrative expenses for the twelve months
ended December 31, 2000 increased $3.6 million to $5.45 million, from $1.85
million in the comparable period in 1999. This increase resulted primarily from
an increase in administrative wage expenses, insurance expenses and advertising
expenses.
Our selling, general and administrative expenses for the twelve months
ended December 31, 1999 were $1.85 million.
Interest Expense
Interest expense of $2.19 million for the twelve months ended December
31, 2000, included, $0.22 million we paid to JNC Opportunity Fund, Ltd., $0.06
million we paid to Sheikh Mohammed Al Rashid, and $1.89 million charged for the
difference between the market value and the discounted rate on warrants we
issued to JNC Opportunity Fund, Ltd., in connection with funds they advanced us
during 2000. The increase in interest expense during 2000 resulted from accruing
interest on our debt obligations to JNC Opportunity Fund, Ltd., and Sheikh
Mohammed Al Rashid.
Interest expense of $0.83 million for the twelve months ended December
31, 1999 included $0.44 million related to our loan from JNC Opportunity Fund,
Ltd., and $0.30 million related to our loan from Sheikh Mohammed Al Rashid.
Liquidity And Capital Resources
As of December 31, 2001, cash and cash equivalents were $0.42 million,
compared to $0.40 million as of December 31, 2000. Our principal use of cash
during the year ended December 31, 2001, was for operations. Our principal
sources of liquidity to fund ongoing operations for the year ended December 31,
2001, were sales proceeds, and a $0.11 million loan we received from an entity
owned by the nephew of Albert Mardikian, the beneficial owner of over 20% of our
common stock. The loan accrued interest at the rate of 4% per month, or 48% per
annum.
Operating Activities.
The cash used by operating activities for the year ended December 31,
2001 was to be $0.12 million, attributable primarily to funding ongoing
operations.
Investing Activities.
We did not use any cash in investing activities for the year ended
December 31, 2001.
Our capital expenditures for the year ended December 31, 2001 were
$2,645 related to investments in office and manufacturing equipment. We
anticipate that our capital expenditures during 2002 will increase because we
intend to improve operating efficiencies, and may relocate our principle
facility.
Financing Activities.
In December 2001, we completed a private placement of five shares of
our Series C Convertible preferred stock with a private equity investor in
exchange for $50,000. Each share of Series C Stock is convertible into a number
of shares of common stock that equals the sum of (i) the quotient obtained by
dividing $10,000 by eighty-five percent (85%) of the average of the lowest three
(3) intra-day bids on our common stock, over the ten trading days immediately
preceding the date of the conversion, and (ii) twenty percent (20%) of such
quotient.
In December 2001, we also sold ten shares of our Series B Convertible
preferred stock to a private equity investor in exchange for $25,000. Each share
of preferred stock is convertible into two percent of our common stock
outstanding as of the date of conversion. The preferred stock shall convert at
the earlier to occur of the election of the holder, or December 27, 2002.
On July 29, 2001, we eliminated an aggregate $3,952,150 in
related-party debt from our balance sheet by issuing an aggregate of 3,211,720
shares of common stock.
o JNC Opportunity Fund, Ltd. cancelled $3,069,699 due under
promissory notes, in exchange for 2,455,759 shares of common
stock. Encore Capital Management, LLC, which controls JNC
Opportunity Fund, Ltd., also controls JNC Strategic Fund,
Ltd., which, at the time of the issuance, owned all outstand-
ing shares of our Series A preferred stock. Just prior to the
transaction, Neil Chau (Deceased), a principle at Encore
Capital Management, Inc., served on our board of directors.
o Sheikh Mohammed Al Rashid cancelled $808,871 due under a
promissory note in exchange for 697,097 shares of common
stock. At that time, Sheikh Mohammed Al Rashid was a director,
and beneficially owned over 20% of our outstanding common
stock.
o Albert Mardikian cancelled $53,205, which included royalties
due under his license agreements with us, and business-related
expenses, in exchange for 42,564 shares of common stock. At
the time of the transaction, Mr. Mardikian beneficially owned
over 20% of our common stock through his ownership of Sonic
Jet Performance, LLC. He also served on our board of
directors, and was our interim chief executive officer, our
director of design, and chairman and chief executive officer
of our international operations.
o MGS Grand Sports, Inc., the landlord of our Huntington Beach
facility, cancelled $20,375 due for past due rent, insurance
and for legal fees we agreed to pay in connection with a
wrongful termination lawsuit filed against it and us, in
exchange for 16,300 shares of common stock. Mr. Mardikian is
the majority shareholder, a director and an officer of MGS
Grand Sport, Inc. In addition, his brother, wife and
brother-in-law are minority shareholders and directors of, and
his brother and wife are officers of, MGS Grand Sport, Inc.
During 2001, we also eliminated $1.6 million from the balance sheet by
converting 1,600 shares of Series A preferred stock held by JNC Strategic Fund,
Ltd., into 1,731,449 shares of common stock.
Each of the issuances described above occurred on June 29, 2001, and
had an effective issue price of $1.25 per share. The market price of our common
stock on that day was $0.17.
We neither used any credit lines nor had any bank loans during fiscal
2001. We have a financing arrangement with Bombardier Capital, collateralized by
a certificate of deposit in the amount of $201,000, under which Bombardier
finances purchases of our products from some of our dealers. In certain
instances, we agree to pay Bombardier financing charges on behalf of the
dealers.
The table below sets forth our obligations and commitments to make
future payments under contracts:
----------------------------- ----------------------------------------------------------
Contractual Obligations Payments Due by Period
----------------------------- ----------------------------------------------------------
Total Less 1-3 years 4-5 years After 5
than 1
year years
----------------------------- ------------ ---------- ---------- ------------ ----------
Capital Lease Obligations $12,236(1) $12,236 $0 $0 $0
----------------------------- ------------ ---------- ---------- ------------ ----------
Operating Leases $8,190 (2) $2,340 $2,340 $2,340 $1,170
----------------------------- ------------ ---------- ---------- ------------ ----------
Legal Settlements $51,000 (3) $51,000 $0 $0 $0
----------------------------- ------------ ---------- ---------- ------------ ----------
Total Contractual Cash $71,426 $65,576 $2,340 $2,340 $1,170
Obligations
----------------------------- ------------ ---------- ---------- ------------ ----------
-------------
(1) Includes $12, 236 related to our lease of a Ford Truck,
(2) Includes $8,190 related to our lease of a photocopy machine.
(3) Includes $ 9,000 in cash we have agreed to pay to Whalen
Engineering. In addition, $ 42,000 is attributable to our payments to
the plaintiffs in the wrongful death suit.
Material Changes in Financial Condition, Liquidity and Capital Resources
At the present time, we are not generating sufficient revenue to cover
our expenses. Accordingly, our future liquidity will depend on our ability to
successfully restructure our operations to reduce our operating losses and our
ability to obtain necessary financing from outside sources.
In July 2001, we ceased operations at our manufacturing facility in
Nanning, China because we did not have sufficient cash to pay rent, and to
otherwise fund operations. In January 2002, we used a portion of the proceeds
from our December 2001 private placements to resume operations in Nanning,
China. Although we have brought our rent payments current, our landlord has
converted the lease term, originally set to expire in July 2003, to a
month-to-month term.
We have received a going concern opinion from our independent auditors,
which states that we may be unable to continue as a going concern. As a result,
our current financial condition and ability to continue as a going concern
depends on our reducing our expenses and obtaining necessary financing from
outside sources.
Between December 2001 and February 2002, we raised $535,000 in
connection with the issuance of shares of our Series B preferred stock and
Series C preferred stock. We are using the proceeds to fund ongoing operations.
On February 5, 2002, we signed an engagement letter with Regents
Capital West, an investment banker, pursuant to which it agreed to assist us in
a private placement of unregistered common stock in accordance with an
applicable exemption from registration under the Securities Act. We agreed to
pay Regents Capital West, 8% of the gross proceeds of such offering, including
capital raised from the issuance of our securities and from the exercise of
warrants we issue in connection with the offering. We also agreed to issue
Regents Capital West shares of common stock equal to 5% credit for all capital
raised (including warrants) convertible to 144 common stock at $0.18 per share
for the first $500,000 of credit, and $0.15 per share for all credit over
$500,000.
The engagement has a 12 month term that we may extend. If before the
end of the term, we cause an offering covered by the agreement to terminate, in
addition to compensation already paid to Regents Capital West, we must pay a
monetary amount between $125,000 and $750,000 depending on when the offering
terminates. In addition, if we terminate the offering because we have secured
funds from another source, we must issue Regents Capital West shares of our
common stock equal to a 5% credit for all capital raised (including warrants)
convertible at $0.18 per share for the first $500,000 of credit, and $0.15 per
share for all credit over $500,000.
We have not yet determined the amount of the offering. In addition, we
cannot assure that the proposed financing will be consummated or that other debt
or equity financing will be available to us on commercially reasonable terms.
In August 2001, we defaulted on the lease for our Huntington Beach
property. The default was cured in January 2002.
As of May 2, 2002, cash and cash equivalents were $136, 969. Although
we believe that we are taking steps to rectify our liquidity position, we cannot
assure you that our actions will be successful and that we will be able to
continue as a going concern.
Foreign Currency Translation and Hedging
We are exposed to foreign currency fluctuations through our operations
in China. As of December 31, 2001 approximately 1.60% of our revenue were in
Chinese Yen. We do not enter into forward exchange contracts or any derivative
financial investments for trading purposes. Thus, we do not currently hedge our
foreign currency exposure.
Business
Our Company
We design, manufacture and distribute high performance commercial and
recreational boats. Our boats combine sleek and innovative designs with power,
safety, handling and stability. We believe our patented "V" hull design, and our
other proprietary designs, make our boat safer and more stable in rough water
and at high speeds. We have three commercial models and one recreational model.
We market and sell our commercial boats directly to municipalities and other
government entities such as fire departments, police departments, and the
military, and we sell our recreational boats directly to consumers through our
sales force and select distributors and dealers in both the United States and
abroad.
We are a Colorado corporation incorporated in November 1996, as Boulder
Capital Opportunities III, Inc.
We had no significant operations in 1996 or 1997. Effective June 30
1998, we acquired all of the assets and assumed all of the liabilities of Sonic
Jet Performance, LLC, a California limited liability company that was in the
business of producing and marketing recreational boats, jet boats, trailers, and
related accessories. On November 4, 1998, we changed our name to Sonic Jet
Performance, Inc. The results of operations of Sonic Jet Performance, LLC, were
consolidated into our results of operations from January 1, 1998 through June
30, 1998.
The address of our principal executive office is 15662 Commerce Lane,
Huntington Beach, CA. 92649. Our telephone number is (714) 895-0944. Our website
address is www.sonicjet.com. Information contained on our website does not
constitute part of this report and our address should not be used as a hyperlink
to our website.
Our Market Opportunity
We offer high performance and quality boats that are durable, highly
reliable and safe, at affordable prices.
The target market for our commercial boats include municipalities and
counties, fire and police departments and military units. Commercial boats,
particularly those used for search and recovery, patrol and fire fighting
operations, offer us a niche market. With approximately 181,518 miles of
waterways in the United States alone, opportunities for fire, search and
recovery and patrol boats are abound. County purchases alone constitute an
enormous market for our commercial boats. Of the 3,536 counties in the United
States, 88 are located in coastal regions. Because of the high cost of many
commercial boats, few municipalities have adequate search and recovery, patrol
or fire fighting boats. Our commercial boats offer a cost effective solution for
municipalities with limited funds and an unanswered need.
Demand for recreational boats is seasonal with sales generally highest
in the second quarter. Adverse weather in key geographic areas, including, but
not limited to, excessive rain, prolonged below-average temperatures and severe
heat or drought, can significantly influence demand for our boats. Demand for
pleasure boats is also influenced by a number of other factors, including
consumer education about boating, economic conditions, particularly in the
United States, and, to some extent, fuel costs, prevailing interest rates and
consumer confidence. Demand is also affected by the competitiveness of our
product offerings.
We believe our boats offer the following competitive advantages over
other boats on the market:
Durability - We construct our hulls using hand laid "S" glass/kevlar
and carbon fiber. This produces a fiberglass hull that is stronger yet lighter
than conventional fiberglass hulls.
High Performance and Stability - Most boats capable of exceeding 55
miles per hour are inherently unstable and virtually uncontrollable at those
speeds. We believe our patented "V" shape hull design eliminates this problem,
by making our boats safer and more stable, at high speeds.
o Unique Designs - We believe our boats epitomize style. Our
designs are modern and sleek, and resemble high performance
racing boats.
o Cost - The prices for our recreational boats are by and large
competitive to our competitors, and our prices for commercial
boats are competitive to our competitors.
Our Products
We design, manufacture and sell both commercial and recreational boats,
which we believe epitomize safety, style and performance.
All of our boats are designed by Albert Mardikian, our director of
design and chairman and chief executive officer of our international operations.
Our hulls incorporate Mr. Mardikian's patented "V" shaped hull design, and we
build them using hand laid "S" glass/kevlar and carbon fiber. This produces a
fiberglass hull that is stronger yet lighter than conventional fiberglass hulls
and provides extraordinary stability and handling in rough waters and at high
speeds.
Commercial Boats
Our commercial boats are quick response vehicles that provide high
maneuverability in confined areas and shallow water. They are small and
therefore can be easily transported to emergency areas. Our commercial boats
include the following:
o Fire Rescue Jet. The Fire Rescue Jet is designed to fight fires on
the water and in near shore areas. The Fire Rescue Jet comes
equipped with our patented water pump that can supply up to 750
gallons of water per minute. The Fire Rescue Jet is uniquely
designed so one person can control the boat and the fire apparatus
from a single station.
o Patrol Rescue Jet. The Patrol Rescue Jet is designed to provide
security in inland waterways and in harbors.
o Dive Rescue Jet. The Dive Rescue Jet is tailored for search and
recovery operations. It includes ample storage for dive gear and
other equipment necessary for search and recovery operations.
We offer a 12-foot and a 15-foot version of each of our commercial models.
Except for boats we sell for use in California, our commercial boats come
equipped with Mercury Marine Sport Jet 175 XR2 two stroke engines that generate
175 horse power, and Mercury Marine single stage axial flow jet pumps. Our
15-foot boats come with dual engines, while our 12-foot boats have a single
engine. We equip boats we sell for use in California with a Mercury Marine
Optimax 200 horsepower direct injection engine, which meets the strict emissions
standards in California and the year 2006 emissions requirements mandated by the
United States Environmental Protection Agency.
We offer options and accessories for our commercial boats such as engine
upgrades up to 240 horse power, helicopter lifting rings, stretchers, floatation
canisters that increase the buoyancy of our boats, and dive platforms.
The following table sets forth the basic characteristics of our 12 and 15
foot models of each of our commercial boats:
-------------------- ---------- --------- ------------- ------------
Model Load Fuel Towing Passenger
Capacity Capacity Capacity Capacity
-------------------- ---------- --------- ------------- ------------
12 foot models 2,200 32 gal. 7,000 lbs. 5
lbs.
-------------------- ---------- --------- ------------- ------------
15 foot models 5,500 58 gal. 10,000 lbs. 6
lbs.
-------------------- ---------- --------- ------------- ------------
Our commercial boats come with a two-year warranty on the engine, the
fuel system and the electrical system, and a five-year warranty on the hull.
Recreational Boats
The Vortex, our recreational model, is tailored for recreational
boating. It is 22 feet long and can carry up to seven passengers. It comes
equipped with, among other things, a single Mercury Marine/Mercruiser V-8
engine, two 33-gallon fuel tanks, marine grade stainless steel hardware, a ski
tow, navigation lights, state-of-the art instrumentation, and a small cabin that
sleeps two.
Options and accessories available for the Vortex include upgraded
engines, boat covers, radios, fishing rod holders, floatation canisters that
increase buoyancy, and dive platforms.
The Vortex comes with a one-year warranty on the engine, the fuel
system and the electrical system, and a five-year warranty on the hull.
Sales, Marketing and Distribution
We sell our recreational boats through our direct sales staff and our
network of distributors and dealers, which include three dealers in the United
States. We give our dealers, distributors and sales personnel what they need to
be profitable: Safe, performing products, sleekly designed and priced right. Our
design, marketing and promotion strategy emphasize our high performance image.
Our marketing strategy consists of displaying and demonstrating our
boats at regional, national and international boat shows, and at local waterways
throughout the United States, and advertising our boats in magazines and on the
Internet.
Competition
The commercial and recreational boat markets are highly competitive. The
principal competitive factors in this market include price, quality,
reliability, durability, styling and performance.
Our current competitors in the commercial market include, among others,
Boston Whaler, Mon Ark, Safe Boat and Zodiac. Our current competitors in the
recreational boats market include, among others, Yamaha, SeaDoo and Polaris.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, these companies may be able to develop and expand their market
share more rapidly, adapt to changes in customer requirements more quickly, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than we can.
Intellectual Property
Our intellectual property is important to our business. We rely on a
combination of license rights, trade secret laws, confidentiality procedures and
contractual provisions to protect our intellectual property.
The unique designs and other components of our boats are protected by
United States patents issued to Albert Mardikian, the beneficial owner of over
20% of our outstanding shares of common stock, our design director, chief
executive officer and chairman of our international operations. Mr. Mardikian
has assigned these patent rights to Mardikian Marine Design, LLC, which has
granted us an exclusive license to use the patents. Mr. Mardikian and a
principal of Ashford Capital, LLC, which holds preferred stock convertible into
20% of our common stock, are the sole owners of Mardikian Marine Design, LLC.
Our competitors may independently develop similar designs or duplicate
our products or designs. Unauthorized parties may infringe upon or
misappropriate our products or proprietary information. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time consuming and costly.
There can be no assurance that any patent relating to our products will
not be challenged, invalidated, or circumvented. Thus, the rights granted
thereunder will give us a competitive advantage. In addition, we cannot assure
you that any of the patents sublicensed to us by Mardikian Marine Design will be
held valid if subsequently challenged.
Employees
As of May 2, 2002, we employ nine full time employees in the United
States, including, five factory workers, one sales person, and three
administration and management personnel. We also employ 17 full time employees
in China, all of whom are factory workers. We have never experienced work
stoppages, and we are not a party to any collective bargaining agreement. We
believe our employee relationships to be generally good.
Environmental Matters
We are subject to federal, state, local and foreign laws and
regulations regarding protection of the environment, including air, water, and
soil. Our manufacturing business involves the use, handling, storage, and
contracting for recycling or disposal of, hazardous or toxic substances or
wastes, including environmentally sensitive materials, such as batteries,
solvents, lubricants, degreasing agents, gasoline and resin. We must comply with
certain requirements for the use, management, handling, and disposal of these
materials. We, however, do not maintain insurance for pollutant cleanup and
removal. If we are found responsible for any hazardous contamination, any fines
or penalties we may be required to pay, or any clean up we are required to
perform, could be very costly. Even if we are charged, and later found not
responsible, for such contamination or clean up, the cost of defending the
charges could be high. If either of the foregoing occurs, our business, results
from operations and financial condition could be adversely affected. We do not
believe we have any material environmental liabilities or that compliance with
environmental laws, ordinances, and regulations will, individually or in the
aggregate, have a material adverse effect on our business, financial condition,
or results of operations.
Other Regulatory Matters
Our operations and products are subject to extensive government
regulation, supervision, and licensing under various federal, state, local and
foreign statutes, ordinances and regulations. Certain governmental agencies such
as the EPA and the Occupational Safety and Health Administration, or OSHA,
monitor our compliance with their regulations, require us to file periodic
reports, inspect our facilities and products, and may impose substantial
penalties for violations of the regulations. For example, we are subject to
federal regulation under the Boat Safety Act of 1971 that requires boat
manufacturers to recall products for replacement of parts or components that
have demonstrated defects affecting safety. Although manufacturers of certain
equipment we use in our boats have instituted recalls, there has never been a
recall resulting from our design or manufacturing process.
While we believe that we maintain all requisite licenses and permits
and are in compliance with all applicable federal, state, local and foreign
regulations, there can be no assurance that we will be able to maintain all
requisite licenses and permits. The failure to satisfy those and other
regulatory requirements could have a material adverse effect on our business,
financial condition, and results of operations.
Description of Property
We conduct our operations within approximately 5,075 square feet of
office space and 63,700 square feet of factory space. We lease an approximately
19,800 square foot facility in Huntington Beach, California, which includes
approximately 5,100 square feet that serves as our corporate office, and a
13,700 square foot manufacturing area where we assemble our boats and construct
prototypes for new designs. Our lease expired on February 28, 2002, and we are
currently searching for a new facility. Our landlord has agreed to allow us to
continue to lease the current facility on a month-to-month basis; however,
either of us can terminate the lease on thirty days prior written notice. Our
landlord is MGS Grand Sports, Inc. Our design director, chairman and chief
executive officer of our international operations, and beneficial owner of over
20% of our outstanding common stock, is also an officer, director and majority
owner of MGS Grand Sports, Inc.
Our wholly owned subsidiary, Nanning Sonic Jet Co., Ltd., a company
organized under the laws of the People's Republic of China, leases a 50,000
square foot manufacturing facility in Nanning, China, on a month-to-month basis.
We manufacture the hulls for our boats at the facility.
We also own 45% of Dalian Sonic Jet Co., Ltd., a joint venture company
organized under the laws of the People's Republic of China. Until January 2000,
the joint venture company manufactured some of the shells for our boats at a
50,000 square foot facility in Dalian China. Because of a dispute between us and
one of our partners, the joint venture discontinued operations. We do not
believe those operations will resume. See Factors That May Affect Future
Results.
We believe our facilities are adequate for our current operations and
that we can obtain additional leased space if needed.
Legal Proceedings
Although there are currently no legal proceedings pending against us,
between June 2001 and February 2002, we settled four lawsuits filed against us.
In February 2002, we settled a lawsuit filed against us by our former
chief executive officer and chairman, and our former vice president of
operations, in which they alleged, among other things, that we breached their
employment agreements. We settled both claims in exchange for issuing the former
employees an aggregate of 70,000 shares of our common stock.
In December 2001, we settled a wrongful death action filed against us
and one of our employees, by the survivors of the victim of a boating accident
that involved one of our boats. In exchange for conditionally dismissing the
lawsuit and releasing us of all claims related thereto, we agreed to issue to
the plaintiffs and their counsel an aggregate of 750,000 shares of our common
stock. We also agreed to pay the plaintiffs $85,000 in cash. That obligation is
secured by two of our boats. We made an initial payment of $25,000, and agreed
to pay the remaining $60,000 in ten monthly installments of $6,000. If, however,
we sell one or both of the boats securing the settlement before all ten payments
are made, upon receipt of the proceeds of such sale, we shall pay the plaintiffs
all remaining amounts due and owing, up to the amount of the sale price of the
boat. If we default on any payment due and fail to cure such default within 30
days after the plaintiffs provide us with written notice of such default, the
plaintiffs may file a stipulated judgment we executed, which authorizes the
court to award the plaintiffs $250,000, less any cash amounts we pay before such
default.
On June 26, 2001, we settled a lawsuit that Michel Attias filed against
us for, among other things, breach of contract, fraud and negligent
misrepresentation, in which he sought approximately $1.4 million in damages, the
value of common stock he alleged we promised to issue to him. In exchange for
dismissing the lawsuit with prejudice, we issued Mr. Attias 600,000 shares of
our common stock, which we agreed to register, and transferred him one of our
Vortex recreational boats. We also agreed to satisfy a $250,000 debt Mr. Attias
owed to Sheikh Mohammed Al Rashid, who is a former director and beneficially
owns approximately 18% of our outstanding common stock.
On January 22, 2002, we settled a breach of contract action filed
against us by Whalen Engineering Company, Inc., in which the plaintiff sought to
recover approximately $11,300. We agreed to pay the plaintiff $9,000 in three
equal monthly installment payments, in exchange for a dismissal of the lawsuit
with prejudice.
Management
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors are as follows:
Name Age Position
Madhava Rao Mankal 50 President, Chief Financial Officer, Secretary and Director
Scott R. Ervin............................... 47 Director
George Moseman............................... 55 Director
Mr. Mankal has served as our Chief Financial Officer since May 1999, as our
Secretary since February 2001, and as our President since January 2002. Mr.
Mankal has also served as a director since December 2001. Between September 1994
and May 1999, he served in various positions with American Power Products,
including, controller and manager of accounting
Mr. Ervin has served as a director since February 2002. Mr. Ervin also
served on our board between June and October 2001. Between 1999 and the present,
he has been an attorney in private practice in Austin, Texas. Between 1991 and
1999, Mr. Ervin practiced law with the law offices of Dr. A. Abbar, in Jeddah,
Saudi Arabia.
Mr. Moseman has served as a director since December 2001. Since 1999 he
has worked as a private investment banker and a financial consultant
specializing in foreign companies attempting to establish a presence in the
United States. Between 1998 and 1999, Mr. Moseman served as national marketing
director of Lamborghini of North America. Between 1997 and 1998, he served as
our Marketing Director, and between 1996 and 1997 he was a partner with Tradeway
Securities
Appointment of Directors
Pursuant to the Series B Convertible Preferred Stock Purchase Agreement we
entered into with Ashford Capital, LLC, we agreed to maintain at least five
directors, and that Ashford Capital, LLC, or its assignee, shall have the right
to nominate three of the five directors, as long as it holds the Series B
preferred stock or any shares underlying the same.
Information about the Board of Directors
The Board of Directors manages our business. It establishes overall policies and
standards for the Company and reviews the performance of management. The
directors are kept informed of our operations at meetings of the Board through
reports and analyses from, and discussions with, management. The Board of
Directors has not established any committees.
During the fiscal year ended December 31, 2001 (the "Fiscal Year" or "Fiscal
2001"), the Board of Directors met on two (2) occasions.
None of the incumbent directors served as a director at the time of any board
meeting held during the Fiscal Year.
Directors have not been paid any fees or remuneration, as such, for their
service on the Board. The Company's stock option plan approved in 2001 allows
for the issuance of 3,000 shares to Board of Director members but no options
have been issued under this plan as of May 2, 2002.
Summary of Cash and Certain Other Compensation
The following table summarizes the compensation earned by or paid to Albert
Mardikian and Alan Weaver, each of whom served as our chief executive officer
during 2001, and Madhava Rao Mankal, who served as our Chief Financial Officer
and Secretary during 2001. No other persons served as executive officers during
2001. We refer to these individuals as our named executive officers in other
parts of this proxy.
Summary Compensation Table
Long-term
Compensation
Awards
Annual Compensation Other Annual Shares Underlying
Name and Principal Position Fiscal Year Salary($) Bonus($) Compensation Options(#)
--------------------------- ------------------------- ------------ ------------------------------
Madhava Rau Mankal 2001 $35,208 -- $29,792(2) __
(1).................
President, Chief Financial Officer
and Secretary
2000 $65,000 -- -- 10,000 (3)
1999 $41,410 -- -- --
Albert Mardikian (4)................... 2001 $65,153 -- $3,495(2) --
Design Director, President and Chief 2000 $112,372 (5) -- -- --
Executive Officer of International
Operations, and former interim Chief
Executive Office
1999 $120,000 -- -- --
--
Alan Weaver (6)........................ 2001 $9,711 -- -- --
Former President and Chief Executive 2000 $127,586 -- -- --
Officer
----------
(1) Mr. Mankal was appointed President on January 2, 2002.
(2) Represents payments in exchange for services reported pursuant to IRS
Form 1099.
(3) Represents stock options issued on May 1, 2001, all of which Mr. Mankal
voluntarily cancelled in December 2001.
(4) Mr. Mardikian served as our Interim Chief Executive Officer from
February 2001 to October 2001.
(5) Represents salary in cash and 26,667 shares in lieu of $60,000 salary
for 1999.
(6) Mr. Weaver served as our Chief Executive Officer from July 2000 to
January 2001.
Stock Options
No stock options were granted or exercised during the fiscal year ended
December 31, 2001. The only options held by an executive officer or director,
included 10,000 options granted to Mr. Mankal on May 1, 2000. Mr. Mankal
voluntarily cancelled those options on December 31, 2001, as of which date they
were out-of-the-money.
Employment Contracts
On January 2, 2002, we entered into an at-will employment agreement
with Mr. Mankal. The agreement provides for an annual base salary of $64,800,
and an annual bonus of up to 25% of Mr. Mankal's annual base salary based on the
Company's achievement of certain earnings and positive cash flow targets, to be
established by the board. We also granted him 250,000 shares of common stock
that vest in two equal yearly installments. The shares were issued at fair
market value of the common stock on the date issued.
On December 27, 2001, in connection with the sale of our Series B
preferred stock to Ashford Capital, LLC, we entered into a letter agreement with
Mr. Mardikian, under which Mr. Mardikian agreed to enter into an employment
agreement with us, pursuant to which Mr. Mardikian will, among other things,
devote his full time and exclusive attention to our business, and provide
management services, design new products, modify existing products, and do all
other reasonable acts we request. We are in the process of negotiating and
finalizing that agreement.
Limitations of Liability and Indemnification Matters
Our Bylaws provide for mandatory indemnification of reasonable
expenses incurred by a director or officer, who was wholly successful on the
merits or otherwise, in defense of any proceeding, to which such officer or
director was a party because he was an officer or director.
Our Articles of Incorporation provide that, to the maximum extent
permitted by law, we shall indemnify any person who is or was a director,
officer, agent, fiduciary or employee, against any claim, liability or expense
arising against or incurred by such person made party to a proceeding because he
is or was one of our directors, officers, agents, fiduciaries or employees or
because he was serving another entity in such capacity, at our request.
Our Articles of Incorporation also provide that none of our directors
shall be personally liable to us or our shareholders for monetary damages for
breach of his fiduciary duty as a director, except to the extent that (i) such
director beaches his duty of loyalty to us or our shareholders; (ii) such
director's acts were not done in good faith or involved intentional misconduct
or a knowing violation of law; (iii) any transaction from which the director
directly or indirectly derives an improper personal benefit; or (iv) such
director voted for or assented to an improper distribution under Colorado law.
Section 7-109-102 of the Colorado Business Corporation Act provides
that we may, and our Bylaws provides that we must, indemnify our directors and
officers against reasonable incurred expenses (including attorney's fees),
judgments, penalties, fines and amounts paid in settlement reasonably incurred
by them in connection with any action, if we determine that such officer or
director conducted himself in good faith and that he reasonably believed (i) in
the case of conduct in their official capacity with us, that his conduct was in
our best interests, or (ii) in all other cases (except criminal cases), that his
conduct was at least not opposed to our best interests, or (iii) in the case of
any criminal proceeding, that he had no reasonable cause to believe his conduct
was unlawful. Any such determination shall be made by the vote of a majority of
disinterested directors, provided, however, if a quorum cannot be obtained, the
determination shall be made by a majority vote of a committee designated by the
board, which shall consist of two or more directors not parties to the
proceeding. If a quorum of the board or the committee cannot be established, or
if a majority of the directors constituting such quorum so direct, the
determination shall be made by independent legal counsel or by shareholder vote.
Our Bylaws prohibit us from providing indemnification where an officer
or director is adjudged liable to us, or liable in connection with a proceeding
charging that he derived an improper personal benefit.
Indemnification is limited to reasonable expenses, including attorney's fees,
incurred in connection with a proceeding brought by us or in our right.
Our Articles of Incorporation and the Colorado Business Corporation Act
authorize us to the maximum extent permitted by law, to purchase and maintain
insurance providing for such indemnification. We currently do not maintain any
such insurance.
It is the opinion of the staff of the Securities and Exchange Commission
that indemnification provisions such as those contained in our Bylaws and
Articles of Incorporation, have no effect on a director's or officer's liability
under federal securities laws.
Principal Stockholders
The following table contains certain information as of the May 2, 2002
regarding all persons who were the beneficial owners of more than 5% of the
outstanding shares of Common Stock, Series B preferred stock or Series C
preferred stock, each of the directors of the Company, each nominee for election
to become a director, each of the executive officers named in the Summary
Compensation Table set forth herein under the caption "Compensation of Executive
Officers" (we refer to all these officers as the "Named Executive Officers") and
all directors and executive officers as a group. The persons named hold sole
voting and investment power with respect to the shares shown opposite their
respective names, unless otherwise indicated. The information with respect to
each person specified is as supplied or confirmed by such person, based upon
statements filed with the SEC, or based upon the actual knowledge of the
Company.
Amount and Nature
of Beneficial Ownership(1)
Number of
Shares Right to Percent of
Name and Address Owned(2) Acquire Class(1)(2)
Common Stock
Principal Shareholders:
Sheikh Mohammed Al Rashid (3) ......................................... 4,318,774 -- 15.40%
Encore Capital Management, LLC (4) .................................... 5,963,841 -- 21.27%
Albert Mardikian (5) .................................................. 7,498,171 -- 26.74%
Ashford Capital, LLC (6) .............................................. 564,706 5,614,096 18.36%
e-Fund Capital Partners, LLC (7) ...................................... 1,129,412 913,495 7.06%
Officers
Rao Mankal (8) ........................................................ -- -- --
Albert Mardikian (5) .................................................. 7,498,171 -- 26.74%
Alan Weaver (9) ....................................................... -- -- --
Directors
Rao Mankal (8) ........................................................ -- -- --
George Moseman (10) ................................................... 250,000 -- *
Scott R. Ervin (11) ................................................... 15,000 -- *
All directors and executive officers as a group (5 persons) ........... 7,763,171 -- 27.68%
Series B Convertible Preferred Stock
Ashford Capital, LLC (6)............................................... 10 -- 100%
Series C Convertible Preferred Stock
e-Fund Capital Partners, LLC (7) ...................................... 11 -- 32.35%
Noriaki Sasaki (12) ................................................... 16 -- 47.06%
Ashford Capital, KK (13) .............................................. 5 -- 14.71%
------------
* Less than one percent.
(1) Subject to applicable community property and similar statutes.
(2) Includes shares beneficially owned, whether directly or indirectly,
individually or together with associates.
(3) Includes 3,297,097 shares held by Sheikh Mohammed Al Rashid, and 1,021,677
shares we are obligated to issue to Sheikh Mohammed Al Rashid upon his
release of certain liens he has on our assets. The business address of
Sheikh Mohammed Al Rashid is P.O. Box 5490, Jeddah, 2422, Kingdom of Saudi
Arabia.
(4) Shares of common stock beneficially owned by Encore Capital Management,
LLC, represent 2,471,759 shares owned by JNC Strategic Fund, LLC and
1,731,449 shares owned by JNC Opportunity Fund, LLC, and an aggregate of
1,776,633 shares we are obligated to issue to those funds upon their
release of certain liens they have on our assets. The business address of
Encore Capital Management, LLC is 12007 Sunrise Valley Drive, Suite 460,
Reston, Virginia 20191.
(5) Shares of common stock beneficially owned by Mr. Mardikian include
7,147,040 shares held by Sonic Jet Performance, LLC, of which Mr.
Mardikian is the sole shareholder, 334,831 shares held by Mr. Mardikian,
and 16,300 shares held by MGS Grand Sports, Inc., of which Mr. Mardikian
is a majority shareholder. The business address of Mr. Mardikian is 15662
Commerce Lane, Huntington Beach, California 92649.
(6) Shares owned include 564,706 shares owned by Ashford Capital, KK, a
Japanese company of which Ashford Capital, LLC, owns a minority interest,
5,613,456 shares issuable upon conversion of Series B preferred stock held
by Ashford Capital, LLC, and 415,225 shares issuable upon conversion of
Series C preferred stock held by Ashford Capital, KK. The conversion
shares referenced above are calculated assuming a conversion date of May
2, 2002. Ashford Capital, LLC, disclaims beneficial ownership of the
shares attributable to Ashford Capital, KK. The business address of
Ashford Capital, LLC is 1301 Dove Street, Suite 800, Newport Beach, CA.
92660.
(7) Shares of common stock beneficially owned includes 1,129,412 shares owned
by e-Fund Capital Partners, Inc, and 1,552,941 shares issuable upon
conversion of Series C preferred stock held by e-Fund Capital Partners.
The conversion shares are calculated assuming a conversion date of May 2,
2002. The business address of e-Fund Capital Partners, LLC is 301 East
Ocean Blvd., Suite 640, Long Beach, CA. 90802.
(8) The business address of Mr. Mankal is 15662 Commerce Lane, Huntington
Beach, California 92649.
(9) The business address of Mr. Weaver 8 Nicosia, Laguna Niguel, California
92677.
(10) The business address of Mr. Moseman is 23 Loma Avenue, Long Beach,
California 90803.
(11) The business address of Mr. Ervin is 4606 Horseshoe Bend, Austin, Texas
78731.
(12) The business address of Noriaki Sasaki is 3-9-1-201 Koishikawa Bunkyo-ku,
Tokyo, Japan 112-0002.
(13) The business address of Ashford Capital, KK is 2-5-15 Minami-Azabu,
Minato-Ku, Tokyo, Japan.
As of May 2, 2002, our executive officers, directors and holders of over 5%
of our common stock and their affiliates beneficially own approximately 65% of
the outstanding shares of our common stock. If these holders act as a group,
they may be able to control us and direct our affairs, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership also may delay, defer or prevent a change in our control, and make
some transactions more difficult or impossible without the support of these
stockholders. These transactions might include proxy contests, mergers, tender
offers, open market purchase programs or other purchases of common stock that
could give our stockholders the opportunity to realize a premium over the then
prevailing market price of our common stock.
Certain Relationships and Related Transactions
Transactions Related to Albert Mardikian
Huntington Beach Lease
On February 1, 1999, we entered into a three-year lease agreement with MGS Grand
Sport, Inc., for our facility in Huntington Beach, California. Our lease expired
in February 2002, and converted to a month-to-month term. When we entered into
the lease, Albert Mardikian, the majority shareholder, a director and officer of
MGS Grand Sport, Inc., beneficially owned over 20% of our common stock through
his ownership of Sonic Jet Performance, LLC. Throughout the lease term, Mr.
Mardikian has served as our director of design, and chairman and chief executive
officer of our international operations. In addition, between January and
November 2001, Mr. Mardikian was our interim chief executive officer, and
between March and October 2001, he was a director. Mr. Mardikian's son, Alex
Mardikian served as our Chief Executive Officer from November 1998 through
October 1999, and as a director between July 1998 and July 2000. In addition,
Mr. Mardikian's brother, wife and brother-in-law, are minority shareholders and
directors of, and his brother and wife are officers of, MGS Grand Sport, Inc.
We paid MGS Grand Sport, Inc., $97,500 for rent due during fiscal 2000.
To satisfy our obligation to pay $81,700 [There is a $50.00 error in one of the
numbers] for rent due during fiscal 2001, we paid MGS Grand Sport, Inc.,
$58,125, transferred it one of our Vortex recreational boats in settlement of
$16,000, and issued it 38,125 shares of common stock in satisfaction of the
remaining $7,625. We also issued MGS Grand Sport, Inc., 14,310 shares of common
stock to compensate it for fiscal 2001 property taxes it paid on our behalf.
Between January 1, 2002 and February 20, 2002, we paid MGS Grand Sport, Inc.,
$13,500 for rent due during fiscal 2002.
License Agreements
Patents awarded to Mr. Mardikian protect the designs and certain components of
our boats. On November 24, 1999, Mr. Mardikian granted us exclusive licenses,
until November 18, 2003, to use those patents and related rights. We owed Mr.
Mardikian $24,000 in royalties for 2000, which we satisfied by issuing him
10,765 shares of common stock. We owed him $46,138 in royalties for 2001, which
we satisfied by issuing him 36,910 shares of common stock.
On December 27, 2001, to induce Ashford Capital, LLC to purchase our Series B
preferred stock, Mr. Mardikian offered to assign his watercraft related patents
to Mardikian Marine Design, LLC, an entity owned by Mr. Mardikian and a
principal of Ashford Capital, LLC. To facilitate the assignment, on December 27,
2001, we terminated our license agreements with Mr. Mardikian and entered into
an exclusive license with Mardikian Marine Design, LLC, to use the patent rights
through December 30, 2011. Each year of the term of the license, we must pay
Mardikian Marine Design as royalties, a percentage of our gross revenue that
results from the sale of our products that incorporate or include any of Mr.
Mardikian's designs. We are obligated to pay (1) four percent of the first $3
million is gross revenues, (2) three percent of gross revenues over $3 million
but below $5 million, (3) two percent of gross revenue over $5 million and under
$10 million, and (4) one percent of any gross revenue in excess of $10 million.
We can pay the royalties to Mardikian Marine Design in cash or stock, at our
discretion. In addition we have agreed to a minimum payment of $60,000 per year.
In connection with the license grant, we agreed to indemnify Mardikian Marine
Design, LLC, and its members individually, including Mr. Mardikian and the
principal of Ashford Capital, LLC, from and against any liability related to
environmental contamination or damage caused by us or our violation of any
environmental laws.
Other Transactions
In connection with the sale of our Series B preferred stock to Ashford Capital,
LLC, Mr. Mardikian agreed to enter into an employment agreement, and a
non-compete and non-disclosure agreement with us. We are in the process of
negotiating and finalizing those agreements.
On June 29, 2001, we issued Mr. Mardikian 5,654 shares of our common stock in
exchange for $7,067 in business-related expenses we owed him.
As a condition to the issuance to Mr. Mardikian of 42,564 shares of common stock
on June 29, 2001, in exchange for his cancellation of our obligation to pay him
$46,138 for past due royalties and $7,067 for business expenses, we agreed that
if we were unable to obtain $500,000 in capital infusions by August 22, 2002,
Mr. Mardikian could convert those shares back into debt. On December 20, 2001,
in exchange for a general release of claims from Mr. Mardikian, including his
right to covert those shares into debt, we agreed that when we receive a total
of $500,000 in capital infusions, we would issue Mr. Mardikian a number of
shares of common stock which when added to his holdings as of December 20, 2001,
would equal 20% of our outstanding common stock. As of February 15, 2002, the
time we met that condition, Mr. Mardikian still owned more than 20% of our
common stock and therefore is not entitled to receive any additional shares.
In 2001, in a wrongful termination lawsuit filed against us and MGS Grand Sport,
Inc., we agreed to reimburse MGS Grand Sport, Inc. for $2,950 in legal fees it
paid for its defense. In lieu of paying cash, we issued MGS Grand Sport, Inc.,
2,360 shares of common stock.
Between September and November 2001, MBZ West, Inc., an entity owned by Mr.
Mardikian's nephew, loaned us approximately $110,926 at an interest rate of 4%
per month, or 48% per annum. Between September and November 2001, we paid an
aggregate of $115,863 for the principal and interest that had accrued on the
loan.
We own 45% of Dalian Sonic Jet Co., Ltd., a joint venture company that Sonic Jet
Performance, LLC, our predecessor in interest, and two partners, formed in May
1998, under the laws of the People's Republic of China. We formed the joint
venture to manufacture boat shells in China. The joint venture agreement
provided for the payment to Mr. Mardikian of 2% of the profit resulting from the
joint venture's sales. Because of disagreements between the partners, Dalian
Sonic Jet Co., Ltd., discontinued operations in June 2000, and Mr. Mardikian has
not received any royalty payments since 1999.
All of the June 29, 2001, issuances of common stock described above, had an
effective issue price of $1.25 per share. The market price of our common stock
on that day was $0.17.
Transactions with JNC Opportunity Fund, Ltd. and JNC Strategic Fund, Ltd.
On November 27, 1999, we entered into a loan transaction with JNC Opportunity
Fund, Ltd. In exchange for $1.25 million, we issued JNC Opportunity Fund, Ltd. a
$1.25 million promissory note and warrants to purchase 1.25 million shares of
our common stock. We also issued a related entity, JNC Strategic Fund, Ltd.,
1,600 shares of Series A preferred stock. In each of March, May, September,
October and November of 2000, in exchange for additional advances, we issued JNC
Opportunity Fund, Ltd. promissory notes in the aggregate amount of $1.45 million
and warrants to purchase an aggregate of 1.45 shares of common stock. Encore
Capital Management, Inc. controls both JNC Opportunity Fund, Ltd. and JNC
Strategic Fund, Ltd. At the time of each additional advance, Neil Chau, a
principle of Encore Capital Management, LLC, served on our board of directors.
On June 29, 2001, we converted $3,069,699 in principal and interest due under
the promissory notes issued to JNC Opportunity Fund, Ltd., into 2,455,759 shares
of our common stock. We also issued JNC Opportunity Fund, Ltd. 16,000 shares of
common stock to compensate it for certain legal expenses related to the loan
transaction that we had agreed to pay. On the same day, we converted the 1,600
shares of Series A preferred stock held by JNC Strategic Fund, Ltd., into
1,731,449 shares of common stock. We issued all of these shares at an effective
issue price of $1.25 per share.
The issuances resulted in the JNC funds collectively holding approximately 22%
of our outstanding common stock. The conversions were effected on the condition
that if we were unable to raise $500,000 in capital infusions by August 22,
2002, JNC Opportunity Fund, LLC and JNC Strategic Fund, LLC, could reconvert the
shares back into debt and Series A preferred stock, respectively.
On December 20, 2001, in exchange for a general release of claims from Encore
Capital Management, LLC and the JNC funds, we agreed that when we receive a
total of $500,000 in capital infusions, we would issue the JNC funds a number of
shares of common stock which when added to their holdings as of December 20,
2001, would equal 18% of our outstanding common stock. As of February 15, 2002,
we had raised the $500,000. To satisfy our obligation, we intend to issue the
JNC funds 1,776,633 shares of our common stock.
Transactions with Sheikh Mohammed Al Rashid
On June 29, 2001, we issued 697,097 shares of our common stock to Sheikh
Mohammed Al Rashid, in lieu of paying $808,871 in principle and interest due
under a promissory note we issued to him in May 1999. On June 29, 2001, we also
issued Sheikh Mohammed Al Rashid 50,000 shares in satisfaction of a $250,000
debt a third party owed him. We agreed to pay the debt as part of our settlement
of a lawsuit filed against us by the third party, and issued the shares at an
effective issue price of $1.25 per share.
On December 21, 2001, in exchange for a general release of claims, we agreed
that when we receive a total of $500,000 in capital infusions, we would issue
Sheikh Mohammed Al Rashid a number of shares of common stock which when added to
his holdings as of December 20, 2001, would equal 13% of our outstanding common
stock. As of February 15, 2002, we had raised the $500,000. To satisfy our
obligation, we intend to issue Sheikh Mohammed Al Rashid 1,021,677 shares of
common stock.
At the time of each of these transactions, Sheikh Mohammed Al Rashid
beneficially owned at least 18% of our outstanding common stock. In addition,
Sheikh Mohammed Al Rashid served as a director between April 1999 and February
2002.
Other Transactions
In 1998, Sonic Jet Performance, LLC, our predecessor-in-interest, loaned $75,683
to Sonic Marketing International, LLC. On June 30, 2000, we wrote off the debt
as uncollectable. Alex Mardikian, the son of Albert Mardikian, and Majid Al
Rashid, the son of Sheikh Mohammed Al Rashid, were the sole shareholders,
directors and officers of Sonic Marketing International, LLC.
On December 27, 2001, in connection with the sale of five shares of our Series C
preferred stock to e-Fund Capital Partners, LLC, we entered into a six month
consulting agreement with Barrett Evans, a principal at e-Fund Capital Partners,
Inc. Under the agreement, Mr. Evans agreed to provide us with business
consulting services in exchange for 1 million shares of common stock that we
have issued. As of May 2, 2002, e-Fund Capital Partners, LLC held an aggregate
of 5.9 % of our outstanding common stock on a fully diluted basis, including
1,129,412 shares of common stock and 11 shares of Series C preferred stock which
assuming they were converted as of May 2, 2002, it would equate
to1,552,941shares of common stock.
In January 2002, Ashford Capital, KK purchased 7 shares of our Series C
preferred stock for an aggregate purchase price of $70,000. It converted two of
the preferred shares into 564,706 shares of our common stock. Ashford Capital,
LLC, the holder of our Series B preferred stock, owns a minority interest in
Ashford Capital, KK.
Selling Stockholders
The following table sets forth the names of each selling stockholder, the
aggregate number of shares of common stock beneficially owned by each selling
stockholder as of May 2, 2002, and the aggregate number of shares of common
stock that each selling stockholder may offer and sell pursuant to this
prospectus. Because each selling stockholder may offer all or a portion of the
shares of common stock offered by this prospectus at any time and from time to
time after the date hereof, no estimate can be made of the number of shares that
each selling stockholder may retain upon completion of this offering.
We are registering all of the shares of common stock offered for sale
pursuant to this prospectus pursuant to certain registration rights obligations.
Of the 13,731,103 shares of common stock offered by this prospectus, 4,800,000
shares are issued and outstanding as of May 2, 2002, 5,613,456 shares have been
reserved for issuance to certain selling stockholder upon conversion of shares
of outstanding Series B preferred stock, and 4941176 shares have been reserved
for issuance to certain selling stockholders upon the conversion of shares of
outstanding Series C preferred stock. The shares we are registering that are
reserved for issuance may vary depending on the conversion price of the those
shares, and, therefore, we have registered as part of this offering, an
additional indeterminate number of shares of our common stock that we may be
required to issue to the selling stockholders upon such conversion. Each share
of Series C preferred stock is convertible into a number of shares of our common
stock that equals the sum of (i) the quotient obtained by dividing $10,000 by
eighty-five percent (85%) of the average of the lowest three (3) intra-day bids
on our common stock on the primary exchange, quotation system or market on which
it is listed, over the ten trading days immediately preceding the date of the
conversion (which we are obligated to register), and (ii) twenty percent (20%)
of such quotient (which we are not obligated to register). For example, if the
conversion price (i.e., the average of the three lowest intra-day bids during
the 10 trading days preceding the conversion date) is $0.05 per share, one share
of Series C preferred stock would convert into 282,353 shares of common stock of
which 235,294 shares would be covered under this registration statement.
In the following table, we have calculated shares of common stock
beneficially owned based upon 31,608,945 shares of common stock outstanding on
May 2, 2002, together with convertible securities that are exercisable within 60
days of May 2, 2002 for each stockholder (calculated at the conversion price as
of May 2, 2002). Under the rules of the Securities and Exchange Commission,
beneficial ownership includes shares over which the named stockholder exercises
voting and/or investment power. Unless otherwise indicated in the footnotes
below, we believe that the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to applicable community property laws. The information with respect to
beneficial ownership of common stock held by each person is based upon record
ownership data provided by our transfer agent, information as supplied or
confirmed by selling stockholders, based upon statements filed with the
Securities and Exchange Commission, or based upon our actual knowledge.
Except as noted in the footnotes to the table below and as described under
the caption "Certain Transactions," within the past three years, none of the
selling stockholders have held any position or office with us or entered into a
material relationship with us.
Number of Shares Number of
Beneficially Shares
Owned Prior to Offered
Name Offering Hereby
---- ----------------- ---------
e-Fund Capital Partners, LLC (1)....................................... 1,129,412 941,176
Noriaki Sasaki......................................................... 1,129,412 941,176
Ashford Capital, LLC (2)...............................................
Ashford Capital, KK (3) ...............................................
Dennis Hickey (4)...................................................... 564,706 470,588
Michael E. Watts (4)................................................... 564,706 470,588
Krishna Mankal (5)..................................................... 282,353 235,294
Hratch Khedesian (6)................................................... 282,353 235,294
Jeffrey S. Marks (7)................................................... 282,353 235,294
----------
(1) Jeff Conrad, the principal of e-Fund Capital Partners, has sole voting and
investment power over these securities.
(2) Frank Kavanaugh, a principal of Ashford Capital, LLC, has sole voting and
investment power over these securities. Mr. Kavanaugh currently provides
consulting services to us. Ashford Capital, LLC holds all outstanding
shares of Series B preferred stock that is convertible into 20% of our
common stock. The business address of Ashford Capital, LLC is 1301 Dove
Street, Suite 800, Newport Beach, CA. 92660.
(3) Ashford Capital, KK has sole voting and investment power over these
securities. In addition, Ashford Capital, LLC owns a minority interest in
Ashford Capital, KK.
(4) Currently serves as one of our consultants.
(5) Mr. Mankal is the son of Madhava Rao Mankal, who has served as our Chief
Financial Officer since May 1999, as our Secretary since February 2001,
and as our President since January 2002. Mr. Mankal has also served as a
director since December 2001.
(6) Mr. Khedesian is currently an employee. Previously, between January of
1998 and July of 2001, he served as a Director of the company. In
addition, Mr. Khedesian's uncle is Albert Mardikian.
(7) Mr. Marks is the sole shareholder and director of J. Marks Law, a
professional corporation. Mr. Marks received the shares of Series C
preferred stock from which the common stock was converted, as partial
consideration for legal services provided by J. Marks Law, Inc., which were
not related to the preparation of this prospectus or the registration
statement to which it relates.
Plan of Distribution
We are registering the shares of common stock offered for sale by this
prospectus on behalf of the selling stockholders. As used in this section,
"selling stockholders" includes donees, pledgees, distributees, transferees or
other successors-in-interest, including, without limitation, their respective
affiliates and limited or general partners, all of which are referred to as a
group below as transferees, or certain counter-parties to derivative
transactions with the selling stockholders or transferees. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. We will pay all costs, expenses and
fees in connection with the registration of the shares. The selling stockholders
will pay all brokerage commissions, underwriting discounts, commissions,
transfer taxes and other similar selling expenses, if any, associated with the
sale of the shares of common stock by them.
Shares of common stock may be sold by the selling stockholders from time to
time in one or more types of transactions (which may include block transactions)
in the over-the-counter market, in privately- negotiated transactions, through
put or call options transactions relating to the shares, through short sales of
such shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, fixed prices, varying prices determined at the
time of sale or at negotiated prices. The selling stockholders will have the
sole discretion not to accept any purchase offer or make any sale of shares if
they deem the purchase price to be unsatisfactory at any particular time. Such
transactions may or may not involve brokers or dealers. To the best of our
knowledge, none of the selling stockholders have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of shares of common stock offered by
this prospectus; however, the selling stockholders may enter into agreements,
understandings or arrangements with an underwriter or broker-dealer regarding
the sale of their shares in the future.
The selling stockholders may effect such transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals, or other agents. Such broker-dealers or other
agents may receive compensation in the form of discounts, concessions, or
commissions from the selling stockholders and/or the purchasers of shares of
common stock for whom such broker-dealers or other agents may act as agents or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer or other agent might be in excess of customary commissions).
Market makers and block purchasers purchasing the shares will do so for their
own account and at their own risk. It is possible that a selling stockholder
will attempt to sell shares of common stock in block transactions to market
makers or other purchasers at a price per share which may be below the then
market price. There can be no assurance that all or any part of the shares
offered hereby will be sold by the selling stockholders.
The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions with respect to the shares. In
connection with these transactions, broker-dealers or other financial
institutions may engage in short sales of the shares in the course of hedging
the positions they assume with the selling stockholders. The selling
stockholders may also sell the shares short and redeliver the shares to close
out the short positions. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions which
require the delivery to the broker-dealer or other financial institutions of the
shares. The selling stockholders may also loan or pledge the shares to a
financial institution or a broker-dealer and the financial institution or the
broker-dealer may sell the shares loaned or upon a default the financial
institution or the broker-dealer may effect sales of the pledged shares.
The selling stockholders and any brokers, dealers or agents that participate
in connection with the sale of shares of common stock might be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and any
commissions received by such brokers, dealers or agents and any profit on the
resale of the shares sold by them while acting as principals might be deemed to
be underwriting discounts or commissions under the Securities Act. We have
agreed to indemnify some of the selling stockholders against certain
liabilities, including liabilities arising under the Securities Act. The selling
stockholders may agree to indemnify any agent, dealer, broker-dealer or
underwriter that participates in transactions involving sales of the shares of
common stock offered pursuant to this prospectus against certain liabilities,
including liabilities arising under the Securities Act.
Because the selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, the selling stockholders will be subject to
the prospectus delivery requirements of the Securities Act and the rules
promulgated thereunder and they may be subject to certain statutory liabilities
under the Securities Act, including, but not limited to, Sections 11, 12 and 17
of the Securities Act and Rule 10b-5 under the Securities Exchange Act. In
addition, the selling stockholders and any other person participating in the
offering will be subject to applicable provisions of the Securities Exchange Act
and the rules and regulations thereunder, including Regulation M under the
Securities Exchange Act, which may limit the timing of purchases and sales.
These restrictions may affect the marketability of the common stock and the
ability of any person to engage in market-making activities with respect to the
common stock.
Any shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under the terms of this prospectus. In addition, subject to applicable
state and foreign laws, the selling stockholders may sell their common stock
outside the United States pursuant to Rules 903 and 904 of Regulation S under
the Securities Act.
To comply with the securities laws of certain jurisdictions, the shares of
common stock offered by this prospectus may need to be offered or sold only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the shares of common stock may not be offered or sold unless they
have been registered or qualified for sale or an exemption is available and
complied with.
If a selling stockholder notifies us that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker, dealer or underwriter, we will file a supplement to
this prospectus, if required, pursuant to Rule 424(b) under the Securities Act.
In addition, to the extent required, we will amend or supplement this prospectus
to disclose other material arrangements regarding the plan of distribution.
Description of Capital Stock
Our authorized capital stock consists of 100 million shares of common stock,
and 10 million shares of preferred stock. Our Board of Directors has approved a
proposal to amend our articles of incorporation to increase the authorized
number of shares of common stock from 100,000,000 to 300,000,000. We have
submitted the proposal to our shareholders, for approval. The proposed increase
in the authorized number of shares of common stock will take effect, if at all,
after it is approved by the shareholders at a special meeting of shareholders
scheduled to occur in May 2002, and after we file an Articles of Amendment with
the Secretary of State of the State of Colorado.
The following is a summary of certain provisions of our common stock,
preferred stock, Articles of Incorporation and bylaws. Copies of our articles
and bylaws are available from us upon request.
Common Stock
As of May 2, 2002, there were 31,608,945 shares of common stock outstanding,
held by approximately 600 shareholders of record. All outstanding shares of
common stock are, and the common stock to be issued in this offering will be,
fully paid and nonassessable.
Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. There are no cumulative voting rights.
The holders of our common stock are entitled to share equally in dividends
and other distributions that our board of directors may declare from time to
time out of funds legally available for that purpose, if any, after the
satisfaction of any prior rights and preferences of any outstanding preferred
stock.
If we liquidate, dissolve or wind up, the holders of shares of common stock
will be entitled to share ratably in the distribution of all of our assets
remaining available for distribution after satisfaction of all our liabilities
and our obligations to holders of our outstanding preferred stock.
The holders of our common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor are they entitled to the benefits of
any redemption or sinking fund provisions.
Preferred Stock
As of May 2, 2002, there were ten shares of Series B preferred stock
outstanding, all held by Ashford Capital, LLC. Each share is convertible into
two percent of the shares of our common stock outstanding at the date of
conversion. The shares shall convert at the earlier of the election of the
holder, or December 27, 2002. The holder of the Series B preferred stock, has
the right to vote, with the holders of common stock, on any matter to which the
common stock holders are entitled to vote, the number of shares of common stock
into which the Series B preferred stock is convertible. If we are liquidated,
distribute our assets, dissolve or wind-up, the holders of Series B preferred
stock shall receive the greater of (i) $2,500 per share of Series B preferred
stock they hold at the time of such Liquidation, or (ii) their pro rata share of
the total value of our assets and funds to be distributed, assuming the Series B
preferred stock is converted to common stock.
As of May 2, 2002, there were 35 shares of series C preferred stock
outstanding, Each share is convertible into a number of shares of our common
stock that equals the sum of (i) the quotient obtained by dividing $10,000 by
eighty-five percent (85%) of the average of the lowest three (3) intra-day bids
on our common stock on the primary exchange, quotation system or market on which
it is listed, over the ten trading days immediately preceding the date of the
conversion, and (ii) twenty percent (20%) of such quotient. In the event of a
liquidation, the holders of Series C preferred stock shall be entitled to
receive one hundred and fifty percent (150%) of the amount of consideration paid
for the Series C preferred stock, after which time the holders of Series B
preferred stock and Series C preferred stock shall participate in such
liquidation, on a pro rata basis, based on the number of shares of the common
stock into which the Series B preferred stock and the Series C preferred stock
are convertible at the time of the liquidation. The holders of Series C
preferred stock have no voting rights.
Our board of directors has the authority to issue an additional 9,999,066
shares of preferred stock in one or more series, and fix for each series, the
designation of, and number of shares to be included in, each such series. Our
board of directors is also authorized to set the powers, privileges,
preferences, and relative participating, optional or other rights, if any, of
the shares of each such series and the qualifications, limitations or
restrictions of the shares of each such series.
Unless our board of directors provides otherwise, the shares of all series
of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Any issuance by us
of shares of our preferred stock may have the effect of delaying, deferring or
preventing a change of our control or an unsolicited acquisition proposal. The
issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of common stock.
Registration Rights
We granted Ashford Capital, LLC certain piggyback registration rights
with respect to shares of common stock issuable upon the conversion of ten
shares of our Series B preferred stock. Each share of Series B preferred stock
is convertible into two percent of the shares of our common stock outstanding at
the date of conversion. Ashford Capital, LLC has neither converted any of those
preferred shares, nor has exercised its registration rights in connection with
the registration statement of which this prospectus is a part.
Pursuant to a Series C Convertible Preferred Stock Purchase Agreement
we entered into with the holders of 36 shares of our Series C preferred stock,
we agreed to use our best efforts to, as soon as possible, register a portion of
the shares of common stock issuable upon the conversion of those shares. As of
May 2, 2002, 17 of the Series C preferred shares had converted into an aggregate
of 4,800,000 shares of common stock, 4,00,000 of which we are obligated to
register. The effective registration statement of which this prospectus is a
part satisfies our obligations with respect to these shares.
Listing
We are listed for quotation on the OTC Bulletin Board under the symbol
"SJET.OB."
Transfer Agent and Registration
Public Ease, Nevada, is the transfer agent and registrar for our common
stock.
Shares Eligible for Future Sale
Future sales of a substantial amount of our common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of our common stock. A reduction in the market price of our
common stock could lower the value of our common stock or other securities and
could impair our future ability to raise capital through the sale of equity
securities.
The following is a discussion of when and how most of our stock may become
publicly tradable in the future. Except as otherwise noted, all of the following
information is as of May 2, 2002.
Outstanding Common Stock
As of May 2, 2002, we had 31,608,945 shares of common stock issued and
outstanding, of which approximately 6,400,000 million shares are freely trading
or eligible to trade. The remaining 25,208,945 million shares are considered
"restricted securities" under the Securities Act; however, some of these shares
are being registered for resale pursuant to the effective registration statement
of which this prospectus is a part.
Common Stock Issuable Upon Conversion of Series B Preferred
There are ten shares of Series B preferred stock outstanding. Each share is
convertible into two percent, or an aggregate of 20%, of the shares of our
common stock outstanding at the date of conversion, which is the earlier of the
election of the holder, or December 27, 2002. As of May 2, 2002, the outstanding
shares of Series B preferred stock were convertible into an aggregate of
5,613,456 shares of common stock. None of those shares of our common stock
issuable upon conversion of the Series B preferred stock are offered for resale
under this prospectus.
There are [35] shares of Series C preferred stock outstanding. Each share is
convertible into a number of shares of our common stock that equals the sum of
(i) the quotient obtained by dividing $10,000 by eighty-five percent (85%) of
the average of the lowest three (3) intra-day bids on our common stock on the
primary exchange, quotation system or market on which it is listed, over the ten
trading days immediately preceding the date of the conversion, and (ii) twenty
percent (20%) of such quotient. As of May 2, 2002, the outstanding shares of
Series C preferred stock were convertible into an aggregate of 4,941,176 shares
of common stock. All of the shares issuable upon conversion of the Series C
preferred stock are offered for resale under this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our "affiliates", would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding or the average weekly
trading volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks immediately preceding the SEC filing with respect to such
sale. Manner of sale provisions, notice requirements and the availability of
current public information about us also apply to these sales. These limitations
apply to both restricted and unrestricted shares held by persons who are our
affiliates. If a person is not deemed to have been our affiliate at any time
during the 90 days immediately preceding the sale, he or she may sell his or her
restricted shares under Rule 144(k) without regard to the limitations described
above if at least two years have elapsed since the later of the date the shares
were acquired from us or from our affiliate. This paragraph summarizes Rule 144
and is not intended to be a complete description of it.
Changes In And Disagreements With Accountants
On Accounting And Financial Disclosure
On September 17, 2001, we dismissed Singer Lewak Greenbaum & Goldstein LLP, as
our principal independent accountant. Singer Lewak's audit report for our
financial statements for the periods ended December 31, 1999 and December 31,
2000, included a going concern uncertainty paragraph indicating that there is
uncertainty about our ability to continue as a going concern. To replace that
firm, we hired Michael Johnson & Co., LLC, as our principal independent
accountant.
Our board of directors approved the change of our accountant. We had no
disagreements with Singer Lewak Greenbaum & Goldstein LLP, on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to their satisfaction, would have
caused it to make reference to the subject matter of the disagreement in
connection with its report.
Legal Matters
The validity of the shares of common stock being registered under this
prospectus has been passed upon for us by Basinger and Alonso, Attorneys at Law,
301 East Ocean Blvd. Suite 601, Long Beach California, 90802. Its telephone
number is (562) 983-0660.
Experts
The consolidated financial statements of Sonic Jet Performance, Inc. as of
December 31, 1999 and 2000, appearing in this prospectus and registration
statement have been audited by Singer Lewak Greenbaum & Goldstein LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
in this prospectus, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Sonic Jet Performance, Inc., as of
December 31, 2001, appearing in this prospectus and registration statement have
been audited by Michael Johnson & Co., LLC, independent auditors, as set forth
in their report thereon appearing elsewhere in this prospectus, and are included
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
Where You Can Find More Information
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, of which this prospectus is a part, under the Securities
Act with respect to the shares of common stock being registered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete. You should refer to
the copy of these documents filed as an exhibit to the registration statement or
otherwise filed by us with the Securities and Exchange Commission for a more
complete understanding of the matter involved. Each statement concerning these
documents is qualified in its entirety by such reference.
We must comply with the informational requirements of the Securities
Exchange Act of 1934. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. The registration statement, including the attached exhibits and
schedules, may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, New York, New York
10048, and 500 West Madison Street, Chicago, Illinois 60661. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. Copies of the registration statement and the
reports, proxy and information statements and other information that we file
with the Securities and Exchange Commission may be obtained from the Securities
and Exchange Commission's Internet address at http://www.sec.gov.
You may request a copy of these documents, at no cost, by writing or
telephoning us at the following address:
Sonic Jet Performance, Inc.
15662 Commerce Lane
Huntington Beach, California 92626
(714) 895-0944
SONIC JET PERFORMANCE, INC.
AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS
Report Of Independent Certified Public Accountants F-1
Consolidated Financial Statements
Consolidated Balance Sheet F-2 - F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6 - F-8
Notes to Consolidated Financial Statements F-9 - F-19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Sonic Jet Performance, Inc. and subsidiary
We have audited the accompanying consolidated balance sheet of Sonic Jet
Performance, Inc. and subsidiary as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sonic
Jet Performance, Inc. and subsidiary as of December 31, 2001, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
The financial statements for the year ended December 31, 2000,were audited by
other accountants, whose report dated May 14, 2001, expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the years ended December 31,
2001 and 2000, the Company incurred net losses of $1,437,818 and $7,458,046,
respectively. In addition, the Company's accumulated deficit was $11,009,005 as
of December 31, 2001. As discussed in Note 2, conditions exist which raise
substantial doubt about the Company's ability to continue unless it is able to
generate sufficient cash flows to meet its obligations and sustain its
operations. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustment that might result
from the outcome of this uncertainty.
/s/ Michael Johnson & Co, LLC
Michael Johnson & Co, LLC
Denver, Colorado
February 28, 2002
F-2
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31,
ASSETS
2001 2000
Current assets
Cash $42,760 $ 40,129
Restricted cash 201,004 203,120
Accounts receivable 9,500 45,760
Inventories 363,971 574,903
Due from related party - 393,291
Other current assets 7,731 3,450
--------- ---------
Total current assets 624,966 1,260,653
--------- ---------
Property and equipment, net 1,221,313 1,359,910
--------- ---------
Other assets
Licensing rights 267,500 267,500
--------- ---------
Total assets $2,113,779 $2,888,063
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $458,416 $192,206
Accrued payroll taxes 70,936 68,486
Accrued interest - 300,834
Other accrued liabilities 397,276 386,215
Current portion of capitalized lease oblig. 12,236 1,432
Convertible debts - related party - 2,801,301
-------- ---------
Total current liabilities 938,864 3,750,474
------- ---------
Capitalized lease obligations, net of current portion - 12,236
Subordinated note payable - related party - 600,000
-------- -------
Total liabilities 938,864 4,362,710
-------- ---------
Commitments and contingencies
Stockholders' deficit
Preferred stock, no par value
10,000,000 shares authorized
Series A Convertible Preferred Stock
1600 shares issued and outstanding - 1,500,000
Series B Convertible preferred stock
1 shares issued and outstanding 25,000 -
Series C Convertible preferred stock
5 shares issued and outstanding 50,000 -
Common stock, no par value
100,000,000 shares authorized
19,333,936 shares issued and outstanding 12,015,715 4,328,777
Additional paid-in capital stock warrants - 1,024,627
Additional paid-in capital - 1,098,000
Shares committed to be issued 93,205 143,872
Accumulated Comprehensive income - 20,330
Accumulated deficit (11,009,005) (9,590,253)
---------- ----------
Total stockholders' deficit 1,174,915 (1,474,647)
---------- ---------
Total liabilities and stockholders' deficit $2,113,779 $2,888,063
The accompanying notes are an integral part of these financial statements.
F-3
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2001 2000
---- ----
Sales $1,199,047 $1,032,355
Cost of sales 896,084 870,676
-------- -------
Gross profit 302,963 161,679
------- -------
Operating expenses
General and administrative expenses 1,501,864 3,101,037
Impairment loss - 2,350,045
------------ ---------
Total operating expenses (1,501,864) (5,451,082)
---------- ----------
Loss from operations (1,198,901) (5,289,403)
----------- ----------
Other income (expense)
Other income 172,258 15,694
Interest income 7,056 3,463
Interest expense (24,938) (2,187,800)
Extraordinary Loss (393,293) -
------------ -----------
Total other income (expense) (238,917) (2,168,643)
------------ ----------
Net loss $(1,437,818) $(7,458,046)
=========== ==========
Basic and diluted loss per share $(0.09) $(0.58)
---------- ----------
Weighted-average shares used to compute basic and
fully diluted loss per share 15,847,263 12,896,202
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31,
Accumulated
Additional Additional Shares Other
Paid-In Paid-In Committed Comprehensive
Preferred Stock Common Stock Capital Warrants to be Issued Income Accumulated
-------------------------------------- Deficit Total
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------------
Balance, December
31, 1999 1,600 1,500,000 12,676,000 3,618,194 $ 272,000 $ 316,026 799,455 (4,943) (2,132,207) 4,368,525
Issuance of common
stock - - 348,767 710,583 - - (655,583) - - 55,000
Capital changes due
to debt financing - - - - 826,000 708,601 - - - 1,534,601
Cumulative translation
adjustment - - - - - - - 25,273 - 25,273
Net loss - - - - - - - - (7,458,046) 7,458,046)
------ ----------- ---------- ---------- ---------- ---------- --------- -------- ------------ ----------
Balance, December
31, 2000 1,600 1,500,000 13,024,767 4,328,777 1,098,000 1,024,627 143,872 20,330 (9,590,253) 1,474,647)
------ ----------- ---------- ---------- ---------- ---------- --------- -------- ------------ ----------
Issuance of common
stock (1,594) (1,425,000) 6,309,169 7,686,938 (1,098,000) (1,024,627) (50,667) (20,330) 20,332 4,088,646
Capital changes due
to debt financing
Prior Year transaction
Cumulative translation
adjustment - - - - - - - - (1,268) (1,266)
Net loss - - - - - - - - (1,437,818) (1,437,818)
------ ----------- ---------- ---------- --------- --------- --------- -------- ------------ ----------
Balance, December
31, 2001 6 75,000 19,333,936 12,015,715 $ - - $ 93,205 - (11,009,005) 1,174,915
====== =========== ========== ========== ========= ========= ========= ======== ============ ==========
The accompanying notes are an integral part of these financial statements.
F-5
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2001 2000
----- ----
Cash flows from operating activities
Net loss $(1,437,818) $(7,458,046)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 141,314 49,735
Write off of molds and tools on discontinued product - 2,350,045
Write off of licensing rights - 267,500
Write off of inventories - 533,181
Loss from sale of property and equipment - 43,491
Income due to settlement of debt (164,335) -
Bad debts 152,970 293,835
Provision for warrants 100,000 -
Write off Investments in Dalian Sonic Jet co, ltd 393,292 -
Write off Dalian Sonic Jet Co, Ltd Inventory 5,863 -
Interest relating to beneficial conversion of debt and below
market warrants - 1,959,302
Common stock committed for services 93,205 -
Common stock issued for services 96,080 55,000
(Increase) decrease in
Account receivable 36,261 (327,751)
Other receivables (4,281) 699
Inventories 205,069 23,815
Due from related party (32,084) 36,977
Prepaid inventories - 20,000
Other current assets - -
Increase (decrease) in
Account payable 430,546 (255,491)
Accrued payroll taxes 2,450 83
Accrued interest - 289,055
Other accrued liabilities (138,940) 107,801
Due to related parties - -
--------- ---------
Net cash provided by (used in) operating (120,408) (2,010,769)
------- ----------
Cash flows from investing activities
Restricted cash 2,116 (203,120)
The accompanying notes are an integral part of these financial statements.
F-6
Purchase of property and equipment (2,645) (56,522)
Proceeds from sale of property and equipment - 1,000
Proceeds from sale of other assets - 22,575
Tooling - -
------- -----
Net cash used in investing activities (529) (236,067)
------- --------
Cash flows from financing activities
Proceeds from convertible debt - related party 125,000 2,171,151
Proceeds from (payments on) capitalized lease obligation (1,432) (1,303)
------- -------
Net cash provided by financing activities 123,568 2,169,848
------- ---------
Effect of exchange rate on cash and cash equivalents - 36,560
------- ----------
Net decrease in cash 2,631 (40,428)
Cash, beginning of year 40,129 80,557
------- -------
Cash, end of year $42,760 $40,129
======= =======
Supplemental disclosures of cash flow information
Interest paid $24,937 $ 537
------- -----
Income taxes paid $ 800 $ 800
======= =====
The accompanying notes are an integral part of these financial statements.
F-7
Supplemental schedule of non-cash investing and financing activities
During the year ended December 31, 2001, the Company recorded a reduction of
$164,335 in accounts payable that was treated as other income. Also a provision
of $100,000 for Warranty on boats was recorded.
During the year ended December 31, 2001, the Company issued 6,309,169 restricted
shares of common stock valued at $6,044,961 in connection with the settlement
agreement of all outstanding debts owed by the Company under loan agreements,
agreement between the Company and Plaintiffs in Wrongful death case and
outstanding amounts owed to employee and other expenses.
During the year ended December 31, 2001, the Company recorded $93,205 for
settlement with employees and consultants by committing to issue shares, which
represents the Company's commitment to issue 1,656,695 shares of common stock.
Cash from investing and financing activities exclude the effect of the
acquisition of real property through the assumption of debt.
F-8
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
NOTE 1 - NATURE OF BUSINESS
Sonic Jet Performance, Inc. ("SJPI"), a Colorado corporation, and
subsidiary (collectively, the "Company") designs and manufactures
commercial and recreational boats. The principal executive office is
located in Huntington Beach, California.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of SJPI and
its wholly owned subsidiary, Nanning Sonic Jet, LLC. During the year
ended December 31, 2001. All inter-company balances and transactions
are eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
As shown in the financial statements, during the years ended December
31, 2001 and 2000, the Company incurred losses of $1,437,818 and
$7,458,046 respectively, and the Company's accumulated deficit was
$11,009,005 as of December 31, 2001. Realization of a major portion of
the assets in the accompanying balance sheet is dependent upon
continued operations of the Company, obtaining additional financing,
and the success of its future operations.
Since December 31, 2001, the Company has received $460,000 from the
various subscribers. On February 5, 2002, the Company signed an
engagement letter with Regents Capital West, an investment banker,
pursuant to which it agreed to assist the Company in a private
placement of unregistered common stock in accordance with an applicable
exemption from registration under the Securities Act. The Company
agreed to pay Regents Capital West, 8% of the gross proceeds of such
offering, including capital raised from the issuance of the Company's
securities and from the exercise of warrants issued in connection with
the offering. The Company also agreed to issue Regents Capital West
shares of common stock equal to 5% of any proceeds raised in such
offering. Such shares shall be issued at $0.18 per share for any amount
raised up to $500,000, and at $0.15 per share for any amounts raised in
addition to $500,000. The engagement has a 12 month term which may be
extended. If the Company terminates such offering, or performs any act
that causes the offering to terminate, before the end of the term of
the engagement, in addition to compensation already paid to Regents
Capital West, the Company must pay a monetary amount between $125,000
and $750,000 depending on the month during which the offering is so
terminated. In addition, if the Company terminates the offering because
it has secured funds from another source, the Company will issue
Regents Capital West shares of common stock equal to 5% of any proceeds
received from such alternative funding source. Such shares shall be
issued at $0.18 per share for any amount raised up to $500,000, and at
$0.15 per share for any amounts raised over $500,000.The Company has
entered into agreement with Bombardier Capital for financing dealers
under a dealer's floor plan. Management expects such a
receivable-financing program will provide sufficient cash to continue
the Company's present operations.
F-9
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (Loss)
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting comprehensive income (loss) and its
components in a financial statement. Comprehensive income (loss) as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive income (loss), which are excluded from net loss, include
foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities. Comprehensive income (loss)
consists of foreign currency translation adjustments and is presented
in the consolidated statements of stockholders' equity (deficit).
Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less
to be cash equivalents. Cash equivalents consist primarily of United
States government securities.
Restricted Cash
Restricted cash consists of money deposited in a money market account
to secure a letter of credit for approximately the same amount. The
letter of credit was issued under a Floor Plan Repurchase Agreement
with a financing company, which finances certain customers of the
Company who are dealers and distributors.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Work in process and finished goods include
materials.
Property and Equipment
Property and equipment are stated at cost or at the value of the
operating agreement. Depreciation and amortization are computed using
the straight-line method over the following estimated useful lives:
Building and improvements 20 years
Furniture and fixtures 7 years
Machinery and equipment 7 years
Tooling and molds 7 years
Vehicles 7 years
The Company capitalizes costs incurred on tooling and molds once the
design of the product is completed and independent marketing channels
establish marketability of the product.
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company
would recognize an impairment loss based on the estimated fair value of
the asset.
F-10
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Transaction
Assets and liabilities in foreign currencies are translated at the
exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at the exchange rate prevailing at the
transaction date, and the resulting gains and losses are reflected in
the statements of operations. Gains and losses arising from translation
of a subsidiary's foreign currency financial statements are shown as a
component of stockholders' equity (deficit) as accumulated
comprehensive income (loss).
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. The asset and liability method accounts for deferred
income taxes by applying enacted statutory rates in effect for periods
in which the difference between the book value and the tax bases of
assets and liabilities are scheduled to reverse. The resulting deferred
tax asset or liability is adjusted to reflect changes in tax laws or
rates. Because the Company has incurred losses from operations, no
benefit is realized for the tax effect of the net operating loss
carry-forward due to the uncertainty of its realization.
Loss per Share
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common stockholders by
the weighted-average number of common shares outstanding. Diluted loss
per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
Because the Company has incurred net losses, basic and diluted loss per
share are the same.
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, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition
Revenues from products and services are recognized at the time goods
are shipped or services are provided to the customer, with an
appropriate provision for returns and allowances.
Recently Issued Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," (an Interpretation of Accounting
Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and
the Company has adopted FIN 44 as of that date.
F-11
NOTE 3 - CONCENTRATION OF CREDIT RISK
The Company maintains bank accounts at several banks. Deposits at the
banks are insured by the Federal Deposit Insurance Corporation (FDIC)
up to $100,000. At times, the Company holds cash with these banks in
excess of amounts insured by federal agencies. As of December 31, 2001,
the amount in excess of the FDIC limit totaled $101,004. Management
believes the financial risk associated with these financial instruments
is minimal.
NOTE 4 - INVENTORIES
Inventories at December 31, 2001 consisted of the following:
Raw materials and supplies $ 37,704
Work in process 255,101
Finished goods 71,166
--------
Total $363,971
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 consisted of the following:
Building and improvements $ 32,933
Furniture and fixtures 13,613
Machinery and equipment 309,043
Tooling and molds 6,000
Tooling - new products 1,210,290
Vehicles 20,899
-------
1,592,778
Less accumulated depreciation and amortization (371,465)
--------
Total $1,221,313
Depreciation expense for the year ended was $141,314.
F-12
NOTE 6 - CONVERTIBLE DEBT - RELATED PARTY
Convertible debt and accrued interest owed to JNC Opportunity fund,
Ltd. in the amount of $3,069,699 was converted to 2,455,759 shares of
144D common stock on June 29, 2001. Also 1,600 Convertible Preferred
stock and negotiated dividend on preferred stock in the name of JNC
Strategic Fund, Ltd. were converted to 1,731,449 shares of 144D common
stock on June 29, 2001.
NOTE 7 - SUBORDINATED NOTE PAYABLE - RELATED PARTY
$600,000 Promissory Note and accrued interest payable to Sheikh
Mohammed Al Rashid was converted to 647,097 shares of 144D common stock
on June 29, 2001.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease
The Company leases its principal executive offices and facility from
its majority stockholder under an operating lease agreement. This lease
agreement expired on February 28, 2002. The Company currently leases
these premises on a month-to-month basis at a monthly rental charge of
$7,400.
The Company's wholly owned subsidiary leases a 50,000 square foot
facility in Nanning, China on a month-to-month basis.
Rent expense was $81,750 and $80,000 for the years ended December 31,
2001 and 2000, respectively.
Future minimum lease payments under a non-cancelable capital lease at
December 31, 2001 were as follows:
Year Ending
December 31,
2001 12,236
-------
Current portion $12,236
=======
F-13
Capitalized leased assets included in property and equipment at
December 31, 2001 consisted of the following:
Vehicles $ 20,899
Less accumulated amortization 2,986
----------------
Total $ 17,913
================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreement
On January 2, 2002, the Company entered into an at-will employment
agreement with Mr. Mankal. The agreement provides for an annual base
salary of $64,800, and an annual bonus of up to 25% of Mr. Mankal's
annual base salary based on the Company's achievement of certain
earnings and positive cash flow targets, to be established by the
board. The Company also granted him options to purchase 250,000 shares
of common stock that vest in three equal yearly installments.
Royalty/Licensing Agreements
In September 1999, the Company entered into two license agreements with the
Company's Design Director and Chairman/Chief Executive Officer of International
operations, pursuant to which, the Company acquired exclusive design and other
rights related to the boats design and manufacture. On December 27, 2001, the
Company terminated those agreements and entered into a new license agreement
covering the design and other rights, with Mardikian Marine Design, LLC, an
entity owned by other Company's largest shareholder, and by a principal of the
holder of the Company's series B preferred Stock. Under the new licensing
agreement, the Company is obligated to pay the licensor, as royalties (1) 4% of
the first $3 Million Dollars in gross revenues resulting from the sale of
products using the designs, (2) 3% of gross revenue between $3 Million Dollars
and $5 Million Dollars (3) 2% of gross revenue between $5 Million Dollars and
$10 Million Dollars (4) 1% of gross revenue in excess of $10 Million Dollars.
Investment in Joint Venture - Dalian
The Company owns a portion of a joint venture company in Dalian, China
that was created to manufacture boats. Because of a dispute with one of
the joint venture partners, the joint venture discontinued operations.
Series B Convertible Preferred Stock
1 During fiscal 2001, One share of Series B Convertible Preferred stock
has been issued to Ashford Capital, LLC in exchange for $25,000.
2. During fiscal 2001, five shares of Series C Convertible Preferred
Stock were issued to Efund Capital Partners, LLC. for $50,000.
Stock Compensation Plan
The Company's 1998 Employee Consultant Stock Compensation Plan provides
for the granting of stock options to employees and certain consultants
of the Company and was amended in July 2000. A total of 2,000,000
shares of common stock have been reserved for issuance upon exercise of
options granted under the plan, as amended. During the year ended
December 31, 2001, the Company did not issue any option shares.
F-14
NOTE 10 - INCOME TAXES
There has been no provision for U.S. federal, state, or foreign income taxes
for any period because the Company has incurred losses in all periods and for
all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets are as follows:
Deferred tax assets:
Net operating loss carry forwards $ 10,073,818
Less valuation allowance 10,073,818
---------------
Net deferred tax assets $ -
===============
Realization of deferred tax assets is dependent upon future earnings,
if any, the timing and amount of which are uncertain. Accordingly, the
net deferred tax assets have been fully offset by a valuation
allowance. As of December 31, 2001, the Company had net operating loss
carry forwards of approximately $10,073,818 for federal and state
income tax purposes. These carry forwards, if not utilized to offset
taxable income begin to expire in 2007. Utilization of the net
operating loss may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue Code
and similar stat provisions. The annual limitation could result in the
expiration of the net loss before utilization.
NOTE 11 - OTHER RELATED PARTY TRANSACTIONS
Transactions Related to Albert Mardikian
Huntington Beach Lease
On February 1, 1999, The Company entered into a
three-year lease agreement with MGS Grand Sport, Inc.,(MGS) for office
and manufacturing space in Huntington Beach, California. The lease
expired in February 2002, and converted to a month-to-month term.
During this period, Albert Mardikian, the majority shareholder, a
director and officer of MGS Grand Sport, Inc., beneficially owned over
20% of the Company's common stock through his ownership of Sonic Jet
Performance, LLC. Throughout the lease term, Mr. Mardikian has served
as the Company's director of design, and chairman and chief executive
officer of our international operations. In addition, between January
and November 2001, Mr. Mardikian was our interim chief executive
officer, and between March and October 2001, he was a director.
During fiscal 2000, the Company paid $97,500 in cash for rent expense
to MGS Grand Sport, Inc. During fiscal 2001, the Company paid $51,375
in cash and the remaining balance of $30,325 was settled by issuance of
38,125 share of S-8 common stock and exchange of a Red Vortex with a
value of $16,000. The Company also issued MGS Grand Sport, Inc., 14,310
shares of S-8 common stock to compensate it for fiscal 2001 property
tax coverage it paid on the Company's behalf.
License Agreements
Patents awarded to Mr. Mardikian protect the designs and certain
components of the Company's boats. On November 24, 1999, Mr. Mardikian
granted the Company exclusive licenses, until November 18, 2003, to use
those patents and related rights. The Company owed Mr. Mardikian
$24,000 in royalties for 2000. The Company paid this debt by issuing
Mr. Mardikian 10,765 shares of the Company's common stock. The Company
owed him $46,138 in royalties for 2001. The Company issued him 46,138
shares of the Company's common stock for payment of $34,138 of this
debt.
F-15
In December 2001, to induce Ashford Capital, LLC to purchase the
Company's Series B Convertible Preferred Stock, Mr. Mardikian offered
to assign his watercraft related patents to Mardikian Marine Design,
LLC, an entity owned by Mr. Mardikian and a principal of Ashford
Capital, LLC. To facilitate the assignment, on December 27, 2001, The
Company terminated its license agreements with Mr. Mardikian and
entered into an exclusive license with Mardikian Marine Design, LLC, to
use the patent rights through December 30, 2011. Each year of the term
of the license, the Company must pay Mardikian Marine Design as
royalties, a percentage of its gross revenue that results from the sale
of its products that incorporate or include any of Mr. Mardikian's
designs. The Company is obligated to pay (1) four percent of the first
$3 million is gross revenues, (2) three percent of gross revenues over
$3 million but below $5 million, (3) two percent of gross revenue over
$5 million and under $10 million, and (4) one percent of any gross
revenue in excess of $10 million. The Company can pay the royalties to
Mardikian Marine Design in cash or stock, at its discretion.
Other Transactions
As a condition to the issuance to Mr. Mardikian of 42,564
shares of common stock on June 29, 2001, in exchange for his
cancellation of the Company obligation to pay him $46,138 for past due
royalties and $7,067 for business expenses, the Company agreed that if
it was unable to obtain $500,000 in capital infusions by August 22,
2002, Mr. Mardikian could convert those shares back into debt. On
December 20, 2001, in exchange for a general release of claims from Mr.
Mardikian, including his right to covert those shares into debt, the
Company agreed that when it receives a total of $500,000 in capital
infusions, the Company would issue Mr. Mardikian a number of shares of
common stock which when added to his holdings as of December 20, 2001,
would equal 20% of the Company's outstanding common stock. As of
February 15, 2002, the time the Company met that condition, Mr.
Mardikian still owned more than 20% of the Company's common stock and
therefore the Company will not issue him any additional shares.
On June 29, 2001, the Company issued Mr. Mardikian 5,654 shares of the
Company's common stock in exchange for $7,067 in business-related
expenses owed him.
In 2001, the plaintiffs in a wrongful termination lawsuit filed against
the Company, and also named MGS Grand Sport, Inc., as a codefendant.
The Company agreed to reimburse MGS Grand Sport, Inc., for $2,950 in
legal fees MGS paid for its defense. In lieu of paying cash, the
Company issued MGS 2,360 shares of the Company's common stock.
Between September and November 2001, MBZ West, Inc., an
entity owned by Mr. Mardikian's nephew, loaned the Company
approximately $110,926 at an interest rate of 4% per month, or 48% per
annum. Between September and November 2001, the Company paid an
aggregate of $115,863 for the principal and interest that had accrued
on the loan.
The Company owns 45% of Dalian Sonic Jet Co., Ltd., a joint venture
company that Sonic Jet Performance, LLC, our predecessor in interest,
and two partners, formed in May 1998, under the laws of the People's
Republic of China. The Company formed the joint venture to manufacture
boat shells in China. The joint venture agreement provided for the
payment to Mr. Mardikian of 2% of the profit resulting from the joint
venture's sales. Because of disagreements between the partners, Dalian
Sonic Jet Co., Ltd., discontinued operations in June 2000, and Mr.
Mardikian has not received any royalty payments since 1999.
F-16
Transactions with JNC Opportunity Fund, Ltd. and JNC Strategic Fund, Ltd.
In November 1999, the Company issued a promissory note in the principle
amount of $1.25 million to JNC Opportunity Fund, Ltd., in exchange for
a $1.25 million loan. During each of March, May, September, October and
November of 2000, the Company issued an additional promissory note to
JNC Opportunity Fund, Ltd., in exchange for five additional advances of
an aggregate of $1.45 million. At the time the Company made each
additional advance, Neil Chau, a principle of Encore Capital
Management, LLC, which controls JNC Opportunity Fund, Ltd., served on
the Company's board of directors. Encore Capital Management, LLC also
controls JNC Strategic Fund, Ltd., which owned all outstanding shares
of the Company's Series A Preferred Stock.
On June 29, 2001, the Company converted $3,069,699 in principal and
interest due under the promissory notes into 2,455,759 shares of the
Company's common stock. The Company also issued the fund 16,000 shares
to compensate it for certain legal expenses related to the transaction
that the Company had agreed to pay. On the same day, the Company
converted 1,600 shares of Series A Preferred Stock held by JNC
Strategic Fund, Ltd., plus $330,311 in accrued dividends, into
1,731,449 shares of common stock. Encore Capital Management, LLC, also
controls that fund. The Company issued all of these shares at an
effective issue price of $1.25 per share. The issuances resulted in the
JNC funds collectively holding approximately 22% of the Company's
outstanding common stock. The conversions were effected on the
condition that if the Company was unable to raise $500,000 in capital
infusions by August 22, 2002, JNC Opportunity Fund, LLC and JNC
Strategic Fund, LLC, could reconvert the shares back into debt and
Series A Preferred Stock, respectively.
On December 20, 2001, in exchange for a general release of claims from
Encore Capital Management, LLC and the JNC funds, the Company agreed
that when it receives a total of $500,000 in capital infusions, the
Company would issue the JNC funds a number of shares of common stock
which when added to their holdings as of December 20, 2001, would equal
18% of the Company's outstanding common stock. As of February 15, 2002,
the Company had raised the $500,000. To satisfy the Company's
obligation, the Company intends to issue the JNC funds 1,776,633 shares
of the Company's common stock.
Transactions with Sheikh Mohammed Al Rashid
On June 29, 2001, the Company issued 697,097 shares of its
common stock to Sheikh Mohamed Al Rashid, in lieu of paying $808,871 in
principle and interest due under a promissory note the Company issued
to him in May 1999. On June 29, 2001, the Company also issued Sheikh
Rashid 50,000 shares in satisfaction of a $250,000 debt a third party
owed him. The Company agreed to pay the debt as part of the Company's
settlement of a lawsuit filed against the Company by the third party,
and issued the shares at an effective issue price of $1.25 per share.
At the time of these transactions, Sheikh Rashid was a director, and
beneficially owned over 20% of the Company's outstanding common stock.
On December 21, 2001, in exchange for a general release of claims, the
Company agreed that when it receives a total of $500,000 in capital
infusions, the Company would issue Sheikh Rashid a number of shares of
common stock which when added to his holdings as of December 20, 2001,
would equal 13% of the Company's outstanding common stock. As of
February 15, 2002, the Company had raised the $500,000. To satisfy the
Company's obligation, it intends to issue Sheikh Rashid 1,021,677
shares.
Sheikh Rashid served as a director between April 1999 and February
2002.
F-17
Other Transactions
In January 2002, Ashford Capital, KK purchased 7 shares of our Series C
Convertible Preferred Stock for an aggregate purchase price of $70,000.
It converted two of the preferred shares into 564,706 shares of our
common stock. Ashford Capital, LLC, the holder of our Series B
Preferred Stock, owns a minority interest in Ashford Capital, KK.
In 1998, Sonic Jet Performance, LLC, our predecessor-in-interest,loaned
$75,683 to Sonic Marketing International, LLC. On June 30, 2000, the
company wrote off the debt as uncollectable. Alex Mardikian, the son of
Albert Mardikian, and Majid Al Rashid, the son of Sheikh Mohammed, were
the sole shareholders, directors and officers of Sonic Marketing
International, LLC.
On January 30, 2000, the joint venture agreement with China Guangxi
Shipyard of Nanning, Guangxi, China was dissolved, and Nanning Sonic
Jet, LLC became a wholly owned subsidiary of SJPI.
NOTE 12 - FOURTH QUARTER ADJUSTMENTS
Provision amounting to $150,000 has been made on the product sold to
dealers under financing agreement.
Also a provision amounting to $100,000 is made for warranty repairs
Investment in Dalian Sonic Jet Co, Ltd. amounting to $393,292 and
$5,863 inventory was written off during the fourth quarter.
================================================================================
You should rely only on the information contained in
this prospectus. We have not authorized anyone to
provide you with different or additional information.
This prospectus is not an offer to sell nor is it Sonic Jet
seeking an offer to buy shares of our common stock in Performance, Inc.
any jurisdiction where the offer or sale is not
permitted. The information contained in this
prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of
this prospectus or any sale of our common stock. 13,731,103 Shares
Common Stock
----------------
PROSPECTUS
----------------
----------------
TABLE OF CONTENTS
________________ Page
Prospectus Summary 1
Summary of Financial Data 3
Risk Factors........................................ 4
Forward-Looking Statements.......................... 8
Use of Proceeds..................................... 9
Dividend Policy..................................... 9
Price Range of Our Common Stock..................... 9
Management's Discussion and Analysis 11
of Financial Condition and Results
of Operations.....................................
Business............................................ 16
Management.......................................... 22
Principal Stockholders.............................. 26
Certain Relationships and Related 29
Transactions......................................
Selling Stockholders................................ 33
Plan of Distribution................................ 35
Description of Capital Stock........................ 37
Shares Eligible for Future Sale..................... 39
Legal Matters....................................... 41
Experts............................................. 41
Where You Can Find More Information................. 42
Index to Financial Statements....................... F-1
================================================================================
May 2, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Colorado Business Corporation Act provides that a corporation may
indemnify a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if (a) the person
conducted himself or herself in good faith, (b) the person reasonably believed
(1) in the case of conduct in an official capacity with the corporation, that
his or her conduct was in the corporation's best interests; and (2) in all other
cases, that his or her conduct was at least not opposed to the corporation's
best interests and (c) in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. Such
indemnification is permitted in connection with a proceeding by or in the right
of the corporation only to the extent of reasonable expenses incurred in
connection with the proceeding. A corporation may not indemnify a director (a)
in connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation; or (b) in connection with
any other proceeding charging that the director derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding the director was adjudged liable on the basis that he or she derived
an improper personal benefit.
The Colorado Business Corporation Act further provides that a corporation,
unless limited by its articles of incorporation, shall indemnify a person who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee........................................ $ 58.34
Attorneys' fees and expenses................................ $20,000.00
Accountants' fees and expenses.............................. $ 500.00
Miscellaneous .............................................. $50,000.00
Total....................................................... $70,558.34
---------
The amounts set forth above are estimates except for the SEC registration
fee. We will pay substantially all costs and expenses associated with the
registration of the shares of common stock covered by this registration
statement. The selling stockholders will pay all underwriting discounts,
commissions, transfer taxes and other expenses associated with the sale of
common stock by them.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 3, 1999, we have issued the following securities without registration
under the Securities Act. Each of the disclosures take into account the stock
splits referred to in the prospectus. No underwriters were engaged in the sales
of securities described below.
1. On November 24, 1999, we issued 292,267 shares of Common Stock to
Albert Mardikian for settlement of royalties, salary and other dues. We
issued these securities under an exemption provided by Rule 506 of
Regulation D under the Securities Act Rules. The investor certified
that it was an "accredited investor" as defined in Rule 501 of
Regulation D, was acquiring the securities as an investment and not
with a view to distribution, and would not resell the securities unless
they became registered or another exemption from registration was
available.
2. On December 07, 1999, we issued 50,000 shares of Common Stock to Jag
Enterprises, LLC for consulting fees due under the consulting contract.
We issued these securities under an exemption provided by Rule 506 of
Regulation D under the Securities Act Rules. The investor certified
that it was an "accredited investor" as defined in Rule 501 of
Regulation D, was acquiring the securities as an investment and not
with a view to distribution, and would not resell the securities unless
they became registered or another exemption from registration was
available.
3. On February 10, 2000 we issued 4000 shares of Common Stock to three of
the company's employees as a Christmas bonus. Hratch Khedesian, Vatche
Khedesian, Alex Mardikian and George Tfaye were each issued a1000
shares of Common Stock. We issued the forgoing stock pursuant to
Section 4(2) the Securities Act of 1933. The investors are
sophisticated investors, are officers and directors of the company, and
were in possession of all material information relating to the company.
4. Also on February 10, 2000 we issued 2,500 shares of Common Stock to
Marty Messenger for finder's fees due under the consulting agreement.
We issued these securities under an exemption provided by Rule 506 of
Regulation D under the Securities Act Rules. The investor certified
that it was an "accredited investor" as defined in Rule 501 of
Regulation D, was acquiring the securities as an investment and not
with a view to distribution, and would not resell the securities unless
they became registered or another exemption from registration was
available.
5. On March 22, 2002 we issued 30,000 shares of Common Stock to Alex
Mardikian for the acquisition of the Sonic Jet website from him. We
issued these securities under an exemption provided by Rule 506 of
Regulation D under the Securities Act Rules. The investor certified
that it was an "accredited investor" as defined in Rule 501 of
Regulation D, was acquiring the securities as an investment and not
with a view to distribution, and would not resell the securities unless
they became registered or another exemption from registration was
available.
6. On July 31, 2000 we issued 2,500 shares of Common Stock to Lisa
Hartounian for recruitment fees for hiring Alan Weaver. We issued these
securities under an exemption provided by Rule 506 of Regulation D
under the Securities Act Rules. The investor certified that it was an
"accredited investor" as defined in Rule 501 of Regulation D, was
acquiring the securities as an investment and not with a view to
distribution, and would not resell the securities unless they became
registered or another exemption from registration was available.
7. On June 29, 2001 we issued 600,000 to Michel Attias for settlement of a
law suit regarding termination of sales agreement. We issued these
securities under an exemption provided by Section 4(2) under the
Securities Act.
8. On November 27, 1999, we issued warrants to purchase up to 1.25
million shares of our common stock to JNC Opportunity Fund, Ltd., and
1,600 shares of our Series A preferred stock to a related entity, JNC
Strategic Fund, Ltd. We issued these securities in connection with a
loan agreement and security agreement we entered into with JNC
Opportunity Fund, Ltd., pursuant to which we received $1.25 million.
On March 31, 2000, we issued JNC Opportunity Fund, Ltd. warrants to
purchase an additional 250,000 shares of common stock in connection
with an additional $250,000 advance it made to us. On May 31, 2000, we
issued JNC Opportunity Fund, Ltd. warrants to purchase an additional
750,000 shares of common stock in connection with an additional
$750,000 advance it made to us. On September 12, 2000, we issued JNC
Opportunity Fund, Ltd. warrants to purchase an additional 250,000
shares of common stock in connection with an additional $250,000
advance it made to us. On October 2, 2000, we issued JNC Opportunity
Fund, Ltd. warrants to purchase an additional 150,000 shares of common
stock in connection with an additional $150,000 advance it made to us.
On November 10, 2000, we issued JNC Opportunity Fund, Ltd. warrants to
purchase an additional 50,000 shares of common stock in connection
with an additional $50,000 advance it made to us. On June 29, 2001, in
exchange for the cancellation of the principle and interest due under
these promissory notes, we issued 2,455,759 shares of common stock to
JNC Opportunity Fund, Ltd. As part of that transaction, we also
cancelled all outstanding warrants held by JNC Opportunity Fund, Ltd.
On June 29, 2001, we issued 1,731,449 shares of common stock to JNC
Strategic Fund, Ltd., in consideration for the cancellation of all of
the Series A preferred stock held by it. We issued all of these
securities under an exemption provided by Rule 506 of Regulation D
under the Securities Act Rules. Each investor certified that it was an
"accredited investor" as defined in Rule 501 of Regulation D, was
acquiring the securities as an investment and not with a view to
distribution, and would not resell the securities unless they became
registered or another exemption from registration was available.
9. On June 29, 2001, we issued Sheikh Mohammed Al Rashid 697,097 shares of
our common stock in exchange for his cancellation of $808,871 due under
a promissory note we issued to him. We isssued these securities under
an exemption provided by Rule 506 of Regulation D under the Securities
Act Rules. The investor certified that it was an "accredited investor"
as defined in Rule 501 of Regulation D, was acquiring the securities as
an investment and not with a view to distribution, and would not resell
the securities unless they became registered or another exemption from
registration was available.
10. On June 29, 2001, we issued Albert Mardikian 42,564 shares of our
common stock in lieu of $53,205 that we owned Mr. Mardikian for
royalties due under his license agreements with us, and for
business-related expenses. We isssued these securities under an
exemption provided by Rule 506 of Regulation D under the Securities Act
Rules. The investor certified that it was an "accredited investor" as
defined in Rule 501 of Regulation D, was acquiring the securities as an
investment and not with a view to distribution, and would not resell
the securities unless they became registered or another exemption from
registration was available.
11. On June 29, 2001, we issued 16,300 shares of our common stock to MGS
Grand Sports, Inc., the landlord of our Huntington Beach facility, in
lieu of $20,375 due for past due rent, insurance and for legal fees we
agreed to pay in connection with a wrongful termination lawsuit filed
against it and us. We issued these securities under an exemption
provided by Rule 506 of Regulation D under the Securities Act Rules.
The investor certified that it was an "accredited investor" as defined
in Rule 501 of Regulation D, was acquiring the securities as an
investment and not with a view to distribution, and would not resell
the securities unless they became registered or another exemption from
registration was available.
12. On December 21, 2001, as part of the settlement of the wrongful death
action filed against us in February 2001, we issued an aggregate of
750,000 shares of our common stock to the plaintiffs and their
attorneys. We issued these securities under an exemption provided by
Section 4(2) under the Securities Act.
13. On December 27, 2001, we issued ten shares of our Series B preferred
stock to a private equity investor in exchange for an aggregate
purchase price of $25,000. We issued these securities under an
exemption provided by Rule 506 of Regulation D under the Securities Act
Rules. The investor certified that it was an "accredited investor" as
defined in Rule 501 of Regulation D, was acquiring the securities as an
investment and not with a view to distribution, and would not resell
the securities unless they became registered or another exemption from
registration was available. The securities issued by us included a
legend reflecting these restrictions.
14. Between December 27, 2001 and May 2, 2002, we issued 25 shares of our
Series C preferred stock to seven U.S. investors for an aggregate
consideration of $250,000. We issued these securities under an
exemption provided by Rule 506 of Regulation D under the Securities Act
Rules. Each investor certified that it was an "accredited investor" as
defined in Rule 501 of Regulation D, was acquiring the securities as an
investment and not with a view to distribution, and would not resell
the securities unless they became registered or another exemption from
registration was available. The securities issued by us included a
legend reflecting these restrictions.
15. Between January 18, 2002 and April 23, 2002, we issued an aggregate of
27 shares of Series C preferred stock to two non-U.S. investors. In
exchange for the issuance, we received total consideration of $270,000.
We issued these securities under an exemption provided by Rule 903 of
Regulation S under the Securities Act Rules. We made no directed
selling efforts of these securities within the United States.
ITEM 27. EXHIBITS.
(a) Exhibits.
The exhibits listed below are hereby filed with the Commission as part
of this Registration Statement on Form SB-2. Certain of the following exhibits
have been previously filed with the Commission pursuant to the requirements of
the Securities Act or the Exchange Act. Such exhibits are identified by the
parenthetical references following the listing of each such exhibit and are
incorporated herein by reference. We will furnish a copy of any exhibit upon
request, but a reasonable fee will be charged to cover our expense in furnishing
such exhibit.
Exhibit Description
Number
3.1 Articles of Incorporation for Boulder Capital Opportunities III, Inc.
(Previously filed with the Commission on March 24, 1997, as Exhibit
3.(i) to the Company's General Form for Registration of Securities of
Small Business Issuer on Form 10-SB.)
3.2 Articles of Amendment to the Articles of Incorporation of Boulder
Capital Opportunities III, Inc., filed January 15, 1997 (Previously
filed with the Commission on March 15, 2002, as Exhibit 3.2 to the
Company's Current Report on Form 10-KSB.)
Exhibit Description
Number
3.3 Articles of Amendment to the Articles of Incorporation for Boulder
Capital Opportunities III, Inc., filed November 5, 1998 (Previously
filed with the Commission on April 15, 1998, as Exhibit 3.(iv) to the
Company's Current Report on Form 8-K.)
3.4 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Boulder Capital Opportunities III, Inc.
(Previously filed with the Commission on July 6, 1998, as Exhibit 7.4
to the Company's Current Report on Form 8-K.)
3.5 Bylaws for Boulder Capital Opportunities III, Inc. (Previously filed
with the Commission on March 24, 1997, as Exhibit 3.(ii) to the
Company's General Form for Registration of Securities of Small
Business Issuer on Form 10-SB.)
3.6 Certificate of Designation for Series B Convertible Preferred Stock
(Previously filed with the Commission on January 7, 2002, as Exhibit
3.1 to the Company's Current Report on Form 8-K.)
3.7 Certificate of Designation for Series C Convertible Preferred Stock
(Previously filed with the Commission on January 7, 2002, as Exhibit
3.2 to the Company's Current Report on Form 8-K.)
5.1 Opinion of Basinger and Alonso, Attorneys at Law, with respect to the
validity of the securities being offered (Filed herewith.)
10.1 2000 Stock Plan of Sonic Jet Performance, Inc. (Previously filed with
the Commission on June 30, 2000 as Appendix A to the Company's
Information Statement pursuant to Section 14(c) of the Securities
Exchange Act of 1934.)
10.2 Contract for Sino-Foreign Contractual Joint Venture of Dalian Sonic
Jet Co., Ltd. (Previously filed with the Commission on April 30, 1999,
as Exhibit 10.4 to the Company's Current Report on Form 10-KSB.)
10.3 Contract for Sino-Foreign Contractual Joint Venture of Nanning Sonic
Jet Co., Ltd. (Previously filed with the Commission on April 30, 1999,
as Exhibit 10.5 to the Company's Current Report on Form 10-KSB.)
10.4 Series B Convertible Preferred Stock Purchase Agreement between
Ashford Capital, LLC and Sonic Jet Performance, Inc. (Previously filed
with the Commission on January 7, 2002, as Exhibit 10.1 to the
Company's Current Report on Form 8-K.)
10.5 Series C Convertible Preferred Stock Purchase Agreement between e-Fund
Capital Partners, LLC, and Sonic Jet Performance, Inc. (Previously
filed with the Commission on January 7, 2002, as Exhibit 10.2 to the
Company's Current Report on Form 8-K.)
10.6 Agreement dated August 23, 2001, between Sonic Jet Performance, Inc.,
JNC Opportunity Fund, Ltd. and JNC Strategic Fund Ltd. (Previously
filed with the Commission on March 15, 2002, as Exhibit 10.6 to the
Company's Current Report on Form 10-KSB.)
10.7 Letter Agreement between Sonic Jet Performance, Inc., and Encore
Capital Management, LLC, JNC Opportunity Fund, Ltd. and JNC Strategic
Fund, Ltd. (Previously filed with the Commission on January 7, 2002,
as Exhibit 10.3 to the Company's Current Report on Form 8-K.)
10.8 Letter Agreement dated June 15, 2001, between Sonic Jet Performance,
Inc. and Sheikh Mohammed Al Rashid (Previously filed with the
Commission on March 15, 2002, as Exhibit 10.8 to the Company's Current
Report on Form 10-KSB.)
Exhibit Description
Number
10.9 Letter Agreement between Sonic Jet Performance, Inc. and Sheikh
Mohammed Al Rashid (Previously filed with the Commission on January 7,
2002, as Exhibit 10.4 to the Company's Current Report on Form 8-K.)
10.10 Consulting Agreement dated February 5, 2002, between Regents Capital
West and Sonic Jet Performance, Inc. (Previously filed with the
Commission on March 15, 2002, as Exhibit 10.10 to the Company's
Current Report on Form 10-KSB.)
10.11 Employment Offer Letter dated January 2, 2002, between Madhava Rao
Mankal and Sonic Jet Performance, Inc. (Previously filed with the
Commission on March 15, 2002, as Exhibit 10.11 to the Company's
Current Report on Form 10-KSB.)
10.12 2001 License Agreement dated December 27, 2001, between., Albert
Mardikian, Mardikian Marine Design, and Sonic Jet Performance, Inc
(file herewith).
21.0 List of Subsidiaries (Previously filed with the Commission on March
15, 2002, as Exhibit 21.0 to the Company's Current Report on Form
10-KSB.)
23.1 Consent of Basinger and Alonso, Attorneys at Law (consent included in
5.1)
23.2 Consent of Michael Johnson & Co., LLC, Independent Auditors, Denver,
Colorado (filed herewith).
24.1 Power of Attorney (included in signature page).
(b) FINANCIAL STATEMENT SCHEDULES.
None required.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
a. Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
b. Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (sec. 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
c. Include any additional or changed material information on the plan of
distribution.
2. That, for determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at the time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Registration Statement on Form
SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized,
in Huntington Beach, California on May 2, 2002.
SONIC JET PERFORMANCE, INC.
Date: May 9, 2002 By: /s/ Madhava Rao Mankal
---------------------------------
Madhava Rao Mankal
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Madhava Rao Mankal, as such person's true
and lawful attorney-in-fact and agent, with full power of substitution and
presubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any other regulatory authority, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or such persons' substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates indicated.
Name Capacity Date
/s/ MADHAVA RAO MANKAL President, Chief Financial Officer, May 2, 2002
------------------------------
Madhava Rao Mankal Secretary, and Director (Principal Executive
Officer & Principal Financial & Accounting
Officer)
/s/ GEORGE MOSEMAN Director May 2, 2002
------------------------------------------
George Moseman
/s/ SCOTT ERVIN Director May 2, 2002
-------------------------------------------
Scott R. Ervin
EXHIBIT INDEX
5.1 Opinion of Basinger and Alonso, Attorneys at Law, with respect to the
validity of the securities being offered (Filed herewith.)
10.12 2001 License Agreement dated December 27, 2001, between., Albert
Mardikian, Mardikian Marine Design, and Sonic Jet Performance, Inc
(file herewith).
23.1 Consent of Basinger and Alonso, Attorneys at Law (consent included in
5.1)
23.2 Consent of Michael Johnson & Co., LLC, Independent Auditors, Denver,
Colorado (filed herewith).