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 JUNE 30, 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.)
2031 Avenue B, Building 44 North, Charleston, South Carolina 29405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (843) 740-7015
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, No 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 June 30, 2003, the Registrant had 109,187,156 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 JUNE 30, 2003 4
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2002 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2003 AND JUNE 30, 2002 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURE 20
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 June 30, 2003, the related
consolidated statements of operations (for the three months and six
months ended June 30, 2003 and 2002), and the related statements of
cash flows for the six months ended June 30, 2003 and 2002 included in
the accompanying Securities and Exchange Commission Form 10-QSB for
the period ended June 30, 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 June 30, 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
August 18, 2003
SONIC JET PERFORMANCE
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(Unaudited)
ASSETS:
Current Assets:
Cash $ 100,135
Restricted Cash
Accounts Receivable 15,537
Investment
Inventories 2,935,157
Other Current Assets 141,978
Total Current Assets 3,192,807
Property and Equipment, net 197,650
Other Assets:
Licensing Rights 200,000
Reserve for Restructuring (200,000)
Goodwill 1,434,873
Total Other Assets 1,434,873
Total Assets 4,825,331
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable 1,224,940
Accrued Payroll Taxes 21,750
Accrued Interest and other expenses 446,269
Deferred Revenue 1,718,744
Short-Term Loan 830,014
Current Portion of Capitalized Lease Obligations -
Total Current Liabilities 4,241,717
Long-Term Liabilities: Cap. Lease
(Net) and Other 306,660
Total Long-Term Liabilities 306,660
Total Liabilities 4,548,377
Stockholders' Equity:
Common, No Par Value, 300,000,000
Authorized, Issued and Outstanding
109,187,156 18,592,147
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 (20,139,010)
Shares Committed to be Issued 786,591
Warrants 692,226
Total Stockholders' Equity 276,954
Total Liabilities and Shareholders' Equity 4,825,331
The accompanying notes are an integral part of these financial statements
SONIC JET PERFORMANCE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Revenues $ 606,785 $ 303,837 $ 703,134 $ 362,632
Cost of Sales 604,684 181,984 836,437 209,614
Gross Profit 2,101 121,853 (133,304) 153,018
Operating Expenses:
Selling, General & Administrative 1,343,921 684,864 2,992,448 1,019,454
Total Operating Expenses 1,343,921 684,864 2,992,448 1,019,454
Loss from Operations (1,341,820) (563,011) (3,125,752) (866,436)
Restructuring Expense 514,499 - 514,499
Profit (Loss) after Restructuring Expense (1,856,319) (563,011) (3,640,250) (866,436)
Other Income/Expense
Other Income (59,810) 29,269 (45,352) 31,426
Interest Expense (56,830) 3,213 (71,025) 3,213
Total Other Income (Expense) (116,640) 32,482 (116,377) 34,639
Net Loss (1,972,958) (530,529) (3,756,628) (831,797)
Basic loss per share (0.0130) (0.0254) (0.0304) (0.0391)
Diluted loss per shares (0.0087) (0.0254) (0.0204) (0.0391)
Weighted average common shares outstanding
Basic 102,851,320 22,186,505 102,851,320 22,186,505
Diluted 153,483,542 22,186,505 153,483,542 22,186,505
* Taken from the weighted average common shares outstanding
as at the end of 06/30/03
** 2002 Basic and diluted shares was based on the auditor's
calculations. There was no dilution factor.
The accompanying notes are an integral part of these financial statements
SONIC JET PERFORMANCE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
2003 2002
Cash Flows From Operating Activities:
Net Loss $(3,756,628) $ (831,797)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 155,834 66,396
Provision for China Inventory - 297,547
Common Stock issued for services 1,689,904 135,266
Warranty & royalties 25,961 -
Restructuring expense 514,499 -
Changes in assets and liabilities:
(Increase) in accounts receivable 150,705 (77,082)
(Increase) in inventories (2,748,694) (54,991)
(Increase) Decrease in other assets 4,896 51,387
(Decrease) Increase in accounts payable 286,397 (37,000)
(Decrease) Increase in payroll liabilities (16,940) (20,361)
(Decrease) Increase in accrued
expenses & deferred revenue 1,596,902 (142,022)
(Decrease) Increase in reserves and other 7,502 -
Total adjustments 1,666,966 219,140
Net Cash Used in Operating Activities (2,089,662) (612,657)
Cash Flow From Investing Activities:
Purchase of equipment 24,752 (27,471)
Proceeds from sale of property and equipment - (50,000)
Net Cash Provided By Investing Activities 24,752 (77,471)
Cash Flow From Financing Activities:
Proceeds from issuance of common stock 1,305,849 347,016
Proceeds from issuance of Preferred Stock (20,000) 290,000
Proceeds from convertible debt - 57,033
Short term Debts 723,207 -
Payments from capitalized lease obligations - (10,970)
Long Term Liabilities 11,513 -
Notes Payable - -
Proceeds from loans - 55,000
Net Cash Provided By Financing Activities 2,020,569 738,079
Effect of exchange rate on cash - 0
Increase in Cash (44,341) 47,951
Beginning Balance 144,476 42,760
Ending Balance 100,135 90,711
The accompanying notes are an integral part of these financial statements
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 June 30,
2003, and the results of operations for the three months and six
months ended June 30, 2003 and 2002, and for cash flows for the six
months ended June 30, 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 June 30, 2003 consisted of the following:
Raw Materials and Supplies $ 308,693
Work in process 2,853,214
Finished Goods 86,280
Less: Provision (313,031)
Total Inventories 2,935,157
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2003 consisted of the following:
Furniture and fixtures $ 152,584
Machinery and equipment 415,557
Tooling - new products 218,881
Design Rights 200,000
Vehicles 500
Demo vehicles 192,530
1,180,052
Less Depreciation and Amortization (982,401)
Total Property and Equipment 197,650
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
The Company has transferred its executive offices to 2031 Avenue B,
Building 44, North Charleston 29405, the site of its principal
business, Technical Solutions Group, Inc. ("TSGI"). TSGI has a long-
term lease of five years (four years remaining) with five (5) years
option with CMMC on the naval base.
On August 14, 2003, TSG verbally agreed to enter into a lease
agreement with Intertech Group, Inc. to lease 86,000 square feet of
manufacturing and administrative space at 9801 Hwy 78, Building No. 3,
Ladson, South Carolina. The term of the lease is 5 years starting
September 15, 2003, with an option to renew for another five years.
The space substantially increases the company's ability to qualify for
and fulfill larger contracts for its mine-protected vehicles. Annual
rent is $215,000 for the first year plus utilities, taxes and
maintenance, and $258,000 base rental for the next four years. The
Company is in the process of negotiating with the current landlord to
take back all or most of the current space with little or no penalty.
The company leases a facility in Stanton, California and storage
facilities in Riverside, California on a month-to-month basis at a
monthly rental charge of $3,085.
The Company's wholly owned subsidiary in China, which is in the
process of dissolution, leases a storage facility in Nanning, China on
a month-to-month basis.
Employment Agreements
During the second quarter, the Company negotiated certain changes in
employment agreements with its key executive officers. A previous
agreement to issue Mr. Watts a warrant for 2 million shares of common
stock at $0.07 a share with full vesting rights as of July 1, 2002,
plus a warrant for 1 million shares of common stock at $0.07 a share
vesting on the June 20, 2003, plus a warrant for 1 million shares of
common stock at $0.07 a share vesting on June 20, 2004 plus 10 shares
of Series "C" preferred or the equivalent in common shares was
modified to be a grant, effective July 1, 2002, of 2 million shares of
common stock, plus a warrant for 1 million shares of common stock at
$0.07 a share vesting on June 20, 2003, plus a warrant for 1 million
shares of common stock vesting of June 20, 2004; Garth Barrett for a
salary of $120,000 plus a grant of 10 shares of series "C" preferred
stock. On April 1, 2003, the Company entered into an agreement with
Frank Kavanaugh, the Company's director of business development, for
an annual salary of $120,000 and a grant of 500,000 shares of the
Company's restricted common stock. Also, during June of 2003, Mr.
Kavanaugh was granted 500,000 shares of restricted common stock that
were committed in June of 2002, for consulting services as interim
general manager during the second and third quarters of 2002.
In connection with the restructuring of Sonic Jet Performance, Inc.,
the Company entered into a verbal termination agreement with Mr.
Mankal. The agreement stipulates that he will assist the Company as a
consultant for 90 days beginning September 1, 2003 at the same salary,
without benefits, and receive a grant of 600,000 shares of stock at 7
cents on September 1, 2003. On December 1, 2003 Mr. Mankal will be
paid 90 days termination based on his annual rate of salary of
$64,800. On June 2003, Mr. Mankal received 200,000 shares of stock
for the first and second quarters of 2003 in connection with his
employment contract dated March 17,2003. The Company is also
negotiating a termination agreement with Mr. Khedesian, who is
receiving an annual salary of $72,000. In June, 2003, Mr. Khedesian
received 166,666 shares of stock for the first and second quarters of
2003 in connection with his employment contract dated January 2, 2002.
Executive officer compensation is subject to review on a periodic
basis by the board of directors.
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 one of the Company's largest shareholders, 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.
One of the principals of Mardikian Marine Design has informed the
Company of his intention to revoke the Licensing agreement to the
Company and has entered into a lawsuit against the Company (discussed
in Part 2, Item 1 of this Form 10-QSB).
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
Equity compensation plans (a) 1,987,829 (b) $0.11 (c) 12,171
approved by security holders
Equity compensation plans
not approved by security holders
Total: (a) 1,987,829 (b) $0.11 (c) 12,171
The Company's July 2000 Employee Stock Compensation Plan provides for
the granting of stock options to employees and certain consultants of
the Company. A total of 2,000,000 shares of common stock have been
reserved for issuance upon exercise of options granted under the plan.
NOTE 7 - OTHER TRANSACTIONS
Capital Stock Transactions
During the period from December 6, 2001 to December 31, 2002, 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 one share was cancelled. During
the three months ended March 31, 2003, two shares were redeemed,
leaving a balance of 32 Series C preferred stock outstanding at March
31,2003. During the three months ended June 30, 2003, 12 shares of
Series C convertible preferred were committed to a Garth Barrett, an
employee, and a consultant advising on strategic issues.
During the three months ended March 31, 2003, the Company issued an
aggregate of 375,000 unrestricted 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. From the
period April 1st through August 14, 2003, the Company issued and
committed 5,173,713 shares of restricted common stock plus 2 shares
Series C convertible stock to 12 consultants and lawyers for various
legal and consulting services rendered to the company. These shares
include 650,000 shares of restricted common as discussed in "Note 5,
Employment Agreements," above.
During the three months ended March 31, 2003, and six months ended
June 30, 2003, the Company issued or committed to be issued,
respectively, 644,788 and 674,318 restricted shares of common stock to
two companies in connection with compensation under the private
placement being conducted by the Company.
During the first and second quarters ended March 31, 2003 and June 30,
2003 the Company issued to directors, as compensation in such
capacity, restricted common shares totaling 650,000 (two directors)
and 250,000 (one director) respectively. During the first quarter
ended March 31, 2003 the company issued or committed to be issued
733,334 restricted shares to two employees, and during the second
quarter ended June 30, 2003, the Company committed to be issued
3,716,666 restricted shares of common stock and ten shares of Series C
Preferred stock to 6 employees in connection with employment
agreements with the Company, some of which were described in "Note 5,
Employment Agreements," above.
During the first quarter ended March 31, 2003, the Company issued
restricted shares of common stock totaling 500,000 to two individuals
in settlement of amounts owed.
During the second quarter ended June 30, 2003, the Registrant issued
shares of common stock and warrants (represented by 40,000 common
stock units) valued at $210,000 to payoff a note for $50,000 and
settle all outstanding claims of Atlantis Aggressive Growth Co. and
Atlantis Partners Inc. related to the purchase of Technical Solutions
Group, Inc. in June of 2002. 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) (which has been exercised).
These shares and corresponding units were distributed as follows: (a)
2,025,000 shares (27,000 units) of common stock valued at an average
of $0.07 share, or $141,750, to Atlantis Aggressive Growth Co., and
975,000 (13,000 units) shares of common stock valued at an average of
$0.07 share or $68,250 to Atlantis Partners Inc.
During the three months ended March 31, 2003 and three months ended
June 30, 2003, the Company sold a total of 16,064,300 and 6,760,000
restricted shares of common stock, respectively, to investors pursuant
to its private placement memorandum, generating net proceeds of
$1,094,955 and $502,700, respectively pursuant to the sale of common
stock units. 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) (which has been exercised).
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 and Six Months Ended June 30, 2003 and 2002.
The following table sets forth the Registrant's consolidated
statements of operations:
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
Revenues $ 606,785 $ 303,837 $ 703,134 $ 362,632
Cost of sales 604,684 181,984 836,437 209,614
Gross Profit 2,101 121,853 (133,304) 153,018
Selling, General & Admin 1,343,921 684,864 2,992,448 1,019,454
Total Operating Expenses 1,343,921 684,864 2,992,448 1,019,454
Loss from operations (1,341,820) (563,011) (3,125,752) (866,436)
Restructuring Expense 514,499 - 514,499
Profit (loss) after Restructuring Expense (1,856,319) (563,011) (3,640,250) (866,436)
Other Income/Expense
Other income (59,810) 29,269 (45,352) 31,426
Interest expense (56,830) 3,213 (71,025) 3,213
Total other income (expense) (116,640) 32,482 (116,377) 34,639
Net Loss (1,972,958) (530,529) (3,756,628) (831,797)
In an effort to focus on Technical Solutions Group, Inc.'s
("TSG") mine protected vehicles and achieve profitable operations in
the third quarter, and as a result of the poor performance of the boat
division and the long lead times necessary to achieve success in that
business, the Registrant has, effective July 1, 2003, downsized and
transferred the fire and rescue operations to a new acquired
subsidiary, Rockwell Power Systems, Inc. The Registrant has set up
adequate financial reserves for the restructuring and expects minimal
internal resources to be devoted to Rockwell. Rockwell will either
finance the fire and rescue business through an independent public
offering or, failing that, find a buyer that can devote the time and
resources necessary to penetrate the market and build the business.
In any case, the Registrant plans to assure that resources will be
available if necessary to complete any warranty incurred, and is
adequately reserved for such occurrence.
Sales: Net sales for the three and six months ended June 30, 2003
increased by approximately $303,000 and 340,000, respectively,
compared to the three months and six months ended June 30, 2002.
During 2002, the Registrant acquired TSG, whose sales for the three
month and six month periods ended June 30, 2003 were approximately
$605,000 and $700,000 respectively. Therefore the entire increase in
sales is attributable to TSG. Sales of boats actually declined for the
six months compared to last year. 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 the three months and six
months ended June 30, 2003 was approximately $422,700 and $ $627,000
higher than the three months and six months of 2002 respectively.
Cost of sales percent was 100% and 119% of sales for the three months
and six months ended 2003 compared to approximately 60% and 58% for
comparative periods in 2002. In the case of TSG, manufacturing period
costs are high in comparison to sales due to start up of a government
contract. During the three months and six months ended June 30, 2002,
this expense related only to the boat division as TSG was acquired on
June 30, 2002.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses for the three months and six months ending
June 30, 2003 increased by approximately $659,000 and $1,973,000
respectively compared to the same periods in 2002. The increase is
partially the result of TSG selling, general and administrative
expenses that were not in last year. The remaining increase can be
attributed to: fund raising expenses, business consultants ($253,000
and $107,000 higher, respectively), and grants of employee stock
($301,000 and $519,000 higher, respectively).
Restructuring expenses. These expenses are related to writing
down assets to fair market value and direct expenses and employee
termination agreements involved with the reorganization and transfer
of the boat business, and the settling of liabilities related to the
purchase of TSG in June 2002.
Net Loss: Net loss for three months and six months ended June 31,
2003 increased by approximately $1,442,429 and $ 2,924,831
respectively from corresponding periods ending June 30, 2002. The
increase is attributed to fund raising, business consultants, employee
stock grants and reorganization costs as discussed above.
Business segment analysis of the three months and six months
ended June 30, 2003:
Boats TSG Corporate Total
A. Three months:
Sales $ 2,127 $ 604,658 $ 606,785
Cost of sales 109,891 494,793 604,684
Gross Profit (107,764) 109,865 - 2,101
G.P. %
SG&A 276,322 654,462 413,137 1,343,921
Restructuring loss 354,499 160,000 514,499
Other 41,854 74,785 116,639
Segment P&L (738,585) (586,451) (647,922) (1,972,958)
B. Six months:
Sales 34,213 668,921 703,134
Cost of sales 216,094 620,343 836,437
Gross Profit (181,881) 48,578 - (133,303)
G.P. %
SG&A 2,244,211 748,237 - 2,992,448
Restructuring loss 354,499 160,000 514,499
Other income & (expense) 41,602 74,775 116,377
Segment P&L (2,780,591) (741,261) (234,775) (3,756,627)
Operating Activities.
The cash used by operating activities for the three months and
six months ended June 30, 2003 was $1,099,887 and $2,089,662
respectively, attributable primarily to funding ongoing operations.
Investing Activities.
The Registrant's capital expenditures for the three months and
six months ended June 30, 2003 were $4,460 and $20,293, respectively,
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 ended March 31, 2003 and three months
ended June 30, 2003, the Company sold a total of 16,064,300 and
6,760,000 restricted shares of common stock, respectively, to
investors pursuant to its private placement memorandum, generating net
proceeds of $1,094,955 and $502,700, respectively pursuant to the sale
of common stock units. For more details about this transaction, see
Note 7 - Capital Stock Transactions. 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.
On May 22, 2003, the company settled a $50,000 promissory note
dated July 2, 2002 with interest at 10%, and entered into an agreement
by and between Atlantis Aggressive Growth Co. and Atlantis Partners,
Inc. and the Registrant to settle various claims against the
registrant by Atlantis Aggressive Growth Co. and Atlantis Partners
Inc. arising out of the purchase of TSG in June 2002. For the
consideration of paying the note and settling claims, the Registrant
issued restricted shares of common stock and warrants (represented by
40,000 units) valued at $210,000. For more detail of the transaction,
see Note 7 - Capital Stock Transactions.
On March 31, 2003, the Registrant began securing capital
commitments through the issuance of promissory notes. 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 has an option to
convert into Series C Preferred Stock. As of June 30, 2003, the
Registrant had obtained $706,000 in capital from note holders for 2003.
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 to secure payments of the accounts
receivables. As of June 30, 2003 TSG had drawn $2,332,185.
Liquidity and Capital Resources.
As of June 30, 2003, cash and cash equivalents were approximately
$100,135 compared to approximately $144,000 as of December 31, 2002.
The Registrant has raised approximately $1,094,955 and $502,700
during the three months ended March 31, 2003 and the three months
ended June 30, 2003, respectively, through a private placement. The
Registrant's principal sources of capital have been cash flow from its
operations, the sale of common stock, promissory notes mentioned in
financing activities, and borrowings from G.C. Financial Services.
Based on its current operating plan, the Registrant anticipates that
additional financing will be required to finance its operations and
capital expenditures.
Presently, the Registrant is generating sufficient revenue to
cover expenses and hire employees commensurate with its mine protected
vehicle business. However, 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 90 days prior to the end of the period covered by this
report, the Registrant carried out an 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 was done under the supervision and
with the participation of the Registrant's president and chief
financial officer. Based upon that evaluation, they concluded that
the Registrant's disclosure controls and procedures are effective in
gathering, analyzing and disclosing information needed to satisfy the
Registrant's disclosure obligations under the Exchange Act.
(b) Changes in internal controls.
The most significant changes in the Registrant's internal
controls or in its factors that could significantly affect those
controls was the addition of a chief executive officer and the
issuance of an authorization procedure for commitment of resources.
Critical Accounting Policies.
The Securities and Exchange Commission has 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 B OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 26, 2003 Albert Mardikian, a majority shareholder and
patent holder of certain designs and components of the Registrant's
boats, filed a complaint against the Registrant in the Orange Country
Superior Court. The complaint alleges breach of contract of the
license agreement dated December 27, 2001 between Mr. Mardikian,
Mardikian Marine Design, and the Registrant. The complaint further
alleges breach of an employment and agency agreement between the
Registrant and Mr. Mardikian, and fraud, conversion and unfair
competition. The Registrant has filed an answer denying these
allegations, and on July 28, 2003 filed a cross-complaint against Mr.
Mardikian and Mardikian Marine Design. While the Registrant's
management believes that the matter will be resolved in its favor,
this case is in the early stages of litigation and there can be no
assurance as to the outcome of the lawsuit. Litigation is subject to
inherent uncertainties, and unfavorable rulings could occur. Were
unfavorable rulings to occur, there exists the possibility of a
material adverse impact of money damages on the Registrant's financial
condition, results of operations, or liquidity of the period in which
the ruling occurs, or future periods.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 29, 2003, the conversion date for the Series B and Series
C preferred shares was extended to from June 27, 2003 to December 27, 2003.
The Registrant sold the following unregistered (restricted)
securities during the quarter ended June 30, 2003:
(a) During the quarter ended June 30, 2003, the Registrant
issued a total of 674,318 shares of common stock to two companies in
connection with compensation under the private placement being
conducted by the Registrant, valued at a total of $47,202 (average of
$0.07 per share).
(b) During the quarter ended June 30, 2003, the Registrant
issued a total of 1,000,000 shares of common stock to one individual
in connection with consulting services performed for the company.
These services were valued at a total of $70,000 ($0.07 per share).
(c) During the quarter ended June 30, 2003, the Registrant sold
a total of 6,760,000 shares of common stock to investors pursuant to
its private placement memorandum, generating net proceeds of $502,700
(gross proceeds of $644,487 less offering expenses (fees and
commissions) of $141,787), pursuant to the sale of common stock units.
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)
(which has been exercised).
(d) During the quarter ended June 30, 2003, the Registrant
issued to one of the directors, as compensation in such capacity,
250,000 shares of common stock, valued at $17,500 ($0.07 per share).
(e) During the quarter ended June 30, 2003, the Registrant
issued shares of common stock and warrants (represented by 40,000
common stock units) valued at $210,000 to payoff a note for $50,000
and settle all outstanding claims of Atlantis Aggressive Growth Co.
and Atlantis Partners Inc. related to the purchase of Technical
Solutions Group, Inc. in June of 2002. 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) (which has been
exercised). These shares and corresponding units were distributed as
follows: (a) 2,025,000 shares (27,000 units) of common stock valued at
an average of $0.07 share, or $141,750, to Atlantis Aggressive Growth
Co., and 975,000 (13,000 units) shares of common stock valued at an
average of $0.07 share or $68,250 to Atlantis Partners Inc.
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:
- the sales were made to a sophisticated or accredited investors,
as defined in Rule 502;
- 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;
- 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;
- neither the Registrant nor any person acting on its behalf sold
the securities by any form of general solicitation or general
advertising; and
- 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.
(a) Clarification of disclosure of Part II, Item 2 of Form 10-
QSB for the quarter ended March 31, 2003:
The total sales of 16,064,300 in connection with the private
placement were the restricted shares issued as a result of the sale of
common stock units (shares and exercised warrants). The net proceeds
in connection with these sales were $1,094,955 (gross proceeds of
$1,403,788 less offering expenses (fees and commissions) of $308,833).
(b) Correction of disclosure on front cover of March 31, 2003
Form 10-QSB, and balance sheet therein, with regard to common stock:
should read "no par value".
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 second 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: August 18, 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).
21 Subsidiaries of the Registrant (see below).
31 Rule 13a-14(a)/15d-14(a) Certification (see below).
32 Section 1350 Certification (see below).