U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-22273
SONIC JET PERFORMANCE, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1383888
-------------- -------------------
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
11782 Western Avenue, Unit 18, Stanton, California 90680
-------------------------------------------------- -----
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number: (714) 895-0944
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.0001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes No X .
As of March 31, 2003, the Registrant had 94,997,037 shares of common
stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X].
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
REORT ON REVIEW BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT........................................3
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2003...............................................4
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND MARCH 31, 2002..................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND MARCH 31, 2002..................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................11
ITEM 3. CONTROLS AND PROCEDURES...........................................15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS....................................16
ITEM 5. OTHER INFORMATION.................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................16
SIGNATURE.....................................................................17
CERTIFICATION.................................................................17
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Sonic Jet Performance, Inc and Subsidiary
We have reviewed the accompanying consolidated balance sheet of Sonic Jet
Performance, Inc. and Subsidiary as of March 31, 2003 and the related
consolidated statements of operations and cash flows for the three months ended
March 31, 2003 and 2002 included in the accompanying Securities and Exchange
Commission Form 10-QSB for the period ended March 31, 2003. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet as of December 31, 2002, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein). In our report dated April
20, 2003, we expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance sheet as of
March 31, 2003 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
May 10, 2003
F-1
SONIC JET PERFORMANCE
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(Unaudited)
ASSETS
Current Assets
Cash $ 501,232
Accounts receivable 140,710
Other current assets 156,029
-----------------------------------------------------------------------------------------------------
Inventories 2,315,137
----------------------------------
Current Assets 3,113,108
-----------------------------------------------------------------------------------------------------
Other Assets
-----------------------------------------------------------------------------------------------------
Goodwill 1,434,873
-----------------------------------------------------------------------------------------------------
Licensing rights 200,000
-----------------------------------------------------------------------------------------------------
Total Assets $5,011,805
-------------------------------------------------------------------==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,286,157
Accrued payroll taxes 25,439
Deferred revenue 1,506,477
-----------------------------------------------------------------------------------------------------
Other accrued liabilities 31,684
-----------------------------------------------------------------------------------------------------
General reserve 420,908
Loans payable 570,333
----------------------------------
Current Liabilities 3,840,998
-----------------------------------------------------------------------------------------------------
Long term liabilities 220,761
-----------------------------------------------------------------------------------------------------
Subordinated notes payable 64,732
----------------------------------
Shareholder's Equity:
-----------------------------------------------------------------------------------------------------
Common, 0.0001 par value, 300,000,000 authorized, issued and
outstanding 94,997,037 17,713,272
Preferred, no par value
Series B convertible preferred (10 shares issued and outstanding) 25,000
Series C convertible preferred (32 shares issued and outstanding) 320,000
Retained earnings (18,166,051)
Shares committed to be issued 304,867
Warrants 688,226
----------------------------------
Shareholder's equity 885,314
----------------------------------
Total Liabilities and Shareholders' Equity $ 5,011,805
==================================
The accompanying notes are an integral part of these financial statements
F-2
SONIC JET PERFORMANCE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
-------------------- -------------------
Sales $ 96,349 58,795
Cost of sales 231,753 47,506
-------------------- -------------------
Gross profit (135,404) 11,289
-------------------- -------------------
Selling, general and administrative expenses 1,648,528 314,714
-------------------- -------------------
Profit (loss) from operations (1,783,932) (303,425)
-------------------- -------------------
Other income(expense)
Other income
14,458 3,749
Interest expense (14,195) (1,592)
Total other income (expense)
263 2,157
-------------------- -------------------
Net Loss $(1,783,669) (301,268)
==================== ===================
Basic loss per share
(0.02) (0.01)
==================== ===================
Diluted loss per shares
(0.02) (0.01)
==================== ===================
Weighted average common shares outstanding
Basic 78,152,071 23,591,934
==================== ===================
Diluted 99,784,564 30,235,423
==================== ===================
* Taken from the weighted average common shares outstanding as at the end of 03/31/03
The accompanying notes are an integral part of these financial statements
F-3
SONIC JET PERFORMANCE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
------------------- -------------------
Cash Flows From Operating Activities:
Net Loss $(1,783,669) $ (301,268)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 77,159 30,000
Common stock issued for services 1,004,617 27,016
Warranty (4,039)
Royalty 15,000
Changes in assets and liabilities:
(Increase) in accounts receivable 25,532 (58,066)
(Increase) in inventories (2,128,674) (67,527)
(Increase) Decrease in other assets (9,155) (23,128)
(Decrease) Increase in accounts payable 301,299 17,525
(Decrease) Increase in payroll liabilities (13,251) (12,959)
(Decrease) Increase in accrued expenses &deferred revenue 1,415,294 (74,093)
------------------- -------------------
Total adjustments (683,782) (161,232)
------------------- -------------------
Net Cash Used in Operating Activities (1,099,887) (462,500)
------------------- -------------------
Cash Flow From Investing Activities:
Purchase of equipment (4,460) (22,575)
Proceeds from sale of property and equipment
------------------- -------------------
Net Cash Provided By Investing Activities (4,460) (22,575)
------------------- -------------------
Cash Flow From Financing Activities:
Proceeds from issuance of common stock 977,230
Proceeds from convertible preferred stock (20,000) 470,000
Short-term debts 513,526
Payments from capitalized lease obligations (472)
Long term liabilities (6,653)
Notes payable (3,000)
Proceeds from loans
------------------- -------------------
Net Cash Provided By Financing Activities 1,461,103 469,528
------------------- -------------------
Effect of exchange rate on cash - -
------------------- -------------------
Increase in Cash 356,756 (15,547)
Beginning Balance 144,476 42,760
------------------- -------------------
Ending Balance $ 501,232 $ 27,213
=================== ===================
Interest Paid $ 14,746 $ 3,082
=================== ===================
Income Tax Paid - 800
=================== ===================
The accompanying notes are an integral part of these financial statements
F-4
SONIC JET PERFORMANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Sonic Jet Performance, Inc. and Subsidiary
("SJPI"), the accompanying un-audited consolidated financial statements include
all normal adjustments considered necessary to present fairly the financial
position as of March 31, 2003, and the results of operations and cash flows for
the three months ended March 31, 2003 and 2002. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-QSB, and do not contain certain information included in the SJPI's
audited consolidated financial statements and notes for the fiscal year ended
December 31, 2002.
NOTE 2 - FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All significant inter-company balances,
transactions, and stockholdings have been eliminated.
NOTE 3 - INVENTORIES
Inventories at March 31, 2003 consisted of the following:
Raw materials and supplies $ 293,892
Work in process 2,267,528
Finished goods 66,747
Less provision (313,030)
---------
Total $2,315,137
===========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2003 consisted of the following:
Furniture and fixtures $ 13,613
Machinery and equipment 441,396
Tooling - new products 218,880
Vehicles 500
Demo vehicles 92,530
-------
866,919
Less accumulated depreciation and amortization (603,095)
--------
Total $ 263,824
=========
F-5
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease
-----
The Company leases its principal executive offices at Stanton and storage
facilities at Riverside on a month-to-month basis at a monthly rental charge of
$3,085.
Technical Solutions Group, Inc. has a long-term lease of five years (four years
remaining ) with five (5) years option with CMMC on the Naval base, giving us a
stable base for future planning.
The Company's wholly owned subsidiary leases a storage facility in Nanning,
China on a month-to-month basis.
Employment Agreements
---------------------
The Company's executive officers are currently conducting negotiations with the
Company regarding terms of employment contracts. The Company anticipates
entering into employment agreements with each of the key executive officers
shortly. The current compensation in cash for the Company's executive officers
and managers is as follows: Mr. Mankal - $64,800, Mr. Khedesian - $48,000, plus
allowance $2,000, Mr. Watts $180,000 plus an expense allowance, Mr. Garth
Barrett - $120,000. However, due to the lack of revenues and availability of
cash, executive officers have received some of their compensation in the form of
shares of Common Stock of the Company, and/or have accrued their compensation to
be paid when cash is available. Executive officer compensation is subject to
review on a periodic basis by the Board of Directors.
Sonic Jet Performance, Inc, entered into an employment agreement with Frank
Kavanaugh on April 1, 2003. Mr. Kavanaugh will be the Company's Director of
Business Development and will be paid an annual salary of $120,000 and will be
issued 500,000 shares of the Company's stock.
Sonic Jet Performance, Inc, entered into an employment agreement with Walter
Wright on April 1, 2003. Mr. Wright will be the Company's investor relations
coordinator and will be paid an annual salary of $60,000.
Royalty/Licensing Agreements
----------------------------
On December 27, 2001, the Company 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 in gross revenues resulting from the sale of products using the designs,
(2) 3% of gross revenue between $3 million and $5 million, (3) 2% of gross
revenue between $5 million and $10 million, and (4) 1% of gross revenue in
excess of $10 million.
F-6
Mardikian Marine Design has informed its intention of revoking the Licensing
agreement to the Company.
NOTE 6 - STOCK COMPENSATION PLAN
Securities authorized for issuance under equity compensation plans:
Plan Category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future
outstanding options warrants issuance
------------- ------------------- -------------------- ---------------------
Equity compensation plans (a) 1,987,829 (b) $217,971 (c) 12,171
approved by security holders
Equity compensation plans
not approved by security holders ------ -------- -------
Total: (a) 1,987,829 (b) $217,971 (c) 12,171
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.
NOTE 7 - OTHER TRANSACTIONS
Capital Stock Transactions
--------------------------
During the period from December 6, 2001 to March 31, 2003, 52 restricted shares
of Series C convertible preferred stock were issued to various investors for
$520,000 of which 17 preferred shares have been converted to common stock and
two shares were paid off during the three months ended March 31, 2003.
During the three months ended March 31, 2003, the Company issued an aggregate of
375,000 free trading shares of its common stock to an employee and a consultant
per agreements pursuant to the Company's Compensation Plan.
During the period of February 14, 2003 to March 19, 2003, the Company issued a
total of 4,471,197 restricted shares of common stock to 15 consultants for
services to be rendered to the company.
F-7
On February 14, 2003 and March 5, 2003, the Company issued a total of 644,788
restricted shares of common stock to two companies in connection with
compensation under a private placement being conducted by the Company. On March
18, 2003, the Company issued a total of 650,000 restricted shares of common
stock to two directors as compensation in such capacity, 733,334 restricted
shares of common stock to two employees in connection with an employment
agreements with the company, and 500,000 restricted shares of common stock to
two individuals in settlement of amounts owed.
During the three months ended March 31, 2003, the Company sold a total of
16,064,300 restricted shares of common stock units to investors pursuant to its
private placement memorandum, generating net proceeds of $1,094,955. Each common
stock unit consists of (a) 50 restricted shares of common stock of the Company,
(b) one warrant to purchase 25 restricted shares of common stock of the Company
at an exercise price of $0.20 per share, and (c) one warrant to purchase 25
restricted shares of common stock, at an exercise price of $0.30 per share
(which was subsequently reduced to $0.01 per share).
During the three months ended March 31, 2003, 644,788 restricted shares of
common stock were paid to two companies as commissions in connection with
compensation under a private placement, discussed above.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements of the Registrant and notes thereto contained elsewhere in
this report.
Comparison of Three Months Ended March 31, 2003 and 2002.
The following table sets forth the Registrant's consolidated statements
of operations:
THREE MONTHS ENDED MARCH 31,
2003 2002
----- ----
Sales $96,349 $ 58,795
Cost of sales 231,753 47,506
Gross profit (loss) (135,404) 11,289
Selling, general and administrative 1,648,527 314,714
Income/(Loss) from operations (1,783,932) (303,425)
--------- -------
Interest expenses (14,195) (1,592)
Other income 14,458 3,749
---------- -------
Total other income (expense) 263 2,157
---------- ------
Net income/(loss) $(1,783,669) $(301,268)
========= =======
Basic loss per share $(0.02) $(0.01)
Diluted loss per share $(0.02) $(0.01)
Weighted-average common shares
Basic 78,152,071 23,591,934
Diluted 99,784,564 30,235,423
Sales: Net sales for the three months period ended March 31, 2003
increased by approximately $38,000 or approximately 65% compared to three months
period ended March 31, 2002. During 2002, the Registrant acquired Technical
Solutions Group, Inc. ("TSG"), whose sales for the three months period ended
March 31, 2003 were approximately $64,000 and for boat division was
approximately $32,000. Therefore the entire increase in sales is attributable to
the acquisition. Sales of boats actually declined by approximately $27,000, or
approximately 45%. The reduction in boat sales can primarily be attributed to
reduction in the effort to sell recreational boats.
Cost of Sales: Cost of sales for 2003 was approximately $232,000, or
approximately 240% of sales, compared to approximately 80% in 2002. This
increase is attributable to inclusion of manufacturing period cost which has not
been absorbed in the inventory. In the case of TSG division manufacturing period
cost are high in comparison to sales due to start up of a government contract.
For the year 2002 figures has been restated to include manufacturing period
costs to make them comparable to 2003. During the three months ended March 31,
2002 this expense related only to boat division, as TSG was acquiired on June
30, 2002.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for 2003 increased by approximately $1,333,000 to
approximately $1,649,000 compared to approximately $315,000 for 2002. The
increase is partially the result of additional TSG selling, general and
administrative expenses of approximately $334,000. The remaining increase can be
attributed to: fund raising expenses, business consultants (approximately
$1,005,000), and demonstration expenses.
Net Loss: Net Loss for three months ended March 31, 2003 increased by
approximately $1,230,000 from approximately $301,000 during the three months
period ended March 31, 2002. The increase is attributed to fund raising,
business consultants, and demonstration expenses.
Business segment analysis of the three months ended March 31, 2003:
10Q Segment Information (000's) (approximate)
Boats TSG Corp Total
--------------- ----- -------------- ------------ ----------- ----------------
Sales 32 64 96
Cost of sales 106 126 232
-------------- ------------ ----------- ----------------
Gross profit (74) (61) (136)
G.P. % (231)% (95)% (140)
SG&A 115 334 1,200 1,648
--------------- ----- -------------- ------------ ----------- ----------------
Other
Income(Expense)
Segment P&L (189) (395) (1,200) 1,784
------------- ------- -------------- ------------ ----------- ----------------
Mine protected vehicles provided approximately 67% of the total sales.
And approximately 54% of the total cost of goods sold. The following sets forth
in detail the selling, general and administrative expenses of the boat business
and corporate overhead (in 000's):
Boats:
Consultant $ 39
Royalty and depreciation 30
Sales, marketing and Admin. 46
--------
TOTAL $115
--------
Corporate:
Consultants $ 50
Indirect cost of raising money 145
Stock to employees 218
Stock to consultants 787
--------
TOTAL $1,200
Operating Activities.
The cash used by operating activities for the year ended March 31, 2003
was $1,099,887 attributable primarily to funding ongoing operations.
Investing Activities.
The Registrant's capital expenditures for the three months ended March
31, 2003 were $4,460, related to investments in office and manufacturing
equipment. The Registrant anticipates that its capital expenditures during 2003
will increase because we intend to improve operating efficiencies, and may
relocate our principle facility.
Financing Activities.
During the three months period ended March 31, 2003, the Registrant
sold 16,064,300 shares of common stock units to investors pursuant to its
private placement memorandum, generating net proceeds of $1,094,955. Each common
stock unit consisted of (a) 50 shares of common stock of the Registrant, (b) one
warrant to purchase 25 shares of common stock of the Registrant at an exercise
price of $0.20 per share, and (c) one warrant to purchase 25 shares of common
stock, at an exercise price of $0.30 per share (which was subsequently reduced
to $0.01 per share). The Registrant believes the issuance of the shares and
warrants was exempt from registration under the private placement exemption
available under Section 4(2) of the 1933 Securities Act.
A promissory note entered into as of the July 2, 2002 by and between
Atlantis Partners, Inc. and the Registrant to lend the company $50,000 at an
interest rate of 10% simple interest per annum.
On March 31, 2003, the Registrant began securing capital commitments
through the issuance of promissory notes. The Registrant hopes to secure
$1,500,000 for working capital. Under the terms of the promissory notes the
loans are payable in six months with 8% interest; however, at the end of the
term the loan is convertible into Series C Preferred Stock. As of March 31,
2003, the Registrant had obtained $400,000 in capital from note holders.
TSG has entered into agreement with GC Financial Service, Inc. to enter
in to a purchase and sale agreement/security agreement by which factor may
purchase from debtor certain accounts receivable and other rights, including
without limitations, all liens, security interest, warrants and guarantees
secure payments of the accounts receivables. TSG so far has drawn $1,506,476
under this arrangement.
Liquidity and Capital Resources.
As of March 31, 2003, cash and cash equivalents were approximately
$501,000 compared to approximately $144,000 as of December 31, 2002. The
Registrant has raised approximately $977,230 during the three months period
ended March 31, 2003 through a private placement. The Registrant's principal
sources of capital have also been cash flow from its operations, and the sale of
common stock. Based on its current operating plan, the Registrant anticipates
that additional financing will be required to finance its operations and capital
expenditures.
At the present time, the Registrant is not generating sufficient
revenue to cover expenses. Based on its current operating plan, the Registrant
anticipates that additional financing will be required to finance its operations
and capital expenditures in 2003. Accordingly, the Registrant's future liquidity
will depend on its ability to obtain necessary financing from outside sources
and its ability to restructure operations to reduce operating losses.
The Registrant's currently anticipated levels of revenues and cash flow
are subject to many uncertainties and cannot be assured. Further, unforeseen
events may occur causing the Registrant to raise additional funds. The amount of
funds required by the Registrant will depend upon many factors, including
without limitation, the extent and timing of sales of the Registrant's products,
future product costs, the timing and costs associated with the establishment
and/or expansion, as appropriate, of the Registrant's manufacturing,
development, engineering and customer support capabilities, the timing and cost
of the company's product development and enhancement activities and the
company's operating results. Until the Registrant generates cash flow from
operations that will be sufficient to satisfy its cash requirements, the company
will need to seek alternative means for financing its operations and capital
expenditures and/or postpone or eliminate certain investments or expenditures.
Potential alternative means for financing may include leasing capital equipment,
obtaining a line of credit, or obtaining additional debt or equity financing.
There can be no assurance that, if and when needed, additional financing will be
available, or available on acceptable terms. The inability to obtain additional
financing or generate sufficient cash from operations could require the
Registrant to reduce or eliminate expenditures for capital equipment, research
and development, production or marketing of its products, or otherwise curtail
or discontinue its operations, which could have a material adverse effect on the
Registrant's business, financial condition and results of operations.
Furthermore, if the Registrant raises funds through the sale of additional
equity securities, the common stock currently outstanding may be further
diluted.
Inflation.
The Registrant does not believe that inflation has had or is likely to
have any significant impact on its operations.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward looking statements" within
the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6
of the Securities Act of 1934, as amended, including statements regarding, among
other items, the Registrant's business strategies, continued growth in the
Registrant's markets, projections, and anticipated trends in the Registrant's
business and the industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are based largely
on the Registrant's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Registrant's control. The
Registrant cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements, including, among others, the following: reduced or
lack of increase in demand for the Registrant's products, competitive pricing
pressures, changes in the market price of ingredients used in the Registrant's
products and the level of expenses incurred in the Registrant's operations. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking information contained herein will in fact transpire or prove to
be accurate. The Registrant disclaims any intent or obligation to update
"forward looking statements."
ITEM 3. CONTROLS AND PROCEDURES.
Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Within the next 90 days, the Registrant will carriy out further
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities Exchange
Act of 1934 ("Exchange Act"). This evaluation will be done under the supervision
and with the participation of the Registrant's President and Chief Financial
Officer..
(b) Changes in internal controls.
There were no significant changes in the Registrant's internal controls
or in its factors that could significantly affect those controls since the most
recent evaluation of such controls.
Critical Accounting Policies.
The SEC recently issued Financial Reporting release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"),
suggesting companies provide additional disclosure and commentary on their most
critical accounting policies. In FRR 60, the SEC defined the most critical
accounting policies as the ones that are most important to the portrayal of a
company's financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based on this
definition, the Registrant's most critical accounting policies include: non-cash
compensation valuation that affects the total expenses reported in the current
period. The methods, estimates and judgments the Registrant uses in applying
these most critical accounting policies have a significant impact on the results
the Registrant reports in its financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Registrant sold the following unregistered (restricted) securities
during the quarter ended March 31, 2003:
(a) From February 14, 2003 through March 19, 2003, the Registrant
issued a total of 4,471,197 shares of common stock to 15 consultants for
services to be rendered to the company, valued at a total of $688,564 (average
of $0.154 per share).
(b) On February 14, 2003 and March 5, 2003, the Registrant issued a
total of 644,788 shares of common stock to two companies in connection with
compensation under a private placement being conducted by the Registrant, valued
at a total of $78,270 (average of $0.12 per share).
(c) On March 18, 2003, the Registrant issued a total of 650,000 shares
of common stock to two directors as compensation in such capacity, valued at a
total of $110,500 ($0.17 per share). On this date, the Registrant also issued
733,334 shares of common stock to two employees in connection with an employment
agreements with the company, valued at $124,667. Finally, on this date the
Registrant issued a total of 500,000 shares of common stock to two individuals
in settlement of amounts owed, valued at $85,000.
(d) During the quarter, the Registrant sold a total of 16,064,300
shares of common stock units to investors pursuant to its private placement
memorandum, generating net proceeds of $1,094,955. Each common stock unit
consists of (a) 50 shares of common stock of the Registrant, (b) one warrant to
purchase 25 shares of common stock of the Registrant at an exercise price of
$0.20 per share, and (c) one warrant to purchase 25 shares of common stock, at
an exercise price of $0.30 per share (which was subsequently reduced to $0.01
per share).
(e) During the quarter, commissions valued at a total of $78,270
(644,788 shares of common stock) were paid to two companies in connection with
compensation under a private placement discussed in (d) above.
The sales set forth above were undertaken under Rule 506 of Regulation
D under the Securities Act of 1933, as amended ("Act"), by the fact that:
o the sales were made to a sophisticated or accredited investors, as
defined in Rule 502;
o the Registrant gave each purchaser the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and
to obtain any additional information which the Registrant possessed or
could acquire without unreasonable effort or expense that is necessary
to verify the accuracy of information furnished;
o at a reasonable time prior to the sale of securities, the Registrant
advised each purchaser of the limitations on resale in the manner
contained in Rule 502(d)2;
o neither the Registrant nor any person acting on its behalf sold the
securities by any form of general solicitation or general advertising;
and
o the Registrant exercised reasonable care to assure that each purchaser
of the securities is not an underwriter within the meaning of Section
2(11) of the Securities Act of 1933 in compliance with Rule 502(d).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
Exhibits included or incorporated by reference herein are set forth in
the attached Exhibit Index.
Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of the
fiscal year covered by this Form 10-QSB.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Sonic Jet Performance, Inc.
Dated: May 15, 2003 By: /s/ Madhava Rao Mankal
----------------------
Madhava Rao Mankal,
President/Secretary/Chief
Financial Officer
CERTIFICATION
I, Madhava Rao Mankal, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sonic Jet Perform-
ance, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls;
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: May 15, 2003 By: /s/ Madhava Rao Mankal
----------------------
Madhava Rao Mankal, President/
Secretary/Chief Financial
Officer
EXHIBIT INDEX
Number Description
2.1 Share Exchange Agreement between the Registrant and Sonic Jet Performance,
LLC, dated June 15, 1998 (incorporated by reference to Exhibit 7.1 to the
Form 8-K filed on July 6, 1998).
2.2 Stock Purchase Agreement between the Registrant, Garth Barrett, and T S
Group, LLC., dated June 13, 2002 (incorporated by reference to Exhibit 2.1
to the Form 8-K filed on June 28, 2002).
3.1 Articles of Incorporation, dated November 27, 1996 (incorporated by
reference to Exhibit 3.1 of the Form 10-SB filed on March 24, 1997).
3.2 Articles of Amendment to the Articles of Incorporation, dated December 24,
1996 (incorporated by reference to Exhibit 3 of the Form 10-KSB filed on
April 15, 1998).
3.3 Articles of Amendment to the Articles of Incorporation, dated December 16,
1998 (incorporated by reference to Exhibit 3 of the Form 8-K filed on
December 16, 1998).
3.4 Bylaws, dated November 27, 1996 (incorporated by reference to Exhibit 3.2
of the Form 10-SB filed on March 24, 1997).
4.1 Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock, dated June 12, 1998 (incorporated by reference to Exhibit
7.4 of the Form 8-K filed on July 6, 1998).
4.2 2000 Stock Plan of the Registrant, dated May 1, 2000 (incorporated by
reference to Appendix A of the Schedule 14C filed on June 30, 2000).
4.3 Certificate of Designation for Series B Convertible Preferred Stock, dated
December 27, 2001 (incorporated by reference to Exhibit 3.1 of the Form 8-K
filed on January 7, 2002).
4.4 Certificate of Designation for Series C Convertible Preferred Stock, dated
December 27, 2001 (incorporated by reference to Exhibit 3.2 of the Form 8-K
filed on January 7, 2002).
4.5 Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and Ashford Capital, LLC, dated December 27, 2001 (incorporated
by reference to Exhibit 10.1 of the Form 8-K filed on January 7, 2002).
4.6 Series C Convertible Preferred Stock Purchase Agreement between the
Registrant and eFund Capital Partners, LLC, dated December 27, 2001
(incorporated by reference to Exhibit 10.2 of the Form 8-K filed on January
7, 2002).
4.7 Amendment to Certificate of Designation of Series C Convertible Preferred
Stock, dated November 14, 2002 (incorporated by reference to Exhibit 10.6
of the Form 10-QSB filed on November 18, 2002).
4.8 Amendment to Certificate of Designation of Series B Convertible Preferred
Stock, dated December 20, 2002 (incorporated by reference to Exhibit 10.7
of the Form 10-KSB filed on April 16, 2003).
10.1 Consulting Agreement between the Registrant and Kevin Ryan, dated January
17, 2002 (incorporated by reference to Exhibit 10.2 of the Form 10-KSB
filed on April 16, 2003).
10.2 Consulting Agreement between the Registrant and eFund Capital Partners,
LLC, dated January 17, 2002 (incorporated by reference to Exhibit 10.3 of
the Form 10-KSB filed on April 16, 2003).
10.3 Agreement between the Registrant and Mission Capital Investment Group,
dated October 30, 2002 (incorporated by reference to Exhibit 10.3 of the
Form 10-QSB filed on November 18, 2002).
99.14 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350) (see below).