Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act [ ]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year. $15,225,021
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. ($0.08 on October 15, 2007) $710,082.24
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: October 15, 2007: 18,863,861 Shares
of Common Stock.
Transitional Small Business Disclosure Format (Check One). Yes [ ] No [X]
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANT WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The following table sets forth the names, positions with JMIH and ages
of the executive officers and directors of JMIH. Directors are elected at JMIH'S
annual meeting of shareholders and serve for one year or until their successors
are elected and qualify. Officers are elected by the Board and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the Board of Directors.
Name Age Position Held
---- --- -------------
Carl M. Herndon, Sr. 68 Director, President and Chief Executive Officer
Lawrence S. Tierney 61 Director, Vice President and Chief Operating Officer, Chief
Financial Officer and Secretary
Kerry Clemmons 62 Director, Audit Committee
|
Carl Herndon, Sr. - Mr. Herndon has been president, chief executive
officer and a director of JMIH since its inception on May 19, 1998. Mr. Herndon
has also served as president, chief executive officer and a director of JMI
since May 15, 1998. Between 1973 and 1997, Mr. Herndon was president, chief
executive officer, director and sole shareholder of Blackfin Yacht Corporation,
a Fort Lauderdale, Florida based designer, manufacturer and seller of sport
fishing boats. Between 1993 and 1995, Mr. Herndon was president and chief
executive officer of Bertram Yacht Corporation in Miami, Florida. During Mr.
Herndon's tenure as officer and director of Blackfin, Blackfin filed for Chapter
11 Bankruptcy Reorganization protection. The bankruptcy proceeding was
subsequently converted to a Chapter 7 proceeding
Lawrence Tierney - On July 27, 2001, Mr. Tierney joined JMIH as vice
president, chief financial officer and secretary. Mr. Tierney served JMIH as a
director and consultant from January 1999 through his appointment as an
executive officer and director. From April 1997 to July 2001, Mr. Tierney was
the owner of Aamco Transmissions of Plant City, Florida. From March 1995 to
March 1997, Mr. Tierney was chief financial officer of Mako Marine
International, Inc., a manufacturer of high quality offshore fishing boats. From
June of 1993 to March of 1995, Mr. Tierney served as chief financial officer of
Chris Craft Boats, a wholly owned subsidiary of Outboard Marine Corporation
(OMC) a full line manufacturer of powerboats. From June 1991 to June 1993, Mr.
Tierney held the position of chief operating officer of Chris Craft Boats. From
August 1986 to June 1991, Mr. Tierney was senior vice president of finance for
Chris Craft. Mr. Tierney is a certified public accountant.
Kerry Clemmons -- On February 2, 2004, Mr. Clemmons was elected to the
Board of Directors. For ten years Mr. Clemmons has served the American Red Cross
of Greater Miami and the Florida Keys in various capacities, including board
member, chairman (1999-2001) and CEO (2002-2003). From 1999 through 2001 he was
a consultant for Arthur Anderson in mergers and acquisitions. He also served as
senior vice president of John Alden Financial Corporation from 1982 through 1990
and senior vice president of MasTec from 1998 through 1999. Mr. Clemmons holds a
masters and doctorate degrees from Nova Southern University.
Carl Herndon Jr. - Effective February 9, 2007, the Company and Carl
Herndon, Jr. mutually agreed to terminate his employment with the Company, as
Mr. Herndon, Jr. has accepted a senior executive position with a private boat
manufacturer. Such manufacturer does not directly compete with the Company's
14
products. Several non-executive Company employees have assumed the functions
performed by Mr. Herndon, Jr.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock. Such persons are required by SEC regulation to
furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
complied with for the period which this report relates.
Committees
The audit committee consists of Kerry Clemmons. Mr. Clemmons qualifies
as an independent director as defined under NASD Rule 4200 and is considered a
"financial expert".
The nominating committee consists of Carl Herndon and Lawrence Tierney.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Company's
executive officers and directors. The Code of Ethics provides written standards
that are reasonably designed to deter wrongdoing and to promote: (i) honest and
ethical conduct, including the ethical handling of actual or parent conflicts of
interests between personal and professional relationships; (ii) full, fair,
accurate, timely and understandable disclosure in reports and documents that the
Company files with, or submits to, the SEC and in other public communications
made by the Company; (iii) compliance with applicable governmental laws, rules
and regulations; (iv) the prompt internal reporting of violations of the Code to
an appropriate person or persons identified in the Code; and (v) accountability
for adherence to the Code.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information relating to the compensation
paid by the Company during the last two fiscal years to the Company's chief
executive officer and chief financial officer and each of the Company's
executive officers who earned more than $100,000 during any fiscal year.
15
SUMMARY COMPENSATION TABLE
Non Equity Non Qualified
Incentive Deferred
Plan Compen- All Other
Stock Option Compen- sation Compen-
Salary Bonus Awards Award(s) sation Earnings sation
Name and Principal Position Year ($) ($) ($) (#) ($) ($) ($) Total
--------------------------- ---- --- --- --- --- --- --- --- -----
Carl Herndon, 2007 $250,000 $ -- $ -- -- $ -- $ -- $ 235,729 $485,729
President and Chief 2006 $244,307 $ -- $ -- 1,000,000(2) $ -- $ -- $ 95,000(1) $339,307
Executive Officer
Lawrence Tierney, 2007 $175,000 $ -- $ -- -- $ -- $ -- $ -- $175,000
Chief Financial Officer 2006 $150,808 $ -- $ -- 500,000(2) $ -- $ -- $ 57,000(1) $207,808
|
(1) Received shares of common stock as inducement for entering into new
employment agreement dated March 31, 2006. See "Employment Agreements"
below.
(2) Options issued pursuant to employment agreements.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised
Options/SARs Option
at Fiscal Year-End Exercise Option
(#) Price Expiration
Name Exercisable/Unexercisable ($) Date
------------------------------------------------------------------------------------------------------
250,000/0 $.15 5/6/09
Carl Herndon 200,000/800,000 $.32 3/30/11
------------------------------------------------------------------------------------------------------
200,000/0 $.14 5/6/09
Lawrence Tierney 200,000/300,000 $.29 3/30/11
------------------------------------------------------------------------------------------------------
|
Compensation of Directors
Independent members of the Company's Board of Directors receive $1,667
per month and are reimbursed for their expenses in attending Board meetings.
Employment Agreements
Carl Herndon, Sr., CEO. Effective March 31, 2006 the Company entered
into a five-year executive employment agreement with Carl Herndon, Sr. In
consideration for serving as president a chief executive officer, the Company
will pay Mr. Herndon an initial base salary of $250,000. The base salary is
subject to annual automatic incremental increases of the greater of the
percentage increase in the consumer price index or 6% of the previous year's
base salary. In addition the Company issued Mr. Herndon incentive stock options
under the Company's 2004 Management and Director Equity Incentive Plan to
purchase 1,000,000 shares of common stock, which are exercisable at $0.32 per
16
share. The stock options vest in five equal installments over the initial term
and are exercisable for a period of five years from vesting date. However,
certain events, such as a change of control of the company, reverse merger, or
sale of all of the Company's assets, shall cause the options to vest
immediately. Mr. Herndon is also entitled to a performance-based bonus and to
participate in all Company benefit programs. As an additional inducement for Mr.
Herndon entering into the employment agreement, the Company has issued Mr.
Herndon 500,000 shares of common stock. Mr. Herndon has the right to purchase a
boat each year at the Company's manufacturing cost. The employment agreement
includes non-compete and confidentiality provisions.
Lawrence Tierney, CFO. Effective March 31, 2006 the Company entered
into a five-year executive employment agreement with Lawrence Tierney. In
consideration for serving as chief financial officer and chief operation
officer, the Company will pay Mr. Tierney an initial base salary of $175,000.
The base salary is subject to annual automatic incremental increases of the
greater of the percentage increase in the consumer price index or 6% of the
previous year's base salary. In addition the Company issued Mr. Tierney
incentive stock options under the Company's 2004 Management and Director Equity
Incentive Plan to purchase 500,000 shares of common stock, which are exercisable
at $0.29 per share. The stock options vest in five equal installments over the
initial term and are exercisable for a period of five years from vesting date.
However, certain events, such as a change of control of the company, reverse
merger, or sale of all of the Company's assets, shall cause the options to vest
immediately. Mr. Tierney is also entitled to a performance-based bonus and to
participate in all Company benefit programs. As an additional inducement for Mr.
Tierney entering into the employment agreement, the Company has issued Mr.
Tierney 300,000 shares of common stock. Mr. Tierney has the right to purchase a
boat each year at the Company's manufacturing cost. The employment agreement
includes non-compete and confidentiality provisions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the
Company's common stock beneficially owned on November 1, 2007 by: (1) each
shareholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding common stock, (2) each of the Company's
executive officers and directors, and (3) all executive officers and directors
as a group. Unless otherwise disclosed, the address for the shareholders below
is 1103 12th Avenue East, Palmetto, Florida 34221. On November 1, 2007, there
were approximately 18,863,861 shares of common stock outstanding.
Number of Beneficially Percentage of Outstanding
Name and Address Owned Shares Shares Beneficially Owned
---------------- ------------ -------------------------
Carl Herndon, Sr. 10,675,533(1) 52.4%
Lawrence Tierney 2,439,781(2) 12.5%
Kerry Clemmons 475,000(3) 2.5%
Timothy J. Stabosz(4) 1,852,836 9.8%
Officers and Directors as a Group 13,590,314(1)(2)(3) 62.9%
(3 persons)
|
(1) Includes (i) 250,000 shares of Common Stock issuable upon the exercise of
17
options at an exercise price of $0.15 per share expiring May 6, 2009, (ii)
1,000,000 shares of common stock issuable upon the exercise of options at an
exercise price of $0.32 per share expiring March 30, 2011, (iii) 1,291,725 of
shares of common stock owned by Mr. Herndon's immediate family members and (iv)
650,000 shares of common stock issuable upon the conversion of options held by
Mr. Herndon's immediate family members at an exercise price between $0.30 and
$0.14 per share expiring between May 6, 2009 and January 13, 2010.
(2) Includes (i) 200,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $0.14 per share expiring May 6, 2009, (ii)
500,000 shares of common stock issuable upon the exercise of options at an
exercise price of $0.29 per share expiring March 30, 2011.
(3) Includes 150,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $0.14 per share expiring May 6, 2009.
(4) Address is 1307 Monroe Street, Laporte, Indiana 46350.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Mr. Herndon personally owned the Company's manufacturing facility in
Fort Lauderdale, Florida. On July 27, 2001, the Company entered into a lease
agreement with Mr. Herndon in which the Company leased the manufacturing
facility for a period of five years. On July 27, 2006, the parties extended the
term of the lease for an additional three years or until July 27, 2009. On June
1, 2007, the lease on the Ft. Lauderdale facility was terminated. Monthly
payments under the lease during fiscal year ended July 28, 2007 and July 29,
2006 were approximately $205,000 and $210,000, respectively.
On December 6, 2005, the Company entered into a lease agreement with an
entity affiliated with Carl Herndon for its Palmetto boat manufacturing facility
located in Palmetto, Florida, consisting of three buildings totaling 53,648
square feet. The term of the lease is for five years. The lease requires the
Company to pay initial monthly lease payments of $30,700.00 per month plus
applicable real estate and sales taxes. The Company has guaranteed the mortgage
on the facility leased by the Company. In the event that the Company makes
payment against the mortgage because of its guarantee, it shall receive an
equity interest in the facility's value, equal to any and all such payments. At
July 28, 2007, the amount outstanding under the mortgage note was $1,967,139.
See "Item 2. Property".
During November 2001, the Company negotiated a $250,000 revolving line
of credit with a financial institution, which expired November 2002 and was then
extended through January 2006 and increased to $500,000. The line of credit was
subsequently extended to February 2007 and increased to $750,000. During June
2007, the line of credit was reduced to $500,000 and extended to October 2007.
The note has been further extended to December 2007. The note on the line of
credit bears interest at the financial institution index rate plus 1.5% (9.75%
at July 28, 2007). The note is collateralized by all of the Company's assets and
is personally guaranteed by Carl Herndon, president of the Company. In
consideration for providing a personal guarantee on the renewed note, Mr.
Herndon received 562,219 shares of common stock during fiscal year 2006. The
Company believes the shares issued to Mr. Herndon were on terms equal to, or
better than, terms that could have been obtained from an independent third
party.
During February 2002, the Company negotiated a $150,000 revolving line
of credit with a financial institution for the purchase of outboard engines. The
note on the line of credit was subsequently extended through February 1, 2008
18
and increased to $100,000. The note is personally guaranteed by Carl Herndon,
president of the Company.
On November 21, 2002, Carl Herndon and Lawrence Tierney entered into
agreements with Triton International Holdings Corp. ("Triton") to acquire all
rights, title and security interest in the Company's note payable to Triton,
including accrued interest. At the date of the agreements, the note payable had
a principal balance of $350,000 and accrued interest of $102,025. The Note,
which was originally due on February 14, 2003, was sold by Triton to Messrs.
Herndon and Tierney after the Company was unable to satisfy payment of the Note,
despite seeking financing from unrelated third parties on the same or similar
terms. In connection with the purchase of the Note, Herndon and Tierney extended
the term of the Note through February 14, 2004 and subsequently agreed to extend
to February 14, 2006 and then again to February 14, 2008. On March 14, 2006, the
Company issued to its chief executive officer and its chief financial officer
360,049 restricted shares of its common stock in consideration for these
officers extending the due date of the Note payable to February 28, 2008.
The Company currently lacks available working capital to satisfy the
Note. If the Company is unable to repay the Note when due, on February 14, 2008,
the Note can be converted into common stock at a conversion price of $.25 per
share subject to adjustment for dilution. The Note was secured by a mortgage on
real estate owned by Mr. Herndon. At July 28, 2007, the amount outstanding on
the Note, including accrued interest, is $493,067.
Pursuant to the Company's development and operations plan for the
Palmetto facility, certain of the Company's administrative and operations
personnel have been relocated from the Company's Fort Lauderdale facility to the
Palmetto facility. In order to facilitate the relocation of such personnel, the
Company provided interest free advances to cover the costs of such personnel to
relocate. At July 28, 2007, all advances have been repaid.
In accordance with the terms of their employment agreements, one
officer purchased a boat from the Company in 2007 and 2006.
ITEM 13. EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation(2)
3.2 Articles of Amendment(2)
10.1 Employment Agreement with Carl Herndon, Sr. dated March 31, 2006(5)
10.2 Employment Agreement with Carl Herndon, Jr. dated July 27, 2001(1)
10.3 Management Agreement with Triton Holdings International Corp.(2)
10.4 Secured Promissory Note with Triton Holdings International Corp.(2)
10.5 Port Everglades Lease Agreement with Herndon(1)
10.55 Addendum to Port Everglades Lease Agreement dated July 27, 2007(4)
10.6 Employment Agreement with Lawrence Tierney dated March 31, 2006(5)
10.7 Lease Agreement for Palmetto, Florida Facilities, as amended (Filed herein)
14 Code of Ethics(3)
21 Subsidiaries(1)
31.1 Rule 13a-14(a)/15d-4(a) Certification Principal Executive Officer
31.2 Rule 13a-14(a)/15d-4(a) Certification Principal Financial Officer
32.1 Section 1350 Certification Principal Executive Officer
32.2 Section 1350 Certification Principal Financial Officer
|
(1) Previously filed on Form 10-KSB for the fiscal year ended July 28, 2001.
(2) Previously filed on Form 10-SB Registration Statement dated July 7, 1999.
(3) Previously filed on Form 10-KSB for the fiscal year ended July 29, 2006.
19
(4) Previously filed on Form 8-K Current Report dated August 31, 2006.
(5) Previously filed on Form 8-K Current Report dated April 3, 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees to Auditors Fiscal Year ended July 28, 2007.
Audit Fees: The aggregate fees, including expenses, billed by Spicer,
Jeffries LLP for professional services rendered for the audit of the Company's
consolidated financial statements during the fiscal year ending July 28, 2007
and for the review of the Company's financial information included in its
quarterly reports on Form 10-QSB during the fiscal year ending July 28, 2007 or
services that are normally provided in connection with statutory and regulatory
filings or engagements during the fiscal year ending July 28, 2007 was $30,216
Audit Related Fees: The aggregate fees, including expenses, billed by
Spicer, Jeffries LLP for assurance and related services reasonably related to
the performance of the Company's audit or review of the Company's financial
statements were $-0-
Tax Fees: The aggregate fees, including expenses, billed by Spicer,
Jeffries LLP for tax compliance, tax advice and tax planning during year 2007
was $4,595
All Other Fees: The aggregate fees, including expenses, billed for all
other services rendered to the Company by Spicer, Jeffries LLP during year 2007
was $-0-.
Fees to Auditors Fiscal Year ended July 29, 2006.
Audit Fees: The aggregate fees, including expenses, billed by Spicer,
Jeffries LLP for professional services rendered for the audit of the Company's
consolidated financial statements during fiscal year ending July 29, 2006 and
for the review of the Company's financial information included in its quarterly
reports on Form 10-QSB during the fiscal year ending July 29, 2006 or services
that are normally provided in connection with statutory and regulatory filings
or engagements during the fiscal year ending July 29, 2006 was $27,150.
Audit Related Fees: The aggregate fees, including expenses, billed by
Spicer, Jeffries LLP for assurance and related services reasonably related to
the performance of the Company's audit or review of the Company's financial
statements during the year ended July 29, 2006 were $1,500.
Tax Fees: The aggregate fees, including expenses, billed by Spicer,
Jeffries LLP for tax compliance, tax advice and tax planning during year 2006
was $3,795.
All Other Fees: The aggregate fees, including expenses, billed for all
other services rendered to the Company by Spicer, Jeffries LLP during year 2006
was $-0-.
The Audit Committee has considered whether the provisions of the
services covered above under the captions is compatible with maintaining the
auditor's independence. All services were approved by the Audit Committee prior
to the completion of the respective audit.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Jupiter Marine International Holdings, Inc. ("JMIH"), a Florida corporation, was
incorporated May 19, 1998 to enter the boat manufacturing industry and on May
26, 1998, acquired Jupiter Marine International, Inc. ("JMI"), a Florida
corporation engaged in manufacturing "Jupiter" brand outboard sport fishing
boats. JMIH is a publicly owned company and its common shares are currently
traded on the Over The Counter Bulletin Board under the symbol JMIH.
During the year ended July 29, 2006, the Company began operating an additional
manufacturing facility in Palmetto, Florida (see Note 10). Effective June 1,
2007 the Company's executive offices and manufacturing operations were
permanently relocated to Palmetto, Florida. The Company designs, manufactures
and markets a diverse mix of high quality hand constructed sport fishing boats
under the Jupiter name. It sells its line of boats through authorized dealers in
the United States on the East Coast and the Gulf of Mexico.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Years and Reclassifications
The Company reports its financial position and results of operations using a 52
week fiscal year ending the last Saturday of July of each calendar year. Certain
prior year amounts have been reclassified to conform to the current year
presentation. The accompanying financial statements present the consolidated
financial position and results of operations of JMIH and JMI, collectively
referred to as the "Company". All material intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
Cash Equivalents
For purposes of reporting cash and cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Accounts Receivable
The Company sells its boats and accessory products and services on credit terms
widely used in its industry. It uses the allowance method to recognize bad debts
by providing an allowance for uncollectible accounts receivable and charging
F-8
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts Receivable (continued)
actual write offs to the allowance. As of July 28, 2007 and July 29, 2006, the
Company does not have an allowance for uncollectible accounts as management
believes all receivables are collectible.
Inventories
Inventories are stated at the lower of cost or market. The first-in, first-out
method is used to cost raw materials. The cost of boats in process and finished
boats includes actual raw materials, direct labor and allocated production
overhead. Provision is made to reduce excess or obsolete inventory to the
estimated net realizable value considering a reasonable sales gross margin. At
July 28, 2007, no provision was required for excess or obsolete inventory.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over an estimated useful life of five
years or, in the case of leasehold improvements, the term of the lease, if
greater.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset. If such review indicates that the asset is
impaired, the asset's carrying amount is written down to fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell. During the years ended July 28, 2007 and July 29, 2006,
the Company recognized impairment losses of $67,683 and $78,844, respectively.
Warranty Reserves
The Company provides a limited warranty on all boat components for a period of
twelve months from date of purchase. In addition, it provides a limited lifetime
structural warranty on the fiberglass hull of each of its boats. The Company
provides for anticipated warranty expenses through an allowance determined as a
percentage of net sales based on actual historical experience. Increases to the
reserve for allowances were $242,463 and $125,818 for the years ended July 28,
2007 and July 29, 2006, respectively. For these same periods, warranty expenses
charged to the reserve were $149,614 and $99,636, respectively.
F-9
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Revenue from the sale of boats is recognized at the time of physical delivery
and transfer of legal title to its authorized dealers. The Company does not
provide any right of return for the boats sold to its dealers but, as discussed
in Note 9, it provides certain guarantees to some lenders who provide floor plan
financing to some of its dealers.
Advertising Costs
The Company purchases print advertising in industry publications and
participates with its authorized dealers on a co-op basis in such advertising to
promote its brand name and line of boats. Such costs are charged to operations
as incurred without regard to any expected future benefit. Advertising costs
were approximately $117,000 and $113,000 for 2007 and 2006, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Stock-Based Compensation
Prior to January 29, 2006, the Company accounted for its share-based
compensation plan under the measurement and recognition provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations, as permitted by the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
Accordingly, share-based compensation was included as a pro forma disclosure in
the financial statement footnotes.
Effective January 29, 2006, the Company adopted the fair value recognition
provisions of the Statement of Financial Accounting Standards No. 123R,
Share-Based Payments using the modified-prospective transition method. In
accordance with this transition method, the Company's consolidated financial
statements for prior periods have not been restated to reflect the impact of
SFAS 123R. Under the modified prospective transition method, share-based
compensation expense for the Company's third fiscal quarter beginning January
29, 2006 includes compensation expense for all share-based compensation awards
granted prior to, but for which the requisite service has not yet been performed
as of January 29, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123. Share-based compensation
F-10
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-Based Compensation (continued)
expense for all share-based compensation awards granted after January 29, 2006
is based on the grant date fair value estimated in accordance with the
provisions of SFAS 123R. The Company recognizes compensation for options
expected to vest on a straight-line basis over the requisite service period of
the award.
The Company uses a Black-Scholes option-pricing model (Black-Scholes model) to
estimate the fair value of stock options granted. See Note 7 herein for
additional information.
The following table reflects the pro forma information regarding the Company's
employee stock option grants for the years ended July 28, 2007 and July 29,
2006.
July 28, 2007 July 29, 2006
------------- -------------
Net (loss) income applicable to common shareholders $(1,366,044) $ 236,620
Add: Stock based employee compensation under
the intrinsic value based method for periods
prior to January 29, 2006 and expense recognized
per SFAS 123R for periods after January 29, 2006 100,817 118,813
Less: Annual stock based employee compensation
expense determined under fair value based method (100,817) (183,641)
----------- ---------
Pro forma net (loss) income $(1,366,044) $ 171,792
=========== =========
Net (loss) income per share basic:
As reported $ (0.07) $ 0.01
=========== =========
Pro forma $ (0.07) $ 0.01
=========== =========
Net (loss) income per share diluted:
As reported $ (0.07) $ 0.01
=========== =========
Pro forma $ (0.07) $ 0.01
=========== =========
|
Net (Loss) Income Per Share of Common Stock
Net (loss) income per common share is calculated in accordance with SFAS No.
128, "Earnings Per Share" requiring companies to report basic and diluted
earnings per share. Basic net (loss) income per common share is computed using
the weighted average number of common shares issued and outstanding during the
period. Diluted net (loss) income per common share is computed using the
F-11
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Net (Loss) Income Per Share of Common Stock (continued)
weighted average number of common shares issued and outstanding plus any
dilutive potential common shares outstanding during the period. The effects of
dilutive potential shares outstanding during the years ended July 28, 2007 and
July 29, 2006 are shown in the following table.
July 28, 2007 July 29, 2006
------------- -------------
Basic weighted average shares outstanding 18,863,861 17,127,164
Effect of dilutive employee stock options 1,973,408 1,869,040
Effect of dilutive outstanding convertible debt 118,750 418,000
------------ -------------
Diluted weighted average shares outstanding 20,837,269 18,996,204
============ =============
|
For the years ending July 28, 2007 and July 29, 2006, the potential dilutive
shares above of 2,092,158 and 2,287,040, respectively, were not included in the
computation of diluted earnings per share because their effects were
antidilutive.
Business Segments
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for public enterprises to report information
about their operating segments in annual financial statements. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.
SFAS No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing operating performance. Management has determined that the Company
currently operates in only one business segment, sport fishing boat
manufacturing. Therefore, the Company does not have any separate operating
segment information to report other than the amounts reflected in its financial
statements.
Fair Value of Financial Instruments
SFAS No. 107 requires the disclosure of fair value of financial instruments. The
estimated fair value amounts have been determined by the Company's management
using available market information and other valuation methods. However,
considerable judgment is required to interpret market data in developing the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The carrying amounts reported in the consolidated balance
F-12
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments (continued)
sheets were used in estimating fair value disclosure for cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable because of the short maturity of those instruments. For the long-term
portion of notes payable, the Company believes that the estimated fair value
does not vary substantially from the amounts reported in the consolidated
balance sheets due to the effect of the interest rate.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, ("FASB") issued FAS
157 (SFAS 157), Fair Value Measurements. This standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Earlier application is encouraged. The
adoption of this accounting pronouncement is not expected to have a material
effect on the consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), Accounting for
Uncertainty in Income Taxes. This interpretation requires recognition and
measurement of uncertain income tax positions using a "more-likely-than-not"
approach. The provisions of FIN 48 are effective for fiscal years beginning
after December 15, 2006. The adoption of this accounting pronouncement is not
expected to have a material effect on the consolidated financial statements.
In March 2006, the FASB issued FAS 156 (SFAS No. 156), Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140. This standard
clarifies when to separately account for servicing rights, requires servicing
rights to be separately recognized initially at fair value, and provides the
option of subsequently accounting for servicing rights at either fair value or
under the amortization method. The standard is effective for fiscal years
beginning after September 15, 2006 but can be adopted early as long as financial
statements for the fiscal year in which early adoption is elected, including
interim statements, have not yet been issued. The adoption of this accounting
pronouncement is not expected to have a material effect on the consolidated
financial statements.
In February 2006, the FASB issued FAS 155 (SFAS No. 155), Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140.
This statement permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that would otherwise have to be
accounted for separately. The new Statement also requires companies to identify
interests in securitized financial assets that are freestanding derivatives or
contain embedded derivatives that would have to be accounted for separately,
clarifies which interest- and principal-only strips are subject to Statement
133, and amends Statement 140 to revise the conditions of a qualifying special
purpose entity due to the new requirement to identify whether interests in
F-13
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
securitized financial assets are freestanding derivatives or contain embedded
derivatives. This statement is effective for all financial instruments acquired
or issued after the beginning of an entity's first fiscal year that begins after
September 15, 2006, but can be adopted early as long as financial statements for
the fiscal year in which early adoption is elected, including interim
statements, have not yet been issued. The adoption of this accounting
pronouncement is not expected to have a material effect on the consolidated
financial statements.
In December 2004, the FASB issued revised FAS No. 123 (SFAS No. 123R),
Share-Based Payment. This standard eliminates the ability to account for
share-based compensation transactions using the intrinsic value-based method
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and requires instead that such transactions be accounted for using a
fair-value-based method. SFAS No. 123R is effective for financial statements
issued for the first interim period beginning after December 15, 2005 for small
business issuers. The adoption of this accounting pronouncement is described
under in heading "Stock-Based Compensation".
In November, 2004, SFAS 151, "Inventory Costs, an Amendment of ARB No. 43,
Chapter 4" was issued by the Financial Accounting Standards Board. This
statement amends prior accounting pronouncements to conform certain inventory
accounting with international principles by clarifying the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material. The statement requires that such costs be treated as current period
charges regardless of their classification as abnormal in nature. In addition,
the statement requires that fixed production overhead amounts be allocated to
the costs of conversion based on the normal capacity of production facilities.
The statement is effective for years beginning on or after June 15, 2005,
although earlier application is allowed. The adoption of SFAS 151 did not have a
material effect on the Company's financial position or results of operations.
NOTE 3 - SIGNIFICANT CUSTOMER CONCENTRATIONS
During the years ended July 28, 2007 and July 29, 2006, the Company's sales to
major customers were approximately 54% (four customers) and 73% (five customers)
of its net sales, respectively. The Company's accounts receivable at each year
end are substantially due from these customers.
F-14
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4 - INVENTORY
The Company's inventory consists of the following as of each year end indicated:
July 28, 2007 July 29, 2006
------------- -------------
Raw materials $ 773,671 $ 1,559,239
Work in process 1,001,387 1,078,729
Finished goods - 137,706
------------ -----------
$ 1,775,058 $ 2,775,674
============ ===========
|
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following for each year end indicated:
July 28, 2007 July 29, 2006
------------- -------------
Boat molds $ 2,098,180 $ 2,432,762
Leasehold improvements 488,736 683,270
Machinery and equipment 409,780 605,576
Office furniture and equipment 36,801 103,950
----------- -----------
2,993,497 3,825,558
Accumulated depreciation (927,914) (1,874,274)
----------- -----------
$ 2,065,583 $ 1,951,284
=========== ===========
|
NOTE 6- NOTES PAYABLE AND REVOLVING LINES OF CREDIT
At each year end, the Company has the following notes payable outstanding:
July 28, 2007 July 29, 2006
------------- -------------
Note payable to shareholders, interest at 10%, due in
full February 28, 2008, subordinated to bank line
of credit, collateralized by substantially all of the
Company's assets. $ 350,000 (a) $ 350,000 (a)
Note payable to bank, $500,000 revolving line of credit
(unused portion of facility is $75,000 at July 28, 2007),
interest payable monthly at bank's prime rate plus 1.5%
(9.75% at July 28, 2007), due October 31, 2007,
collateralized by all of the Company's assets and
personally guaranteed by its President. 425,000 550,000
--------- ---------
Total notes payable $ 775,000 $ 900,000
Less: Current maturities 775,000 550,000
--------- ---------
Long term portion of notes payable $ - $ 350,000
========= =========
|
(a) During the year ended July 29, 2006, the due date of this note was
extended until February 2008. This note was purchased from it's
the original lender during the year ended July 26, 2003, by two
officers of the Company in a private transaction. See note 10 for
additional disclosures regarding these transactions. At July 28,
2007 and July 29, 2006, there was accrued interest on this note of
$143,067 and $143,351, respectively.
F-15
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 6- NOTES PAYABLE AND REVOLVING LINES OF CREDIT (continued)
The Company has a $1,000,000 line of credit with a financial institution for the
purchase of outboard engines, collateralized by a $30,000 certificate of
deposit. At July 28, 2007 and July 29, 2006, approximately $400,000 was utilized
and is included in accounts payable in the consolidated balance sheets. This
line of credit is personally guaranteed by the Company's president.
NOTE 7 - SHAREHOLDERS' EQUITY
Preferred Stock
The Company has authorized 5,000,000 shares of convertible preferred stock and
had previously issued 315,000 shares of Series A Preferred and 452,500 shares of
Series B Preferred. During 2004, the total outstanding Series A and Series B
preferred shares were automatically converted to 2,302,500 common shares on a 3
common shares for each preferred share basis. The features, rights and
obligations of each series is described as follows.
Series A. The company has authorized 500,000 shares of Series A convertible
preferred stock. When and if declared by the Board of Directors, dividends
accrue quarterly based on 10% per annum, are cumulative and are payable in
shares of Series B preferred stock valued at $1.00 per share. Each Series A
share is convertible into three shares of Common Stock of the Company at any
time at the option of the holder. In addition, each share will automatically
convert into three shares of Common Stock of the Company (a) five years from the
date of issue, or (b) at such time as a registration statement registering the
shares of the Company's common stock issuable upon such conversion of Series A
preferred convertible is declared effective by the Securities and Exchange
Commission. Each preferred share is entitled to votes equal to the number of
shares of Common Stock into which the Series A preferred stock is convertible.
The Company may redeem the Series A preferred stock at a price of $1.20 per
share upon 120 days written notice to the holders thereof. In the event of
liquidation, dissolution or winding up of the Company, Series A preferred stock
has rights to the assets of the Company superior to those of Series B and C
preferred stock and Common Stock equal to $1.00 per share.
Series B. The Company has authorized 500,000 shares of Series B convertible
preferred stock. The features, rights and obligations of this series are
identical to Series A preferred stock except that Series B preferred stock is
subordinate to Series A.
Series C. The Company has authorized 1,500,000 shares of Series C convertible
preferred stock. The features, rights and obligations of this series are
identical to Series A and Series B preferred stock, except that: (a) Series C
preferred stock is subordinate to Series A and Series B preferred stock, (b)
each share of Series C preferred stock is convertible into two shares of the
Common Stock of the Company, and (c) dividends are payable at 8% per annum in
additional shares of Series C preferred stock.
Common Stock
In connection with the payment of certain amounts due to officers and for the
guarantee of a bank line of credit and extending the due date of a note payable
to officers as discussed in Note 10, the Company issued 922,268 and 454,773
common shares during the years ended July 29, 2006 and July 30, 2005,
respectively. During the years ended July 29, 2006 and July 30, 2005, the
F-16
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 - SHAREHOLDERS' EQUITY (continued)
Common Stock (continued)
Company issued 1,000,000 and 460,000 common shares as payment for services. In
addition, the Company issued 774,925 shares as payment of 2005 officer bonuses
and 611,143 common shares as payment of 2005 management bonuses during the year
ended July 29, 2006.
Stock Options and Warrants
The Company's Board of Directors grants options for the purchase of its common
shares on a discretionary basis. In 2004, the Company adopted the 2004
management and director equity incentive and compensation plan. The Plan
encourages and enables key employees, directors and consultants to participate
in the company's future prosperity and growth by providing them with incentives
and compensation based on the Company's performance, development and financial
success. Options granted under this plan may be in the form of incentive stock
options ("ISOs"), which are intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended, or stock options that are not
intended to qualify as ISOs ("NQSOs"). The maximum shares which may be issued
under the Plan was initially 3,300,000 shares and was increased to 5,300,000
shares in November 2004. At July 28, 2007, 3,500,000 options have been issued
under this plan and 2,750,000 are outstanding. The following table summarizes
such grants and its outstanding options as of each year end indicated.
Non-Qualified Options Qualified Options
------------------------------------------- --------------------------------------------
Weighted Weighted
Number of Average Number of Average
Options Exercise Price Options Exercise Price
-------------------- ------------------- ----------------------- -----------------
BALANCE, July 30, 2005 1,100,000 0.72 2,000,000 0.22
Granted - - 1,500,000 0.31
Exercised - - - -
Forfeited (1,100,000) 0.72 (200,000) 0.31
-------------------- ------------------- ----------------------- -----------------
BALANCE, July 29, 2006 - - 3,300,000 0.26
Granted - - - -
Exercised - - - -
Forfeited - - (550,000) 0.24
-------------------- ------------------- ----------------------- -----------------
BALANCE, July 28, 2007 - - 2,750,000 0.26
==================== =================== ======================= =================
Number of options exercisable
At July 29, 2006 - - 950,000 0.14
==================== =================== ======================= =================
Number of options exercisable
At July 28, 2007 - - 1,850,000 0.24
==================== =================== ======================= =================
|
F-17
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 - SHAREHOLDERS' EQUITY (continued)
Stock Options and Warrants (continued)
The Company's issuances of options and warrants for the purchase of its common
shares are generally described below (as adjusted for stock splits). In
connection with a private placement of the Company's Series C preferred stock in
1999, the Company issued 256,200 warrants to placement agents, each redeemable
for one share of common stock at a price of $.60 for a period of five years.
These placement agent warrants expired in fiscal 2005. In May 2004, the Company
awarded ISOs for the purchase of 1,000,000 shares at a price of $.14 to $.15 per
share to various officers and key employees in recognition of their service to
the Company. In January 2005, the company awarded ISOs for the purchase of
1,000,000 shares at a price of $.30 per share to six key employees as inducement
for them to relocate to central Florida. The options vested once the relocation
took place, effective June 1, 2007.
On July 27, 2001, the Company entered into employment agreements with its
President, Vice President and Chief Financial Officer, with the officers
receiving options to purchase a total of 1,100,000 shares of the Company's
common stock exercisable in four increments of 275,000 shares at $.50 per share,
$.625 per share, $.75 per share and $1.00 per share. The options are fully
vested and are exercisable for a period of five years. These options expired in
fiscal 2006.
On March 31, 2006, the Company entered into new employment agreements with its
President and Chief Financial Officer. The President received 1,000,000 options
with an exercise price of $.32 per share and the Chief Financial Officer
received 500,000 options with an exercise price of $.29. These options vest in
equal installments over five years and are exercisable for a period of five
years from the vesting date.
A summary of the Company's outstanding and exercisable stock options as of July
28, 2007 is as follows:
Weighted Average
Number Remaining Contractual
Exercise Price Status of Options Life (years)
-------------- ------ ---------- ------------
$ 0.14 Outstanding 500,000 1.77
0.14 Exercisable 500,000 1.77
0.15 Outstanding 250,000 1.77
0.15 Exercisable 250,000 1.77
0.29 Outstanding 500,000 6.66
0.29 Exercisable 200,000 6.66
0.30 Outstanding 500,000 2.46
0.30 Exercisable 500,000 2.46
0.32 Outstanding 1,000,000 6.66
0.32 Exercisable 400,000 6.66
|
F-18
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 - SHAREHOLDERS' EQUITY (continued)
Stock Options and Warrants (continued)
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123R, Share-Based Payments ("SFAS 123R"), which requires all companies to
measure compensation cost for all share-based payments at fair value and to
recognize cost over the vesting period. In March 2005, the SEC released Staff
Accounting Bulletin No. 107, Share-Based Payment ("SAB 107"). SAB 107 provides
the SEC staff position regarding the application of Statement 123R, including
interpretive guidance related to the interaction between Statement 123R and
certain SEC rules and regulations, and provides the staff's views regarding the
valuation of share-based payment arrangements for public companies. In April
2005, the SEC announced that companies should implement Statement 123R at the
beginning of their next interim or annual period beginning after December 15,
2005 for small business issuers. The Company's first interim period beginning
after December 15, 2005 was the quarter beginning January 29, 2006 at which date
the Company adopted the fair value recognition provisions of SFAS 123R using the
modified-prospective transition method. In accordance with this transition
method, the Company's consolidated financial statements for prior periods have
not been restated to reflect the impact of SFAS 123R. Under the modified
prospective transition method, share-based compensation expense for the
Company's third fiscal quarter beginning January 29, 2006 includes compensation
expense for all share-based compensation awards granted prior to, but for which
the requisite service has not yet been performed as of January 29, 2006, based
on the grant date fair value estimated in accordance with the original
provisions of SFAS 123. Share-based compensation expense for all share-based
compensation awards granted after January 29, 2006 is based on the grant date
fair value estimated in accordance with the provisions of SFAS 123R. The Company
recognizes compensation for options expected to vest on a straight-line basis
over the requisite service period of the award.
Total share-based compensation expense, for all of the Company's share-based
awards recognized for the years ended July 28, 2007 and July 29, 2006, was
$100,817 and $118,813, respectively, or $0.005 and $0.006, respectively, per
share basic and diluted.
The Company uses a Black-Scholes option-pricing model (Black-Scholes model) to
estimate the fair value of stock option grants. The use of a valuation model
requires the Company to make certain assumptions with respect to selected model
inputs. Expected volatility was calculated based on the historical volatility of
the Company's stock price. The average expected life is based on the contractual
term of the option and expected employee exercise and post-vesting employment
termination behavior. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected life assumed at
the date of grant. The following were the inputs used in the Black-Scholes model
for the years ended July 28, 2007 and July 29, 2006.
F-19
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 - SHAREHOLDERS' EQUITY (continued)
Stock Options and Warrants (continued)
--------------------------
July 28, 2007 July 29, 2006
------------- -------------
Stock price volatility 160.00% 178.00%
Risk-free rate of return 4.47% 4.59%
Annual dividend yield 0.00% 0.00%
Expected life (in years) 5 5
|
Prior to the adoption of SFAS 123R, the Company recognized share-based
compensation expense in accordance with APB25. The Company provided pro forma
disclosure amounts in accordance with SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure (SFAS 148), as if the fair value method
defined by SFAS 123 had been applied to its share-based compensation. The pro
forma table below reflects net earnings and basic and diluted net (loss) income
per share for the years ended July 28, 2007 and July 29, 2006, had the Company
applied the fair value recognition provisions of SFAS 123:
July 28, 2007 July 29, 2006
------------- -------------
Net (loss) income applicable to common shareholders $(1,366,044) $ 236,620
Add: Stock based employee compensation under
the intrinsic value based method for periods
prior to January 29, 2006 and expense recognized
per SFAS 123R for periods after January 29, 2006 100,817 118,813
Less: Annual stock based employee compensation
expense determined under fair value based method (100,817) (183,641)
----------- ----------
Pro forma net (loss) income $(1,366,044) $ 171,792
=========== ==========
Net (loss) income per share basic:
As reported $ (0.07) $ 0.01
=========== ==========
Pro forma $ (0.07) $ 0.01
=========== ==========
Net (loss) income per share diluted:
As reported $ (0.07) $ 0.01
=========== ==========
Pro forma $ (0.07) $ 0.01
=========== ==========
|
F-20
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 8 - INCOME TAXES
At July 28, 2007 the Company has a remaining unused net operating loss
carryforward of approximately $1,300,000 for income tax purposes, of which
approximately $60,000 expires in 2012 and the remainder in the years 2018
through 2021. However, the ability to utilize such losses to offset future
taxable income is subject to various limitations imposed by the rules and
regulations of the Internal Revenue Service. The net operating loss
carryforwards may result in future income tax benefits of approximately
$490,000; however, because realization is uncertain at this time, a valuation
reserve in the same amount has been established. The valuation allowance for
deferred tax assets increased approximately $242,000 and $79,000 for the years
ended July 28, 2007 and July 29, 2006, respectively. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
The significant components of the Company's deferred tax assets and liabilities
as of July 28, 2007 and July 29, 2006 are presented in the following table:
2007 2006
---------- ----------
Deferred tax liabilities:
Depreciation $ (153,000) $ (135,000)
Deferred tax assets:
Net operating loss carryforwards 490,000 396,000
Reserves for future costs and expenses 204,000 38,000
---------- ----------
Net deferred tax asset 541,000 299,000
Valuation allowance for deferred tax assets (541,000) (299,000)
---------- ----------
$ - $ -
========== ==========
|
The Company's actual effective tax rate for these years is reconciled to the
expected statutory tax rate as follows:
2007 2006
---------- ----------
Expected Federal statutory tax (benefit) rate (34.00)% (34.00)%
Expected state tax (benefit) rate, net of Federal tax (3.60)% (3.60)%
----------- ----------
Expected combined statutory tax rate (37.60)% (37.60)%
Unrecognized benefit of net operating loss 37.60% 0.00%
Utilization of net operating loss carryforward 0.00% 37.60%
----------- ----------
Effective income tax rate 0.00% 0.00%
=========== ==========
|
F-21
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating and
capital leases expiring through December 2010. The manufacturing facility is
owned by the Company's president. Future minimum lease payments under the
non-cancelable leases with initial terms greater than one year, as of July 28,
2007 are approximately as follows:
Operating Capital
Year Ended July, Leases Lease
---------------- ----------- ------------
2008 $ 453,607 $ 28,153
2009 464,611 16,531
2010 440,685 -
2011 149,264 -
----------- ------------
Total minimum lease payments $ 1,508,167 44,684
===========
Less: Amount representing interest (2,370)
------------
Present value of net minimum
lease payments $ 42,314
============
|
At July 28, 2007 and July 29, 2006, the Company had $73,508 included in
machinery and equipment which was purchased under a capital lease. At July 28,
2007 accumulated depreciation on this equipment was $28,410.
Total rental expense for the years ended July 28, 2007 and July 29, 2006 was
$746,627 and $534,153, respectively.
Beginning in 2002, the Company entered into employment agreements with three of
its principal executives for their services through July 27, 2006. Under the
terms of the agreements, the base salaries totaling $375,000 under these
agreements are automatically increased 5% annually. In addition, the executives
shall receive additional compensation of a combined 9% of the Company's net
income before income taxes annually, are reimbursed annually for their vehicle
expenses and may purchase one boat annually from the Company at its
manufacturing cost. These agreements can be terminated by the Company or the
executives without cause. They are renewable for two additional one-year
periods.
In March 2006, the Company entered into new five year employment agreements with
two of the principal executives for services, thereby terminating the 2002
employment agreements. Under the terms of the agreements, they automatically
renew yearly and the base salaries totaling $425,000 are increased annually with
the greater of the percentage increase in the Consumer Price Index or 6% of the
previous year's base salary. In addition, the executives shall receive
additional performance-based bonuses in an amount determined by the board of
directors, receive auto allowances and may purchase one boat annually from the
Company at its manufacturing costs.
F-22
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
The Company sells its boats to independent dealers who, occasionally, finance
the purchase through floor plan financing arrangements with lenders. In
connection with this floor plan financing with certain dealers, the Company
guarantees directly to lenders that they will repurchase boats with unencumbered
titles that are in unused condition if the dealer defaults on its obligation to
repay the loan. Since its inception and through July 28, 2007, the Company has
not been required to repurchase any boats; however, the Company is contingently
liable for approximately $1,810,885 under terms of these agreements as of July
28, 2007.
The Company has determined that, as a potentially responsible party, it has
incurred a liability for environmental remediation costs resulting from the
closing of its manufacturing facility in Ft. Lauderdale, Florida. The Company
obtained an independent study from a third party company which determined the
remediation costs to be approximately $200,000, accordingly, a liability in the
amount of $250,000 has been included in accrued expenses as of July 28, 2007,
and a provision for these costs in a corresponding amount has been charged to
operations for 2007. Management believes the amount accrued should cover the
remediation costs, but at the present time, actual amounts could exceed the
independent third parties estimate.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company leased its Fort Lauderdale, Florida office and manufacturing
facilities from its President. Under the terms of the lease agreements, the
Company paid the agreed monthly rents, applicable sales taxes, property taxes
and it insures and maintains the buildings. For the years ending July 28, 2007
and July 29, 2006, the Company's President was paid rents of approximately
$205,000 and $210,000, respectively, on the Fort Lauderdale facilities. In June
2007 the Company terminated its lease on its Fort Lauderdale, Florida
manufacturing facility without any further obligation. The building was leased
from the Company's President who agreed to the termination. The building was
subsequently sold and the Company incurred approximately $235,000 of selling
expenses which were recorded as compensation to the Company's President. During
June 2007, the Company decided to cease using the three additional buildings,
under lease from a third party, and abandoned the facilities. The Company
remains obligated under the terms of the leases for rent and other costs.
Therefore, in accordance with FASB Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the
Company recorded a charge to earnings of approximately $100,000 to recognize the
costs of exiting the space. The liability which is included in accrued expenses
is equal to the total amount of rent and other direct costs for the period of
time the space is expected to remain unoccupied plus the present value of the
amount by which the rent paid by the Company to the landlord exceeds any rent
paid to the Company by a tenant under a sublease over the remainder of the lease
terms, which expires in July 2008.
On December 6, 2005, the Company entered into a five year lease agreement under
which the Company leases 53,648 square feet of manufacturing and warehouse
facilities in Palmetto, Florida from its President for $30,700 per month
increasing 5% per year. The Company has a "right of first refusal" to purchase
F-23
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
the facility in the event the facility is offered for sale during the term of
the agreement. In connection with the lease agreement the Company has guaranteed
the underlying mortgage payments. To the extent that the Company would be
required to make any payments under such mortgage, the Company has received a
second mortgage on the property to cover the value of any such payments. The
Company's President was paid rents of approximately $368,000 and $237,000 for
the Palmetto facility for the years ended July 28, 2007 and July 29, 2006,
respectively.
On November 21, 2002, the Company's President and its Chief Financial Officer
("buyers") entered into agreements with Triton International Holdings Corp.
("Triton") to acquire all rights, title and security interest in the Company's
note payable to Triton (see Note 6), including accrued interest. At the date of
the agreements, the note payable had a principal balance of $350,000 and accrued
interest of $102,025. The buyers extended these amounts plus accrued interest
since the date of their purchase to February 14, 2004. Pursuant to the terms of
the note to which the buyers succeeded, additional consideration was due to the
note holder as it was unpaid on its third anniversary. Under those terms, the
Company was obligated to issue common shares at the rate of 4 shares for each
dollar of the unpaid balance of the note (including accrued interest).
Therefore, the buyers received 1,808,098 common shares in accordance with these
terms. The fair value of these shares based on the shares purchased from Triton
was $36,162. On July 31, 2004, the Company issued 1,213,345 shares of common
stock with a fair value of $146,601 to its President and Chief Financial Officer
as payment for extending the due date of this note payable until February, 2006
and for personally guaranteeing the Company's bank line of credit. On March 14,
2006, the Company issued 360,049 shares of common stock with a fair value of
$62,334 to its President and Chief Financial Officer as payment for extending
the due date of this note payable until February 28, 2008. The original note is
convertible into the Company's common stock anytime after January 14, 2002 by
dividing the then remaining principal amount plus outstanding interest of the
note by $0.25 subject to adjustment for dilution. Issuance of shares upon
conversion of the note may result in significant dilution to the Company's
shareholders.
In accordance with the terms of their employment agreements, one officer
purchased a boat at manufacturing cost from the Company in 2007 and 2006. (See
Note 9)
On December 6, 2005, the Company's President, Chief Financial Officer and Vice
President received 774,925 shares of its common stock, in lieu of cash, as
payment of bonuses in the amount of $82,700 earned pursuant to their respective
employment contracts during the year ended July 30, 2005. On December 6, 2005,
the Company issued 611,143 shares of its common stock to management, in lieu of
cash, as payment of bonuses in the amount of $67,283 earned pursuant to their
respective employment contracts during the year ended July 30, 2005.
F-24
JUPITER MARINE INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
The Company was unable to renew its existing line of credit without personal
guarantees from its President. As payment for his personal guarantees, on March
14, 2006, the Company issued the President 562,219 shares of its common stock
with a fair value of $97,218 to extend the line of credit to February 8, 2007
and on January 13, 2005, the Company issued the President 454,773 of its common
shares with a fair value of $91,000 to extend the line of credit to December 31,
2005.
As consideration for entering into new employment agreements with the Company on
March 31, 2006, the President and Chief Financial Officer received 800,000
shares of the Company's common stock with a fair value of $152,000. In addition,
on March 31, 2006, the Company issued a board member 200,000 shares of its
common stock for his services with a fair value of $38,000.
Pursuant to the Company's development and operations plan for the Palmetto
facility, certain of the Company's administrative and operations personnel have
been relocated from the Company's Fort Lauderdale facility to the Palmetto
facility. In order to facilitate the relocation of such personnel, the Company
has provided interest free advances solely to cover the costs of such personnel
to relocate. Included in employee receivables, at July 29, 2006, is $132,570
advanced to an employee who is related to an officer of the company for costs
incurred in relocating to Palmetto. The advance was repaid in full in 2007.
NOTE 11 - PROPOSED MERGER
During July 2007, in the Company entered into a merger agreement with a jewelry
designer and manufacturing company. Under the terms of the merger the Company
will issue an aggregate of 7,400,000 shares of common stock and 1,025,000 shares
of Series A voting convertible preferred stock to the shareholders of the
jewelry company in exchange for a wholly owned interest in the jewelry company
Simultaneously with the merger, the Company will dispose of all of its boat
manufacturing business assets and liabilities, which will be purchased by the
President and Chief Financial Officer of the Company and certain other
shareholders in consideration for the return of 9,987,833 shares of the Company
common stock. These affiliates and others will own 100% of the boat
manufacturing business following the completion of the reverse merger. The
jewelry company will be the accounting survivor and surviving business
operations; however, the Company is the surviving legal entity. The completion
of these transactions is subject to several conditions, including but not
limited to Securities Exchange Commission review and delivery of an information
statement to the Company's shareholders. As of the date of this report the
Company cannot provide any assurances that the transactions will be completed.
F-25
