1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A Annual Report Under Section 13 or 15(D) of the Securities Exchange Act of 1934 May 31, 1999 0-8880 (For the fiscal year ended) (Commission file no.) MARITIME TRANSPORT & TECHNOLOGY, INC. (Exact name of Registrant as specified in its charter) New York 11-2196303 (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification No.) 1535 Memphis Junction Road Bowling Green, KY 42101 (Address of principal office) (Zip code) (502) 781-8453 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share Indicate by check mark whether 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 registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes____ No X $1,088,285 as of September 13, 1999 (Aggregate market value of the voting stock held by non-affiliates of registrant) 14,787,955 shares, $.01 par value, as of May 31, 1999 (Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date) 2 THOMAS P. MONAHAN CERTIFIED PUBLIC ACCOUNTANT 208 LEXINGTON AVENUE PATERSON, NEW JERSEY 07502 (973) 790-8775 FAX (973) 790-8845 To the Shareholders and Board of Directors Maritime Transport & Technology, Inc. I have audited the accompanying consolidated balance sheets of Maritime Transport & Technology, Inc. and Subsidiaries as of May 31, 1998 and 1999 and the related consolidated statements of operations, cash flows and shareholders' equity for the year ended August 31, 1997, for the nine months ended May 31, 1998, and for the year ended May 31, 1999. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maritime Transport & Technology, Inc. and Subsidiaries as of May 31, 1998 and 1999 and the consolidated results of their operations and their cash flows for the year ended August 31, 1997, for the nine months ended May 31, 1998 and for the year ended May 31, 1999, in conformity with generally accepted accounting principles. /s/ Thomas P. Monahan Thomas P. Monahan, CPA September 8, 1999 Paterson, New Jersey 3 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEET MAY 31, 1998 AND 1999 May 31, May 31, 1998 1999 ---- ---- ASSETS Current assets Cash and cash equivalents $ 75,589 $ 122,161 Accounts receivable 310,085 397,467 Prepaid expenses 1,200 1,600 Inventory 170,795 508,017 Federal corporate incomes tax receivable 8,925 8,925 ---------- ---------- Current assets 566,594 1,038,170 Property and equipment-net 44,043 35,702 Other assets Deferred offering costs 45,108 Loan receivable - shareholder 91,352 Loan receivable - non affiliate 40,699 30,490 Security deposits 805 805 ---------- ---------- Total other assets 177,964 31,295 ---------- ---------- Total assets $ 788,601 $1,105,167 ========== ========== Current liabilities Accounts payable and accrued expenses $ 199,991 $ 245,622 Customer deposits payable 61,406 70,123 Bank loans payable 109,338 7,268 Officer loan payable 174,527 Investor loans payable 131,500 38,400 ---------- ---------- Total current liabilities 502,235 535,940 Long term liabilities Bank loans payable - net of short term portion 13,855 8,274 ---------- ---------- Total liabilities 516,090 544,214 Stockholders' equity Common stock authorized 80,000,000 shares, $0.01 Par value each. At May 31, 1998 and 1999, there are 15,130,705 and 14,787,955 shares outstanding respectively 151,307 147,880 Additional paid in capital 313,201 Retained earnings 121,204 99,872 ---------- ---------- Total stockholders' equity 272,511 560,953 ---------- ---------- Total liabilities and stockholders' equity $ 788,601 $1,105,167 ========== ========== See accompanying notes to financial statements. F1 4 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF OPERATIONS For the For the year nine months For the year ended ended ended August 31, May 31, May 31, 1997 1998 1999 ---- ---- ---- Revenue $ 1,401,301 $ 1,065,802 $ 1,933,737 Costs of goods sold 700,494 465,015 999,847 ------------ ------------ ------------ Gross profit 700,807 600,787 933,890 Operations: General and administrative 606,916 637,315 705,638 Non cash payments for consulting fees 200,000 Depreciation and amortization 33,208 45,938 46,367 ------------ ------------ ------------ Total expense 640,124 683,253 952,005 Profit (loss) from operations $ 60,683 $ (82,466) $ (18,115) Other income and expenses Interest income 2,107 2,646 3,220 Interest expenses (3,710) (6,922) (6,437) ------------ ------------ ------------ Total (1,603) $ (4,276) (3,217) Net income (loss) $ 59,080 $ (86,742) $ (21,332) ============ ============ ============ Net income (loss) per share -basic $ 0.00 $ (.01) $ (.00) ============ ============ ============ Number of shares outstanding-basic 15,130,705 15,130,705 14,899,455 ============ ============ ============ See accompanying notes to financial statements. F2 5 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the For the year nine months For the year ended ended ended August 31, May 31, May 31, 1997 1998 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 59,080 $ (86,742) $ (21,332) Non cash consulting fees 200,000 Depreciation and amortization 33,208 45,938 46,367 Accounts receivable (62,542) (127,907) (87,382) Prepaid expenses (1,200) (400) Inventory (39,698) (9,404) (138,650) Federal corporate taxes receivable 8,009 618 Accounts payable and accrued expenses 127,668 22,152 45,631 Customer deposits payable (9,171) 12,853 8,717 --------- --------- --------- TOTAL CASH FLOWS FROM OPERATIONS 116,554 (143,692) 52,951 CASH FLOWS FROM FINANCING ACTIVITIES Officer loan payable 3,000 108,006 Bank loans payable (45,425) 122,368 (107,651) Investor loans payable 86,392 61,782 --------- --------- --------- TOTAL CASH FLOWS FROM FINANCING ACTIVITIES (42,425) 208,760 62,137 CASH FLOWS FROM INVESTING ACTIVITIES Loan receivable shareholder (11,080) Purchase of fixed assets (41,130) (39,682) (38,026) Notes receivable affiliate (16,055) Note receivable non affiliated party (13,422) (4,423) (30,490) --------- --------- --------- TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (65,632) (60,160) (68,516) NET INCREASE IN CASH 8,497 4,908 46,572 CASH BALANCE BEGINNING OF PERIOD 62,184 70,681 75,589 --------- --------- --------- CASH BALANCE END OF PERIOD $ 70,681 $ 75,589 $ 122,161 ========= ========= ========= Non cash activities Issuance of shares of common stock for conversion of investors loans payable $ 154,882 Increase in investor loans payable in consideration for consulting fees $ 45,108 Purchased inventory in exchange for (i) assignment of due from shareholder of $91,352; (ii) assignment of loan receivable of $40,699; and (iii) incurrence of officer loan payable of $66,561 as of May 31, 1999. Conversion of investor loans payable to common stock $ 93,100 See accompanying notes to financial statements. F3 6 MARITIME TRANSPORT & TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Additional paid in Retained Common Stock Common Stock capital earnings Total Balances September 1, 1996 11,282,250 $ 112,822 -0- $ 148,866 $ 261,688 Net profit 59,080 59,080 ----------- ----------- ----------- ----------- ----------- Balances August 31, 1997 11,282,250 112,822 -0- 207,946 320,768 Issuance of shares in connection with acquisition 3,848,455 38,485 -0- -0- 38,485 Net loss (86,742) (86,742) ----------- ----------- ----------- ----------- ----------- Balances May 31, 1998 15,130,705 151,307 -0- 121,204 272,511 Issuance of shares for consulting fees 100,000 1,000 199,000 200,000 Conversion of debt into shares 232,250 2,323 107,451 109,774 Cancellation of shares (675,000) (6,750) 6,750 -0- Net loss (21,332) (21,332) ----------- ----------- ----------- ----------- ----------- Balances May 31, 1999 14,787,955 $ 147,880 $ 313,201 $ 99,872 $ 560,953 =========== =========== ========= =========== =========== See accompanying notes to financial statements. F4 7 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 NOTE 1 - FORMATION OF COMPANY AND ISSUANCE OF COMMON STOCK a. Formation and Description of the Company Maritime Transport & Technology, Inc. ("Maritime") was formed under the laws of the State of New York on June 26, 1968 and authorized to issue to 80,000,000 shares of common stock, $.01 par value. On May 31, 1998, Maritime completed the acquisition of B.G. Banking Equipment, Inc. ("B.G. Banking") and Financial Building Equipment Exchange, Inc. ("FBEE"), Kentucky corporations, in exchange for 11,282,250 shares of its common stock. The aforementioned transaction has been accounted for as a reverse merger involving a shell company, effectively a recapitalization of B.G. Banking Equipment, Inc. and Financial Building Equipment Exchange, Inc. (the operating companies/accounting acquirers). Accordingly, the historical financial statements of the operating companies are presented as the historical financial statements of the registrant. The results of operations of Maritime (legal acquirer) are included in the consolidated financial statements since May 31, 1998, the date of the merger. The Company is in the business of buying, selling, trading and refurbishing of financial equipment for banks and other financial institutions. b. Issuance of Common Stock In December 1998, the Company issued an aggregate of 100,000 shares of common stock pursuant to an S-8 Stock option plan as follows: 50,000 shares of common stock to Irv Fisher and 50,000 shares to Allen Sanders in consideration for consulting services valued at an aggregate of $200,000. In January 1999, the Company received for cancellation 675,000 shares of common stock that were issued as part of the acquisition of B.G. Banking and FBEE and to be distributed to Andrew Seim, Alexander C. Brosda and George Berglietner. As of May 31, 1999, the Company sold through two private placement offerings an aggregate of 232,250 shares of common stock for an aggregate net consideration of $109,774 consisting of 42,500 shares of common stock sold for an aggregate of $42,500 or $1.00 each per share and 189,750 shares of common stock sold for an aggregate of $67,274 or $0.67 each per share. NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Financial Statement Presentation The acquisition of B.G Banking and FBEE by Maritime (collectively, the "Company") has been accounted for as a reverse merger involving a shell company, effectively a recapitalization of B.G. Banking and FBEE (the operating companies/accounting acquirers). Accordingly, the historical financial statements of the operating companies are presented as the historical financial statements of the registrant. The results of operations of Maritime (legal acquirer) are included in the consolidated financial statements since May 31, 1998, the date of the merger. b. Cash and Cash Equivalents The Company treats cash equivalents, which includes temporary investments with a maturity of less than three months as cash when purchased with cash. c. Inventory 8 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 Inventory has been recorded at the lower of cost or market under the first-in-first-out method. Inventory components for B.G. Banking and FBEE as of May 31, 1999 were goods available for sale. d. Earnings per share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share ("Statement No. 128"). Statement No. 128 applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company such as common stock which may be issuable upon exercise of outstanding common stock options or the conversion of debt into shares of common stock. As of May 31, 1999, there were no dilutive securities. e. Revenue recognition Revenue is recognized when products are shipped or services are rendered. f. Customer Deposits Customer deposits represent monies advanced by customers at the time orders were placed. The amount of the deposit is used to reduce the customer's accounts receivable balance at the time of shipment of the order. At May 31, 1998 and 1999, there were $61,406 and $70,123, respectively, in advance deposits received from customers for orders to be filled. g. Federal Corporate Incomes Tax Receivable The balance of taxes receivable consists of amounts that were overpaid to the United States government with the Federal Income Tax return filed for August 31, 1997. This amount was received subsequent to May 31, 1999. h. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. i. Asset Impairment The Company adopted the provisions of SFAS No. 121, Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of effective January 1, 1996. SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the estimated undiscounted cash flows to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that full recoverability is questionable. There was no effect of such adoption on the Company's financial position or results of operations. 9 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 j. Significant Concentration of Credit Risk At May 31, 1999, the Company has reduced its credit risk by maintaining deposits in several banks. The maximum loss that could have resulted from this risk totaled $-0- which represents the excess of the deposit liabilities reported by the banks over the amounts that would have been covered by the federal insurance. k. Income taxes: The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. l. Recent Accounting Standards Accounting for Derivative Instruments and Hedging Activities Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) was issued in June 1998. It is effective for all fiscal years beginning after June 15, 1999. The new standard requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The Company does not currently engage in derivative trading or hedging activity. The Company will adopt SFAS 133 in the fiscal year ending December 31, 2000, although no impact on operating results or financial position is expected. Accounting for the Costs of Computer Software Developed or Obtained for Internal Use In March of 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met. SOP 98-1 is effective beginning January 1, 1999. The Company is currently assessing the impact that adoption of this statement will have on consolidated financial position and results of operations. NOTE 3 - ACQUISITION OF SUBSIDIARIES On May 3, 1998, the Company entered into an Agreement with B.G. Banking and FBEE, pursuant to which the Company and an affiliated entity controlled by Paul and Roberta Clark exchanged all the issued and outstanding shares of common stock of these entities for 11,282,250 shares of Maritime's common stock. The shares of common stock were released from escrow on May 31, 1998. The transaction has been accounted for as the issuance of shares of common stock by a private company for the net assets of Maritime, accompanied by a recapitalization. Accordingly, the financial statements of the registrant, Maritime, became the consolidated financial statements of B.G. Banking and FBEE. NOTE 4 - NOTES RECEIVABLE a. Loans receivable - nonaffiliates As of May 31, 1998 and 1999, the Company is due an aggregate of $40,699 and $30,490, respectively, from various parties as follows: 10 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 As of May 31, 1998 and 1999, a balance of $36,789 and $26,580 respectively due from Morgan Glass & Mirror ("Morgan") consisting of monies advanced to Morgan on January 1, 1997 with interest of 10.5% and payable on demand. This amount is collateralized by the underlying accounts receivable of Morgan. A balance of $3,910 from Mr. James Howel due on demand with interest of 10%. b. Loan receivable - shareholder As of May 31, 1998, Paul Clark was obligated to repay monies advanced to him by the Company. This amount is due without interest and on demand. Such amount was repaid to the Company in 1999. NOTE 5 - RELATED PARTY TRANSACTIONS a. Leased Office Space The Company has entered into a three-year lease with Paul Clark, President of the Company beginning August 1, 1998, for the lease of an aggregate of 23,976 square feet of office and warehouse space located at Building 1535 Memphis Junction Road, Bowling Green, Kentucky, 42101 for a monthly rent of $ 5,000 per month. Rent paid pursuant to this lease agreement for the year ended May 31, 1999 is $60,000. b. Officer Salaries Mr. Paul Clark, President of the Company received an aggregate salary of $129,600 consisting of cash payments of $33,600. Roberta Clark, Secretary to the Company received a salary of $21,600 plus vacation and health benefits. No other officer has received a salary in excess of $100,000. 11 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 c. Officer Loan Payable - Purchase of Inventory from Paul Clark In May 1999, the Company purchased inventory that was personally owned by Paul Clark aggregating $295,067. This purchase price represents the cost price paid by Paul Clark for the inventory. Monies owed to the Company by Mr. Clark aggregating $83,294 and offsetting various non-performing loans receivable by two entities aggregating $37,246 offset the purchase price owed to Mr. Clark. The balance due Mr. Clark as an Officer Loan Payable at May 31, 1999 is $174,527. NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at: May 31, May 31, 1998 1999 ---- ---- Equipment and tools $ 90,492 $116,443 Vehicles and trucks 165,569 165,569 Furniture and fixtures 33,563 33,563 Leasehold improvements 13,745 18,822 -------- -------- Total 303,369 334,397 Less accumulated depreciation 259,326 298,695 and amortization -------- -------- Property and equipment, net $ 44,043 $ 35,702 ======== ======== NOTE 7 - BANK LOANS PAYABLE a. Loans Due South Central Bank of Bowling Green, Inc. Total amount due banks for vehicle loans at May 31, 1999 $ 15,542 Less current portion due 7,268 -------- Long term amount due $ 8,274 ======== Total amount due banks for vehicle loans at May 31, 1998 $123,193 Less current portion due 109,338 -------- Long term amount due $ 13,855 ======== Bank loans aggregating $15,542 at May 31, 1999 are as follows: FBEE is obligated to repay a loan payable to the South Central Bank of Bowling Green, Inc. in the principal amount of $8,052 in 36 equal monthly installments of $263.54 beginning January 16, 1998 with interest at 11%. The balance due at May 31, 1998 and 1999 is $7,076 and $4,570, respectively. The loan is secured by a 1992 Ford truck. 12 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 FBEE is obligated to repay a loan payable to the South Central Bank of Bowling Green, Inc. in the principal amount of $14,052 in 40 equal monthly installments of $342.66 beginning June 20, 1998 with interest at 7.75%. The balance due at May 31, 1999 and 1998 is $10,972 and $14,052 respectively. The loan is secured by a 1995 Buick Park Avenue. FBEE is obligated to repay a loan payable to the South Central Bank of Bowling Green, Inc. having the principal loan balance amount of $1,564 at May 31, 1998 with monthly installments of $343. The loan is secured by a Ford F250 truck. b. First American National Bank FBEE has a $150,000 line of credit with the First American National Bank with interest at prime plus 2%. As of May 31, 1998 and 1999, FBEE is obligated to repay a balance of $100,500 and $-0- respectively. Interest is billed monthly. The line of credit is secured personally by the residence of Paul and Roberta Clark. NOTE 8 - INCOME TAXES As of May 31, 1998 and 1999, the Company had no material current tax liability, deferred tax assets, or liabilities to impact on the Company's financial position because the deferred tax asset related to the Company's net operating loss carry forward and was fully offset by a valuation allowance. At May 31, 1999, the Company has net operating loss carry forwards for income tax purposes of $196,892. These carryforward losses are available to offset future taxable income, if any, and expire in the year 2010. The Company's utilization of this carryforward against future taxable income may become subject to an annual limitation due to a cumulative change in ownership of the Company of more than 50 percent. Federal corporate income taxes receivable of $8,925 at May 31, 1999 and 1998 was collected subsequent to May 31, 1999. The components of the net deferred tax asset as of May 31, 1999 are as follows: Net operating loss carry forward $ 66,943 Valuation allowance (66,943) -------- Net deferred tax asset $ -- ======== The Company recognized no income tax benefit for the loss generated for the years ended May 31, 1998 and 1999. NOTE 9 - COMMITMENTS AND CONTINGENCIES a. Private Placement - B.G. Banking 13 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 Prior to Maritime's reverse acquisition of B.G. Banking and FBEE, B.G. Banking offered and received subscriptions for 126,500 shares of its common stock at $1.00 per share. Subsequent to the date of the Company's acquisition, the purchasers of shares of common stock were offered and received shares of common stock in the Company at a ratio of 1 share of B.G. Banking to 1.5 shares of the Company's common stock. The Company has issued 189,750 shares of common stock in satisfaction of the subscription agreements at a value of $0.67 per share. Two of the Company's directors, Andrew Seim and Alexander Brosda, acting and individually and acting as principals of Taurus Investments International, Inc. (a Bermuda corporation) (together "Taurus"), acting as Directors of B.G. Banking prior to its acquisition by the Company and subsequent to the acquisition becoming Directors of the Company, offered and sold on behalf of B.G. Banking what Taurus has admitted to being an aggregate of 304,500 shares of common stock of B.G. Banking for an aggregate consideration of $304,500. Taurus has remitted to B.G. Banking and the Company net proceeds of $109,673 (of which $86,391 was received in 1998 and $23,282 was received in 1999) and claims the difference of $194,826 be retained by Taurus as payment for expenses and commissions. Taurus has refused to disclose the names and numbers of shares of common stock and refused to remit to the Company the proceeds of the shares sold. The Company intends to enter into a lawsuit with Taurus demanding the balance of $194,826 that was improperly withheld be remitted to the Company and that Taurus disclose the names of the persons and the number of shares of common stock sold to these individuals. As of May 31, 1999, Taurus has failed to turn over the balance of money, provide the names of the stock subscribers and the number of shares of common purchased. Based upon the accounting provided by Taurus to the Company, the Company may be liable for the issuance of up to 329,500 shares of common stock if and when Taurus substantiates their representation as to the number of shares of common stock sold and the aggregate consideration. This number of shares represents the number of shares admittedly sold by Taurus for which the purchasers have as yet remained unidentified. The Company may also be forced to defend itself against actions to be brought by unknown subscribers to shares of common stock of B.G. Banking whose purchase price has never been disclosed or delivered to the Company. The Company is aware of one alleged purchaser who claims to have delivered funds to Taurus and whose funds where apparently not turned over to the Company. In the opinion of management, the Company has no liability to such purchasers and intends to vigorously defend and such actions, if and when brought. Subsequent to the date of the financial statements, the Company has received approximately $42,000 from Taurus relating to the purchase of shares by an unknown investor. The Company is holding this money in escrow pending disposition. As of May 31, 1999, the Company has reserved 329,500 shares of common stock pending possible issuance of shares in satisfaction of outstanding subscription agreements. b. Private Placement and Investor Loans Payable As of May 31, 1998 and 1999, Investor loans payable were $131,500 and $38,400 respectively. These amounts represent shares of common stock sold at $1.00 per share sold as of these dates, but remain undelivered by the Company. The Company offered 2,000,000 shares of common stock at $1.00 per share on a "best efforts basis." As of May 31, 1998, the Company had sold 131, 500 shares of common stock for an aggregate consideration of $131,500 for which delivery of the shares representing 93,100 shares or an aggregate of $93,100 was effectuated in the next fiscal year. 14 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 AND 1999 As of May 31, 1999, the Company sold an aggregate of 80,900 shares of common stock for an aggregate consideration of $80,900 of which 42,500 shares were issued as of May 31, 1999 and 38,400 shares were issued subsequent to the date of the financial statements. The $38,400 representing the sale of 38,400 shares of common stock has been reflected as Investor Loans Payable until such time as the shares of common stock have been issued. Subsequent to the date of the financial statements, the 38,400 shares of common stock were issued. The Company has reserved 1,957,500 shares of common stock pending the completion of the private placement. c. Consulting Agreement Al Sander On November 15, 1998, the Company entered into a consulting agreement with Mr. Al Sander to provide advisory services relating to certain financial, management and public relations matters for a period of six months. As compensation for these services, Mr. Sanders will receive the right to participate in the Company's Employee Stock Option Program and receive the right to purchase 90,000 shares of common stock at a price of $0.01 per share 50,000 shares of common stock were issued and registered on January 21, 1999 on Form S-8. The Company recognized a charge to operations of $100,000 or $2.00 per share as the value of the services rendered. d. Consulting Agreement with Comprehensive Capital On December 15, 1998, the Company entered into a consulting agreement with Irving Fisher of Comprehensive Capital to provide advisory services relating to certain financial, management and public relations matters for a period of six months. As compensation for these services, Mr. Sanders will receive the right to participate in the Company's Employee Stock Option Program and receive the right to purchase 10,000 shares of common stock at a price of $0.01 per share. These shares will be deemed earned when issued and received by Mr. Sanders. The agreement was subsequently amended to award Mr. Sanders 50,000 shares as compensation for the services rendered. On January 21, 1999, 50,000 shares of common stock were issued and registered on Form S-8. The Company recognized a charge to operations of $100,000, or $2.00 per share as the value of the services rendered. NOTE 10 - BUSINESS AND CREDIT CONCENTRATIONS The amount reported in the financial statements for cash and trade accounts receivable approximates fair market value. Financial instruments that potentially subject the company to credit risk consist principally of trade receivables. Collateral is generally not required. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE MATTERS DISCUSSED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED "BUSINESS" AND "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. THE COMPANY DISCLAIMS, ANY INTENT OR OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS. OVERVIEW Maritime Transport & Technology, Inc. ("Maritime") was established in 1968. Maritime remained dormant for many years until it entered into an Agreement with B.G. Banking Equipment, Inc. ("B.G. Banking") and Financial Building Equipment Exchange, Inc. ("FBEE"), Kentucky corporations,controlled by Paul and Roberta Clark, pursuant to which Maritime exchanged 11,282,250 shares of common stock for all the issued and outstanding shares of common stock of these entities. The aforementioned transaction has been accounted for as a reverse merger involving a shell company, effectively a recapitalization of B.G. Banking and FBEE (the operating companies/accounting acquirers). Accordingly, the historical financial statements of the operating companies are presented as the historical financial statements of the registrant. The results of operations of Maritime (legal acquirer) are included in the consolidated financial statements since May 31, 1998, the date of the merger. The Company (which consists of B.G. Banking, FBEE, and Maritime) is now in the business of buying, selling, trading and refurbishing of financial equipment for banks and other financial institutions. The Company markets the products throughout the United States primarily through direct sales to financial institutions and other distributors supported by the Company's direct sales force and soliciting new contacts through its presence on the Internet. The Company anticipates that its results of operations may fluctuate in the foreseeable future due to several factors, including whether and when new products at competitive prices are obtained and sources of good used banking and banking related equipment and furniture available at favorable prices; market acceptance of current or new products, delays, or inefficiencies, shipment problems, seasonal customer demand, the timing of significant orders, competitive pressures on average selling prices and changes in the mix of products sold. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, order cancellations or order rescheduling or remanufacturing or delays. The Company purchases and resells new merchandise and remanufactures and ships its other products shortly after receipt of orders and has not developed a significant backlog for such products and does not anticipate it will develop a material backlog for such products in the future. Because the Company is continuing to increase its operating expenses, primarily for personnel and activities supporting newly-introduced products, new product development and entering new markets, the Company's operating results would be adversely affected if its sales did not correspondingly increase or if its product development efforts are unsuccessful or are subject to delays. The Company has incurred losses due to the payment of consulting fees and the issuance of shares of common stock in consideration for consulting expenses charged to operations in lieu of the payment of cash. 16 The Company may not sustain revenue growth or return to profitability on a quarterly or annual basis and its operating results may not be consistent with predictions made by securities analysts. LITIGATION As of the date of these financial statements, the Company was not involved in any litigation. RESULTS OF OPERATIONS The following table sets forth operating data as a percentage of net sales: August 31, May 31, May 31, 1997 1998 1999 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 50.0% 43.6% 51.7% --------- --------- --------- Gross profit 50.0% 56.4% 48.3% --------- --------- --------- Operating expenses: Selling, general and administrative 43.3% 59.8% 36.5% Non cash payments for consulting services 0.0% 0.0% 10.3% Depreciation and amortization 2.4% 4.3% 2.4% --------- --------- --------- Total operating expenses 45.7% 64.1% 49.2% --------- --------- --------- Income (loss) from operations 4.3% (7.7)% (0.9)% Other expense, net 0.1% 0.4% 0.2% --------- --------- --------- Net income (loss) 4.2% (8.1)% (1.1)% ========= ========= ========= Results of operations for the nine months ended May 31, 1998 as compared to the year ended August 31, 1997. The fiscal year ended May 31, 1998 consisted of nine months resulting from B.G. Banking Equipment, Inc., and Financial Building Equipment Exchange, Inc., changing its fiscal year end from August 31 to May 31 to conform to the fiscal year end of the Company. For the nine months ended May 31, 1998, the Company generated net sales of $1,065,802 as compared to $1,401,301 for the year ended August 31, 1997 representing a decrease of $335,499. The Company's cost of goods sold for the nine months ended May 31, 1998 was $465,015 as compared to $700,494 for the year ended August 31, 1997. The Company's gross profit on sales was $600,787 for the nine months ended May 31, 1998 as compared to $700,807 for the year ended August 31, 1997. The decrease in sales is the direct result of the change in the fiscal year ends creating shortfall of 3 months in sales for the fiscal year end May 31, 1998. The ratio in gross profit was reduced from 50.0% for the year end August 31, 1997 as compared to a gross profit percentage of 56.4%. The reduction is a direct result of the product mix for the products sold being higher in refurbished equipment than new equipment sales. The cost of purchasing and refurbishing equipment for resale is significantly lower then the cost of purchasing new equipment. General and administrative costs for the nine months ended May 31, 1998 was $637,315 as compared to $606,916 for the year ended August 31, 1997 representing an increase of $30,399. These increased general and administrative costs were undertaken to create the infrastructure necessary to meet the Company's marketing and 17 production goals. As an outgrowth of increasing equipment sales the Company expects general and administrative costs to continue to increase but at a slower rate. As a percent of sales, this cost increased during the current year and is expected to continue it's increase with anticipated sales growth through the fiscal year. Results of operations for the year ended May 31, 1999 as compared to the nine months ended May 31, 1998. For the year ended May 31, 1999, the Company generated net sales of $1,933,737 as compared to $1,065,802 for the nine months ended May 31, 1998 representing a increase of $867,935. The Company's cost of goods sold for the year ended May 31, 1999 was $999,847 as compared to $465,015 for the nine months ended May 31, 1998. The Company's gross profit on sales was $933,890 for the year ended May 31, 1999 as compared to $600,787 for the nine months ended May 31, 1998. The increase in sales is the direct result of increase market penetration and having established an internet presence allowing customers to have direct on-line access to inventory availability and have access to images of the products they are interested in purchasing. Costs of good sold was slightly higher than then the costs of goods sold for the previous period as a result of a higher ratio of the sale of new equipment to used equipment sold for the period. Gross profit correspondingly decreased. The cost of purchasing and refurbishing equipment for resale is significantly lower than the cost of purchasing new equipment. General and administrative costs for the year ended May 31, 1999 was $705,638 as compared to $637,315 for the nine months ended May 31, 1998 representing an increase of $68,323. These increased general and administrative costs were undertaken to create the infrastructure necessary to meet the Company's marketing and production goals. As an outgrowth of increasing equipment sales the Company expects general and administrative costs to continue to increase but at a slower rate. As a percent of sales, this cost increased 10.7% during the current year and is expected to continue its increase with anticipated sales growth. General and administrative expenses were further increased with payments for financial consulting fees and legal fees associated with the sale of the Company's private placement BENEFIT (PROVISION) FOR INCOME TAXES As a result of the pre-tax loss recorded for 1999, the Company did not recorded a benefit for Federal income taxes. Instead the Company recognized no income tax benefit from the losses generated in the year ended May 31, 1999. SFAS No. 109 requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company's ability to realize benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize significant revenue from the sale of its products, the Company believes that a full valuation allowance should be provided. The Company will continue to assess the likelihood of realization of such assets; however, if future events occur which make the realization of such assets more likely than not, the Company will record a tax benefit. The Company is liable for the payment of a Corporate Kentucky State on tangible assets. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through revenues from operations, private and public placements of equity securities, debt and capital lease financing and interest income earned on net proceeds from the private placements. Since its reorganization, the Company has raised over $169,000 in cash proceeds from the private placement of equity securities and $174,527 from officer loans. The Company also has a $150,000 line of credit with a bank with interest at prime plus 2.0%, guaranteed by certain stockholders. No amounts were outstanding under this line at May 31, 1999. During the year ended May 31, 1999, $52,951 was provided by operating activities, principally due to an increase in inventory and accounts receivable, offset by non cash expenses. Financing activities provided $62,137 consisting of offsetting changes in borrowings and the sale of common stock. Investing activities used $68,516 of cash, consisting principally of purchases of fixed assets and advances to non-affiliates. 18 The Company is evaluating various alternatives in addressing its future facilities expansion needs. The alternatives being evaluated include negotiations with various parties for the leasing of additional facility space and the purchase of additional property to build a new or additional office and warehousing facility. Relocation to a new facility or leasing of additional facility space would be expected to result in an increase in rent upon occupancy. The Company believes that its available cash, cash from operations and funds from existing credit arrangements will be sufficient to satisfy its funding needs for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's working capital and capital expenditure requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such additional capital, if needed, will be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. The Company's future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company's new products and products under consideration are successfully developed, gain market acceptance and become and remain competitive, the timing and results of regulatory actions in the banking industry, the costs and timing of further expansion of sales, marketing and manufacturing activities, facilities expansion needs. The failure by the Company to raise capital on acceptable terms when needed could have a material adverse effect on the Company's business, financial condition and results of operations. IMPACT OF YEAR 2000 ("Y2K") ISSUE The Company is implementing a plan to ensure its system, software and facilities infrastructure will function properly with respect to dates in the year 2000 and thereafter. Key financial, information and operational systems have been assessed and approximately 90% of them have been verified as being compliant. The Company is on schedule to have all remaining systems verified as compliant by November 30, 1999. All key suppliers, distributors, financial institutions and others with whom it does business have been contacted by the Company to assess their Y2K readiness, and approximately 60% have stated that they are compliant or will be compliant before December 31, 1999. The Company is continuing to communicate with key suppliers, distributors, financial institutions and others and believes that their readiness will not pose significant operational problems for the Company, nor have a material adverse effect on the Company's business. To date the Company has expended less than $5,000 addressing the Y2K Issue and estimates the total cost of the project and contingency plans, if necessary, to be under $10,000. The Company anticipates that the Company will be in compliance with Y2K requirements by the end of December 15, 1999. However, if such modifications and conversions are not made or are not completed in a timely fashion, the Y2K Issue could have a material adverse impact on the operations of the Company. Additionally, the systems of other companies on which the Company's systems rely may not be timely converted, which may have an adverse effect on the Company's systems. The most likely worst case scenario is that customers would be unable to order products or pay invoices or suppliers would be unable to manufacture or deliver product. This would result in reduced orders of products and the inability of the Company to manufacture product. The Company currently does not have contingency plans in the event it does not complete all phases of the Y2K program. However, management is considering contingency plans which involve, among other actions, manual workarounds, increasing inventories of key components to the refurbishing process and validating alternate vendors. The Company plans to evaluate the status of the contingency plans by October 1999 and determine whether such plans are necessary. This schedule contains summary financial information extracted from financial statements for the twelve month period ended May 31, 1999 and is qualified in its entirety by reference to such financial statements. 19 MARITIME TRANSPORT & TECHNOLOGY, INC. UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited proforma condensed consolidated statement of operations presents the acquisition of all outstanding shares of B.G. Banking and Equipment, Inc. (B.G. Banking) and Financial Building Equipment Exchange, Inc. (FBEE) by Maritime Transport & Technology, Inc. (Maritime) in exchange for 11,282,250 shares of Maritime. The transaction has been reflected as a reverse acquisition of Maritime, a shell company, effectively a recapitalization of B.G. Banking and FBEE (the operating companies/accounting acquirers). An unaudited proforma condensed consolidated balance sheet is not presented herein as the consolidated balance sheet as of May 31, 1998 includes the accounts of the accounting acquirers and Maritime. The unaudited proforma condensed consolidated statement of operations gives effect to the acquisition as if it occurred on August 1, 1997. The information shown is based on numerous assumptions and estimates and is not necessarily indicative of the results of future operations of the combined entities or the actual results that would have occurred had the transactions occurred on August 1, 1997. The accompanying unaudited proforma condensed consolidated statement of operations should be read in conjunction with the consolidated financial statements of the registrant included in the 1998 and 1999 Forms 10-K. 20 MARITIME TRANSPORT & TECHNOLOGY, INC. UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 1998 Maritime Financial Consolidated Transport & B.G. Banking Building Maritime Technology Equipment Equipment Transport & Inc. Inc. Exchange Inc. Adjustments Technology Revenue $-0- $869,482 $196,320 $1,065,802 Costs of goods sold -0- 393,008 72,007 465,015 -------- -------- ---------- Gross profit -0- 476,474 124,313 600,787 Operations: General and administrative 53 474,922 162,393 (53) 637,315 Depreciation and amortization -0- 24,983 20,955 45,938 ---- -------- -------- ---------- Total expense 53 499,905 183,348 (53) 683,253 Profit (loss) from operations before corporate (53) (3,431) (59,035) (82,466) income taxes Corporate income taxes Other income and expenses Interest income 2,244 402 2,646 Interest expenses (6,922) (6,922) -------- ---------- Total other income 2,244 (6,520) $(4,276) Net income (loss) $(53) $(21,187) $(65,555) $53 $(86,742) ==== ======== ======== === ========== Net income (loss) per share - basic $(.01) ===== Number of shares outstanding - basic 15,130,705 ========== See accompanying notes to financial statements. F1 21 MARITIME TRANSPORT & TECHNOLOGY, INC. NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998 NOTE 1 -- GENERAL On May 3, 1998, the Company entered into an Agreement with B.G. Banking and FBEE, pursuant to which the Company and an affiliated entity controlled by Paul and Roberta Clark exchanged all the issued and outstanding shares of common stock of these entities for 11,282,250 shares of Maritime's common stock. The shares of common stock were released from escrow on May 31, 1998. The accompanying unaudited proforma condensed consolidated statement of operations presents the acquisition of all outstanding shares of B.G. Banking Equipment, Inc. (B.G. Banking) and Financial Building Equipment Exchange, Inc. (FBEE) by Maritime Transport & Technology, Inc. (Maritime) in exchange for 11,282,250 shares of Maritime. The transaction has been reflected as a reverse acquisition of Maritime, a shell company, effectively a recapitalization of B.G. Banking and FBEE (the operating companies/accounting acquirers). 22 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Maritime Transport & Technology, Inc. (Registrant) By: /s/ Paul Clark --------------------- Paul Clark, President Dated: December 7, 2000