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.
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
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.
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.
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.
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.
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."
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.
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 ----------
Total $1,500,000 ==========
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 ----------
Total $1,237,068 ==========
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.
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.
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
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
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
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.
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.
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
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
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.
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.
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.
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.
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
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.
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.
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
Item 6.
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 7.
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.
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.
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:
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.
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
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.
Item 8. Financial Statements and Supplementary Data
The financial statements are set forth in appendix A hereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
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.
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.
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
* Donald Mitchell served as CEO of Revenge from September, 1998 through February, 1999.
Option/SAR Grants Table
* 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.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
* 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
(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.
(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.
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.
Item 14.
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 through F- of this Form 10-K.
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.
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.
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
REVENGE MARINE, INC. --------------------
CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 AND 1998
AND
INDEPENDENT AUDITOR'S REPORT
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
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
REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------
CONSOLIDATED BALANCE SHEETS --------------------------- JUNE 30, 1999 AND 1998 -----------------------
Accompanying notes are an integral part of the consolidated financial statements.
Page 2 of 19
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 ------------------------------------------------------
Accompanying notes are an integral part of the consolidated financial statements.
Page 3 of 19
REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ---------------------------------------------- FOR THE YEAR ENDED JUNE 30, 1999 --------------------------------
Accompanying notes are an integral part of the consolidated financial statements.
Page 4 of 19
REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ---------------------------------------------- FOR THE PERIOD SEPTEMBER 5, 1997 (DATE OF INCEPTION) ---------------------------------------------------- TO JUNE 30, 1998 ----------------
Accompanying notes are an integral part of the consolidated financial statements.
Page 5 of 19
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 ------------------------------------------------------
Accompanying notes are an integral part of the consolidated financial statements.
Page 6 of 19
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
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 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 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 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 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 =============
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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:
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:
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 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:
Page 14 of 19 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ----------------------
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
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:
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
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:
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:
Page 17 of 19 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:
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.
Page 18 of 19 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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