SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1937
Commission file number: 000-22273
SONIC JET PERFORMANCE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
COLORADO 84-1383888
------------------- -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
15662 COMMERCE LANE
HUNTINGTON BEACH, CALIFORNIA 92649
----------------------------------
(Address of Principal Executive Offices)
(714) 895-0944
-----------------------------------
(Issuer's Telephone Number, including Area Code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of March 31, 2002, the Issuer had 27,891,644 shares of Common Stock, no par
value, outstanding.
SONIC JET PERFORMANCE, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED March 31, 2002
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 2002 (unaudited)
Statement of operations for the Three months ended March
31, 2002 and 2001 (unaudited).
Statements of Cash Flows for the Three months ended March
31, 2002 and 2001 (unaudited).
Notes to Consolidated Financial Statements (unaudited).
Item 2. Management's Discussion and Analysis or Plan of operations
General
Results of operations
Liquidity and Capital Resources
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K
SONIC JET PERFORMANCE, INC. AND
SUBSIDIARY March 31, 2002
(Unaudited)
CONTENTS:
FINANCIAL STATEMENTS page
Report on Review by Independent
Certified Public Accountant F-1
Consolidated Balance Sheets F-2 - F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-9
Michael Johnson & Co., LLC
Certified Public Accountants
9175 East Kenyon Ave., Suite 100
Denver, Colorado 80237
Michael B. Johnson C.P.A. Telephone: (303) 796-0099
Member: A.I.C.P.A. Fax: (303) 796-0137
Colorado Society of C.P.A.s
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, 2002 and the related
consolidated statements of operations and cash flows for the three months ended
March 31, 2002 and 2001 included in the accompanying Securities and Exchange
Commission Form 10-QSB for the period ended March 31, 2002. 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, 2001, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein). In our report dated March
4, 2002, 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, 2002 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
/s/ Michael Johnson & Co., LLC
Denver, Colorado
May 11, 2002
F-1
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2002 2001
-------------- ---------------
ASSETS:
Current Assets:
Cash $ 27,213 $ 42,760
Restricted cash 202,495 201,004
Accounts receivable 67,566 9,500
Inventories 431,498 363,971
Other current assets 30,919 7,731
-------------- ---------------
Total Current Assets 759,691 624,966
-------------- ---------------
Property and Equipment, net 1,213,888 1,221,313
-------------- ---------------
Other Assets:
Licensing rights 267,500 267,500
-------------- ---------------
Total Other Assets 267,500 267,500
-------------- ---------------
TOTAL ASSETS $2,241,079 $ 2,113,779
============== ===============
See accountant's review report and notes to the financial statements.
F-2
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2002 2001
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 475,941 $ 458,416
Accrued payroll taxes 57,977 70,936
Accrued interest and other expenses 248,395 397,276
Current portion of capitalized lease obligations 11,764 12,236
---------------- -----------------
Total Current Liabilities 794,077 938,864
---------------- -----------------
Long-term Liabilities;
Capitalized lease obligations - net of current portion - -
---------------- -----------------
Total Long-term Liabilities - -
---------------- -----------------
TOTAL LIABILITIES 794,077 938,864
---------------- -----------------
Stockholders' Equity:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding - -
Series A Convertible Preferred Stock: 1,600 shares issued
and outstanding - -
Series B Convertible Preferred Stock: 10 shares issued
and outstanding 25,000 25,000
Series C Convertible Preferred Stock: 37 shares issued
and outstanding 370,000 50,000
Common stock, no par value, 100,000,000 shares
27,891,644 and 19,333,936, issued and outstanding
respectively 12,342,215 12,015,715
Shares committed-to-be-issued 20,000 93,205
Accumulated comprehensive income 60 -
Accumulated deficit (11,310,273) (11,009,005)
---------------- -----------------
Total Stockholders' Equity 1,447,002 1,174,915
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,241,079 $2,113,779
================ =================
See accountant's review report and notes to financial statements.
F-3
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three months ended
March 31,
2002 2001
--------------- ----------------
REVENUES: $ 58,795 $ 583,459
--------------- ----------------
COST OF SALES 27,630 472,187
--------------- ----------------
GROSS PROFIT 31,165 111,272
--------------- ----------------
OPERATING EXPENSES:
Sales and Marketing - -
General and Administrative 334,590 341,616
--------------- ----------------
Total Operating Expenses 334,590 341,616
--------------- ----------------
Net Loss from Operations (303,425) (230,344)
--------------- ----------------
OTHER INCOME/EXPENSES
Other income 3,749 4,000
Other expenses - -
Interest income - 13
Interest expenses (1,592) (108,263)
2,157 (104,250)
--------------- ----------------
NET (LOSS) $ (301,268) $(334,594)
=============== ================
Weighted average number of
shares outstanding 23,591,934 13,024,767
=============== ================
Net Loss Per Share $ (0.02) $ (0.02)
=============== ================
See accountant's review report and notes to the financial statements.
F-4
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
Statement of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Additional Additional Shares Other
Preferred Stock Common Stock Paid-In Paid-In Committed Comprehensive
Shares Amount Shares Amount Capitial Warrants to be issued Income
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Balance - December 31, 1999 1,600 $ 1,500,000 12,676,000 $3,618,194 $ 272,000 $ 316,026 $ 799,455 $ (4,943)
Issuance of common stock - - 348,767 710,583 - - (655,583) -
Capital changes due to debt
financing - - - - 826,000 708,601 - -
Cumulative translation
adjustment - - - - - - - 25,273
Net loss for year - - - - - - - -
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
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
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Issuance of common stock for
services (1,594) (1,425,000) 6,309,169 7,686,938 (1,098,000) (1,024,627) (50,667) (20,330)
Cumulative translation
adjustments - - - - - - - -
Net loss for year - - - - - - - -
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Balance - December 31, 2001 6 75,000 19,333,936 12,015,715 - - 93,205 -
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Issuance of common stock for 32 320,000 8,557,708 253,295 - - - -
Shares committed - - - 73,205 - - (73,205) -
Cumulative translation
adjustments - - - - - - - 60
Net loss for period - - - - - - - -
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Balance - March 31, 2002 38 $ 395,000 27,891,644 $12,342,215 $ - $ - $ 20,000 $ 60
--------- ----------- ---------- ----------- ----------- ----------- --------- --------
Accumulated
Deficit Totals
------------ -------------
Balance - December 31, 1999 $(2,132,207) $ 4,368,525
Issuance of common stock - 55,000
Capital changes due to debt
financing - 1,534,601
Cumulative translation
adjustment - 25,273
Net loss for year (7,458,046) (7,458,046)
------------ -------------
Balance - December 31, 2000 (9,590,253) (1,474,647)
------------ -------------
Issuance of common stock for
services 20,332 4,088,646
Cumulative translation
adjustments (1,266) (1,266)
Net loss for year (1,437,818) (1,437,818)
------------ -------------
Balance - December 31, 2001 (11,009,005) 1,174,915
------------ -------------
Issuance of common stock for - 573,295
Shares committed - -
Cumulative translation
adjustments - 60
Net loss for period (301,268) (301,268)
------------ -------------
Balance - March 31, 2002 (11,310,273) $ 1,447,002
------------ -------------
See accountant's review report and notes to the financial statements.
F-5
SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2002 2001
--------------- --------------
Cash Flows From Operating Activities:
Net Loss $(301,268) $(334,594)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 30,000 30,000
Interest relating to beneficial conversion and warrants - 10,844
Common stock issued for services 27,016 -
Changes in assets and liabilities:
(Increase) in accounts receivable (58,066) (182,731)
(Increase) in inventories (67,527) 194,348
Decrease in related parties - 127,065
(Increase) in other assets (23,128) (9,441)
Increase in accounts payable 17,525 (2,143)
(Decrease) Increase in payroll liabilities (12,959) (7,790)
(Decrease) Increase in accrued expenses (74,093) 100,314
--------------- --------------
Total adjustments (161,232) 260,466
--------------- --------------
Net Cash Used in Operating Activities (462,500) (74,128)
--------------- --------------
Cash Flow From Investing Activities:
Purchase of equipment (22,575) -
Proceeds from sale of property and equipment - -
--------------- --------------
Net Cash Provided By Investing Activities (22,575) -
--------------- --------------
Cash Flow From Financing Activities:
Proceeds from issuance of common stock - -
Proceeds from convertible debt 470,000 50,000
Payments from capitalized lease obligations (472) -
Proceeds from loans - -
--------------- --------------
Net Cash Provided By Financing Activities 469,528 50,000
--------------- --------------
Effect of exchange rate on cash - -
--------------- --------------
Increase in Cash (15,547) (24,128)
Cash and Cash Equivalents - Beginning of period 42,760 40,129
--------------- --------------
Cash and Cash Equivalents - End of period $ 27,213 $ 16,001
=============== ==============
Supplemental Cash Flow Information:
Interest paid $ 3,082 $ 948
=============== ==============
Taxes paid $ 800 $ -
=============== ==============
See accountant's review report and notes to financial statements.
F-6
Note 1. Presentation of Interim Information
In the opinion of the management of Sonic Jet Performance, Inc. and Subsidiary
(SJPI), the accompanying unaudited consolidated financial statements include all
normal adjustments considered necessary to present fairly the financial position
as of March 31, 2002, and the results of operations and cash flows for the three
months ended March 31, 2002 and 2001. 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, 2001.
Note 2. Financial Statements
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances,
transactions, and stockholdings have been eliminated.
NOTE 3 - INVENTORIES
Inventories at March 31, 2002 consisted of the following:
Raw materials and supplies $ 71,839
Work in process 286,364
Finished goods 73,295
---------
Total $ 431,498
=========
NOTE 4 - 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 288,767
Tooling and molds 23,217
Tooling - new products 1,210,290
Vehicles 20,899
----------
1,589,719
Less accumulated depreciation and amortization (375,831)
-------
Total $1,213,888
==========
F-6
NOTE 5 - 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.
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 two equal yearly installments.
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 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.
NOTE 6 - 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 quarter ended March 31, 2002, the Company issued the
following option shares.
1. Walter Wright 100,000 Consultant
2. Danny Medina 56,695 Settlement of Outstanding amounts
3. Barrett Evans 500,000 Consultants agreement
4. George Moseman 250,000 Finders Fees
5. Astor & Philips 118,014 Settlement of Legal fees
6. Tim Spooner 37,500 Payment of sales Commission
7. Hratch Khedesian 50,620 Settlement of outstanding dues
F-7
NOTE 7 Other Transactions
Capital Stock 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.
Series C Convertible Preferred Stock
1. During the period from December 6, 2001 to March 31, 2002, Fifty Two shares
of Series C Convertible Preferred Stock were issued to various investors for
$520,000 of which fifteen preferred shares have been converted to common stock.
F-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 and 2001
The following table sets forth the Company's consolidated statements of
operations:
THREE MONTHS ENDED MARCH 31,
2002 2001
Sales $ 58,795 $583,459
Cost of Sales 27,630 472,187
------ -------
Gross profit (loss) 31,165 111,272
Selling, General and Administrative 334,590 341,616
------- -------
Income/(Loss) from operations (303,425) (230,344)
-------- --------
Interest expenses (1,592) (108,250)
Other Income 3,749 4,000
-------- --------
Total other income (expense) 2,157 (104,250)
-------- --------
Net Income/(Loss) $(301,268) $(334,594)
========= =========
Basic & Diluted loss per share $(0.02) $(0.02)
====== =======
Weighted-average common shares
outstanding Basic and Diluted 23,591,934 13,024,767
NET SALES: Net sales for the first quarter 2002 decreased by $524,664 or 89.92%
to $58,795 compared to $583,459 for the first quarter of 2001. Management
attributes the decrease of sale for 3 months ended March 31, 2002 to the
restructuring of Company. We sold one Fire Rescue Jet to Stone Harbor during the
quarter ended March 31, 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the first quarter of 2002, decreased by $7,026 or 2%
to $334,590 compared to $341,616 for the first quarter of 2001. Decrease is
mainly attributed to expenses incurred on business consultants, legal expenses
for preparing the annual report, and proxy statement, printing of broachers,
demo expenses and settlement of legal cases.
NET INCOME (LOSS): Net Income (Loss) for the 3 months ended March 31, 2002 was
($301,268) as compared to ($334,594) for the 3 months ended March 31, 2001. This
decrease in loss is mainly attributable to the fact that interest expense on
debts reduced compared for the same period ending March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital have been cash flow from its
operations, the sale of Series B and Series C Convertible Preferred Stock.
Based on its current operating plan, the Company anticipates that additional
financing will be required to finance its operations and capital expenditures.
The Company'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 Company to raise additional funds. The amount of funds
required by the Company will depend upon many factors, including without
limitation, the extent and timing of sales of the Company's products, future
product costs, the timing and costs associated with the establishment and/or
expansion, as appropriate, of the Company'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 Company generates cash flow from operations which
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 Company 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 Company's
business, financial condition and results of operations. Furthermore, if the
Company raises funds through the sale of additional equity securities, the
Common Stock currently outstanding may be further diluted.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities.
The Following Shares were issued out of the stock option plan.
1. Walter Wright 100,000 Consultant
2. Danny Medina 56,695 Settlement of outstanding amounts
3. Barrett Evans 500,000 Consultants agreement
4. George Moseman 250,000 Finders Fees
5. Astor & Philips 118,014 Settlement of Legal fees
6. Tim Spooner 37,500 Payment of sales Commission
7. Hratch Khedesian 50,620 Settlement of outstanding dues
The Following Shares were issued with restriction.
1. Scott Ervin 15,000 Settle outstanding amounts
2. Danny Medina 100,000 Non Competence Agreement
3. Astor & Phillips 118,014 Payment of Legal fees
4. Alan Weaver 14,700 Settlement of Legal case
5. Harry Yamada 34,300 Settlement of legal case
6. William Crosby 21,000 Settlement of Legal Case
7. JNC Opportunity Fund, Ltd. 1,044,775 Anti Dilution Agreement
8. JNC Strategic Fund, Ltd. 731,858 Anti Dilution Agreement
9. Mohammed Al Rashid 1,021,677 Anti Dilution Agreement
10. Federal and Commercial Contracts 50,000 Sales agreement
11. Mgs Grand Sports 58,261 settle outstanding rent
The Following Common shares were issued by converting Preferred stock
certificates:
1. Denis Hickey 564,706
2. Hratch Khedesian 282,353
3. Michel Watts 564,706
4. Noriaki Sasaki 1,129,412
5. Krishna Mankal 282,353
6. Jeffrey Marks 282,353
7. Efund Capital partners 1,129,411
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matter to
a : Refer to Proxy Statement filed separately Vote of Security Holders.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements 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.
Date: May 13, 2002 SONIC JET PERFORMANCE, INC.
By: /s/ Madhava Rao Mankal
------------------------------------
Name: Madhava Rao Mankal
Title: Secretary/CFO