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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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, EXT. 127
(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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity of
the registrant held by non-affiliates of the registrant, as of June 30, 1999,
was $1,481,500.
Number of shares of Common Stock, $.001 par value, outstanding as of
June 30, 1999: 10,898,810.
DOCUMENTS INCORPORATED BY REFERENCE:
Exhibit list begins on page ___
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Part I
Item 1. Business
COMPANY HISTORY
Revenge Marine, Inc., a Nevada corporation ("Revenge" or the
"Company") was originally incorporated as a Nevada Corporation in December,
1979 as Contracap, Inc. Revenge then changed its name several times. In
November, 1994, Revenge changed its name to Global Energy Organization
Corporation. In January, 1998, Global Energy Organization Corporation entered
into a stock exchange agreement with Revenge Marine, Inc., (formerly Revenge
Yachts, Inc.), an Oklahoma corporation subsequent to which Global Energy
Organization Corporation changed its name to Revenge Marine, Inc. Prior to
January, 1998, neither Revenge Yachts, Inc. nor Global Energy Organization
Corporation had any significant assets. Prior to January, 1998, Revenge had not
engaged in significant activity involving the Yachting or Marine Industries. In
January, 1998, Revenge restated its purpose as providing consulting services
and investment opportunities in the Yachting and Marine industries.
Revenge began a strategy of identification, acquisition and
consolidation of marine industries. In May of 1998 Revenge entered into a stock
exchange agreement with Consolidated Marine, Inc., a Florida Corporation
("Consolidated"), whereby Revenge acquired all of the outstanding stock of
Consolidated in exchange for 636,942 shares of common stock in Revenge.
Consolidated was a custom and production yacht builder, as well as a re-fitter
and repairer of large watercraft. Revenge acquired Consolidated as the first
acquisition in a series of acquisitions of marine manufacturers with the
purpose of creating a leading marine manufacturing, repair and marketing
organization that could serve diverse customer demands and offer a wide-range
of products and services efficiently.
Revenge entered into a stock exchange agreement with Egret Boat
Company, a Florida Corporation ("Egret"), whereby Revenge acquired all the
outstanding stock of Egret in exchange for 955,414 shares of common stock in
Revenge. Egret was a production manufacturer of advanced composite motorized
flats boats of less than 35 feet in length. In August, 1998, 180,692 additional
shares were issued to Egret and Consolidated to complete the combined
transactions and the full payment of the consideration specified in the stock
exchange agreements.
In September, 1998, Revenge entered into an agreement to purchase
Consolidated Yacht Corporation, which contained within it certain assets that
were not included in the Consolidated Marine, Inc. acquisition, but which added
refurbishing, repair and production capability to what had been acquired in the
Consolidated Marine, Inc.
acquisition.
In October of 1998, Revenge incorporated Revenge Marine, Inc., a
Delaware corporation ("Revenge Delaware"). At the time of its incorporation,
Revenge Delaware was not intended to be a wholly-owned subsidiary. It was
intended that stock from Revenge Delaware be issued to shareholders of Revenge
in exchange for the marine assets of Revenge which were to be vended into
Revenge Delaware under an asset purchase agreement. Revenge then intended, once
the divestiture of its marine holdings was complete, to merge with a
telecommunications corporation. However, no aspect of this transaction was ever
consummated in any fashion. For the reasons stated in this paragraph, certain
of the commitments of Revenge, to Finova Capital Corporation and Detroit Diesel
Corporation, were issued jointly from Revenge and Revenge Delaware or just from
Revenge Delaware. Revenge Delaware assigned all assets and liabilities to
Revenge Nevada and is now a dormant shell.
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In October of 1998, Revenge had an option to purchase the assets of
Blackfin Yacht Corporation ( the "Blackfin Assets") from Detroit Diesel
Corporation. The option expired. Subsequent to the expiration of the option,
Revenge sold the option to Revenge Delaware for its purchase price, $100,000.
Detroit Diesel honored the expired option and on Friday, October 23, 1998,
Revenge Delaware purchased the Blackfin Assets for a purchase price of
$1,005,445 in cash and 545,455 warrants to acquire Revenge common stock
exercisable at an exercise price of $6.44 per share. In addition, Revenge
Delaware granted Blackfin Yacht Corporation a 2% fee of the per unit sale price
for each vessel produced from the Blackfin Assets. Revenge Delaware also
granted certain demand and piggyback registration rights to Blackfin Yacht
Corporation for the warrants issued in the asset purchase. The Blackfin Assets
provided a line of mid-size fiberglass yachts, from 27 to 48 feet. In addition,
there was a dealer network for Blackfin products, which are visually unique and
have a high level of brand identification. The completion of the three
acquisitions outlined above and the assignment of Revenge Delaware's assets and
liabilities to Revenge Nevada gave Revenge the capability to produce a wide
range of high technology motor yachts and motor boats, ranging from 110 foot
custom yachts to 16 foot flats boats.
Consistent with its philosophy of acquiring and streamlining
synergistic marine enterprises, Revenge entered into a long-term lease with an
option to purchase on an 8.67 acre marine facility in Miami, Florida in July of
1998. Revenge consolidated its acquisitions and many of its operations in the
Miami facility and therefore felt itself positioned to take advantage of
economies of scale, improved production efficiencies and elimination of
redundancies. In addition to the Miami facility, Revenge maintained a facility
in Dania, Florida. Revenge continued to identify and explore other marine
acquisitions that were consistent with its objectives.
In February of 1999, in an effort to further streamline operations,
Revenge closed its facility in Dania and consolidated its operations in the
Miami facility. It was hoped that this move would lower operating costs and
allow Revenge to begin to operate its Blackfin and Egret manufacturing
facilities profitably, while utilizing the extensive capacity of the Miami
facility to significantly increase the volume of repair and refurbishing of
yachts being done by its Consolidated Marine division.
In December of 1998, Revenge became aware that South Florida Yacht
Sales and Harbor Yacht Sales were not going to provide sufficient dealer
organization and resources to promote the Revenge products. Therefore, Revenge
began seeking candidates to act as dealers for its products. Consistent with
its long term vision of consolidation in the marine industry, the decision was
made to acquire a network of existing dealerships in order to stabilize the
revenue stream of Revenge, to diversify the outlets for its products and to
capture the additional margin normally retained by retail dealers from sales of
Revenge products.
On February 11, 1999, Revenge entered into an agreement and plan of
reorganization (the "Merger Agreement") with First Chance Marine Finance, Inc.,
a corporation organized under the laws of the State of Florida ("First
Chance"), and First Chance Marine Finance Acquisition, Inc., a corporation
organized under the laws of the State of Delaware ("Merger Sub") and a direct
wholly owned subsidiary of Revenge. Pursuant to the Merger Agreement, (i)
Merger Sub was to be merged (the "Merger") with and into First Chance and First
Chance was to become a wholly owned subsidiary of Revenge, and(ii) each issued
and outstanding share of capital stock of First Chance would be converted into
the right to receive shares of common stock, par value $.001 per share, of
Revenge ("Revenge Common Stock")or shares of preferred Stock of Revenge
("Revenge Preferred Stock"), par value $.001 per share, upon the terms set
forth in the Merger Agreement. A total of approximately 9,363,693 shares of
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Revenge Common Stock or Revenge Preferred Stock convertible into Revenge Common
Stock were to be issued to former holders of capital stock of First Chance
pursuant to the Merger. The Merger was concluded on March 16, 1999. However, no
integration of First Chance and Revenge ever took place and the companies were
operated as separate entities. It was the intention of Revenge that the
combined companies would engage an underwriter to conduct a secondary offering
of convertible preferred or common stock of Revenge in the range of $10,000,000
and that this sum would be used to develop and implement a marketing strategy
for the Internet, to fund the expansion of a more robust retail network, to
target, initiate and consummate other strategic acquisitions, to retire its
$2.1 million dollar indebtedness from Finova Capital Corporation, to service
approximately $750,000 in accounts payable and to make substantial capital and
infrastructure improvements.
At the time of the Merger, Revenge was experiencing severe liquidity
problems and had difficulty remaining current in its financial obligations. The
principals of First Chance had committed to a best efforts interim financing of
$2 to $3 million dollars and an initial capital contribution to Revenge of
$1,000,000, $666,666 of which was to be used to fund the marine operations of
Revenge. Only $450,000 of these funds were ever delivered and First Chance was
unable to procure any interim financing for the combined companies. In
addition, the underwriter which was to complete the secondary offering
indicated in April of 1999 that they were no longer interested in providing any
assistance to the combined companies. The board of directors of Revenge
concluded in May of 1999 that the rescission of the merger would be in the best
interests of the shareholders of Revenge.
On June 4, 1999, Revenge entered into an agreement to rescind an
attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a
Florida corporation. Pursuant to this agreement, Revenge issued a total of
1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and
its associates. First Chance, which had previously advanced Revenge $450,000 in
cash, issued 500,000 shares of its common stock, valued at $1,000,000 to
Revenge. The 500,000 shares issued to Revenge equate to approximately 7% of
First Chance's total outstanding common stock at June 30, 1999.
Revenge had been approved in the winter of 1998 for an Industrial
Revenue Bond issue for approximately $9,000,000 from Miami-Dade County, subject
to Revenge's ability to find credit enhancement for the bond issue. Revenge
attempted to find such credit enhancement, but was unsuccessful. Without the
bond proceeds, without any interim financing proceeds, with insufficient sales
of its marine products and with less than anticipated revenue from service and
repair, Revenge was unable to meet many of its obligations. In July of 1999,
Revenge was no longer able to service the lease payments for the Miami
facility. Although Revenge's payments to Finova were on an interest only basis
through June 30, 1999, Revenge was unable to resume either principal or
interest payments to Finova and the Finova loan was accelerated in July of
1999.
In June 1999, Revenge resolved to discontinue its marine operations
and to sell substantially all of its assets. The assets were disposed of
through the rescission of the Consolidated Yacht Corporation ("CYC")
acquisition and through two cash sales totaling $2,200,000 in August 1999.
Virtually all of the marine assets were disposed of during these sales and
Revenge was left with 500,000 shares of common stock in First Chance as its
only significant asset.
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In August of 1999, the Board of Directors and officers of Revenge
resigned, with the exception of President and director William C. Robinson. As
of September, 1999, Revenge had no full-time employees other than Mr. Robinson.
Mr. Robinson is presently engaged in settling the previous payable obligations
of the marine operations of Revenge.
On August 24, 1999, Revenge entered into a letter of intent
("LOI") with Reel Fishing Corporation ("Reelfishing"), a Delaware corporation,
concerning a merger between Revenge and Reelfishing. Under the terms of the
LOI, Revenge would acquire all of the issued and outstanding shares of
Reelfishing in exchange for (1) a loan of $250,000 and (2) 65% of the capital
stock of Revenge. There were a number of conditions to the merger, including
the funding of a loan of $250,000 from Revenge to Reelfishing. Under the LOI,
Revenge was to have made the loan to Reelfishing on or before September 7,
1999. This transaction has been abandoned by the parties and will not proceed.
Revenge now intends to concentrate its efforts on the Internet and
information technology sectors of the marine and other recreational products
industries. The long term plan of Revenge is to leverage international
relationships with marine entities and with existing marine manufacturers to
create a business to business e-commerce internet site for the marine industry
and a related site for consumers and sport fishing enthusiasts. Revenge is
actively seeking acquisition candidates in the marine and recreational products
industries who have a desire to enhance the internet presence of their
businesses. Revenge is actively involved in negotiating joint venture and
collaboration agreements with high profile web design companies, e-fulfillment
and e-shipping concerns and other entities involved in the internet commerce
industry.
(a) Financial Information about Industry Segments
Revenge derived 100% of its revenue and sustained 100% of its loss in the
marine industry segment. Reference is made to the consolidated financial
statements included in this report on Form 10-K.
COMPETITION
As Revenge is no longer competing in the marine manufacturing
industry, information relevant to competition for Revenge now relates only to
the intended information technology, internet related opportunities that
Revenge is currently pursuing. The information technology services and internet
industry is intensely competitive and Revenge's management believes competition
will intensify in the future.
If Revenge is able to become an independent provider of internet
website features, e-commerce capability and business to business marketing
assistance to marine and recreational product industry segments, Revenge will
compete with companies which can provide a combination of product procurement
and services such as existing marine manufacturers with internet capabilities
as well as sophisticated competitors in the internet and e-commerce site
development and maintenance industry. The principal competitive factors in the
Revenge's new industry include the breath, quality and consistency of service
offerings; website design, strategic relationships, working capital, marketing
effectiveness, pricing; and expertise and size of technical, graphic, computer
programming and systems integration and information technolgy workforces.
OTHER COMPETITORS
Boating.com, Yachting.com, the dupontregistry.com, boatstore.com,
powerboats.com and fishing.com compete in the segment that Revenge intends to
enter. These are established websites whose infrastructure has already been
built and who have already built significant relationships with resellers and
manufacturers. There are significant barriers to entry for Revenge in competing
with well-financed, established marine e-commerce sites.
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Most of Revenge's competitors have greater financial, technical and
marketing resources and have in-country operations to service international
customers. 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 services than the
Company. In addition, competition could result in price decreases and depress
gross profit margins in the industry. Further declines in Revenge's gross
margins may exacerbate the impact of fluctuating net revenues and operating
costs on Revenge's operating results and have a material adverse effect on
Revenge's business, operating results and financial condition.
SERVICES
Revenge is not presently providing any services, though it hopes to
establish itself as a source for members of the marine and recreational
products industries who want access to the internet and the potential exposure
that a well-designed, well-integrated web presence can project.
Like US WEB/CKS, the number one provider of websites and turnkey web
solutions to the Fortune 500, Revenge intends to acquire existing web
developers in the marine and recreational products industry to establish a
competitive position quickly and without difficulty.
Outsourcing Web Services. Outsourcing -- or hiring outside experts to
manage web development, procurement, e-commerce, internet marketing, website
hosting and other information technology functions -- is becoming more common
among enterprises worldwide. Yet Revenge believes there is a significant
opportunity to provide this web outsourcing to the marine and recreational
products industries, which tend traditionally to have weak information
technology staffs. Revenge hopes to provide customers with Outsourcing Services
generally under long term contracts, allowing a stable stream of revenue and a
base of relationships in the marine and recreational products industries that
will add value to new clients. Internet Outsourcing Services are typically
provided through a mixture of on-site and centrally managed resources. Revenge
can be the central manager of marine industries web projects and presence.
Revenge believes that the fragmentation in the marine industry and lack of
effective trade groups and marketing strategies leaves a central web
development out source as well as a central marine portal desirable for a wide
range of industry consumers. However, Revenge anticipates that it will incur
significant initial costs consisting of both personnel costs and capital
expenditures in developing this plan.
Recreational Products Superportal
Revenge intends to use the webhosting, web development and information
technology outsourcing relationships that it will develop to add substance and
connectivity to its planned recreational super portal. Each of the
relationships that Revenge establishes with marine industry companies who wish
to take advantage of the web will also provide a content relationship for the
umbrella recreational superportal. Revenge will derive revenue from this super
portal through advertising and e-commerce revenue.
Consulting Services
Revenge intends to provide customers with analysis,
design, implementation, integration and optimization services on a
project-by-project basis, covering all potential internet needs of its
customers. These services might include: (i) design, installation and upgrade
of internet websites and e-commerce sites in the marine industry; (ii)
implementation of messaging and internet/intranet technologies; (iii)
comprehensive support to assist customers with their web hosting, updating,
order fulfillment needs, systems, network-based applications and connectivity;
(iv) design and installation of network, systems and enterprise management
solutions for the marine and recreational products industry.
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TRAVEL
Revenge intends to develop a fully integrated, comprehensive
recreational travel, yacht charter and vacation website which will offer
compelling content, commerce and community for the recreational traveler.
Revenge seeks to become a leading on-line community for recreational
travelers and vacationers worldwide by offering consumers superior content and
the largest database of vacation products on the Internet. Revenge intends to
focus on the sale of vacation travel packages involving recreation, sports
fishing, boating and golf, which offer higher gross margins than airfare, hotel
and car rental reservations individually. Of course, Revenge also intends to
offer our customers the ability to purchase individual airline tickets and make
hotel and rental car reservations, through a value-added, entertainment and
information driven user interface that contains elements currently absent in
most mainstream e-travel sites. Revenge intends to develop a number of
innovative techniques to draw initial visitors to the site, to maintain their
interest and to cause them to return to the site again and again. These
techniques might include television programming, national and in-flight
magazine advertisements, CD ROM mailers, personalized travel club branding
including frequent purchaser/site visitor rewards, a referral program, banner
advertisements, Sunday Travel Auctions, an on-line geography game, travel
related equipment and apparel, video clips and virtual visits, travel tips,
currency exchange rates, an on line travel library, weather forecasts, location
maps and concierge service, fishing tournament information, professional golf
statistics and course evaluations, on-line tee times and yacht charter and
pricing information.
Revenge hopes that by a focus on recreational sports related travel,
Revenge will create a niche market that captures an audience not currently
served by other on-line travel agencies. Most on-line travel sites are simply
airline reservation systems with little in the way of true value added content.
Revenge will create its own branded travel vacation experience, so that a
Revenge vacation tends to have positive brand qualities associated with it due
to our consistently demanding standards from vacation providers, ease of use,
one-stop shopping, competitive prices and exotic, well-packaged destinations
that become synonymous with recreational sports. Rather than a blank screen
offering unstructured and fragmented choices, Revenge will become a trusted
recreational vacation adviser, giving gentle recommendations, providing needed
advice and encouraging, through magazine, television and banner teaser ads,
Revenge's brand identification.
The twenty-four hour nature of the Internet and the easy one-click
design of the Revenge site will allow for and encourage midnight surfing,
"impulse click and buys", and designation as the browser default home page for
boating, recreational sports, golf, active vacation and travel enthusiasts.
Revenge intends to combine this content with strategic acquisitions,
partnerships and a unique, outstanding multi-media campaign, to become a
leading portal for recreational sports travel related consumer products,
featuring sports and boating travel related news and information, travel tips,
chat rooms, on-line auctions and a robust e-commerce marketplace for travel
related equipment, merchandise, apparel, and accessories. Revenge hopes to
build a website which functions as a place where sportsmen, fishermen, golfers,
travelers and travel enthusiasts can interact, explore compelling and relevant
content, and shop. The recreational sports traveler and sports vacation
community represents one of the most appealing demographic groups on the world
wide web in terms of income and purchasing power. This community drives our
recreational sports and boating travel revenue growth and positions us to be a
leading channel for marketers, merchants, and advertisers that are increasingly
looking to the Internet to reach our demographic database.
OPERATIONS
Presently, Revenge has very little in the way of current operations.
Although there are significant plans to establish an operating
internet/e-commerce entity, these plans have not yet been executed and the
right merger or acquisition match has not yet been found to fulfill the Revenge
Marine operational vision.
PRICING OF SERVICES
Revenge has not yet determined how it might price its services.
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SALES AND MARKETING
Revenge intends to target its marketing efforts primarily at senior
level executive, financial and information management personnel in the marine
and recreational products industries.
Revenge intends to pursue a strategy of building alliances, joint
ventures, content swapping deals and strategic collaborations with the most
prominent providers, portals, designers and auction sites on the Internet.
VENDOR RELATIONSHIPS
Presently, Revenge believes that its relationships with vendors and
suppliers in the marine industry are rather strained due to the lack of working
capital and outstanding commitments that Revenge has to its previous vendors.
However, Revenge is presently engaged in rectifying this situation and believes
that the personal relationships of its President, William C. Robinson, in the
internet and recreational products industries will help to establish Revenge's
position as an independent provider of internet Design, integration management
services as well as the operation of its marine and recreational products
superportals.
Employees
As of June 30, 1999, the Revenge had approximately 18 full time
employees. Presently, however, Revenge has one full-time employee, its
President, William C. Robinson. However, as soon as Revenge has concluded its
negotiations with its previous marine vendors, Revenge intends to actively
recruit veterans of the internet, marine and recreational products industries
to assist in the development of the Revenge internet strategy. It is
anticipated that a significant number of these employees will be hired by means
of a merger or acquisition.
Of course, the high technology nature of the Revenge's contemplated
business requires the recruiting and training of a significant number of
qualified technical personnel. Revenge will have to rapidly hire a significant
number of technical personnel to staff projects at customer sites, on the
marine and recreational superportals and support e-commerce fulfillment and
marketing. Competition for qualified technical and sales personnel is intense,
as Revenge competes with other service providers, as well as with its own
customers. The growth of the internet has created a premium for a computer
skilled workforce.
Revenge's voluntary employee turnover for Fiscal 1999 is difficult to
estimate as Revenge dismissed its full-time employees due to financial
difficulties. Management estimates that the voluntary employee turnover was
less than 10%.
REORGANIZATION AND DIVESTITURE
GLOBAL ENERGY ORGANIZATION CORPORATION
In January 1998, Revenge Marine, Inc. (formerly Revenge Yachts, Inc.),
an Oklahoma corporation, executed a Stock Exchange Agreement (the "Agreement")
with Global Energy Organization Corporation ("Global"), a publicly traded
Nevada corporation, which had been inactive for the previous five years.
Pursuant to the Agreement dated January 23, 1998, Global issued
3,240,000 shares of its $.001 par value common stock in exchange for 100% of
the issued and outstanding common stock of Revenge Marine, Inc. As a result of
this "reverse acquisition", Revenge Marine, Inc. became a wholly owned
subsidiary of Global. In accordance with the terms of the agreement, Global
(the Nevada parent) adopted the name "Revenge Marine, Inc."
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BYC ACQUISITION CORPORATION
Under an agreement dated October 22, 1998, Revenge purchased
substantially all of the assets and certain liabilities of BYC Acquisition
Corporation ("BYC"), a Delaware corporation. In consideration of the transfer
of assets and liabilities, Revenge paid $1,005,455 in cash and issued a warrant
entitling BYC to purchase up to 545,455 shares of Revenge's common stock at an
exercise price of $6.44 per share at any time through October 22, 2001. The
agreement also called for Revenge to pay a 2% of sales price fee on all
Blackfin sales to BYC for a period of three years from the agreement date. The
assets acquired consist primarily of boat molds and shop equipment.
The purchase agreement was terminated pursuant to a replacement
agreement dated June 30, 1999, whereby all assumed liabilities were paid by the
issuance of preferred shares to BYC, the stock warrant was returned to Revenge,
and Revenge's obligation for any accrued fees on Blackfin sales was terminated.
In consideration of the termination of the purchase agreement, Revenge issued
to BYC 1,206 shares of its Series B Cumulative Convertible Preferred Stock and
issued a warrant to purchase up to 1,500,000 shares of Revenge's common stock
at an exercise price of $0.37 per share. Further, Revenge is obligated to pay
BYC a fee equal to 1% of its total revenues from all sources for the period
from April 1, 1999 to April 30, 2002.
CONSOLIDATED YACHT CORPORATION, INC.
On September 8, 1998, Revenge purchased substantially all of the
assets of Consolidated Yacht Corporation, Inc. ("CYC") in exchange for a
promissory note in the amount of $458,162. The president of CYC was a related
party to Revenge as further disclosed in Note 7.
The purchase agreement was terminated by means of a rescission
agreement dated June 30, 1999. The rescission agreement called for the return
of all purchased assets, the cancellation of the promissory note, and the
immediate vesting of stock options held by the president of CYC.
Further, an automobile was transferred to CYC in exchange for monies
advanced to Revenge by CYC's president. CYC's president returned 895,333 shares
of stock to Revenge, which had been issued to him pursuant to Revenge's
acquisition of Egret Boat Company and Consolidated Marine (see following
disclosures). CYC will assume the lease on Revenge's operating facility. In an
amendment to the original agreement which was signed on October 18th allowed Jim
Gardiner, Consolidated's owner to keep the originally canceled shares for the
assumption of $175,000 in debt and all liabilities related to the Miami
Facility.
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FIRST CHANCE MARINE FINANCE, INC.
On June 4, 1999, Revenge entered into an agreement to rescind an
attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a
Florida corporation. Pursuant to this agreement, Revenge issued a total of
1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and
its associates. First Chance, which had previously advanced Revenge $450,000 in
cash, issued 500,000 of its common stock, valued at $1,000,000 to Revenge. The
500,000 shares issued to Revenge equate to approximately 7% of First Chance's
total outstanding common stock at June 30, 1999.
EGRET BOAT COMPANY, INC.
Pursuant to a stock exchange agreement dated May 21, 1998, Revenge
issued 955,414 shares of its common stock, valued at $1,500,000, in exchange
for all of the outstanding shares of Egret Boat Company, Inc., a Florida
corporation. The acquisition was accounted for as a purchase and, accordingly,
the results of operations of the acquired business and the fair market values
of the acquired assets and liabilities are included with consolidated
operations from the date of acquisition. The purchase price was allocated as
follows:
Property and equipment $ 117,547
Working capital, net 20,061
Other intangible assets 1,362,392
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Total $1,500,000
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CONSOLIDATED MARINE, INC.
Pursuant to a stock exchange agreement dated May 27, 1998, Revenge
issued 636,942 shares of its common stock, valued at $1,000,000 in exchange for
all of the outstanding common shares of Consolidated Marine, Inc. (CMI), a
Florida corporation. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of the acquired business and the fair
market values of the acquired assets and liabilities are included with
consolidated operations from the date of acquisition. In August 1998, the
purchase price was renegotiated and an additional 180,692 shares of Revenge
stock valued at $237,068 were issued to CMI. The revised purchase price was
allocated as follows:
Organization costs $ 500
Other intangible assets 1,236,568
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Total $1,237,068
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BUSINESS FACTORS
Investors should carefully consider all of the information contained
herein, including the following business factors. In addition, this Form 10-K
contains certain forward looking statements and trend analysis based on current
expectations. Actual results may differ materially due to a number of factors,
including those set forth below.
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High Degree of Leverage; No working Capital; No Employees; No Facilities; Future
Capital Needs
As of June 30, 1999, after giving effect to the cash sales of the
marine assets, the application of the net proceeds there from, Revenge had
outstanding indebtedness of approximately $1.1 million. Management is currently
in the process of settling for equity the majority of this debt. However, there
can be no assurance that this re-negotiation will be successful. This leverage
may have several important consequences for the Revenge, including, but not
limited to, the following: (i) Revenge's ability to obtain additional financing
in the future for working capital, acquisitions, capital expenditures, general
corporate or other requirements may be limited or impaired; (ii) a substantial
portion of Revenge's cash flow from operations will be dedicated to servicing
its indebtedness; and (iii) Revenge's ability to withstand competitive
pressures or adverse economic conditions, and to take advantage of future
business opportunities that may arise, may be negatively affected. The
Company's inability to service its indebtedness or obtain additional financing,
as needed, on favorable terms would have a material adverse effect on the
Company's business, operating results and financial condition.
Fluctuations in Operating Results
Revenge's operating results have varied in the past, and Revenge
expects its operating results to continue to fluctuate. Revenge's net revenues
may fluctuate due to a variety of factors, including the success of Revenge at
attracting new investment and new customers, the rate at which Revenge hires
new employees, the amount Revenge is required to spend on development of its
super portals and the amount of indebtedness Revenge is able to settle for
equity. Once Revenge's internet operations commence, Revenge's operating
results may be especially sensitive to changes in the margin mix of services
sold and the level of its operating expenses. Revenge's operating expenses may
fluctuate as a result of numerous factors, including the timing and rate of new
employee hiring, the utilization rate of service personnel and competitive
conditions. Revenge's costs are unknown in the near term, and Revenge may be
unable to adjust spending in a timely manner to compensate for an unexpected
revenue shortfall. As a result, revenue shortfalls may have an immediate and
disproportionate adverse effect on operating results. In addition, if Revenge
spends to build its capabilities to support higher revenue levels, Revenge's
near term operating results will suffer until it achieves its revenue goals.
Due to all of these factors, Revenge believes that its operating results are
likely to vary.
Intense Competition
Boating.com, Yachting.com, the dupontregistry.com, boatstore.com,
powerboats.com and fishing.com compete in the segment that Revenge intends to
enter. These are established websites whose infrastructure has already been
built and who have already built significant relationships with resellers and
manufacturers. There are significant barriers to entry for Revenge in competing
with well-financed, established marine e-commerce sites.
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Most of Revenge's competitors have greater financial, technical and
marketing resources and have in-country operations to service international
customers. 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 services than the
Company. In addition, competition could result in price decreases and depress
gross profit margins in the industry. Further declines in Revenge's gross
margins may exacerbate the impact of fluctuating net revenues and operating
costs on Revenge's operating results and have a material adverse effect on
Revenge's business, operating results and financial condition.
Need to Recruit and Retain Management, Technical and Sales Personnel
Revenge believes that its future success depends, to a large extent,
upon the efforts and abilities of its executive officers, managers,
technical and sales personnel which it intends to hire shortly. Failure by
Revenge to attract and train skilled managers, technical and sales personnel on
a timely basis, or the inability of Revenge to attract such personnel, could
materially adversely affect Revenge's business, operating results and financial
condition.
Control by Principal Stockholders
The President of Revenge, William C. Robinson and his family and
trusts related to his family beneficially own substantially in excess of a
majority of the outstanding shares of common stock, $.001 par value, of Revenge
(the "Common Stock"). As a result, Mr. Robinson is able to control the election
of members of Revenge's Board of Directors and generally exercise control over
Revenge's corporate actions.
Year 2000 Readiness
Revenge intends to use a significant number of computer software
programs and operating systems in its internal operations, including
applications used in internet web design, web hosting and financial business
systems and various administration functions. As the Year 2000 approaches, each
of these computer systems may be affected in some way by the rollover of the
two-digit year value to "00". If these systems are unable to properly recognize
date sensitive information when the year changes to 2000, they could generate
erroneous data or fail. Revenge intends to utilize both internal and external
resources to identify, correct or reprogram, and test the systems for Year 2000
compliance.
Revenge intends to classify its Year 2000 project into five phases:
inventory, assessment, renovation, validation and implementation. Inventory is
the process in which all electronic/computer components are defined for all
systems (information technology and non-information technology). Assessment is
the process in which all components are classified as either "Y2K-ready" or
not. Renovation is the process in which systems undergo necessary upgrades or
replacements or are retired. Validation is the process in which renovated
systems are tested within Revenge's infrastructure to validate that either the
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readiness assessment is correct or that the renovated system or component can
be integrated without causing or being affected by a Year 2000 impact.
Implementation is the process in which a prepared system is installed into the
Company's production environment and is utilized to support business
operations.
Revenge has not yet completed any of the above steps and may not be
able to do so before December 31, 1999. Revenge has no basis, since its
information technology operations have not yet commenced, of what it will spend
on Year 2000 remediation.
In addition to intending to upgrade its own systems, Revenge intends to
contact certain significant customers and suppliers to determine their Year 2000
readiness profile if there are customers and suppliers in time to make such an
inquiry relevant.
All potential risks and uncertainties associated with the Year 2000
issue cannot be fully and accurately quantified. Contingency plans will be
developed if third party data interchange partners fail compliance testing or
if the replacement or renovation of other existing systems is not on schedule.
Although Revenge does not believe that any additional costs or potential loss
in revenue associated with Year 2000 readiness initiatives will have a material
adverse effect on Revenge's business, operating results or financial condition,
there can be no assurance that the costs associated with updating software or
recovering from potential systems interruptions would not have a material
adverse effect on Revenge's business, operating results and financial
condition.
Risk Factors Related to Revenge's Internet Plan
Revenge intends to launch its web site in December, 1999. Revenge has
virtually no operating history in the Internet, e-commerce or travel industries
available to evaluate its business and prospects. There are many risks,
expenses and uncertainties that may be encountered by development stage
companies, particularly in the new and emerging Internet market:
o An evolving and unproven business model;
o Management of an expanding business in a rapidly changing market;
o Attract new customers and maintain customer satisfaction;
o Introduce new and enhanced sites, services, products, content, and
alliances;
o Maintain its profit margins notwithstanding price competition or
rising wholesale prices; and
o Minimize technical difficulties, system downtime and the effect of
Internet brownouts.
To address these risks Revenge must successfully:
o Develop and extend relationships with manufacturers for merchandise;
o Develop its web site into a web "community";
o Develop alliances with celebrities and parties in the recreational
products business to provide web site content;
o Implement an evolving and unproven business model;
o Establish internal accounting systems and controls;
o Manage growth; if any;
o Develop and manage an efficient distribution system;
o Develop and implement an efficient transaction processing system;
and
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o Successfully develop and market its new web site.
If Revenge does not successfully manage these risks, its business will
suffer. Revenge cannot assure that it will successfully address these risks or
that its business strategy will be successful.
REVENGE HAS INCURRED LOSSES AND EXPECTS TO INCUR SUBSTANTIAL LOSSES
FOR THE FORESEEABLE FUTURE.
Since inception, Revenge has been operating at a loss for virtually
all periods since its inception. Revenge expects that operating losses and
negative cash flow will continue for the foreseeable future as Revenge must
invest in marketing and promotional activities, technology and operating
systems in order to change its revenue model from manufacturing to service
related industries. Revenge believes that increasing its revenues will depend
in large part on its ability to:
o Develop and increase consumer awareness of its online community and
develop effective marketing and other promotional activities to
drive traffic to its web site;
o Generate advertising revenues from its online community;
o Develop and Enhance its online travel agency, on-line store,
transaction-processing systems and network infrastructure to support
increased traffic;
o Provide its customers with quality content and e-commerce
experiences; and
o Develop strategic relationships.
Revenge's future profitability depends on generating and sustaining
high revenue growth while maintaining reasonable expense levels. Slower revenue
growth than Revenge anticipates or operating expenses that exceed its
expectations would harm its business. If Revenge achieves profitability,
Revenge cannot be certain that Revenge would be able to sustain or increase
profitability in the future. Revenge cannot be certain when or if it will
achieve sufficient revenues in relation to expenses to become profitable
REVENGE WILL NEED ADDITIONAL CAPITAL TO FUND ITS BUSINESS.
Revenge requires substantial working capital to fund its new business
ventures into the internet and recreational products service industry and may
need more in the future. Revenge will likely experience negative cash flow from
operations for the foreseeable future. Revenge does not presently have
sufficient working capital to implement its on-line strategy and there can be
no assurance that such capital will be forthcoming on terms that Revenge will
find acceptable. Revenge needs to raise additional funds through the issuance
of equity, equity-related or debt securities and therefore the current
shareholders' stock ownership percentage will be diluted. If Revenge is unable
to obtain adequate additional financing on reasonable terms, its operations may
never commence and Revenge may never become profitable. Revenge cannot be
certain that additional financing will be available.
REVENGE MAY BE UNABLE DEVELOP A COMPELLING WEBSITE OR SUPPORT THE
VOLUME ON ITS WEB SITE.
A key element of Revenge's strategy is to develop a website which will
generate a high volume of traffic However, if Revenge is successful in creating
such a site, growth in the number of users of its online community may strain
or exceed the capacity of its computer systems and lead to declines in
performance or systems failure. Revenge has no present systems and is not
certain if it will be able to acquire adequate capacity to accommodate rapid
growth in user demand. Revenge will therefore need to add hardware and software
and to develop and after development, to improve and enhance the functionality
and performance of its community, e-commerce, customer tracking and other
technical systems. Revenge intends to develop on-line systems and implement new
systems as Revenge anticipates new demand. Failure to implement these systems
effectively or within a reasonable period of time would result in a failure of
Revenge's on-line strategy.
Revenge must also introduce additional or enhanced features and
services to attract and retain customers to its web site. If a new service is
not favorably received, its customers may visit its web site less frequently.
These new services or features may not function well, and Revenge may need to
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modify the design of these services significantly to correct errors. If users
encounter difficulty with or do not accept its services or features, its
business, operating results and financial condition would be adversely
affected.
REVENGE NEEDS TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND
RETAIN ITS KEY PERSONNEL IN ORDER FOR ITS BUSINESS TO SUCCEED.
Its ability to develop and maintain its web site and other necessary
systems depends on its ability to attract, retain and motivate highly skilled
technical, managerial and marketing personnel. Competition for skilled software
engineers has greatly increased with the emergence of a number of internet
retailers and other electronic commerce developments. If Revenge is unable to
attract and retain the necessary personnel, its web site and other systems may
not operate efficiently. These difficulties could materially and adversely
affect its business and results of operations.
REVENGE'S BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH COMPETITION IN
THE MARKETPLACE.
Revenge can make no assurance that Revenge will be able to compete
successfully or that competitive pressures will not damage its business. Its
competition includes:
o Web sites maintained by other online retailers of recreational
sports, boating and travel products;
o Other retailers offering products comparable to those being sold by
Revenge; and
o Internet portals and on-line service providers that feature travel
and recreation, such as Expedia, Preview Travel, Travelocity,
Cheaptickets.com and Priceline.
Revenge's competitors are larger than Revenge and have substantially
greater financial, distribution and marketing resources. In addition, its
competitors may be able to secure products, including airfare, resort
accommodations and tour packages from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than Revenge can. Traditional store-based retailers also
enable customers to see products in a manner that is not possible over the
Internet. Some online competitors may be able to use the Internet as a
marketing medium to reach significant numbers of potential customers more
effectively than Revenge can.
REVENGE MAY HAVE DIFFICULTY OBTAINING CONTENT AND MERCHANDISE.
Revenge wants to offer content to its customers to develop an Internet
community. There can be no assurance that Revenge will be able to obtain such
content or that Revenge will develop a viable Internet community. If Revenge is
not able to develop a viable recreational products and travel based web
community, its business, operating results and financial condition may never
improve from the present state of virtual non-operation.
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GENERAL ECONOMIC CONDITIONS AND DISCRETIONARY CONSUMER SPENDING MAY
AFFECT REVENGE'S PERFORMANCE.
Revenge's operations depend upon a number of factors relating to or
affecting consumer spending for discretionary goods, such as Revenge's
products. Revenge's operations may be adversely affected by unfavorable local,
regional, or national economic developments or by uncertainties regarding
future economic prospects that reduce consumer spending in the markets served
by Revenge. Consumer spending on non-essential goods can also be adversely
affected as a result of declines in consumer confidence levels, even if
prevailing economic conditions are favorable. In an economic downturn, consumer
discretionary spending levels generally decline, often resulting in
disproportionately large reductions in the purchase of discretionary goods.
There can be no assurance that Revenge's results of operations would not be
significantly adversely affected during any such period of adverse economic
conditions or low consumer confidence
REVENGE'S BRAND MAY NOT ATTAIN SUFFICIENT RECOGNITION.
Revenge believes that establishing, maintaining and enhancing its
brand is a critical aspect of its efforts to attract and expand its online
traffic. The number of Internet sites that offer competing services and
products increase the importance of establishing and maintaining brand name
recognition. Promotion of its web site will depend largely on its success in
providing a high-quality online experience supported by a high level of
customer service, which cannot be assured. To attract and retain online users,
and to promote and maintain its web site in response to competitive pressures,
Revenge may find it necessary to increase substantially its financial
commitment to creating and maintaining a strong brand loyalty among customers.
This will require significant expenditures on advertising and marketing. If
Revenge were unable to provide high-quality online services or customer
support, or otherwise fails to promote and maintain its web site and online
community, or if Revenge incurs excessive expenses in an attempt to promote and
maintain its web site, its business prospects, operating results and financial
condition would be materially adversely affected.
REVENGE'S BUSINESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE.
Its future revenues and profits, if any, will depend substantially
upon the acceptance and use of the Internet and other online services as an
effective medium of community and commerce by its target customers. Rapid
growth in the use of and interest in the Internet and online services is a
recent phenomenon. Acceptance and use of the Internet and other online services
may not continue to develop at historical rates and a sufficiently broad base
of consumers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty and there exist few proven services and products. Revenge's
target customer has historically used traditional means of commerce to purchase
recreational sports products, services, travel, vacation packages and related
merchandise and to obtain recreational products, boating, sports and travel
information. For Revenge to be successful, these customers must accept and
utilize its online program to provide them recreational products and
information.
In addition, the Internet may not be accepted as a viable long-term
marketplace for information and products for a number of other reasons beyond
Revenge's control, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling
technologies and performance improvements. To the extent that the Internet
continues to experience significant expansion in the number of users and
bandwidth growth requirements, the infrastructure for the Internet may be
unable to support the demands placed upon it. In addition, the Internet could
lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity or more sophisticated levels of content (such as streaming video), or
due to increased governmental regulation. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of the Internet
generally and its online community in particular.
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REVENGE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGES THAT AFFECT
ELECTRONIC COMMERCE.
To remain competitive, Revenge must continue to enhance and improve
the responsiveness, functionality and features of its online operations. The
Internet and the electronic commerce industry are characterized by:
o Rapid technological change;
o Changes in user and customer requirements and preferences;
o Frequent new product, service, and content introductions embodying
new technologies; and
o The emergence of new industry standards and practices.
The evolving nature of the Internet could render Revenge's intended
online community, technology, and systems obsolete. Its success will depend, in
part, on its ability to:
o License leading technologies useful in its business;
o Develop content, products, and services that appeal to its
customers;
o Develop new services and technology that address the increasingly
sophisticated and varied needs of its customers; and
o Respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of Revenge's web site and other technology entails
significant technical and business risks. Revenge may not use new technologies
effectively or adapt its online community, technology, and
transaction-processing systems to customer requirements or emerging industry
standards. If Revenge were unable, for technical, legal, financial or other
reasons, to adapt in a timely manner, in response to changing market conditions
or customer requirements, its business, financial condition and results of
operations could be seriously harmed.
REVENGE DEPENDS ON THIRD PARTY SHIPPERS, CONTENT SOURCES,
COMMUNICATIONS PROVIDERS AND VENDORS TO OPERATE ITS BUSINESS.
Revenge depends on a number of third parties to deliver goods and
services to Revenge and its customers. For example, Revenge will rely on the
United States Postal Service, United Parcel Service, Federal Express and other
carriers to ship merchandise to its customers. Strikes or other service
interruptions affecting one or more of its shippers could impair its ability to
deliver merchandise on a timely basis.
Revenge will depend on communications providers to provide its
Internet users with access to its online community. Its online community could
experience disruptions or interruptions in service due to failures by these
providers. In addition, its users depend on Internet service providers and web
site operators for access to its online community. Each of these groups has
experienced significant outages in the past and could experience outages,
delays and other difficulties due to system failures unrelated to its systems.
These types of occurrences could cause users to perceive its web site as not
functioning properly and therefore cause them to stop using its services.
Revenge depends on the ability of third-party vendors to provide it
with recreational products, travel and vacation products and related
merchandise at competitive prices and in sufficient quantities. Revenge has no
relationships presently with such suppliers. Revenge may never develop such
relationships. Even if Revenge is successful in developing such relationships,
Revenge's suppliers may have limited resources, production capacities and
operating histories. Revenge's business could be harmed if its ability to
procure products becomes limited.
REVENGE MAY BE SUBJECT TO SALES AND OTHER TAXES.
Revenge may not collect sales or other similar taxes for physical
shipments of goods into states other than the state where its on-line
operations would be based. One or more local, state or foreign jurisdictions
may seek to impose sales tax collection obligations on Revenge. In addition,
any new operation in states outside Revenge's base of operations could subject
Revenge's shipments in such states to state sales taxes under current or future
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laws. If one or more states or any foreign country successfully asserts that
Revenge should collect sales or other taxes on the sale of its products, the
resulting tax liability could impair Revenge's business. Any such liability
could also include liability for back taxes and penalties, which could cause
significant harm to Revenge's financial condition and may require it to restate
earnings for prior periods.
CONFLICTS OF INTEREST MAY OCCUR IN TRANSACTIONS WITH AFFILIATES.
Revenge may enter into transactions with its affiliates that involve
conflicts of interest. Such arrangements would not be negotiated on an arms'
length basis. While Revenge intends to enter into any future related party
transactions on terms no less favorable than those Revenge could obtain from
unrelated third parties, the interests of directors or officers of Revenge or
holders of more than 5% of its Common Stock, in their individual capacities or
capacities with related third-party entities, may conflict with the interests
of such persons in their capacities with Revenge.
ELECTRONIC COMMERCE IS SUBJECT TO SECURITY RISKS.
A fundamental requirement of electronic commerce and communications is
the secure transmission of confidential information over public networks.
Revenge will rely on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary for secure
transmission of confidential information, such as customer credit card numbers.
In addition, Revenge intends to maintain an extensive confidential database of
customer profiles and transaction information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the methods used by
Revenge to protect customer transaction data. If any such compromise of its
security were to occur, it could seriously harm Revenge's reputation, business,
financial condition and results of operations. A party who is able to
circumvent Revenge's security measures could misappropriate proprietary
information or cause interruptions in Revenge's operations.
Revenge may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of the Internet and other
online transactions and the privacy of users may also inhibit the growth of the
Internet and other online services, especially as a means of conducting
commercial transactions. To the extent that activities of Revenge or
third-party contractors involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could damage its
reputation and expose Revenge to a risk of loss or litigation and possible
liability. Revenge's security measures may not prevent security breaches and
failure to prevent such security breaches may seriously harm its business,
financial condition and results of operations.
Revenge cannot assure that others will not independently develop
substantially equivalent proprietary information and techniques. In addition,
Revenge may be required to obtain licenses to certain intellectual property or
other proprietary rights of third parties. Revenge cannot assure that any such
licenses or proprietary rights would be made available to under acceptable
terms, if at all. If Revenge does not obtain required licenses or proprietary
rights, Revenge could encounter delays in product development or find that the
development or sale of products requiring such licenses could be foreclosed.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN ITS
BUSINESS.
The adoption or modification of laws or regulations applicable to the
Internet could harm Revenge's future on-line business. The U.S. Congress
recently passed laws regarding children's online privacy, copyrights and
taxation. The law governing the Internet, however, remains largely unsettled.
New laws may impose burdens on companies conducting business over the Internet.
Although its online transmissions generally originate in California, the
governments of other states or foreign countries might attempt to regulate its
transmissions or levy sales or other taxes relating to its activities. It may
take years to determine whether and how existing laws governing intellectual
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property, privacy, libel and taxation apply to the Internet and online
advertising. In addition, the growth and development of online commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. Revenge also may be subject to regulation not specifically
related to the Internet, including laws affecting direct marketers.
ITEM 2. PROPERTIES.
Presently, Revenge does not have significant office facilities or
operational facilities. Revenge is not currently making lease payments on any
facility. Revenge believes that it would be able to occupy a portion of its
former facility on the Miami river rent free by accommodation from former
director James Gardiner, but there can be no assurance that this will take
place. Presently, Revenge's corporate operations, which primarily involve
winding down of its previous manufacturing capacity and pursuing the
development of its on-line strategy, are conducted from the offices of director
William C. Robinson in Tulsa, Oklahoma. Revenge pays no rent for the use of Mr.
Robinson's office facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in legal actions arising in the ordinary course
of business. Revenge believes that these actions could result in no more than
$79,000 in potential liabilities for Revenge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during Fiscal
1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of June 30, 1999, Revenge had outstanding Common Stock, $0.001 par
value, 50,000,000 shares authorized, 10,898,810 and 6,675,720 shares issued and
outstanding at June 30, 1999 and 1998 respectively.
MARKET PRICE OF COMMON EQUITY
The Company's Common Stock, $.001 par value per share ("Common
Stock")are listed on the National Association of Securities Dealers Over the
Counter Bulletin Board Quotation System ("OTC"). There were approximately 2,546
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beneficial holders of the Common Stock. The following table sets forth the high
and low closing sale prices of Common Stock, as reported by the OTC, for the
periods indicated.
COMMON STOCK
----------------
1998 HIGH LOW
----- ------
First Quarter .00
Second Quarter .00
Third Quarter 3.063 1.370
Fourth Quarter 2.50 1.031
COMMON STOCK
----------------
1999 HIGH LOW
----- ------
First Quarter 1.75 .50
Second Quarter .75 .125
Third Quarter 1.375 .531
Fourth Quarter 1.062 .437
The Company has never paid dividends on its Common Stock. The Company
has no present plans to pay cash dividends in the foreseeable future and
intends to retain earnings for the future operation and expansion of the
business. Any determination to declare or pay dividends in the future will be
at the discretion of the Company's Board of Directors and will depend on the
Company's results of operations, financial condition, any contractual
restrictions, considerations imposed by applicable law and other factors deemed
relevant by the Board of Directors.
Described below are all sales of securities by the Company during the
fiscal year ended June 30, 1999 that were not registered under the Securities
Act of 1933, as amended (the "1933 Act"). On the issuance of these securities
the Company relied on the exemption from registration under the 1933 Act set
forth in Section 4(2) thereof, based on established criteria for effecting a
private offering, including the number of offerees for each transaction, access
to information regarding the Company, disclosure of information by the Company,
restrictions on resale of the securities offered, investment representations by
the purchasers, and the qualification of offerees as "accredited investors."
In Fiscal 1999, the Company issued 4,223,090 shares of unregistered
common stock in offerings described in part Revenge's previous filings on Form
10Q and Form 10. Certain of these issuances are reproduced below. The
remainder are contained in Revenge's filings on Form 10 and Form 10Q for
issuances during the first three quarters of fiscal year 1999.
1,696,000 shares of common stock were issued in connection with the
merger with First Chance Marine Finance, effective March 16, 1999. Revenge
received $450,000 in cash and 500,000 shares of First Chance common stock in
exchange for the shares of Revenge common at the conclusion of the rescission
of the merger.
In June, 1999, Revenge issued Series B 10% Cumulative Convertible
Preferred Stock, $40 par value, convertible into Common Stock based on a 40%
discount to the bid price as listed on the NASDAQ Bulletin Board on the day of
conversion; authorized 75,000 shares; 17,330 shares issued and 2,718 shares
outstanding at June 30, 1999; liquidation preference equal to the par value of
any outstanding shares plus accrued dividends, if any prior to any
distributions to Common Stock holders.
In January, 1999, Revenge issued 630,590 shares of common stock to
assignees and affiliates of Roy Meadows at a price per share of $0.12. These
shares were issued pursuant to the terms of a convertible debenture which Mr.
Meadows purchased from its original holder.
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,
1998, at the then current market price of $0.37 per share.
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Options and Warrants to Purchase Common Shares of Revenge
In December 1998, the Company adopted its 1998 Incentive Stock Plan
("the Plan") under which 2.8 million options to purchase common stock were
granted to substantially all full-time employees. The options granted under the
Plan extend for 5 years from the date of grant and vest in monthly increments
over a period of up to two years. The exercise price was equal to the stock
price on the grant date. The Plan is considered to be a non-compensatory plan,
as defined by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation". Accordingly, no compensation cost has been
recognized for the year ended June 30, 1999. The options were issued at per
share exercise prices between $0.34 and $0.37 per share.
In June 1999, the Company issued a warrant to purchase up to 1,500,000
shares of the Company's common stock at an exercise price of $0.37 per share to
Detroit Diesel corporation. The warrant expires June 30, 2002.
In June 1999, the Company issued a warrant to purchase up to 250,000
shares of the Company's common stock at an exercise price of $0.37 per share in
exchange for consulting services relating to the Blackfin Yacht Corporation
asset acquisition to Peter Johnson. The warrant expires June 30, 2002.
In May 1998, the Company granted stock options pursuant to a
consulting agreement to purchase 175,000 shares of common stock at $1.00 per
share, 175,000 shares of common stock at $1.50 per share, and 175,000 shares of
common stock at $2.00 per share to affiliates of Roy Meadows. The options
expire December 31, 2000.
In May 1998, the Company issued a warrant to purchase up to 20,000
shares of the Company's common stock at an exercise price of $1.50 per share as
partial consideration for consulting services.
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Information with respect to all stock options and warrants is
summarized below:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
Outstanding at inception -- $ --
Granted 1998 545,000 1.50
---------- -----
Outstanding at June 30, 1998 545,000 1.50
Granted 1999 4,550,000 0.37
---------- -----
Outstanding at June 30, 1999 5,095,000 0.49
========== =====
Options exercisable, June 30, 1998 545,000 1.50
Options exercisable, June 30, 1999 4,373,054 0.51
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Item 6. Selected Financial Data
The following table sets forth selected historical financial data of
the Company as of the dates and for the periods indicated. The selected
financial data of the Company were derived from the audited consolidated
financial statements included herein. The selected consolidated financial
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and related notes thereto of the Company
appearing elsewhere herein.
Although Regulation S-K, Item 301, indicates that information should
be provided for continuing operations, the Registrant has no continuing
operations at the present time. Therefore, providing a convenient format to
highlight certain significant trends in registrants operations and financial
condition may not be helpful, as the operations are no longer continuing.
Nevertheless, information for discontinued operations is provided below
Item Fiscal 1999 Fiscal 1998
- ---- ----------- -----------
Loss from Discontinued Operations (3,432,808) (318,932)
Loss on Disposal of Assets from Discontinued Operations (918,047) --
Net Loss (4,350,855) (318,932)
Weighted Average Shares Outstanding 7,129,680 4,325,237
Net Loss From Operations Per Share (0.61) (0.07)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis of the Company's consolidated
financial position and consolidated results of operations should be read in
conjunction with the Company's Selected Consolidated Financial Information
included and the Consolidated Financial Statements and related Notes thereto
included herein.
FORWARD LOOKING STATEMENTS THIS REPORT CONTAINS FORWARD LOOKING
STATEMENTS. ADDITIONAL WRITTEN OR ORAL FORWARD LOOKING STATEMENTS MAY BE MADE
BY THE COMPANY FROM TIME TO TIME IN FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION OR OTHERWISE. SUCH FORWARD LOOKING STATEMENTS ARE WITHIN THE MEANING
OF THE TERM IN SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS
MAY INCLUDE, BUT NOT BE LIMITED TO, PROJECTIONS OF REVENUES, INCOME, OR LOSS,
ESTIMATES OF CAPITAL EXPENDITURES, PLANS FOR FUTURE OPERATIONS, PRODUCTS OR
SERVICES, AND FINANCING NEEDS OR PLANS, AS WELL AS ASSUMPTIONS RELATING TO THE
FOREGOING. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "ESTIMATE," "PROJECT,"
AND SIMILAR EXPRESSIONS IDENTIFY FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY
AS OF THE DATE THE STATEMENT WAS MADE. FORWARD LOOKING STATEMENTS ARE
INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH CANNOT BE
PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY, OR UNDERLYING THE FORWARD
LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR
REVISE ANY FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS, OR OTHERWISE. THE FOLLOWING DISCLOSURES, AS WELL AS OTHER
STATEMENTS IN THIS REPORT ON FORM 10-K, AND IN THE NOTES TO THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, DESCRIBE FACTORS, AMONG OTHERS, THAT COULD
CONTRIBUTE TO OR CAUSE SUCH DIFFERENCES, OR THAT COULD AFFECT THE COMPANY'S
STOCK PRICE.
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RESULTS OF OPERATIONS
Revenge was originally incorporated as Contracap, Inc., a Nevada
corporation in 1979. After undergoing several name changes, Contracap, Inc.
became Global Energy Organization Corporation ("Global") which had no business
activities as of September, 1998. In January, 1998, the present Revenge entity
was created by means of a Reverse merger of Revenge Yachts, Inc., an Oklahoma
corporation, into Global, which created Revenge Marine, Inc., a Nevada
corporation. Revenge restated its purpose as consolidating marine manufacturing
and marketing operations. Revenge completed acquisitions of Egret Boat Company
and Consolidated Marine, Inc. in June and August of 1998. These acquisitions
gave Revenge manufacturing and repair capabilities.
In October, 1998, Revenge completed the acquisition of the
manufacturing assets of Blackfin Yacht Corporation. Revenge borrowed $2.1
million from Finova Capital Corporation to procure these assets and provide
working capital. In October, 1998, Revenge commenced its manufacturing
operations in its newly renovated Miami facility and began closing the
Consolidated Marine facility in Dania. Revenge was unable to generate
sufficient cash flow or revenues to continue its marine manufacturing
operations, to service its obligations to Finova Capital Corporation or to pay
its lease payments on the Miami facility. Revenge was unable to raise
sufficient funds from equity or debt to allow its manufacturing operation to
continue. Revenge attempted a merger with First Chance Marine, Inc. in order to
increase sales opportunities and investment possibilities for the combined
companies in March of 1999. The merger was not successful in achieving these
goals and was rescinded in June of 1999. Except for the completion of a few
boats in progress which were financed entirely by customers, Revenge ceased its
manufacturing operations in June of 1999. Subsequent to the end of the fiscal
year covered by this report on Form 10 K, Revenge disposed of its marine
manufacturing assets, which constituted substantially all of the Revenge
assets, excluding 500,000 common shares of First Chance Marine Finance, Inc.
With no significant assets and no revenue, Revenge restated its
purpose in September of 1999 as developing, coordinating and deploying internet
and e-commerce solutions to the recreational products, recreational sports and
recreational sports travel market, as well as recreational boating and sports
fishing. No operations consistent with the restated purpose have commenced as
of the filing of this statement.
LACK OF COMPARABILITY. For accounting purposes, and as a result of the
discontinuations of the manufacturing operations of Revenge, the operational
results for Fiscal 1998 and Fiscal 1999 are not comparable. Revenge had just
commenced its manufacturing operations at the close of Fiscal 1998. Because
operations had just commenced, the relatively modest losses occuring in Fiscal
1998 relative to Fiscal 1999 do not necessarily indicate the development of a
new trend.
REVENUES. Revenge's net loss from operations increased from a loss of
$318,932 in Fiscal 1998 to $4,350,855 in Fiscal 1999. The increase was
primarily the result of three elements: (i) the 1998 loss did not reflect more
than two months of manufacturing operations as opposed to the nearly twelve
months of manufacturing operations contained in the Fiscal 1999 loss; (ii)
Revenge significantly increased its overhead and expenses with the Blackfin
Acquisition and development of the Blackfin manufacturing capability and the
opening of the Miami facility; and (iii) Revenge was losing money on each
vessel that it built from the commencement of its operations, so that an
increase in vessel construction naturally corresponded to a proportionate
increased loss.
LOSS RELATING TO DISCONTINUED OPERATIONS The Company incurred a loss
of approximately $3,432,808 from discontinued operations and a loss of $918,047
on the disposal of assets for the year ended June 30, 1999 which were not
incurred in 1998, and which the Company believes will not recur in the future.
These charges were associated with discontinuation of manufacturing operations
and the Company's shift to focus on the internet and related information
technology industries.
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25
INTEREST EXPENSE. Interest expense totaled $155,316 for the year ended
June 30, 1999 compared to $8,134 during 1998, an increase of $147,182 or 95%.
This resulted primarily from interest on debt attributable to the Blackfin
Asset Acquisition and working capital related thereto borrowed from Finova
Captial Corporation.
LIQUIDITY AND CAPITAL RESOURCES The following table sets forth the
major components of the decrease in the cash and cash equivalents of Revenge:
Item 1999 1998
- ---- ----------- --------
Net Cash Used by Discontinued Operations (1,536,245) (275,839)
Net Cash used by Investing Activities (1,499,602) (108,063)
Net Cash Provided by Financing Activities 2,933,054 486,695
Net Increase (Decrease) in cash (102,793) 102,793
The net decrease in cash for the period can be attributed primarily to
the increased overhead of the Miami facility, the expenses associated with
establishing and maintaining the Blackfin production line and with servicing
the increased overhead of the Miami facility and the Finova obligations.
Although Revenge took certain steps during Fiscal 1999 to increase the amount
of available cash through financings, it was only able to raise $450,000 from
the aborted First Chance merger. Although management took an across the board
15% paycut and laid off nearly 40% of the workforce during the third quarter of
1999, these changes were not sufficient to provide any available cash to the
company for its operations.
OPERATIONAL CHANGES. Management undertook a major restructuring of the
Company beginning in late fiscal 1999 with the intent of divesting the Company
of its marine manufacturing assets. Some components of the restructuring
included the following: Laying off or terminating all of the full-time
employees with the exception of Mr. Robinson, ceasing all payment of salary,
vacating the Miami facility, selling the manufacturing assets for cash to pay
off the Finova debt and attempting to settle the outstanding payables to
creditors. Most of these efforts were not commenced until the end of Fiscal
1999 and the beginning of Fiscal 2000. There is no meaningful comparison
between the financial results of a non-operating company and those of an
operating company and therefore, no meaningful trend can be inferred by
financial developments during the last quarter of fiscal 1999.
CREDIT FACILITIES. The Company's credit facility with Finova Capital
Corporation was retired in August, 1999, after the close of Fiscal 1999. In
addition, any debts associated with the original acquisition of Egret and
Consolidated were disposed of in August of 1999.
SEASONALITY. Management doesn't believe that seasonality played a
meaningful role in the operational results of Fiscal 1999.
INFLATION. Management believes that there were no significant
inflationary price pressures that effected earnings from Fiscal 1998 to Fiscal
1999.
RECENT ACCOUNTING PRONOUNCEMENT
The Company does not believe its results for Fiscal 1999 were
significantly impacted by any recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Revenge does not invest or trade in foreign currency or commodity
transactions which would ordinarily be subject to market risk. As Revenge has
very little indebtedness presently tied to the prime rate, Revenge would not be
immediately effected by increases in the prime rate, except as Revenge began to
borrow additional capital to implement its internet and information technology
business plans. Revenge believes, however, that its financial instruments are
24
26
disclosed at their fair values. Fair value estimates are made at a specific
point in time and are based on relevant market information and information
about the financial instrument; they are subjective in nature and involve
uncertainties and matters of judgment and, therefore, cannot be determined with
precision. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular instrument. Changes in assumptions could significantly affect these
estimates. The carrying amount of cash and cash equivalents is assumed to be
the fair value because of the liquidity of these instruments. The carrying
amount of accounts payable and accrued expenses approximates fair value because
of the short maturity of these instruments. The terms of the Company's notes
payable approximates the terms in the market place at which they could be
replaced. Therefore, the fair value approximates the carrying value of these
financial instruments.
Item 8. Financial Statements and Supplementary Data
The financial statements are set forth in appendix A hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Officers of the Registrant
The executive officers, directors and other key employees of the Company, and
their ages and positions as of June 30, 1999, are as follows:
NAME AGE POSITION
- ---- --- --------
William Robinson 43 President, Chief Executive Officer, Director and
Secretary of Revenge
James Gardiner 43 Vice President and Director of Revenge*
Scott Flanders 54 Vice President and Director of Revenge*
James Gardiner, Scott Flanders resigned their offices and
directorships of Revenge in August of 1999.
William C. Robinson has served as a Director of Revenge since its
present inception in January of 1998. Mr. Robinson has served as President and
Chief Excutive Officer of Revenge since February of 1999. Prior to Revenge, Mr.
Robinson served as an officer of Maxxon, Inc., a medical device manufacturer
from February of 1997 through September of 1998. From February of 1996 until
February of 1997, Mr. Robinson served as President of Marine Acquisitions,
Inc., a manufacturer of sportfishing yachts. Prior to Marine Acquisitions, Mr.
Robinson served as a Vice President of Investments of Prudential Securities.
James Gardiner has served as a director and vice president of Revenge
since July of 1998. For the five years prior to Revenge, Mr. Gardiner was the
founder of Consolidated Yacht Corporation, which, under his leadership grew to
an $8 million boat builder, re-fitter, and repairer in five years, utilizing
advanced composite materials that today lead the industry. Egret Boat has
become the recognized quality and design leader in the highly specialized 16'
and 18' fishing boat, or "flats boat", industry that sells to affluent fishing
enthusiasts. Prior to founding Consolidated and Egret, Jim was a composite
materials consultant to Gougeon Bros., a custom builder of boats, plugs, and
molds. He has also served as production manager in charge of construction of
plugs, molds, and custom fiberglass motor yachts, developing advanced
vacuum-bagged, cored fiberglass construction.
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27
Scott Flanders has served as a director and vice-president of Revenge
since July, 1998. Concurrent with his involvement at Revenge, Mr. Flanders has
been for more than six years, a sales representative of Lewis Marine, a
supplier of parts and accessories to the marine trade.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The registrant was not supplied with copies of any forms filed by any
individuals under section 16(a) of the Securities and Exchange Act of 1934 and
has no basis to assess compliance with the same.
Item 11. Executive Compensation
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information concerning the compensation
paid by the Company during the Company's fiscal years ending June 30, 1999 and
June 30, 1998 to the Company's Chief Executive Officer. Note that no other
executive officer was compensated in excess of $100,000 per year. No directors
were compensated as such.
Summary Compensation Table
Restricted
Other Annual Stock LTIP All Other
Name and Position Year Salary Bonus Compensation Awards SAR's Payouts Compensation
- ------------------ ---- ------ ----- ------------- ----------- ----- ------- ------------
William Robinson 1998 0 0 0 0 0 0 0
CEO
William Robinson 1999 $72,000 0 0 0 605,000 0 $2.900
CEO
Donald Mitchell 1998 0 0 0 0 0 0 0
CEO*
Donald Mitchell 1999 $90,000 0 0 0 300,000 0 $2,900
CEO
* Donald Mitchell served as CEO of Revenge from September, 1998 through
February, 1999.
Option/SAR Grants Table
% of total
SARs granted Potention Gain Potential Gain
Name Numbe of SARs to employees Exercise Price Expiration at 5% a 10%
- ---- ------------- ------------ -------------- ---------- -------------- ---------------
William C. 605,000 22% $0.37 12-31-03 $11,192.50 $22,385
Robinson CEO
Donald Mitchell 300,000 11% $0.34 12-31-03** $ 5,100 $10,200
CEO*
* Donald Mitchell served as CEO of Revenge from September, 1998 through
February, 1999.
** Although the expiration date of the option is 12-31-03, the option contract
provides that exercise must take place within two months of termination from
Revenge. Mr. Mitchell did not exercise any options within two months of his
termination. Management has not yet determined whether the terms of Mr.
Mitchell's departure from the company allow his options to expire on 12-31-03
or whether they are already expired.
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28
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of Value of
Unexercised Unexercised
Shares Options In-the-Money
Acquired on Exerciseable/ Optionsbat FY
Name Exercise Value Realized Unexercisable End ($)
- ---- ----------- -------------- ------------- --------------
William C. Robinson 0 0 554,583/ 0
CEO 50,417
Donald Mitchell 0 0 300,000/ 0
CEO* 0
* Donald Mitchell served as CEO of Revenge from September, 1998 through
February, 1999.
Director Compensation
The directors are not compensated for being directors.
Employment Agreements
The Registrant has no employment agreements.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
Name and Address of
Beneficial Owner Shares beneficially Owned Percentage of Class
- ------------------- ------------------------- -------------------
Capital Markets Alliance
and Affiliates(2) 2,464,271(2)(3) 22.6%
James Gardiner(5) 1,295,333(4) 11.8%
Andrew M. Badolato 1,000,000 9.2%
Roy Meadows 900,171 8.25%
Scott Flanders(5) 579,058(3) 5.31%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of June 30,
1998 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of
each other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
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29
(2) Shares owned by Capital Market Alliance, Inc. are under the beneficial
ownership of Mrs. Desai Robinson, wife of William C. Robinson, an officer
and director. Capital Markets Alliance, Inc., is owned by Allied Capital
Corporation, which is owned by the Desai V. Robinson Living Trust. In
addition, Allied Capital Corporation owns 40,000 shares of Common Stock.
100,000 shares of Common Stock are also held by the Desai Vol Robinson
Children's Trust for the benefit of Mrs. Robinson's children.
(3) Includes the right to acquire 605,000 common shares at a per share price
of $0.37.
(4) Includes the right to acquire 605,000 common shares at a per share price
of $0.37
(5) Resigned as an officer and director effective August, 1999.
Item 13. Certain Relationships and Related Transactions
ALLIED CAPITAL CORPORATION
Since inception, Allied Capital Corporation ("Allied") has
periodically advanced cash to the Company and has directly paid legal and other
expenses on behalf of the Company. Allied owns 40,000 shares of the Company's
common stock and is the owner of Capital Markets Alliance, Inc., which is the
Company's principal shareholder, owning 1,954,431 of the 10,898,810 shares of
common stock outstanding at June 30, 1999. Allied is wholly owned by the Desai
Robinson Trust Fund. Desai Robinson is the former president of Revenge Marine
during fiscal 1998 and is the wife of William C. Robinson, President and Chief
Executive Officer of the Company. Thomas Schroeder, who resigned as Vice
President and Chief Financial Officer of Revenge Marine, Inc. effective June
30, 1998, and as a director in August, 1999, is President of Capital Markets
Alliance. At June 30, 1999 and 1998, the Company's total debt to Allied was
$127,304 and $145,528, respectively.
CONSOLIDATED YACHT CORPORATION
The Company purchased certain assets of Consolidated Yacht Corporation
in October 1998. Jim Gardiner, President of CYC, was an officer of Revenge
Marine at the time of the asset purchase and CYC shared its manufacturing
facilities with Egret Boat Company prior to the asset purchase.
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements and Financial Statement Schedules. The following
Consolidated Financial Statements and supporting schedule of Revenge Marine,
Inc. and the Report of Independent Auditors are included at pages F-1 through F-
of this Form 10-K.
Description Page No.
- ----------- --------
Independent Auditors' Report.................................................... ...................F-1
Consolidated Balance Sheets as of June 30, 1999 and June 30, 1998...................................F-2
Consolidated Statements of Operations for Years Ended June 30, 1999 and June 30,
1998.............................................................................................F-3
Consolidated Statements of Cash Flows for the Years Ended June 27, 1999 and June 28,
1998.............................................................................................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
June 27, 1999 and June 28, 1998..................................................................F-5
Notes to Consolidated Financial Statements..........................................................F-6
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto.
REPORTS ON FORM 8-K
Current Report on Form 8-K dated February 26, 1999, reporting the
terms of a merger with First Chance Marine Finance, Inc.
Current Report on Form 8-K dated March 29, 1999, reporting the revised
terms of a merger with First Chance Marine Finance, Inc.
Current Report on Form 8-K dated September 9, 1999, reporting the
terms of a letter of intent for merger with Reel Fishing Corporation, the sale
of the Blackfin Assets, the sale of the Egret Assets and the sale of the
Consolidated Yacht Assets.
Current Report on Form 8-K dated September 9, 1999, reporting the
terms of a letter of intent for merger with Reel Fishing Corporation, the sale
of the Blackfin Assets, the sale of the Egret Assets and the sale of the
Consolidated Yacht Assets.
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EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.1 Certificate of Incorporation of the Company, as amended,
incorporated by reference to the Company's registration
statement on Form 10 filed on October 28, 1998.
3.2 Amended and Restated Bylaws of the Company, incorporated by
reference to the Company's registration statement on Form 10
filed on October 28, 1998.
4.1 Form of the Company's Common Stock Certificate, incorporated
by reference to the Company's Form 10
10.1 Agreement of Merger with First Chance Marine Finance, Inc.
incorporated by reference from the Company's report on 8-K
dated March 29, 1999.
10.2 Rescission Agreement with First Chance Marine Finance, Inc.,
incorporated by reference from the Company's report on 10-Q
dated July 29, 1999.
10.3 1998 Revenge Marine, Inc. Incentive Stock Option Plan and
Related Agreements Adopted by the Board of Directors.
10.4 Termination and Replacement Agreement between Registrant and
Blackfin Yacht Acquisition Corporation dated June 30, 1999.
10.5 Warrant Agreement between Registrant and Blackfin Yacht
Acquisition Corporation dated June 30, 1999.
10.6 Warrant Agreement between Registrant and Pete Johnson dated
June 30, 1999.
10.7 Asset Purchase Agreement between Registrant and Consolidated
Yacht Corporation dated June 30, 1999 and incorporated by
reference from the Company's report on 8-K dated September 9,
1999.
21.1 List of Subsidiaries.
23.1 Consent of Cross and Robinson, Independent Auditors.
27.1 Financial Data Schedule for June 30, 1998.
27.2 Financial Data Schedule for June 30, 1999.
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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: November 3, 1999 REVENGE MARINE, INC.
By /s/ William C.Robinson
-------------------------------------
William C. Robinson
President and Chief Executive Officer
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33
REVENGE MARINE, INC.
--------------------
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
AND
INDEPENDENT AUDITOR'S REPORT
34
REVENGE MARINE, INC.
--------------------
C O N T E N T S
PAGE
----
Independent Auditor's Report 1
Consolidated Balance Sheet 2
Consolidated Income Statements 3
June 30, 1999 Consolidated Statement of Shareholders' Equity 4
June 30, 1998 Consolidated Statement of Shareholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-19
35
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Revenge Marine, Inc.
We have audited the accompanying consolidated balance sheets of
Revenge Marine, Inc., (a Nevada corporation) and subsidiaries as of June 30,
1999 and 1998, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year ended June 30, 1999 and for the period from
September 5, 1997 (date of inception) to June 30, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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 used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Revenge Marine, Inc. as of June 30, 1999 and 1998, and the results of its
operations and its cash flows for the initial period then ended in conformity
with generally accepted accounting principles.
CROSS AND ROBINSON
Certified Public Accountants
September 10, 1999
Page 1 of 19
36
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
JUNE 30, 1999 AND 1998
-----------------------
1999 1998
---- ----
ASSETS
CURRENT ASSETS
Cash $ -- $ 102,793
Proceeds receivable, discontinued operations (Note 3) 2,200,000 --
Prepaid Expenses 60,000 176,608
Work in Progress -- 60,500
----------- -----------
TOTAL CURRENT ASSETS 2,260,000 339,901
----------- -----------
PROPERTY AND EQUIPMENT, NET (NOTE 5) 1,796 239,420
----------- -----------
OTHER ASSETS
Deposits -- 50,000
Investment in First Chance Marine Finance, Inc. (Note 4) 1,000,000 --
Intangible assets, net (Note 6) 1,700 2,366,483
----------- -----------
TOTAL OTHER ASSETS 1,001,700 2,416,483
----------- -----------
TOTAL ASSETS $ 3,263,496 $ 2,995,804
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdrafts $ 3,636 $ --
Accounts payable 933,557 28,916
Accounts payable-related parties (Note 7) 127,304 50,786
Accrued liabilities 198,744 9,283
Customer deposits -- 64,500
Notes payable (Note 8) 2,116,500 66,252
Notes payable-related parties (Note 8) -- 94,742
----------- -----------
TOTAL LIABILITIES 3,379,741 314,479
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 13) 79,000 0
----------- -----------
SHAREHOLDER'S EQUITY
Preferred stock, 5,000,000 shares authorized, no shares
outstanding at June 30, 1998; 2718 shares of $40 par
Series B Convertible Preferred Stock (liquidation 108,720 --
preference $108,720) outstanding at June 30, 1999
Common stock $0.001 par value, 50,000,000 shares
authorized 10,898,810 and 6,675,720 shares issued
and outstanding at June 30, 1999 and 1998, respectively 10,899 6,676
Subscriptions receivable -- (100,000)
Additional paid-in capital 4,354,923 3,093,581
Retained earnings (4,669,787) (318,932)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY (195,245) 2,681,325
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,263,496 $ 2,995,804
=========== ===========
Accompanying notes are an integral part of the consolidated
financial statements.
Page 2 of 19
37
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
-----------------
CONSOLIDATED INCOME STATEMENTS
------------------------------
FOR THE YEAR ENDED JUNE 30, 1999 AND FOR THE PERIOD
------------------------------------------------------
SEPTEMBER 5, 1997 (DATE OF INCEPTION) TO JUNE 30, 1998
------------------------------------------------------
1999 1998
---- ----
DISCONTINUED OPERATIONS (NOTE 3):
LOSS FROM DISCONTINUED OPERATIONS $(3,432,808) (318,932)
LOSS ON DISPOSAL OF ASSETS
FROM DISCONTINUED OPERATIONS (918,047) --
----------- --------
NET LOSS $(4,350,855) $ (318,932)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 10) 7,129,680 4,325,237
=========== ===========
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS $ (0.61) $ (0.07)
=========== ===========
Accompanying notes are an integral part of the consolidated
financial statements.
Page 3 of 19
38
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT)
--------- ------ ---------- ---------
BALANCE AT JUNE 30, 1998 $ -- $ 6,676 $ 3,093,581 $ (318,932)
1,004,005 shares issued through
conversion of debentures -- 1,004 243,546
180,692 shares issued pursuant to asset
purchase agreement (Note 4) -- 180 236,888
194,281 shares issued in exchange
for services rendered -- 194 155,299
1,692,558 shares issued to First Chance
per rescission agreement (Note 4) -- 1,693 1,448,307
895,333 shares cancelled pursuant to
CYC rescission agreement (Note 4) -- (895) (1,368,964)
895,333 shares issued pursuant to lease
settlement agreement (Note 13) -- 895 177,105
5,938 shares issued in exchange for
cancellation of debt 237,500 -- --
1,206 shares issued pursuant to BYC
rescission agreement (Note 4) 48,240 -- --
4,832 shares issued for cash 193,293 -- --
9,258 shares of preferred stock converted
into 1,151,554 common shares (370,313) 1,152 369,161
NET LOSS (4,350,855)
---------- -------- ----------- -----------
BALANCE AT JUNE 30, 1999 $ 108,720 $ 10,899 $ 4,354,923 $(4,669,787)
========== ======== =========== ===========
Accompanying notes are an integral part of the consolidated
financial statements.
Page 4 of 19
39
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE PERIOD SEPTEMBER 5, 1997 (DATE OF INCEPTION)
----------------------------------------------------
TO JUNE 30, 1998
----------------
COMMON STOCK ADDITIONAL
----------------------- PAID - IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------------ --------
COMMON STOCK, PAR VALUE $0.001
50,000,000 SHARES AUTHORIZED:
Issued for cash, September 1997 3,000,000 3,000 --
Stock subscription, December 1997, less
issuance costs of $ 7,800 240,000 240 471,960
Issued to original Global shareholders,
per agreement dated January 23, 1998 798,890 799 (799)
Proceeds from 504 offering dated
February 2, 1998 500,000 500 --
Proceeds from conversion of debentures
dated March 27, 1998 250,713 251 249,749
Issued through private offering dated
May 10, 1998, in exchange for services 333,761 334 174,223
Private offering dated May 15, 1998:
Issued for cash 100,000 100 99,900
Subscribed to at June 30,1998 100,000 100 99,900
Issued to the shareholder's of Egret Boat
Company, May 1998 955,414 955 1,499,045
Issued to the shareholder's of Consolidated
Marine, Inc., May 1998 636,942 637 999,363
Stock issuance costs January - June 1998 -- -- (20,000)
Stock subscription cancelled (240,000) (240) (479,760)
Net loss for the period -- -- -- (318,932)
----------- --------- ----------- ---------
BALANCE AT JUNE 30, 1998 $ 6,675,720 $ 6,676 $ 3,093,581 $(318,932)
=========== ========= =========== =========
Accompanying notes are an integral part of the consolidated
financial statements.
Page 5 of 19
40
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEAR ENDED JUNE 30, 1999 AND FOR THE PERIOD
---------------------------------------------------
SEPTEMBER 5, 1997 (DATE OF INCEPTION) TO JUNE 30, 1998
------------------------------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 6,817,156 $ 142,286
Interest received 18,120 15
Cash paid for goods and services (8,216,205) (416,600)
Interest paid (155,316) (1,540)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,536,245) (275,839)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES:
Fixed asset purchases and improvements (1,499,602) (108,063)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 721,048 353,500
Proceeds from long-term debt 2,100,000 --
Proceeds from short-term debt 331,500 161,952
Repayment of short-term debt (160,994) (957)
Repayment of long-term debt (58,500) --
Stock issuance costs incurred -- (27,800)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,933,054 486,695
----------- -----------
NET INCREASE IN CASH (102,793) 102,793
CASH AT BEGINNING OF PERIOD 102,793 --
----------- -----------
CASH AT END OF PERIOD $ -- $ 102,793
=========== ===========
RECONCILIATION OF NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
Net Loss .............................................. $(4,350,855) $ (318,932)
Adjustments to reconcile net loss to net
cash used by operating activities:
Loss on sale of assets ........................... 918,047 --
Depreciation ..................................... 174,790 6,752
Amortization of intangible assets ................ 61,268 6,511
Stock issued in exchange for services ............ 322,288 174,557
Stock issued pursuant to BYC rescission .......... 48,240 --
Increase (Decrease) in customer deposits ......... (64,500) 64,500
(Increase) Decrease in work in progress .......... 60,500 (60,500)
(Increase) Decrease in deposits .................. 50,000 (50,000)
Increase (Decrease) in accrued liabilities ....... 501,971 60,066
(Increase) Decrease in stock subscriptions rec.... 100,000 --
(Increase) Decrease in prepaid assets ............ 89,561 (176,607)
(Increase) Decrease in accounts receivable ....... (238,430)
(Increase) Decrease in intangible assets ......... -- (11,102)
Increase (Decrease) in accounts payable .......... 708,238 28,916
Increase (Decrease) in contingent liabilities .... 79,000 --
Increase (Decrease) in cash overdrafts ........... 3,636 --
----------- -----------
Total adjustments ................................ 2,814,610 43,093
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES ................. $(1,536,245) $ (275,839)
=========== ===========
SCHEDULE OF OTHER NON-CASH TRANSACTIONS:
Stock issued in connection with subsidiary acquisitions $ 237,068 $ 2,500,000
Stock issued pursuant to a subscription agreement ..... $ -- $ 100,000
Loans converted to stock .............................. $ 237,500 $ --
Stock issued pursuant to rescission agreements ........ $ 1,498,240 $ --
Stock cancelled pursuant to rescission agreements ..... $(1,369,859) $ --
Accompanying notes are an integral part of the consolidated
financial statements.
Page 6 of 19
41
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Revenge Marine, Inc. (hereinafter referred to as
"Revenge" or "the Company") is a publicly traded Nevada
company that was incorporated December 28, 1979. The Company
has operated under various names since its incorporation,
most recently operating as Global Energy Organization
Corporation ("Global"). The Company had no significant
operations from January 1995 through January 1998.
The Company entered the development stage after it
reorganized in January 1998 (see Note 4) and changed its
primary focus to acquiring yacht manufacturing and marine
technology companies. In July 1998, the Company commenced its
principal operations and was no longer considered to be in
the development stage for the fiscal year ended June 30,
1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the
accounts of Revenge Marine, Inc. and its wholly owned
subsidiaries, Revenge Marine, Inc., (an Oklahoma
corporation), Egret Boat Company, Inc., (a Florida
corporation), and Consolidated Marine, Inc. (a Florida
corporation), after elimination of all material intercompany
transactions and balances.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments
(that are readily convertible to cash) purchased with
original maturity dates of three months or less to be cash
equivalents.
Cash overdraft positions may occur from time to time
due to the timing of making bank deposits and releasing
checks in accordance with the Company's cash management
policies.
REVENUE RECOGNITION
Revenue from newly manufactured boats is recognized
when the completed boat is delivered and title is transferred
to the customer. Revenue from other projects is recognized
upon completion of the project. Revenues are recorded net of
returns, allowances and discounts.
Page 7 of 19
42
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include organizational costs,
costs associated with developing a new line of yachts, and
the Company's investment in its subsidiaries in excess of the
book value of the subsidiaries' net assets. Intangible assets
are amortized over their estimated useful life (generally 5
to 15 years) using the straight-line method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and
depreciated using the straight-line method for financial
reporting and accelerated methods for income tax purposes
over the estimated useful life of the asset, typically 5 to
10 years. Leasehold improvements are amortized over the
shorter of the useful life of the improvement or the
remaining term of the lease. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss
is reflected in operations in the period realized.
INCOME TAXES
The Company uses the liability method of accounting
for income taxes as set forth in Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Under the liability method, deferred taxes are determined
based on the differences between the financial statement and
tax bases of assets and liabilities at enacted tax rates in
effect in the years in which the differences are expected to
reverse. Presently, the Company files its tax returns on a
calendar year basis, which may result in temporary
differences in book and tax reporting. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported revenues and expenses
during the reporting period. Accordingly, actual results could
differ from those estimates.
Page 8 of 19
43
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of SFAS No.
128, "Earnings per Share", which requires presentation on the
face of the income statement of both basic and diluted
earnings per share. Basic and diluted earnings per share have
replaced the previously presented primary and fully diluted
earnings per share. Basic earnings per share is computed by
dividing net income attributable to common shares by the
weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed based on
the assumption that all of the Company's outstanding common
stock options, warrants, and convertible preferred stock are
converted into common shares.
In years where the Company recognizes a loss from
continuing operations, the assumed exercise of outstanding
stock options, warrants, and convertible preferred stock has
an antidilutive effect (i.e., it increases net loss per
share). As a result, these items are not included in the
weighted average number of shares used in the calculation of
loss per share in Note 10.
PREPAID EXPENSES
Certain expenses are routinely paid that cover more
than the current fiscal period. Prepaid expenses at June 30,
1999 and 1998 consisted of consulting services.
MARKETABLE SECURITIES
The Company accounts for marketable securities in
accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement requires certain
investments to be recorded at fair value or amortized cost.
The appropriate classification of the investments in
marketable equity securities is determined at the time of
purchase and re-evaluated at each balance sheet date. The
Company's investment in First Chance Marine Finance, Inc.
(see Note 4) is recorded at cost, as the fair market value of
the equity securities could not be readily determined.
INVENTORIES
Inventories are stated at cost, determined by the
first-in, first-out method.
Page 9 of 19
44
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
LEASES
Leases that transfer substantially all of the risks
and benefits of ownership are capital leases. Other leases
are operating leases. Capital leases are included in fixed
assets and are amortized using the straight-line method over
their respective terms. Operating leases are expensed over
the terms of the leases using the straight-line method.
ADVERTISING
The Company expenses all advertising costs as they
are incurred. Total advertising costs for the years ended
June 30, 1999 and 1998 were $371,350 and $5,821,
respectively.
NOTE 3 - DISCONTINUED OPERATIONS
In June 1999, the Company resolved to discontinue
its marine operations and to sell substantially all of its
assets. The assets were disposed of through the rescission of
the Consolidated Yacht Corporation ("CYC") acquisition (see
Note 4) and through two cash sales totaling $2,200,000 in
August 1999. Accordingly, the results of the Company's
operations and the loss on the disposal of assets have been
reflected as discontinued operations on the income statement.
The balance sheet reflects the assets remaining after the
disposal of assets was complete.
NOTE 4 - REORGANIZATION AND ACQUISITIONS
GLOBAL ENERGY ORGANIZATION CORPORATION
In January 1998, Revenge Marine, Inc. (formerly
Revenge Yachts, Inc.), an Oklahoma corporation, executed a
Stock Exchange Agreement (the "Agreement") with Global Energy
Organization Corporation ("Global"), a publicly traded Nevada
corporation, which had been inactive for the previous five
years.
Pursuant to the Agreement dated January 23, 1998,
Global issued 3,240,000 shares of its $.001 par value common
stock in exchange for 100% of the issued and outstanding
common stock of Revenge Marine, Inc. As a result of this
"reverse acquisition", Revenge Marine, Inc. became a wholly
owned subsidiary of Global. In accordance with the terms of
the agreement, Global (the Nevada parent) adopted the name
"Revenge Marine, Inc."
Page 10 of 19
45
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
BYC ACQUISITION CORPORATION
Under an agreement dated October 22, 1998, the
Company purchased substantially all of the assets and certain
liabilities of BYC Acquisition Corporation ("BYC"), a
Delaware corporation. In consideration of the transfer of
assets and liabilities, Revenge paid $1,005,455 in cash and
issued a warrant entitling BYC to purchase up to 545,455
shares of Revenge's common stock at an exercise price of
$6.44 per share at any time through October 22, 2001. The
agreement also called for Revenge to pay a 2% of sales price
fee on all Blackfin sales to BYC for a period of three years
from the agreement date. The assets acquired consist
primarily of boat molds and shop equipment.
The purchase agreement was terminated pursuant to a
replacement agreement dated June 30, 1999, whereby all
assumed liabilities were returned to BYC, the stock warrant
was returned to Revenge, and the Company's obligation for any
accrued fees on Blackfin sales was terminated. In
consideration of the termination of the purchase agreement,
the Company issued to BYC 1,206 shares of its Series B
Cumulative Convertible Preferred Stock and issued a warrant
to purchase up to 1,500,000 shares of Revenge's common stock
at an exercise price of $0.37 per share. Further, the Company
is obligated to pay BYC a fee equal to 1% of its total
revenues from all sources for the period from April 1, 1999
to April 30, 2002.
CONSOLIDATED YACHT CORPORATION, INC.
On September 8, 1998, the Company purchased
substantially all of the assets of Consolidated Yacht
Corporation, Inc. ("CYC") in exchange for a promissory note
in the amount of $458,162. The president of CYC was a related
party to the Company as further disclosed in Note 7.
The purchase agreement was terminated by means of a
rescission agreement dated June 30, 1999. The rescission
agreement called for the return of all purchased assets, the
cancellation of the promissory note, and the immediate
vesting of stock options held by the president of CYC.
Further, an automobile was transferred to CYC in
exchange for monies advanced to Revenge by CYC's president.
CYC's president returned 895,333 shares of stock to the
Company, which had been issued to him pursuant to Revenge's
acquisition of Egret Boat Company and Consolidated Marine
(see following disclosures). CYC will assume the lease on the
Company's operating facility.
Page 11 of 19
46
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 4 - REORGANIZATION AND ACQUISITIONS (CONTINUED)
FIRST CHANCE MARINE FINANCE, INC.
On June 4, 1999, the Company entered into an
agreement to rescind an attempted merger with First Chance
Marine Finance, Inc. ("First Chance"), a Florida corporation.
Pursuant to this agreement, the Company issued a total of
1,696,000 shares of its common stock, valued at $1,450,000 to
First Chance and its associates. First Chance, which had
previously advanced the Company $450,000 in cash, issued
500,000 of its common stock, valued at $1,000,000 to Revenge.
The 500,000 shares issued to Revenge equate to approximately
7% of First Chance's total outstanding common stock at June
30, 1999.
EGRET BOAT COMPANY, INC.
Pursuant to a stock exchange agreement dated May 21,
1998, the Company issued 955,414 shares of its common stock,
valued at $1,500,000, in exchange for all of the outstanding
shares of Egret Boat Company, Inc., a Florida corporation.
The acquisition was accounted for as a purchase and,
accordingly, the results of operations of the acquired
business and the fair market values of the acquired assets
and liabilities are included with consolidated operations
from the date of acquisition. The purchase price was
allocated as follows:
Property and equipment $ 117,547
Working capital, net 20,061
Other intangible assets 1,362,392
-----------
Total $ 1,500,000
===========
CONSOLIDATED MARINE, INC.
Pursuant to a stock exchange agreement dated May 27,
1998, the Company issued 636,942 shares of its common stock,
valued at $1,000,000 in exchange for all of the outstanding
common shares of Consolidated Marine, Inc. (CMI), a Florida
corporation. The acquisition was accounted for as a purchase
and, accordingly, the results of operations of the acquired
business and the fair market values of the acquired assets
and liabilities are included with consolidated operations
from the date of acquisition. In August 1999, the purchase
price was renegotiated and an additional 180,692 shares of
Revenge stock valued at $237,068 were issued to CMI. The
revised purchase price was allocated as follows:
Organization costs $ 500
Other intangible assets 1,236,568
-------------
Total $ 1,237,068
=============
Page 12 of 19
47
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at
June 30:
1999 1998
--------- ---------
Molds and prototype $ -- $ 242,523
Equipment -- 85,000
Automobiles -- 45,493
Office equipment 5,374 5,429
--------- ---------
Total consolidated property and
Equipment 5,374 378,445
Less accumulated depreciation (1,229) (139,025)
--------- ---------
Net property and equipment $ 4,145 $ 239,420
========= =========
Total depreciation expense for 1999 and 1998 was
$174,790 and $6,752, respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consists of the following at
June 30:
ESTIMATED
USEFUL
1999 1998 LIFE
--------------- ---------------- ---------------
Investment in subsidiaries
in excess of book value $ -- $ 2,361,892 15 years
Marine assets -- 8,602 5 years
Organizational costs 2,500 2,500 5 years
----------- --------
Total intangible assets 2,500 2,372,994
Less accumulated amortization (800) (6,511)
----------- -----------
Net intangible assets $ 1,700 $ 2,366,483
=========== ===========
The investment in subsidiaries and the marine assets
were charged to discontinued operations in the current year
(see Note 3). Total amortization expense for 1999 and 1998
was $61,268 and $6,511, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
ALLIED CAPITAL CORPORATION
Since inception, Allied Capital Corporation
("Allied") has periodically advanced cash to the Company and
has directly paid legal and other expenses on behalf of the
Company. Allied owns 40,000 shares of the Company's common
Page 13 of 19
48
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
stock and is the owner of Capital Markets Alliance, Inc.,
which is the Company's principal shareholder, owning 1,954,431
of the 10,898,810 shares of common stock outstanding at June
30, 1999. Allied is wholly owned by the Desai Robinson Trust
Fund. Desai Robinson is the former president of Revenge Marine
and is the wife of William C. Robinson, President and Chief
Executive Officer of the Company. Thomas Schroeder, who
resigned as Vice President and Chief Financial Officer of
Revenge Marine, Inc. effective June 30, 1998, is President of
Capital Markets Alliance. At June 30, 1999 and 1998, the
Company's total debt to Allied was $127,304 and $145,528,
respectively.
CONSOLIDATED YACHT CORPORATION
As further disclosed in Note 4, the Company
purchased certain assets of Consolidated Yacht Corporation in
October 1998. Jim Gardiner, President of CYC, was an officer
of Revenge Marine at the time of the asset purchase and CYC
shared its manufacturing facilities with Egret Boat Company
prior to the asset purchase.
NOTE 8 - NOTES PAYABLE
Notes payable consists of the following at June 30:
1999 1998
--------------- ---------------
Notes payable to related-party shareholders (see Note 7):
Promissory note, due on or before
November 16, 1998 at an interest rate of 10%
per annum. $ -- $ 94,742
Notes payable to other entities:
Note payable to FINOVA Capital
Corporation, secured by certain fixed assets,
due on or before October 00,0000, in default
at June 30, 1999, with interest equal to the
prime rate plus 1% (10% at June 30, 1999). 2,041,500 --
Demand note due on or before June 1, 1998,
in default at June 30, 1999, with an interest
rate of 10% per annum. $ -- 7,153
Page 14 of 19
49
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
Unsecured $75,000 operating line of credit
with First Union National Bank, with interest
only payments due monthly at an interest rate
equal to the prime rate plus 2% (9.75% and
10.5% at June 30, 1999 and 1998, respectively). 75,000 53,000
Retail vehicle installment contract with Chrysler
Financial Corporation, due in monthly installments of
principal and interest of $613, with fixed interest at
8.9% until February 22, 1999. This note is secured by a
Dodge Caravan. -- 4,164
Retail vehicle installment contract with Ford Motor
Credit, due in monthly installments of principal and
interest of $613 with fixed interest at 8.25% until
December 29, 1998. This note is secured by a 1995 Ford
Econoline Van. -- 1,935
--------------- ----------------
Total Current Notes Payable $2,116,500 $160,994
=============== ================
The note payable to FINOVA Capital Corporation was
paid in August 1999 from the proceeds of the asset sale
referred to in Note 3.
NOTE 9 - CAPITALIZATION
The capital stock of the corporation at June 30, 1999
was as follows:
Series B 10% Cumulative Convertible Preferred
Stock, $40 par value, convertible into Common Stock based on
a 40% discount to the bid price as listed on the NASDAQ
Bulletin Board on the day of conversion; authorized 75,000
shares; 17,330 shares issued and 2,718 shares outstanding at
June 30, 1999; liquidation preference equal to the par value
of any outstanding shares plus accrued dividends, if any
prior to any distributions to Common Stock holders.
Common Stock, $0.001 par value, 50,000,000 shares
authorized, 10,898,810 and 6,675,720 shares issued and
outstanding at June 30, 1999 and 1998.
Page 15 of 19
50
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
NOTE 10 - INCOME PER COMMON SHARE
The computations of basic and dilutive income per
share from continuing operations were as follows:
1999 1998
---------------- -----------
Income (loss) attributable to common shares $ (4,350,855) $ (318,932)
================ ===========
Weighted average common shares outstanding 7,129,680 4,325,237
================ ===========
Basic and dilutive income (loss) per share $ (0.61) $ (0.07)
================ ===========
The Company's outstanding common stock options,
warrants and convertible preferred stock referred to in Notes
9 and 11 were not included in the computation of diluted loss
per share because the effect of their inclusion would be
antidilutive.
NOTE 11 - STOCK OPTIONS AND WARRANTS
In December 1998, the Company adopted its 1998
Incentive Stock Plan ("the Plan") under which 2.8 million
options to purchase common stock were granted to
substantially all full-time employees. The options granted
under the Plan extend for 5 years from the date of grant and
vest in monthly increments over a period of up to two years.
The exercise price was equal to the stock price on the grant
date. The Plan is considered to be a non-compensatory plan,
as defined by Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation". Accordingly,
no compensation cost has been recognized for the year ended
June 30, 1999.
In June 1999, the Company issued a warrant to
purchase up to 1,500,000 shares of the Company's common stock
at an exercise price of $0.37 per share. The warrant was
issued pursuant to a rescission agreement further disclosed
in Note 4. The warrant expires June 30, 2002.
In June 1999, the Company issued a warrant to
purchase up to 250,000 shares of the Company's common stock
at an exercise price of $0.37 per share in exchange for
consulting services relating to the BYC asset acquisition
further disclosed in Note 4. The warrant expires June 30,
2002.
In May 1998, the Company granted stock options
pursuant to a consulting agreement to purchase 175,000 shares
of common stock at $1.00 per share, 175,000 shares of common
stock at $1.50 per share, and 175,000 shares of common stock
at $2.00 per share. The options expire December 31, 2000.
In May 1998, the Company issued a warrant to
purchase up to 20,000 shares of the Company's common stock at
an exercise price of $1.50 per share as partial consideration
for consulting services.
Page 16 of 19
51
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
Information with respect to all stock options and
warrants is summarized below:
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
Outstanding at inception -- $ --
Granted 1998 545,000 1.50
------------ ---------------
Outstanding at June 30, 1998 545,000 1.50
Granted 1999 4,550,000 0.37
------------ ---------------
Outstanding at June 30, 1999 5,095,000 0.49
============ ===============
Options exercisable, June 30, 1998 545,000 1.50
Options exercisable, June 30, 1999 4,373,054 0.51
NOTE 12 - INCOME TAXES
The Company has incurred net operating losses since
inception and has a loss carryforward of approximately
$4,300,000 at June 30, 1999, expiring in years beginning in
2013. As of June 30, 1999 and 1998, the Company had a net
deferred tax asset of $1,739,402 and $127,573 respectively. A
valuation allowance has been recognized to fully offset this
asset due to the uncertainty of realizing the future benefit in
accordance with the provisions of FASB Statement No. 109,
"Accounting for Income Taxes". The Company continually reviews
the adequacy of the valuation allowance and will recognize the
tax benefits of these assets only as assessment indicates that
it is more likely than not that the benefits will be realized.
Significant components of the Company's deferred tax
assets and liabilities as of June 30, 1999 and 1998 are as
follows:
1999 1998
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 1,739,402 $ 127,573
Valuation allowance (1,372,183) (110,861)
----------- -----------
Total deferred tax assets 367,219 16,712
----------- -----------
Deferred tax liabilities:
Loss on discontinued operations $ 367,219
Tax over book depreciation -- $ 18,680
Book over tax amortization -- (1,968)
----------- -----------
Net tax deferred liabilities 367,219 16,712
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
Page 17 of 19
52
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
Deferred taxes reflect a combined federal and state
tax rate of approximately 40%. A reconciliation between the
amount of federal and state income taxes, based on a forty
percent (40%) tax rate, and the effective amount of income
taxes charged to operations is as follows:
1999 1998
----------- -----------
Statutory federal income taxes (refund) (1,739,402) $ (127,573)
Loss on discontinued operations 367,219 --
Tax over book depreciation -- 16,712
Book over tax amortization -- 1,968
Valuation allowance 1,372,183 110,861
----------- -----------
Effective income taxes $ -- $ --
=========== ===========
NOTE 13 - COMMITMENTS AND CONTINGENCIES
PROMISSORY NOTE
On July 14, 1999, the Company signed a promissory
note to pay a related party $100,000 in exchange for funds
advanced by the payee to complete the construction of various
boats. The note, which is collateralized by a Blackfin boat,
bears interest at a rate of 10% per annum and is due on
January 1, 2000.
LEGAL PROCEEDINGS
The Company is engaged in legal proceedings arising
from normal business activities. In the opinion of legal
counsel, the maximum future liability arising from these
proceeding would not exceed $79,000.
LEASE OBLIGATIONS
In 1999, the Company was obligated under operating
and capital leases for its operating facility and certain
office equipment, most of which were cancelled or assumed by
other parties after the Company decided to discontinue its
marine operations (see Note 3). Amounts capitalized under a
capital lease were charged to discontinued operations upon
transfer of the lease to another party.
The lease on the Company's operating facility was
assumed by Consolidated Yacht Corporation, pursuant to an
October 1999 agreement with the owner of the property. In a
related settlement agreement with the landlord, the Company
co-signed a promissory note for $178,000, which is to be paid
by CYC. In consideration for paying the promissory note, the
Company agreed to nullify the cancellation of 895,333 shares
of Revenge Marine common stock owned by CYC's president.
These shares were to be cancelled pursuant to the June 30,
1999 rescission agreement disclosed in Note 4.
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53
REVENGE MARINE, INC.
--------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
The Company is obligated under a non-cancelable
lease for computer equipment. Subsequent to June 30, 1999,
the Company entered into an agreement to sublease the
computer equipment to Consolidated Yacht Corporation. The
Company's future minimum obligation under the computer lease
and the amount to be received under the subleasing agreement
is as follows:
FISCAL YEAR
ENDED JUNE 30,
-------------------
2000 $ 5,283
2001 5,283
2002 5,283
2003 4,403
------------
$ 20,252
============
Total rental expense under all leases was $623,672
and $ -0- in 1999 and 1998, respectively.
NOTE 14 - RECLASSIFICATIONS OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 financial
statement presentation. Such reclassifications had no effect
on net income as previously reported.
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