1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
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: 000-25003
REVENGE MARINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3051776
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2051 NW 11TH STREET
MIAMI, FLORIDA 33125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(305) 643-0334
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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) has been subject to such
requirements for the past 90 days.
YES / / NO /x/
The number of issued and outstanding shares of the Registrant's Common
Stock, $0.001 par value, as of December 31, 1998 was 7,424,010.
===============================================================================
2
REVENGE MARINE, INC.
PART I-FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements:
Condensed Balance Sheets at June 30, 1998 and December 31, 1998............................3
Condensed Statements of Operations for the three month period
ended December 31, 1998 and for the six month period ended December 31, 1998...............4
Condensed Statements of Cash Flows for the six month period ended
December 31, 1998 and for the year ending June 30, 1998....................................5
Notes to Unaudited Condensed Financial Statements..........................................6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................11-13
PART II-OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................14
Item 2. Changes in Securities......................................................................14
Item 3. Defaults Upon Senior Securities............................................................14
Item 4. Submission of Matters to a Vote of Security Holders........................................14
Item 5. Other Information..........................................................................14
Item 6. Exhibits and Reports on Form 8-K...........................................................15
Signatures..........................................................................................16
-2-
3
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVENGE MARINE, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
ASSETS
SIX MONTHS ENDED DECEMBER 31, 1998 YEAR ENDED JUNE 30, 1998
ASSETS
Current Assets
Cash $ 89,116 $ 102,793
Accounts Receivable 461,095
Inventories 406,798
Work in Progress 2,322,653 60,500
Prepaid Expenses 32,320 176,608
Total Current Assets 3,311,982 339,901
Fixed Assets
Equipment 376,610 85,000
Leasehold Improvements 389,127
Automobiles 45,098 45,493
Office Equipment 94,575 5,429
Molds and Prototypes (Note 3) 1,131,618 242,523
Less Accumulated Depreciation (278,707) (139,025)
Total Fixed Assets 1,758,321 239,420
Other Assets
Investment in Subsidiaries 2,356,971 2,356,971
In Excess of Book Value
Intangible Assets (Notes 4a &4b) 52,000 9,512
Loan Fees (Note 5) 266,615
Deposit 50,000
Less Accumulated Amortization (38,036)
Total Other Assets 2,637,550 2,416,483
Total Assets 7,707,853 2,995,804
LIABILITIES AND STOCKHOLDERS EQUITIES
Current Liabilities
Accounts Payable 694,407 28,916
Progress Payments 1,448,217 0
Accounts Payable--Related Parties 0 50,786
(Notes 6a & 6b)
Accrued Liabilities 73,935 9,283
Customer Deposits 0 64,500
Notes Payable 0 66,252
Notes Payable--related parties 317,680 94,742
Short term portion of long term 700,000 0
debt
Total Current Liabilities 3,234,239 314,479
Long Term Debt
Notes Payable--3 Year Secured Note 2,100,000 0
(Note 7)
Other Notes Payable (Note 8) 101,418 0
Less Current Portion (700,000) 0
Total Long Term Debt 1,501,418 0
Shareholders Equity
Common Stock $0.001 par value 7,424 6,676
50,000,000 authorized
7,424,010 issued and
outstanding
Subscriptions Receivable 0 (100,000)
Additional Paid in Capital 2,832,895 3,093,581
Retained Earning (deficit) (86,208) 0
Profit (Loss) for Period 218,085 (318,932)
Total Shareholder Equity 2,972,196 2,681,325
Total Liability and Shareholder Equity 7,707,853 2,995,804
See accompanying notes.
-3-
4
REVENGE MARINE, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
QUARTER ENDED DECEMBER 31, 1998 SIX MONTHS ENDED DECEMBER 31, 1998
Sales 945,677 2,073,677
Cost of Sales 127,798 (487,202)
Gross Profit 1,073,475 1,586,475
Selling and Administrative (385,378) (748,097)
Expenses
Operating Expenses (308,788) (559,837)
Other Income and Expenses (45,759) (60,377)
Net Income/(Loss) 333,551 218,164
Basic E.P.S. (Note 2) 0.04 0.03
Diluted E.P.S. (Note 2) 0.04 0.03
See accompanying notes.
-4-
5
REVENGE MARINE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED DECEMBER 31, 1998 YEAR ENDED JUNE 30, 1998
Cash Flows From Operating Activities
Cash Received from Customers 1,612,582 101,785
Interest Received 0 15
Cash Paid for Goods and Services 1,418,088 (399,084)
Net Cash Used by Operating
Activities (194,494) (297,284)
Cash Flows From Investing Activities
Cash Acquired from Acquisition of
Subsidiaries 0 56,216
Plant and Equipment Purchase (1,890,005) (128,624)
Net Cash Used by Investing (1,890,005) (72,408)
Activities
Cash Flows From Financing Activities
Issuance of Common Stock 0 353,500
Proceeds from Short-Term Debt 0 147,742
Repayment of Short-Term Debt 0 (957)
Stock Issuance Costs Incurred 0 (27,800)
Loans/Notes 2,098,166 0
Net Cash Provided by Financing
Activities 2,098,166 472,485
Net Increase in Cash (13,667) 102,793
Cash at Beginning of Period 102,793 0
Cash at End of Period 89,116 102,793
See accompanying notes.
-5-
6
REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. BASIS OF PRESENTATION
These unaudited condensed financial statements and the related footnote
information have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the accompanying unaudited interim condensed financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the periods presented.
The results for the interim period ended December 31, 1998 are not necessarily
indicative of results to be expected for the entire year ending June 30, 1999
or future operating periods.
NOTE 2. NET LOSS PER SHARE
During December, 1998, Revenge adopted Statement of Financial Accounting
Standard No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS 128 requires a dual
presentation of basic and diluted EPS. Basic EPS for the period presented is
computed by dividing net earnings by the weighted average of common shares
outstanding, see below. Diluted EPS for the period is the same as basic EPS
since all other potential dilutive securities (including warrants to purchase
common stock and options to purchase common stock) are excluded as they are
antidilutive. Pursuant to SFAS 128, Revenge has elected not to compute weighted
average shares via a daily calculation of the number of outstanding shares
averaged over the period, but rather to divide net earnings by the total number
of common shares outstanding (excluding antidilutive securities as listed
above) at the end of the period. The total number of outstanding common shares
at the end of the period was 7,424,010. The use of the total number of shares
at the end of the period will tend to understate earnings per share relative to
the same calculation made with the weighed average of common shares outstanding
over the same period. The audited financial statements for Revenge for the
Fiscal Year ending June 30, 1998, compute fully diluted EPS using the treasury
stock method. On December 15, 1998, the Board of Directors of Revenge
authorized and granted 2.8 million options to employees, officers, directors
and consultants pursuant to the adoption of a Stock Option Plan. These options
have not yet been issued by Revenge to the optionees. Diluted EPS as calculated
for the period presented did not include these options, as they were
antidilutive.
NOTE 3. MOLDS AND PROTOTYPES
October 24, 1998, Revenge acquired Blackfin Yachts at a purchase price of
$1,000,000. The purchase was debited to molds and prototypes at cash price.
NOTE 4. INTANGIBLE ASSETS
a) A security deposit of $35,000 on the Lease Option Property was paid to
Miami River Partners for the manufacturing facility.
b) A security deposit of $17,000 on the Leased Property was paid to
Derecktor Gunnell for the Dania facility.
NOTE 5. LOAN FEES
Loan fees attributable to the expenses connected to the acquisition of
Blackfin Yachts payable to Finova Capital Corporation and further described in
Revenge's report to the Securities and Exchange Commission on Form 10, filed on
October 28, 1998.
-6-
7
REVENGE MARINE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS-(Continued)
NOTE 6. NOTES PAYABLE--RELATED PARTIES
a) $39,626.38 due to Director Scott Flanders to be paid at an unspecified
future date.
b) $22,000.00 due to Allied Capital Corporation, an affiliate of Director
William C. Robinson.
c) $256,053.54 due to Director James Gardiner as a result of cash purchase
of inventory, WIP and tools in the acquisition of Consolidated Yacht
Corporation assets as further described in Revenge's report to the Securities
and Exchange Commission on Form 10, filed on October 28, 1998.
NOTE 7. NOTES PAYABLE
Loan from FINOVA Capital Corporation to acquire the assets of Blackfin
Yacht Corporation as further described in Revenge's report to the Securities
and Exchange Commission on Form 10, filed on October 28, 1998: $2,100,000 with
three year term. Current portion to be amortized $700,000.
NOTE 8. OTHER NOTES PAYABLE
a) Line of Credit--Barnett Bank: $45,666.
b) Ford Motor Credit: $361.89.
c) Chrysler Credit Corp.: $3,032.07.
d) Egret Line of Credit to tool 29' mold: $52,356.77.
-7-
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
INTERIM CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED IN
PART 1- ITEM 1 OF THIS QUARTERLY REPORT AND REVENGE'S AUDITED CONSOLIDATED
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM
10 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998.
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Predictions of future events are
inherently uncertain. Actual events could differ materially from those
predicted in the forward looking statements due to a number of factors
including but not limited to the risks set forth in the following discussion.
Readers are also encouraged to refer to the Company's Registration Statement on
Form 10 (File No. 000-25003), filed with the Securities and Exchange Commission
on October 28, 1998 for a further discussion of the Company's business and the
risks attendant thereto.
OVERVIEW
Revenge was originally founded in 1979 and, after undergoing several name
changes and a long period of inactivity, it commenced operations again on
September 5, 1997. In January, 1998, Revenge restated its purpose as engaging
in acquisition and consolidation in the yachting and marine industries.
Revenge's primary focus is on the manufacture, sales, service and repair of
vessels ranging from 16 to 85 feet. Revenge has funded its activities primarily
through a combination of operating revenues, debt and through the private
placement of equity securities. Revenge's revenue from inception of present
operations on September 5, 1997 until the period ended December 31, 1998 has
been primarily generated from refurbishing, refitting and repair of vessels and
from sales of its Egret flats boats of less than 35 feet in length. Revenge's
current focus is on developing an improved capacity to efficiently repair and
refurbish vessels in its new Miami facility, to utilize a system of estimating
and bidding on such work such that profit margins are increased, fully
integrating and streamlining production in its Miami facility and ramping up
for production of motor yachts in its Miami facility. The Company acquired the
assets of Blackfin Yacht Corporation in a transaction which occurred in
October, 1998 and which is described on the Company's Registration Statement on
Form 10. Management believes that the production and sale of the Blackfin
product will significantly improve revenue growth, profitability and cash flow
during the third and fourth quarters of the current fiscal year. Revenge had
sold one Blackfin product as of December 31, 1998.
Revenge has incurred net losses and experienced negative cash flow from
operations since inception through the end of the fiscal year ending June 30,
1998. During the first six months of the fiscal year beginning July 1, 1998,
Revenge realized a net income of $218,164, with net income for the three month
period ending December 31, 1998 of $333,551. Due to the historical practice of
accounting for the costs of repair and manufacturing when incurred and revenues
therefrom when received, a portion of the net income for the three month period
ending December 31, 1998 was attributable to expenses incurred during the first
three months of the fiscal year. Management believes that the trend toward
increasing profitability will continue and that the Company will realize a net
profit during the third and fourth quarters of 1998, depending on how quickly
and efficiently production of Blackfin products and the manufacture of planned
megayachts goes forward. However, the Company's ability to maintain
profitability and achieve positive cash flow from operations is dependent upon
the Company's ability to substantially grow its revenue base and achieve other
operating efficiencies. The Company experienced net losses of approximately
$318,932 in the fiscal year ending June 30, 1998. There can be no assurance
that the Company will be able to achieve or sustain revenue growth,
profitability or positive cash flow on either a quarterly or an annual basis.
Revenge experienced severe liquidity problems during the three month
period ending December 31, 1998. Management believes this liquidity problem was
caused by a lack of available working capital and an unanticipated delay in the
funding of its work-in-progress line of credit with Penske Financial Services.
Management believes that the work-in-progress line of credit will be funded by
Penske Financial Services in the third quarter of the current fiscal year and
that such funding will significantly aid Revenge in funding its Blackfin
vessels in construction. Management also anticipates that increased revenues
from the Blackfin product, increased sales of the Egret line of 16 to 29 foot
flats fishing boats, and revenues from service and repair will enhance the
availability of working capital and substantially resolve the liquidity
problems. Management has engaged in extensive cost-cutting measures during the
three month period ending December 31, 1998, including a 20% management salary
reduction, in an effort to improve revenues and lower costs. Management
believes that the net income for the three month period ending December 31,
1998 of $333,551 was significantly enhanced by these cost-cutting measures.
Management intends to continue aggressive cost-cutting measures to reduce
operating expenses during the remainder of the current fiscal year.
-8-
9
Management believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance.
Revenge may experience significant period-to-period fluctuations in operating
results depending upon factors such as the success of the Revenge's efforts to
expand production in its Miami facility, lower costs, lease space and dockage
in its Miami facility and retain and expand its customer base and third party
partnership and dealer base, changes in pricing and mix of products and
services offered by Revenge or its competitors, market acceptance of new
products or the Blackfin products offered by Revenge and changes in, and the
timing of, expenses relating to development and sales and marketing. Other
factors that may contribute to variability of operating results include the
timely deployment and implementation of expansion of the Revenge Marine, Inc.
dealer network or internal direct marketing capability, changes in demand for
marine products and services, the cyclical nature of marine expenditures and
the overall health of the regional and international economy. Additionally,
management believes that significant reductions in expense levels relative to
revenue are achievable in the short term and are based, in part, upon
Revenge's estimates of growth of its business and the implementation of
across-the-board cost-cutting measures and increased internal cost controls.
Results of Operations
REVENUE. Revenue totaled approximately $945,677 for the three months ended
December 31, 1998 and $2,073,677 for the six months ended December 31, 1998.
Revenue for the fiscal year ending June 30, 1998 was $142,286. This increased
revenue reflects growth in revenue from Revenge's increased capacity due to the
Miami facility and increased sales of its Egret product. Management expects
revenues to increase sharply during the remainder of the fiscal year ending on
June 30, 1999 as Blackfin products are sold, servicing work in the Miami
facility expands and facility revenues are developed. The foregoing expectation
is a forward looking statement that involves risks and uncertainties and the
actual results could vary materially as a result of a number of factors.
COST OF REVENUE. Cost of revenue consists primarily of labor and material
costs to manufacture new boats, as well as labor and material costs incurred
when Revenge does refurbishing and service projects. Revenge has incurred
significant capital improvement costs in preparing the Miami facility for
production, but expects to recoup certain of these costs in the form of
increased production efficiencies. Management believes that there is
significant room for reducing the relative cost of service and repair revenue
through improved estimation and supervision practices. In addition, because
relative costs of revenue are lower in larger motor yachts, the planned sales
of Blackfin could have a huge positive impact in lowering relative revenue
costs. The foregoing expectation is a forward looking statement that involves
risks and uncertainties and the actual results could vary materially as a
result of a number of factors.
MARKETING, SALES AND ADMINISTRATION. Marketing, sales and administration
expense consists primarily of personnel expenses, accounting, legal expenses
and marketing development, promotion and sales activities, including salary and
commissions, costs of marketing programs and the cost of attending various boat
shows and trade shows. Marketing, sales and administration expense was
approximately $386,378 for the three months ended December 31, 1998 and
approximately $748,097 during the six month period ending December 31, 1998. No
historical data is available for the corresponding period of the fiscal year
ending June 30, 1998, as operations had not yet commenced. This expenditure
reflects a substantial investment in the customer support, marketing and sales
organizations necessary to support the Company's expanded customer base. The
Company expects marketing, sales and administration expenditures to continue to
increase in dollar amount, but to decline as a percentage of revenue.
Specifically, the administrative infrastructure of Revenge is designed to
anticipate future Blackfin sales that have not yet occurred. As these sales
occur, administrative expenses will not increase substantially and will decline
as a percentage of revenue. Revenge has also incurred significant
administrative costs in fulfilling its regulatory obligations as a public
entity. Revenge expects these expenses to remain constant and therefore decline
as a percentage of revenue. Together, therefore, management anticipates that
marketing, sales and administrative expenses will increase somewhat more
modestly than in the first six months of the current fiscal year, but decline
sharply as a percentage of revenue as sales of the Blackfin product increase.
The foregoing expectation is a forward looking statement that involves risks
and uncertainties and the actual results could vary materially as a result of a
number of factors.
-9-
10
NET PROFIT. Revenge's net profit rose to approximately $333,551 for the
quarter ended December 31, 1998 as compared to approximately $218,164 for the
first six months of the current fiscal year or a loss of $318,932 for the
fiscal year ending June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has satisfied its cash requirements primarily through
debt, the sale of capital stock and through operating revenues. The Company's
principal uses of cash are to fund working capital requirements and capital
expenditures and to service its vendor, payroll and professional expenses. Net
cash used in operating activities for the six months ended December 31, 1998 was
approximately $194,494. No historical data is available for the corresponding
period of the prior fiscal year, as operations had not yet commenced. Net cash
used in operating activities in the fiscal year ending June 30, 1998 was
$297,284. The amount of cash used in operating activities in both periods was
primarily impacted by the increased costs of consolidating operations in the
Miami facility and expenses associated with commencement of manufacturing of the
Blackfin product line. Additional cash expenditures were caused by increased
costs relating to the expansion of Revenge's manufacturing and organizational
infrastructure.
For the six months ended December 31, 1998 cash of approximately $2,358,104
was generated from financing activities. Included in this amount was $2,358,104
of debt financing received in October, 1998. In the fiscal year ending June 30,
1998, cash of $ 472,485 was generated by the sale of Revenge's Common Stock and
debentures in various private placements. The net cash DECREASE for the six
month period ended December 31, 1998 was $13,677. At December 31, 1998, the
Company had cash and cash equivalents of approximately $89,116.
The Company will rely primarily on financing its operations through
various equity offerings, borrowings, manufacturer credit lines, vendor credit
lines, cash generated from operations and cash provided by customers who make
deposits and progress payments on the purchase of Blackfin products. The
Company believes that such financing will be sufficient to meet its anticipated
cash needs for working capital and for the acquisition of capital equipment at
least for the next 2 months. However, there can be no assurance that the
Company will not require additional financing within this time frame.
Currently, management has serious concerns about Revenge's ability to continue
operations without a significant influx of working capital and a dramatic
increase in sales of the Blackfin product. The Company's forecast of the period
of time through which its financial resources will be adequate to support its
operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. The Company may be required to
raise additional funds through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms attractive to the
Company, or at all.
ADDITIONAL FACTORS THAT COULD AFFECT OPERATING RESULTS
The following factors, together with other risk factors discussed in the
"Overview" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations and other information contained elsewhere
herein, should be considered carefully in evaluating the Company and its
business.
NARROW GROSS MARGINS FOR PRODUCT SALES. Approximately 10% of the
Company's net revenues in fiscal 1998 were generated through service,
refurbishing and repair. As a result of intense price competition, the
Company's product gross margins on smaller boats will continue to be fairly
low, projected to be approximately 18% in fiscal 1999. The Company believes
that competitive conditions will continue to place pressures on its product
gross margins. As a result of the Company's narrow product gross margins,
fluctuations in net revenues and operating costs may have a disproportionate
impact on the Company's operating results. Further declines in the Company's
product gross margins may have a material adverse effect on the Company's
business, financial condition and operating results.
-10-
11
DEPENDENCE ON MIAMI FACILITY
Disruption of operations at Revenge's Miami facility for any reason,
including power or telecommunications failures, natural disasters such as
hurricanes, fires, tornadoes or floods, or work stoppages, would have a
material adverse effect on the Company's business, operating results and
financial condition.
INCREASED EMPHASIS ON SALES OF BLACKFIN PRODUCTS. Revenge's Blackfin
product sales and service and repair revenues are characterized by higher gross
margins than those attainable in small product sales, such as the Egret line.
As a result, the Company's goal is to increase the proportion of revenues
derived from the provision of services, Blackfin products, parts and large
yacht sales relative to small product sales. Revenge's success in increasing
its service revenues will depend primarily on the acceptance by the relatively
small group of large yacht owners and purchasers of the Revenge brand,
identity, product and reputation. To the extent that Revenge does not
successfully increase the proportion of revenues attributable to its large
yacht and service/repair business, the Company's operating margins may be
adversely affected. The Company has also recently implemented a more
sophisticated cost-based methodology for pricing its services. If service
revenues do not increase sufficiently or the Company fails to accurately price
its services, the Company's business, operating results and financial condition
would be materially and adversely affected. In addition, customer acceptance
and strong sales of Blackfin products and the ability to find an efficient
retail mechanism or dealer network for Blackfin sales will have a substantial
impact on revenues.
NEED TO RECRUIT AND RETAIN MANAGEMENT, TECHNICAL AND SALES PERSONNEL.
The Company believes that its future success depends, to a large extent, upon
the efforts and abilities of its executive officers, managers, technical and
sales personnel. Failure by the Company to attract and train skilled managers,
technical and sales personnel on a timely basis, or the inability of the
Company to retain such personnel, could materially and adversely affect the
Company's business, operating results or financial condition.
MANAGEMENT OF GROWTH. The Company has experienced enormous growth
since its entry into the marine industry and its extensive acquisitions. This
rapid growth has placed, and is expected to continue to place, a significant
strain on the Company's management, financial, sales, technical and support
systems and personnel. Revenge's ability to manage its growth effectively will
require it to continue to develop and improve its operational, financial and
other internal systems and train, manage and motivate its employees. The
Company has in the past and will continue in the future to evaluate the
acquisition of businesses that complement or expand the Company's presence and
profitability in the marine industry. Integrating newly acquired companies
could be costly and may result in the loss of customers and key personnel and
may disrupt operations. Additionally, integrating newly acquired businesses may
divert significant management resources and attention from day to day
operations. Historically, Revenge has spent considerable amounts of its human
and managerial capital on the integration of acquisitions and streamlining of
operations, a process that is far from complete.
-11-
12
INTENSE COMPETITION. The marine product and services industry is
intensely competitive. Revenge expects competition to intensify in the future.
As an integrated product and service provider, Revenge competes with sellers of
used motor boats and yachts, manufacturers of new products, and existing
service providers. Management is not aware of any company which would compete
directly in every phase of the Company's operations. Instead, Revenge faces
competition from a number of different sources and on different levels. Viking,
Travis Boats, Brunswick, and Cabo all compete with Revenge in boat products. In
addition to these large national companies, Revenge also competes against
numerous regional and local companies in the service, refurbishing and dockage
areas and many of these competitors have longstanding customer relationships.
For the smaller, less expensive boats, there is intense competition both from
other boat builders of similar size as well as from alternative craft that
might compete with flats boats and small yachts.
Some of the Company's competitors have greater financial, technical
and marketing resources. As a result, such companies may be able to respond
more quickly to new or emerging technologies and changes in customer needs or
devote more resources to the development, promotion and sales of their boats,
yachts or services than Revenge. In addition, competition could result in price
decreases and depress gross margins in the industry. Further declines in the
Company's gross margins may exacerbate the impact of fluctuating net revenues
and operating costs on the Company's operating results and have a material
adverse affect on the Company's business, operating results and financial
condition.
The principal competitive factors in the Company's industry include
the breadth and quality of product and service offerings, product availability,
pricing, and expertise of technical workforce, research and design innovations,
developments in marine architecture and the price of skilled labor in the local
market. Revenge believes that it competes favorably with respect to each of
these factors. However, there can be no assurance that Revenge will, in the
future, be able to compete successfully against existing or future competitors
or that such competition will not adversely affect Revenge's business,
operating results and financial condition.
WARRANTY RISKS. The Company has begun implementing and intends to
expand the use of quality and product consistency controls. Nevertheless,
Revenge incurs significant exposure with the introduction of new production
models. Revenge will in all likelihood be obligated to correct any design or
manufacturing imperfections for a long period and at great expense in order to
develop and maintain its reputation for quality, accountability and service. As
a result, the Company must accurately estimate the resources required to
provide service on any warranty or repair work it is forced to provide. Failure
by the Company to estimate accurately support expenses or warranty costs could
have a material adverse effect on the Company's business, operating results or
financial condition.
HIGH DEGREE OF LEVERAGE; FUTURE CAPITAL NEEDS. The Company requires
substantial capital to fund its business and, in particular, to finance product
development, mold retooling, acquisition integration, accounts payable,
capital expenditures, salaries and lease payments on its Miami and Dania
facilities. To date, the Company has relied on an influx of equity and debt to
finance its business and its expansion. As a result, the Company is highly
leveraged.
Substantially all of the Company's outstanding indebtedness is tied to
the prime rate. The Company is not currently a party to any financial
instruments which would mitigate the Company's exposure to increases in the
prime interest rate. Accordingly, increases in the prime rate could adversely
impact the Company's pretax income or otherwise materially and adversely affect
the Company's business, operating results or financial condition. Also, there
can be no assurance that the Company will be able to generate sufficient cash
from operations to satisfy future interest and principal payments. In the event
that the Company is unable to meet its payment obligations or needs additional
capital to fund its business, the Company would be required to seek alternative
sources of financing or attempt to refinance its existing credit facilities.
There can be no assurance that such alternative equity or debt funding would be
available on terms acceptable to the Company, if at all. Under such
circumstances, the Company's inability to procure additional funding or
refinance existing indebtedness would have a material adverse effect on the
Company's business, operating results and financial condition.
-12-
13
ENVIRONMENTAL AND REGULATORY RISKS. The marine manufacture and repair
industry is highly regulated. The Company operates under a number of federal,
state and local environmental protection, river protection and worker safety
regulations. The Company's manufacturing processes employ a number of highly
toxic, hazardous substances. A spill or accident involving any of these
chemicals would have a serious and material effect on the Company's operations
and ability to continue as a going concern and could result in civil or
criminal penalties on behalf of the Company, its employees, officers and
directors. While the Company has substantially all regulatory permits for its
business as presently conducted, there can be no assurance that such permits
will continue to be available. The loss of these regulatory permits could cause
the Company to fail.
CONTROL BY PRINCIPAL STOCKHOLDERS. The directors and executive officers
of the Company own a majority of the outstanding Common Stock in Revenge. In
particular, Desai Robinson and entities under her beneficial ownership or
control constitute the largest shareholder of the Company's Common Stock. Desai
Robinson is the wife of William C. Robinson, an officer and director. As a
result, Mrs. Robinson may be able to control the election of members of the
Company's Board of Directors and generally exercise control over the Company's
corporate actions. Such concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company.
YEAR 2000. Based on a review of its existing information systems,
Revenge does not anticipate that it will incur significant costs in connection
with bringing its information systems into compliance with Year 2000
requirements. Most of Revenge's software is non-customized third-party software.
However, there is no guarantee that Revenge will not experience disruptions in
its operations due to a failure of its vendors, key suppliers, lenders, utility
providers or dealers in addressing their individual Year 2000 compliance issues
effectively.
-13-
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Revenge is a party to that certain Loan and Security Agreement entered
into with FINOVA Capital Corporation ("FINOVA") dated October 23, 1998 and
filed as Exhibit 4.2 to Revenge's report on Form 10 filed with the Securities
and Exchange Commission ("SEC") on October 28, 1998. On January 12, 1999,
Revenge received a notice of default from FINOVA due to non-payment of
principal and interest due on January 1, 1999. Revenge is currently in
negotiations with FINOVA regarding changes to the payment terms under the Loan
and Security Agreement and requests by Revenge for additional lines of credit
thereunder.
On February 11, 1999, Revenge entered into an Agreement and Plan of
Reorganization with First Chance Marine Finance, Inc., a Florida Corporation,
("First Chance") whereby Revenge would issue and exchange 9,363,693 shares of
Revenge common stock, par value $0.001, for all of the issued and outstanding
capital shares in First Chance. Revenge intends to file a report with the SEC
within the required time period on Form 8-K and file all necessary exhibits
thereto describing the transaction with First Chance.
In January, 1999, Allied Capital Corporation, ("Allied") an affiliate
of Director William C. Robinson, converted $200,000 of debt owed by the
corporation to Allied into 588,235 shares of common stock of Revenge, pursuant
to a resolution adopted by the Board of Directors of Revenge on December 15,
1999, at the then current market price of $0.34 per share. These conversion
shares have not yet been issued.
In January, 1999, Director James Gardiner, converted $200,000 of debt
owed by the corporation to Mr. Gardiner into 588,235 shares of common stock of
Revenge, pursuant to a resolution adopted by the Board of Directors of Revenge
on December 15, 1999, at the then current market price of $0.34 per share.
These conversion shares have not yet been issued.
In Revenge's Report on Form 10 filed with the Securities and Exchange
Commission ("SEC") on October 28, 1998, Revenge indicated the possibility that
its marine operations might be sold or transferred to its Delaware subsidiary,
Revenge Marine, Inc., a Delaware corporation ("Revenge Delaware"). After
deliberation by the Board of Directors of Revenge, it was determined that such
a plan would not be in the best interests of Revenge's shareholders. Therefore,
Revenge Delaware remains and is intended to remain a wholly-owned subsidiary of
Revenge and such reorganization plans as were outlined in the above mentioned
filing did not take place and are not anticipated to take place.
-14-
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended December 31, 1998.
-15-
16
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: February 15, 1999 REVENGE MARINE, INC.
By /s/ LINDA D. RIZNICK
--------------------------------
Linda D. Riznick
Vice-President and Chief
Financial Officer
-16-