<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 1998 or

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                        COMMISSION FILE NUMBER: 000-22273

                           SONIC JET PERFORMANCE, INC.
             (Exact name of registrant as specified in its charter)

                                    COLORADO
                         (State or other jurisdiction of
                         Incorporation or Organization)
                                   84-1383888
                                (I.R.S. Employer
                               identification No.)
                               15662 COMMERCE LANE
                           HUNTINGTON BEACH, CA 92649
           (Address of principal executive offices including zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 895-0944



             (Former Name, Former Address and Former Fiscal Year, if
                           Changed Since Last Report)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                      COMMON STOCK, NO PAR VALUE PER SHARE

        Indicate by check mark whether the registrant: (1) has filed all reports
        required to be filed by Section 13 or 15(d) of the Securities Exchange
        Act of 1934 during the preceding 12 months (or for such shorter period
        that the registrant was required to file such reports), and (2) has been
        subject to such filing requirements for the past 90 days.

        Yes   [X]      No  [ ]

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ ]

        The issuer's revenues for the fiscal year ended December 31, 1998, were
approximately $689,000.

        As of April 12, 1999, the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $28,910,000 based upon
the average closing bid and asked price of such stock on such date.


                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive Proxy Statement relating to the
1999 Annual Meeting of shareholders are incorporated herein by reference into
Part III.

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                               TABLE OF CONTENTS


<TABLE>
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<S>      <C>                                                                    <C>
PART I.

Item 1.  Description of Business                                                   3

Item 2.  Description of Property                                                  14

Item 3.  Legal Proceedings                                                        16

Item 4.  Submission of Matters to a Vote of Security Holders                      16


PART II.

Item 5.  Market for Common Stock and Related Stockholder Matters                  17

Item 6.  Management's Discussion and Analysis or Plan of Operation                17

Item 7.  Financial Statements                                                     19

Item 8.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure                                                     38


PART III.

Item 9.  Directors, Executive Officers, Promoters and Control Persons:
         Compliance with Section 16(a) of the Exchange Act                        38

Item 10. Executive Compensation                                                   38

Item 11. Security Ownership of Certain Beneficial Owners and Management           38

Item 12. Certain Relationships and Related Transactions                           38

Item 13. Exhibits and Reports on Form 8-K                                         38
</TABLE>



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Forward-Looking Statements

        In addition to historical information, this Annual Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Management's Discussion and Analysis or
Plan of Operation." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. Sonic Jet Performance, Inc., undertakes no obligation to publicly
revise these forward-looking statements, or to reflect events or circumstances
that arise after the date hereof. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.



                                     PART I

                        ITEM 1. DESCRIPTION OF BUSINESS

RISK FACTORS

        Each prospective investor should carefully consider the risk factors
described below, together with other information in this Form 10-KSB, before
making an investment decision with respect to purchasing or selling the
Company's securities. Prospective investors are cautioned that the statements in
this Form 10-KSB that are not descriptions of historical facts may be
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those currently anticipated due to a number
of factors, including those described below.

        LIMITED OPERATING HISTORY; HISTORICAL AND ANTICIPATED LOSSES. Sonic Jet
was organized in 1994, has had limited operations to date and is considered to
be in the development stage. To date, Sonic Jet has generated only limited
revenues. As of December 31, 1998, the Company had an accumulated deficit of
approximately $473,091. There can be no assurance that the Company will be able
to achieve profitable operations in the future. Results of operations in the
future will be influenced by numerous factors, including, among others, the
ability of the Company to complete development of its proposed product line and
successfully and profitably manufacture its products in commercial quantities;
market acceptance of its products; the Company's ability to develop and market
or commercialize new products; the ability of the Company to manage its growth
and maintain the quality of its products and the ability of Sonic Jet to
implement effectively its business plan. See "Management's Discussion and
Analysis of Financial Condition" and "Company Overview."

        UNCERTAINTY OF MARKET ACCEPTANCE OF PRODUCTS. The Company has sold only
limited quantities of its personal watercraft ("PWC"), jet boats, emergency
watercraft, utility craft and accessories to date and it is impossible to
predict the level of market acceptance of its products. Except for its agreement
with Sonic Jet International, Inc., which currently acts as the Company's
exclusive marketer for the Company's products in North and South America,
Europe, some Pacific Rim countries and the Middle East, the Company does not
have any agreements obligating watercraft dealers to order, sell or otherwise
offer its products. There can be no assurance that Sonic Jet's products will be
successfully produced in commercial quantities, that the Company will be able to
establish a satisfactory dealer network to distribute its products or that
sufficient sales will be generated by dealers or distributors to sustain the
ongoing operations of the Company.

        DEPENDENCE ON SONIC JET INTERNATIONAL, INC. Pursuant to an oral
agreement with Sonic Jet International, Inc., the Company has granted to Sonic
Jet International, Inc. the exclusive right to market the Company's products in
North and South America, Europe, some Pacific Rim countries and the Middle East.
This agreement is cancelable by the Company at any time if Sonic Jet
International, Inc. does not meet certain specified sales goals. Sonic Jet
International, Inc. is owned by a person who is also a shareholder of the
Company. Pursuant to this oral agreement, Sonic Jet International, Inc. is
responsible for a substantial amount of marketing costs incurred in selling the
Company's products in the specified areas and for establishing the dealer
network. Additionally, Sonic Jet International, Inc. is responsible for paying
its own general and administrative expenses. In consideration for this, the
Company sells its products to Sonic Jet International, Inc. at the price to the
dealer less ten percent.

        LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING. The Company's existing
capital resources are extremely limited and the Company will not be able to
sustain its operations without funding in the immediate future. The


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Company's working capital requirements in the foreseeable future will increase
depending on a variety of factors, including the level and results of the
Company's product development efforts, the commercial acceptance of the
Company's products, the establishment of channels of distribution for these
products, the ability of the Company to manufacture its products in commercial
volumes and other factors. The Company requires substantial additional funds to
continue financing product development, manufacture its products in commercial
volumes, conduct marketing and sales activities, and augment its infrastructure
and administrative support. The Company does not presently have any commitments
for additional financing. If such additional financing is required, there can be
no assurance that it will be available to the Company on acceptable terms, or at
all. Any such additional financing may involve substantial dilution to the
interests of the Company's stockholders. The Company's ability to obtain
additional capital will be dependent in part on market conditions, the national
economy and other factors outside of the Company's control. The inability to
obtain required additional financing could require the Company to delay or scale
back product development efforts or cease operations altogether. If the Company
needs additional financing, management and a shareholder have agreed to provide
the necessary financial support.

        ANTICIPATED VARIATIONS IN QUARTERLY OPERATING RESULTS. The Company
anticipates, based on the experience of other watercraft manufacturers, that it
would be customary for most U.S.-based dealers and distributors of watercraft to
place orders during the fall and winter months, and that payment for these
orders would be made at the time of shipment, typically during the first and
second quarters of each calendar year. Consequently, management anticipates that
sales revenue, if any, will be significantly higher during the first and second
calendar quarters, with a lower sales volume occurring during the third and
fourth quarters of each calendar year. As a result, the Company may experience
net operating losses during the third and fourth calendar quarters of each year
for the foreseeable future even if the Company is able to generate a profit in
the first and second calendar quarters, of which there can be no assurance.
Management intends to attempt to mitigate the effect of winter weather
conditions in the eastern and northern United States by focusing its winter
marketing efforts on southern and west coast dealers, as well as to distributors
in southern hemisphere countries or countries where weather conditions are more
conducive to year-round recreational riding, although there can be no assurance
the Company will be successful in this regard. Moreover, sales of watercraft are
dependent on good weather and the Company's sales may be impacted by shorter
than usual or colder than usual summer conditions in any year in any particular
region. There is no assurance that adverse weather conditions would not have a
material adverse effect on the Company's sales.

        HIGH-COST, LEISURE SPORT PRODUCT. Sales of Sonic Jets' products, at a
price of between approximately $4,500 and $50,000, require an active market for
high-price, leisure sport products. A purchaser of such products must have high
disposable income to afford such a purchase, have substantial leisure time to
pursue the watercraft sport, and have access to appropriate bodies of water and
the means to transport the watercraft, if necessary. High-cost purchases for
purely leisure activity tend to be among the first purchases foregone in times
of recession, times of civil unrest and other periods in which consumer
purchases decrease. Due to decreased consumer spending in such periods, the
Company's sales may fluctuate substantially and if such periods continue for a
significant amount of time, the Company's sales and results of operations could
be adversely affected.



        DEPENDENCE UPON INDEPENDENT MANUFACTURING SOURCES AND SUPPLIERS. The
Company's plan is to be engaged in assembly and limited manufacturing operations
for its products and management expects that the Company will be dependent upon
outside suppliers for many components of its products. Management believes that
there are multiple U.S. and foreign vendors available for virtually all
component parts, including vendors to build powertrain, electrical, plumbing and
control components at competitive prices. The Company has developed its own hull
and deck components and will manufacture these components on its own. To date,
no binding arrangements have been negotiated or consummated with suppliers. The
lack of existing contracts with outside suppliers, or the cancellation of a key
supply source once it is established, could adversely affect the Company's
production. Although the Company believes that it will receive cash flow
benefits from using third parties to manufacture the components of its products,
the lack of direct control over the manufacturing process increases the risks of
delay and quality control problems, which could result in cancellation of orders
or an increased level of returns. Moreover, the Company competes with numerous
companies for manufacturing capacity, and no assurance can be given that the
Company will be able to obtain desired quantities of products on a timely basis.

        COMPETITION. Competition in the watercraft industry is considerable.
Sonic Jet's competitors build watercrafts for the same or similar recreational
and other uses as are intended for its watercrafts. Competition is based upon
several factors, including brand loyalty, price, quality, styling, reliability,
service, product features, performance, reputation and warranties. Most of Sonic
Jet's competitors are established in the boating market, have strong name
recognition and brand loyalty and have financial and marketing resources which
are substantially greater than those of the Company.


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Several of the Company's competitors have substantial market share and
name-brand recognition, which will make it difficult for a new entrant into the
market to achieve substantial market penetration. Furthermore, certain policies
or actions of competitors relating to their production rates and pricing may
have a significant impact on the market for watercraft and therefore on the
Company's operating results. At the dealer level, competition is based on a
number of factors, including sales and marketing support programs. In addition,
the Company's products will compete with many other recreational products for
the discretionary spending of consumers.

        FLUCTUATIONS IN MARKET GROWTH. Although the number of personal
watercraft unit sales has nearly tripled in the last three years, industry data,
including data prepared and reported by the PWIA, show a recent decline in
United States sales from approximately 200,000 units in 1995 to approximately
191,000 units in 1996 to approximately 130,000 units in 1998. Similarly, boat
sales have fluctuated significantly. From a high of nearly $6 Billion in 1988,
boat sales plummeted to less than $3 Billion in 1993 with sales of $4.5 Billion
in 1997. Such fluctuations in market growth indicate that the trend in future
demand for personal watercraft and boats is uncertain. Fluctuations in the
growth of the market for personal watercraft and boats could cause fluctuations
in the Company's operating results and a stagnation or decline in the growth of
the personal watercraft and boat markets would likely have a material adverse
effect on the Company's results of operations.

        GOVERNMENT REGULATION. The expansion of the boating market during the
past few years has led to a substantial increase in the number of such small
craft operating on lakes, rivers and other waterways. This increase has led to
concerns of certain state and local regulators, about an increased risk of
accidents and conflicts with other users of public waterways. A number of state
agencies and regulators have enacted or proposed licensing of and/or
restrictions on the operation of personal watercraft and boats in specified
areas within their respective jurisdictions. Certain of these regulations,
including pending federal emission requirements, possible new coast guard
regulations and other restrictions could cause the Company to incur significant
costs to conform to the requirements of new laws or regulations and could have a
material adverse effect on the personal watercraft industry and sales of the
Company's products and the Company's operating results.

        PRODUCT LIABILITY. The design, manufacture and sale of personal
watercraft and boats may give rise to product liability claims. Due to the
inherent risks in using personal watercraft and boats, it is foreseeable that
injury or death to the consumer could result and that legal action could be
brought against the Company to recover damages for such injury, which damages
could be significant. There can be no assurance that product liability claims
will not be asserted against the Company or that such claims will not be
successful. Sonic Jet maintains product liability insurance coverage in the
amount of at least $1,000,000 per occurrence and $5,000,000 in the aggregate,
although there can be no assurance that such coverage will be sufficient in the
event of any future claims. In addition, there can be no assurance that adequate
product liability insurance coverage will be available in the future and, if
available, hat it will be obtained on terms satisfactory to the Company. A
completely or partially uninsured judgment against Sonic Jet could have a
material adverse effect upon the Company.

        PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend, in
part, on its ability to obtain and enforce patent protection for its products
and technology, both in the United States and in other countries. Albert
Mardikian has been awarded numerous patents and trademarks by the United States
Patent and Trademark Office. Such patents and trademarks have been assigned to
the Company by Mr. Mardikian subject to certain royalty and license
arrangements. There can be no assurance that any patent or trademark relating to
the Company's products will not be challenged, invalidated, or circumvented or
that the rights granted thereunder will provide a competitive advantage to the
Company. Furthermore, no assurance can be given that the protection of any
patents or trademarks that have been secured by Mr. Mardikian and assigned to
the Company, or that may be issued in the future, will be held valid if
subsequently challenged. Issued patents or trademarks can later be held invalid
by a court. In addition, other entities may currently have, or may obtain in the
future, patent or trademark rights which they may claim conflict with the
Company's patents and may attempt to block the Company's use of its patents. The
foregoing possibilities may require the Company to obtain a license from or
other arrangement with an unknown entity. There can be no assurance that the
Company will be able to obtain any such licenses or cooperative arrangements on
reasonable terms, if at all, or that the patents or trademarks underlying any
such licenses will be valid or enforceable. In addition, if the Company becomes
involved in litigation over such patents or other proprietary rights, such
litigation could consume a substantial portion of the Company's time and
resources.

        The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to unpatented trade secrets. The
Company


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 requires its employees, consultants and advisors to execute a confidentiality
agreement. The agreements generally provide that all trade secrets and
inventions conceived by the individual and all confidential information
developed or made known to the individual during the term of the relationship
shall be the exclusive property of the Company and shall be kept confidential
and not disclosed to third parties except in specified circumstances. There can
be no assurance, however, that these agreements will provide meaningful
protection for the Company's proprietary information in the event of
unauthorized use or disclosure of such information. Certain former consultants
no longer working for the Company were not required to sign such confidentiality
agreements, which may increase the risk of disclosure of the Company's trade
secrets to third parties. To the extent that consultants, key employees or other
third parties apply technological information independently developed by them or
by others to the Company's proposed projects, disputes may arise as to the
proprietary rights to such information which may not be resolved in favor of the
Company. Certain of the Company's consultants are employed by or having
consulting agreements with third parties and any inventions discovered by such
individuals in that capacity generally will not become property of the Company.

        CHANGING TECHNOLOGY; RISK OF OBSOLESCENCE. The personal watercraft and
boating industries are subject to changes in technology, including, but not
limited to, engine, hull and jet pump improvements and new craft and product
introductions. Accordingly, the Company's ability to compete will be dependent
upon its ability to adapt quickly to technological changes and to develop new
personal watercraft and boats and perhaps engine emissions technologies based on
those changes to satisfy evolving customer and government requirements.
Technological advances may result in the development by others of new personal
watercraft and boats that are competitive with, superior to, or render obsolete
the products offered by the Company. There can be no assurance that current
technologies, or technologies yet to emerge, will not in the future compete with
the products offered by the Company, or that the Company will be able to
purchase or license such technologies.

        DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. As of
December 31, 1998, Sonic Jet had only 130 full-time employees, 10 full or
part-time consultants and various other consultants which it uses on an
as-needed basis. The success of the Company will be dependent upon its ability
to hire and retain additional qualified manufacturing, engineering, sales,
marketing and other necessary personnel. There can be no assurance that the
Company will be able to attract and retain necessary personnel, or that
qualified individuals already earmarked for key positions will still be
available as they are needed and when the Company has the capital resources to
adequately compensate them. The success of the Company will be highly dependent
on the personal efforts of Mr. Mardikian, the designer, developer and inventor
of Sonic Jet's personal watercraft, and on certain other key personnel. Although
the company has entered into an employment agreement with Mr. Mardikian expiring
in July 2002, and intends to apply for "key-person" life insurance for Mr.
Mardikian in the amount of $1 million or more, the loss of his services or the
services of other key personnel would have a material adverse effect upon the
Company's business and prospects.

        CONTROL BY CURRENT STOCKHOLDERS. Management beneficially owns
approximately 80% of the issued and outstanding voting shares of the Company's
capital stock. Accordingly, management will be able to control, or influence
significantly, the affairs and operations of the Company.

        AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of "blank check" preferred stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock and
Preferred Stock. The future issuance of other series or classes of preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
possible impact of the issuance of other classes or series of preferred stock on
takeover attempts could adversely affect the price of the Common Stock and the
Preferred Stock. Although the Company has no present intention to issue any
shares of its preferred stock other than the Preferred Stock offered hereby,
there can be no assurance that the Company will not do so in the future.

        NO DIVIDENDS. The company has paid no cash dividends to date on its
common Stock and does not intend to declare or pay any such dividends in the
foreseeable future.

        SECURITIES AND EXCHANGE COMMISSION INFORMAL INVESTIGATION. The Company
has been advised by the staff of the Securities and Exchange Commission ("SEC")
that it is conducting an informal investigation regarding the Company, and the
staff has requested certain documents in connection with this. The Company is
cooperating fully with the SEC staff, and the management of the Company believes
that this matter will be satisfactorily resolved.



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COUNTRY RISKS

        GENERAL. The Company conducts, and intends to conduct, a significant
portion of its manufacturing operations in the People's Republic of China (the
"PRC"). As a result, the Company's business, financial condition and results of
operations may be influenced by the general political, social and economic
situation in the PRC. Accordingly, the Company may be subject to political and
economic risks, including political instability, currency controls and exchange
rate fluctuations, and changes in import/export regulations, tariffs, duties and
quotas.

        MARKET DECLINE IN SOUTHEAST ASIA. Several countries in Southeast Asia,
including Korea, Thailand and Indonesia, have experienced a significant
devaluation of their currencies and a decline in the value of their capital
markets. In addition, these countries have experienced a number of bank failures
and consolidations. Because virtually all of the Company's products are sold
into developed countries not experiencing these declines, the Company does not
believe that the declines in Southeast Asia will affect the demand for the
Company's products. Furthermore, because most of the Company's products are, or
at the Company's request may be, paid for in U.S. dollars, the Company believes
that it is less susceptible to the effects of a devaluation, if subsequently
experienced, in the PRC Renminbi. The decline in the currencies of these
countries may, however, render the Company's products less competitive if
competitors in southeast Asia are able to manufacture competitive products at a
lower effective cost. No assurance can be given as to the ability of the
Company's products to continue to compete with the products of competitors from
these countries or that currency or other effects of the decline in Southeast
Asia will not have a material adverse effect on the Company's business,
financial condition and results of operations.

        EXCHANGE RATE RISK. All of the Company's sales are denominated in U.S.
Dollars. A portion of the Company's expenses are denominated in Renminbi. The
Company is subject to a variety of risks associated with changes among the
relative value of the U.S. Dollar and the Renminbi. The Company does not
currently hedge its foreign exchange positions. Any material increase in the
value of the Renminbi relative to the U. S. Dollar would increase the Company's
expenses and therefore would have a material adverse effect on the Company's
business, financial condition and results of operations.

        INFLATION RISK. The annual inflation rate in the PRC was approximately
21.7%, 14.8% and 8.3% in 1994, 1995 and 1996, respectively. The Company does not
consider that inflation in the PRC has had or will have a material impact on its
results of operations. No assurance can be given that inflation in the PRC will
not have a material adverse effect on the business, financial condition and
results of operations of the Company in the future.

RISKS RELATING TO THE PRC

        Investment in the Company may be adversely affected by the political,
social and economic environment in the PRC. The PRC is controlled by the
Communist Party of China. Under its current leadership, the PRC has been
pursuing economic reform policies, including the encouragement of private
economic activity and greater economic decentralization. There can be no
assurance, however, that the PRC government will continue to pursue such
policies, that such policies will be successful if pursued, or that such
policies will not be significantly altered from time to time. Economic
development may be limited as well by the imposition of austerity measures
intended to reduce inflation or reform moneylosing state-owned enterprises, the
inadequate development or maintenance of infrastructure or the unavailability of
adequate power and water supplies, transportation, raw materials and parts, or a
deterioration of the general political, economic or social environment in the
PRC, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, economic
reforms and growth in the PRC have been more successful in certain provinces
than others, and the continuation or increase of such disparities could affect
the political or social stability of the PRC.

        MFN STATUS. The PRC currently enjoys Most-Favored-Nation ("MFN") status
granted by the U. S., pursuant to which the U. S. imposes the lowest applicable
tariffs on PRC exports to the U. S. The U. S. annually reconsiders the renewal
of MFN trading status for the PRC. No assurance can be given that the PRC's MFN
status will be renewed in future years. The PRC's loss of MFN status could
adversely affect the Company's business by raising prices for its products in
the U. S., which could result in a reduction in demand for the Company's
products by its U. S. customers.

        LOSS OF PRC FACILITIES; NATIONALIZATION; EXPROPRIATION. If for any
reason the Company were required to move its manufacturing operations outside of
the PRC, the Company's profitability, competitiveness and market position could
be materially jeopardized, and there could be no assurance that the Company
could continue such manufacturing operations. The Company's business and
prospects are dependent upon agreements with various entities controlled by PRC
governmental instrumentalities. Not only would the Company's operations and
prospects be materially and


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adversely affected by the failure of such entities to honor these contracts, but
it might be difficult to enforce these contracts in the PRC. The Company's
investment in property, facilities and improvements in the PRC are significant.
There can be no assurance that assets and business operations in the PRC will
not be nationalized, which could result in the total loss of the Company's
investments in that country, or that the Company's ownership interest in its
properties and facilities will not otherwise by impaired, which could result in
a significant loss of, or depreciation in the value of, such assets. Following
the formation of the PRC in 1949, the PRC government renounced various debt
obligations incurred by predecessor governments, which obligations remain in
default, and expropriated assets without compensation. Accordingly, an
investment in the Company involves a risk of total loss.

        GOVERNMENT CONTROL OVER ECONOMY. The PRC only recently has permitted
greater provincial and local economic autonomy and private economic activities.
The PRC central government has exercised and continues to exercise substantial
control over virtually every sector of the PRC economy. Accordingly, PRC
government actions in the future, including any decision not to continue to
support current economic reform programs and to return to a more centrally
planned economy, or regional or local variations in the implementation of
economic reform policies, could have a significant effect on economic conditions
in the PRC or particular regions thereof. Any such developments could affect
current operations of and property ownership by foreign investors.

        PRC LAW; EVOLVING REGULATIONS AND POLICIES. The PRC's legal system is a
civil law system based on written statutes in which decided legal cases have
little value as precedents, unlike the common law system in the U. S. The PRC
does not have a well developed, consolidated body of law governing foreign
investment enterprises. As a result, the administration of laws and regulations
by government agencies may be subject to considerable discretion and variation.
In addition, the legal system of the PRC relating to foreign investments is both
new and continually evolving, and currently there can be no certainty as to the
application of its laws and regulations in particular instances. Definitive
regulations and policies with respect to such matters as the permissible
percentage of foreign investment and permissible rates of equity returns have
not yet been published, statements regarding these evolving policies have been
conflicting, and any such policies, as administered, are likely to be subject to
broad interpretation and discretion and to be modified, perhaps on a
case-by-case basis. As the legal system in the PRC develops with respect to
these new types of enterprises, foreign investors may be adversely affected by
new laws, changes to existing laws (or interpretations thereof) and the
preemption of provincial or local laws by national laws. In circumstances where
adequate laws exist, it may not be possible to obtain timely and equitable
enforcement thereof. The Company's activities in the PRC are by law subject, in
some circumstances, to administrative review and approval by various national
and local agencies of the PRC government. Although the Company believes that the
present level of support from local, provincial and national governmental
entities enjoyed by the Company benefits the Company's operations in connection
with administrative review and the receipt of approvals, there is no assurance
that such approvals, when necessary or advisable in the future, will be
forthcoming. The inability to obtain such approvals could have a material
adverse effect on the Company's business, financial condition and results of
operations.

        DEPENDENCE ON PRC PARTIES. Two of the company's facilities are owned by
Sino-foreign contractual joint ventures in which the Company has a majority
interest. The other parties to these contractual joint ventures are entities
that are controlled by PRC governmental bodies.

        The efficient and cost-effective operation of these facilities depends
upon the cooperation and support of the development authorities and the joint
venture partners (collectively, the "PRC Parties"). Should a dispute develop
between the Company and any of the PRC Parties, there can be no assurance that
the Company would be able to enforce its understanding of its agreements or
interests with any of such PRC Parties, which could result in a significant loss
of, or depreciation in the value of, the Company's property and facilities. In
any event, ownership interests of land and improvements are considerably more
attenuated in the PRC. The Company's investment in property, facilities and
improvements are significant and could not be replaced without a considerable
new investment, if at all. The lack of cooperation by any of the PRC Parties
could subject the Company to additional risks and costs, including the
interruption or cessation of its present operations in the PRC, all of which
would have a material adverse effect on the Company's business, financial
condition and results of operations.


COMPANY OVERVIEW

Sonic Jet Performance, Inc. through its predecessors Mardikian Design and Laser
Jet Performance, Inc., has been in the personal watercraft design business since
1986. Sonic Jet Performance, Inc. was organized in 1994 as a successor to Laser
Jet Performance to design and manufacture personal watercraft, jet boats,
emergency watercraft, utility craft and accessories. Sonic Jet is a recognized
leader in high performance new product design in the personal watercraft
industry


                                       8
<PAGE>   9


and has begun marketing emergency fire and rescue watercraft. Through a
licensing agreement with Mardikian Design, Sonic Jet has direct access to
unique, advanced patented products and designs.

Mardikian Design, founded by Albert Mardikian, began in 1986 to develop high
performance personal watercraft concentrating on racing. Sonic Jet was then
organized in 1994 by Mr. Mardikian and Mr. Hratch Khedesian to capitalize on
their vision to provide high performance personal watercraft to a rapidly
growing niche of enthusiasts who were demanding more performance and features.

Since 1994, Sonic Jet has been involved in research and development, prototype
production and testing of a variety of new products. Design, testing, tooling
and molds for the 2 seater Cafe Racer, the 3 seater Cafe Racer III and the Eagle
Cruiser personal watercraft have been completed. Research and development has
been completed and production has begun on the Sonic Jet Delta 7-passenger
recreational personal watercraft and the Fire Rescue Jet; and research and
development has been finalized for the line of Sonic Jet Vortex recreational
boats, featuring 22-foot and 19-foot models. Production models are currently
being sold through dealers worldwide. During this period, Sonic Jet designed and
put into production a line of SuperSonic sport trailers which won the 1998
International IMTEC Design Achievement award. Sonic Jet was one of 250
manufacturers competing for this award.

Sonic Jet has spent much of 1998 continuing development of its line of Personal
Water Crafts as well as establishing dealers for the boats and trailers
throughout both the United States and internationally. The Personal Water Crafts
("PWC") and trailers are sold to dealers for distribution to the retail market.

Complementing the line of sporting boats, Sonic Jet offers a full line of
utility watercraft custom-designed for use by fire departments and rescue teams.
These boats offer fire and de-watering pumps, water-tight emergency equipment
compartments and capacity for 5- 25 passengers. The Fire Rescue Jet, the only
product sold directly to the end-user, is currently utilized by the U.S. Coast
Guard, several international police and coast guard units as well as numerous
fire departments with need for water based equipment. Sonic Jet's patented hull
design adds a new dimension, producing a safer and more stable craft for PWC's
exceeding 55mph.

Sonic Jet is presently headquartered in Southern California, a huge market for
personal watercraft and home to many of the largest companies in the industry.
Kawasaki, Yamaha, Suzuki and Honda, along with many parts and after market
product companies are situated nearby, as well. Several industry-related
organizations are also in Southern California including the IJSBA, the
industry's leading competition organizer and user advocate, as well as several
publishers including DealerNews Magazine, Personal Watercraft Illustrated and
Splash Magazine.


INDUSTRY PROFILE

Personal Watercraft

Retailing 130,000 units at over $800 million in 1998 the personal watercraft is
the youngest and fastest growing of the motor sport recreational products
businesses(1). Although the first mass produced machines are thought to be JET
SKI's (by Kawasaki), Bombardier's early SEA-DOO was on the market in 1967. The
SEA-DOO was discontinued shortly thereafter due to a lack of interest and
technical problems. Kawasaki introduced its watercraft in 1974 and for several
years, did very modest volume due largely to the fact that their "stand-up"
craft required considerable athletic skill and strength to ride and were only
single rider units. After almost discontinuing the product in the late 70's,
Kawasaki found that a loyal cadre of riders was growing. In 1982, the IJSBA was
formed to conduct race events.

Sales gradually expanded and Yamaha, observing this growth, quickly introduced
new products. Yamaha perceived an opportunity to differentiate their product and
broaden its appeal by offering an easy to ride, sit-down model, often referred
to as a runabout. Yamaha's effort was moderately successful and grew fairly well
over the first two to three years. Yamaha's introduction of this sit-down model
aroused the interest of many more potential consumers.

Bombardier re-entered the market with a redesign of the SEA-DOO in 1989. The
SEA-DOO models were faster and better-performing than Yamaha, immediately
drawing notice from enthusiasts and dealers. Bombardier increased production in
1990, and in 1991 introduced the XP, a very significant model. From their
experience in snowmobiles, Bombardier knew that superior performance quickly
differentiates manufacturer and model. As a result, the Bombardier SEA-DOO
became the biggest selling brand even though they entered the market after
Kawasaki and Yamaha. SEA-


--------

(1) National Marine Manufactures Association - Retail Market Review


                                       9
<PAGE>   10


DOO's dramatically illustrate that speed and performance generate the
excitement and pleasure customers are seeking. Today, SEA-DOO dominates the
market even though Kawasaki, Yamaha and Polaris now have comparable models.
Performance and speed sells watercraft, which are two of the characteristics of
Sonic Jet's line of PWCs.

Boats and Accessories

In the 1980's, boats of all kinds were sold in unprecedented numbers. In units
sold and actual dollars spent, boat manufactures enjoyed enormous economic
growth. In 1988, this trend began to reverse, with units sold decreasing 41%.
The period from 1989-1991 showed the results of the passage of the luxury tax
and manufacturers' unrealistic inventories.

Since the repeal of the luxury tax and the overall economic upturn, boat sales
are again showing steady increases. From a high of nearly $6 billion in 1988,
boat sales plummeted to less than $3 billion in 1993. Increasing to $3.8 billion
in 1994, showing steady growth to $4 billion in 1995, $4.2 billion in 1996, and
$4.5 billion in 1997; and are projected at $5 billion in 1999. Historically, it
has always followed that as discretionary income grows, boat sales also grow.

A Los Angeles Times article on February 1, 1997 stated "Once the (luxury) tax
was repealed in 1993 -- and the economy stabilized -- manufacturers found
themselves facing newer, savvier consumers. Family boats presently account for
85% of sales and buyers know exactly what they want." That same article
indicates, "Last year alone, 60,000 boats were sold in California, a 42%
increase from 1991."

1997 boating registration statistics by State show the top five are:

<TABLE>
<S>                                         <C>    
               Michigan                     957,105
               California                   894,347
               Florida                      796,662
               Minnesota                    768,555
               Texas                        615,438
</TABLE>

Total boat registrations in the country reached 12,303,724 in 1997.(1)

Estimated retail expenditures on boating increased from a low of $10 billion in
1992 to $19.1 billion in 1998.(2)

These figures include sales of new and used boats, motors and engines,
accessories, safety equipment, fuel, insurance, docking, maintenance, launching,
storage, repairs and club memberships.

Utility Watercraft (Fire, Rescue, Patrol)

Utility boats, particularly those used for fire and rescue operations, offer
another niche market for Sonic Jet's faster, more maneuverable and cost
effective Fire Rescue Jet. With 181,518 miles of waterways in the United States
alone, opportunities for fire and rescue watercraft abound. Of the 3,536
counties in the U.S., 88 of them are located in coastal regions. County
purchases alone constitute an enormous market for Sonic Jet's Rescue Jet and
Fire Rescue Jet products. Currently, few municipalities in the country have fire
and rescue capabilities. This is largely due to the prohibitive cost of
currently available products. Sonic Jet's Fire Rescue Jet offers a cost
effective solution for municipalities with limited funds and an unanswered need.


DISTRIBUTION

An important element of the market is retail distribution (i.e., dealers who
sell to consumers directly). Motorsport dealers sell the majority of personal
watercraft. Industry observers agree that approximately 85% to 90% of all
personal watercraft sold in the U.S. are sold by 2500 motorsport dealers. This
is significant because Sonic Jet, through Sonic Jet International, Inc., the
exclusive marketer of the Company's products in North and South America, Europe,
some Pacific Rim countries and the Middle East, is in the process of securing
dealer representation by offering competitively priced personal and utility
watercraft of superior performance. Targeted dealers customarily sell one, two,
or three major personal watercraft lines. These dealers have the sales know-how,
are known in their respective markets and offer a


--------

(1) National Marine Manufacturers Association - 1998 Retail Market Review

(2) National Marine Manufacturers Association - 1998 Retail Market Review


                                       10
<PAGE>   11



broad selection of products, accessories and services, including insurance and
financing, in order to assist customers and ensure the sale.

Sonic Jet International, Inc. has identified the leading personal watercraft
dealers and boat and accessory dealers throughout the U.S. and has designed the
programs necessary to secure their representation. Sonic Jet is currently
involved with the Mercury Marine network of dealers worldwide and will be
expanding that relationship as new products are completed and ready for
distribution.

Sales in Canada will be made concurrently with the U.S. in much the same manner.
Canada's total market demand is approximately 10% of the U.S.'s or approximately
20,000 units per year.

The overseas market is growing and in some areas growing very rapidly. Sonic
Jet's overseas targets include Europe, the Middle East, Central and South
America and the Pacific Rim. In China, Sonic Jet is the only western
manufacturer for power and recreational boats to serve the expanding market of
executives spending more recreational time as this economy thrives. For utility
watercraft, the markets include every country that has a developed coastline. In
overseas markets, Sonic Jet intends to sell its watercraft and accessories
through established distributors and dealers.

Sonic Jet estimates that the overseas export market for personal watercraft and
jet boats, excluding Canada, is approximately 40,000 to 50,000 units per year,
projecting 100,000 units annually within the next three years.

Although Sonic Jet is primarily concentrating its marketing of PWC's and Jet
Boats in the US market, overseas distribution of the Rescue Jet and Fire-Rescue
Jet will occur immediately.


COMPETITION

The PWC and sport/recreational boat market(s) are highly competitive.
Competition is based upon a number of factors, including performance, price,
quality, reliability, styling, product innovations/ features and warranties. At
the dealer level, competitors are more diversified and have financial and
marketing resources which are substantially greater than those of the Company.

Presently, the PWC market is dominated by a small group of manufactures that
includes Yamaha (Waverunner(TM)), Kawasaki (Jetski(TM)), Polaris and Bombardier
(SeaDoo(TM)). In 1992, Bombardier (who introduced the first PWC in 1967 but left
the market shortly thereafter) re-emerged and introduced the new Sea-Doo. The
re-engineered Sea-Doo is faster and better performing than the competition,
quickly reclaiming the position as the top selling brand despite the previous
dominance of Yamaha and Kawasaki, subsequently proving that speed and
performance sell watercraft.

Competition within the powerboat manufacturing industry is intense. While the
high performance sports boat market comprises only a small segment of all boats
manufactured, the higher prices commanded by these boats make it a significant
market in terms of total dollars spent. The Company believes that speed,
performance, quality, image and safety are the main competitive factors in its
market segment, with styling and price being somewhat lesser considerations. The
market for sport/recreational boats is much larger than that for high
performance boats. However, there are many more manufacturers of
luxury/performance boats.


MARKET OPPORTUNITY

Sonic Jet's product and production plans are fully integrated with its marketing
and sales strategy. Sonic Jet gives the dealers what they need to be profitable:
Safe performing products, sleekly designed and priced right combined with
incentive programs. The Company believes this marketing strategy will ensure the
best return on the investment for the Company and the appointed dealers for both
the near and long term. Today, and for the foreseeable future, the most
important elements to successfully marketing watercraft are performance, safety,
styling and price.

Sonic Jet's design, marketing and promotion strategy of its personal watercraft,
boats and accessories reinforce its winning performance with a racing image.
Sonic Jet's participation in race events will further support its high
performance image. Sonic Jet's utility watercraft have been lauded by the Coast
Guard, New York State Fire Chiefs, American Association of Airport Executives
and countless national and international port authorities. This performance
image will sell Sonic Jet's products to both consumers and dealers/distributors.



                                       11
<PAGE>   12

A major problem of other personal watercraft is that all models capable of
exceeding 55 miles per hour are inherently unstable and virtually uncontrollable
at these speeds. Sonic Jet's patented hull design produces a safer, more stable
craft, eliminating the problem.

Sonic Jet's prices are lower but competitive for its personal watercraft, boats
and accessories, and considerably lower than the competition for the Fire-Rescue
Jet utility vehicles. Sonic Jet offers the end user performance and safety at an
affordable price.

Sonic Jet's participation at key events and shows are focused on the water
enthusiasts to further build its safety, performance and style reputation. Sonic
Jet can and will leverage its products' advantages through an advertising
program designed to produce the most effective results.



                                       12
<PAGE>   13



KEY PRODUCT SEGMENTS

Sport Recreational Boats

The Sonic Jet Vortex line epitomizes safety, style and performance. Its patented
hull is constructed of hand laid "S" glass/kevlar family and carbon fiber makes
the Vortex hulls stronger and lighter than conventional fiberglass hulls. The
patented Gulf Ball design and progressive v-hull provides stability and
extraordinary tracking for precision handling. The Vortex comes with many
optional safety features, such as rudder-assisted steering for continued control
without power and optional features like the patented hydro braking system which
reduces speed without the use of the reverse thruster and the patented
suspension flooring, that reduces vibration for added passenger comfort. Each
model in this line includes covered headlights, hydraulic engine hatch opener
and full instrumentation.

1.  Sonic Jet Vortex is a 22' and 19' exotic design boat that features a single
    175 to 500 hp Mercury Marine 175 V-6 and V8 Sport Jet engines and has either
    jet or outdrive options. This model had been characterized by industry
    professionals at the IMTEC Show in October, 1997, as "the first really new
    innovation seen in boating in many years".

2.  Super Veloce 51 (prototype) features twin V-12 Marine engines, creating the
    most exotic, state of the art luxury-performance boat in the world.

3.  The Sonic Jet Delta is a recreational model based on a the Fire-Rescue Jet.
    Instead of stretcher platforms on each side of the pilot position, a double
    saddle will hold two persons. This will allow a party of seven passengers to
    enjoy the thrill of the jet ski experience. Research has shown this
    configuration to be extremely popular for families. Offering this craft for
    rent at vacation facilities will create an additional marketing opportunity.

4.  The Thunder Jet 1202, is a two passenger, high performance watercraft, the
    most important category as defined by unit sales volume and product image.
    By offering the most outstanding performance model, Sonic Jet will gain
    immediate attention with enthusiast-consumers and will have strong interest
    from the best dealers. Dealers appreciate the importance of performance as
    it translates into higher profits.

5.  The ThunderJet 1203, a high performance, three-passenger watercraft is in
    the second most important category. This model type is increasing in sales
    and has broad market appeal. Sonic Jet will again offer the best overall
    safety, performance and style in the class.

Utility Watercraft

The Rescue Jet and Fire-Rescue Jet series introduces the world's first
jet-driven quick response rescue vehicles. Providing unlimited maneuverability
in confined areas and shallow water, the Rescue and Fire-Rescue Jets are easily
trailered to emergency areas to deliver fire and rescue assistance. The patented
hull design produces a negligible wake at any speed for operation in marinas and
other "No Wake" areas and allows the boat to be remarkably stable in rough water
and high seas. The fire apparatus along with main engines are controlled from a
single station, which allows the fire-rescue jets to be controlled by one person
at all times. The craft is more maneuverable and versatile than any currently
produced rescue craft and at approximately $50,000 is competitive with the
12-foot - 24-foot fire/rescue boats made by SeaArk and Boston Whaler that cost
$60,000 - $180,000

1.  The Fire Rescue Jet is capable of flowing up to 1200 gallons per minute
    (GPM).

2.  The Rescue Jet can handle a crew of 5 plus 2 stretchers  and can be dropped
    by helicopter  for immediate rescue services.

3.  The Fire Rescue Jet Ice Breaker, with a patented unique hull design and the
    only boat designed with a twin jet and twin 225 hp outboard motors. The
    outboard is used for high seas and the twin jets for shallow water. At 31',
    the boat has the capacity to carry up to 25 passengers in an emergency
    situation . Its advanced pilot house design includes all-weather, heavy sea
    rescue capability.

4.  SuperSonic Sport Trailers are IMTEC award-winning designs and utility
    breakthrough for 1998. Featuring an aerodynamic fiberglass box with four
    large storage compartments and ground-effects fender design, they are
    available in a single, double and triple-axle series. These trailers offer
    adjustable bunk configurations to accommodate boats, personal watercraft,
    motorcycles and snowmobiles. Other features include 25 - 50 gallon fuel


                                       13
<PAGE>   14

    cell, electric fuel pump and nozzles. Optional features include ski racks,
    hideaway ramps, rear loading lights, surge brakes and battery chargers with
    connectors.

Accessories

Sonic Jet has obtained rights to the patents from Mardikian Design and has
developed the tooling and designs for Step Ahead, a self retracting boat and
personal watercraft step and Aqua Shock, a shock-absorbing steering system for
personal watercraft. Sonic Jet is currently in negotiations to license the
manufacture of these two innovative accessory products. Additionally, Sonic Jet
owns the designs and has developed the mold for exhibition display accessories,
but has no current plans for production.


SALES PROGRAMS

Dealer Sales Programs

In addition to the safety, performance and style, Sonic Jet will offer programs
and policies designed to meet all dealer requirements and needs.

Key Dealer Sales Program elements are:

1.  Demonstrator allowance. This incentive program for dealers will put unit(s)
    into demo service, a major selling tool. Dealers will earn discounts based
    on unit orders at the beginning of the model year, or on their first order.

2.  Point of Sale Material. Sonic Jet will offer quality action videos,
    brochures, posters and other sales materials at low cost to dealers.

3.  Exclusive Dealer Markets. Dealers will be given a detailed plan for their
    market area, location and information on all other local dealers. Each
    dealer will receive a service agreement in an exclusive dealer area in which
    no other Sonic Jet dealer will compete. This gives dealers the assurance of
    exclusivity in their market and will motivate them to put maximum effort in
    promoting and selling Sonic Jet products. Sonic Jet's commitment to
    exclusive dealer sales locations will give dealers confidence in its line
    and allow them to promote Sonic Jet's products aggressively. No other
    company offers the assurance of exclusivity to its dealers.

In virtually every major market in the U.S., too many dealers exist, all
competing with each other and selling the same major brands. This results in
lower average unit sales per dealer and lower profit margins. Unless these
models are very "hot sellers" and in short supply, competing dealers reduce
selling prices, thereby producing lower profit margins. This reduces the value
of the product line and limits dealers promotional effort. Sonic Jet will create
the right mix in the number of the best dealers in key markets to produce strong
sales volume, high average unit sales per dealer, higher profit margins and
create "franchise value" for Sonic Jet's brand. The quality of dealer
representation will be driven by the value and profitability of Sonic Jet's
product line.

Sonic Jet executives believe their exclusive Dealer Areas and dealer programs
will make Sonic Jet's product line attractive and will enable it to sign the top
watercraft retailers in key markets.


Employees

        As of December 31, 1998, the Company had 130 full-time employees and 10
full or part-time consultants. The Company believes that its relations with the
employees is good.


                        ITEM 2. DESCRIPTION OF PROPERTY

HUNTINGTON BEACH FACILITY

The Company currently headquarters its corporate offices and new product
development with a small assembly operation in a 15,000-square-foot-facility in
Huntington Beach, California, which is home for the executive office and the
"home-


                                       14
<PAGE>   15



based" sales team. This facility is equipped with CAD-CAM design technology,
tooling, welding, fiberglass molding and an assembly line. Due to the dramatic
growth of the Company's operations and the large area necessary for storage of
the boat shells, Sonic Jet will be relocating a major portion of its production
to its "new" facility in Cape Coral, Florida.

CAPE CORAL FACILITY

The Company recently completed negotiations for a second facility in Cape Coral,
Florida which includes a leased 4 acre lake, 9 acres of land and a 6,000 sq. ft.
warehouse. On January 20, 1999 Lee County, Florida approved and announced the
issuance of $5,000,000 in new Industrial development Bonds for the new
100,000-square-foot facility in the North Cape Duty-Free Industrial Zone in Cape
Coral, Florida. The authorization for these bonds expires on June 24, 1999 and
no assurance can be given that such money will be raised. The facility will
house 80% of Sonic Jet's U.S. operations and will have the capacity to produce
2,500 pleasure boats over the next twelve months and eventually fabricate up to
10,000 boats a year. Sonic Jet plans to hire approximately 200 employees within
the first year and projects up to 2,000 employees by the end of 2001. Management
of Sonic Jet and the Cape Coral City Council, along with other government
leaders in the area, reasonably expect the opening of this facility can and will
cause a positive economic ripple in the area.

The $5,000,000 in funding from the Industrial Development Bonds will be used to
purchase the land and buildings at the facility as well as provide for
acquisition of machinery and equipment. The funds will also be used for
constructing a 250,000 square-foot facility necessary to accommodate expansion.
The Company has also obtained government grants for training new employees and
hiring local residents, many of whom are retired executives who will fill
executive positions at the new headquarters location.

The City of Cape Coral, Florida on January 26, 1999 announced that it had
approved a $100,000 incentive award as part of the agreement for Sonic Jet to
move its main production facility to a 100,000-square-foot facility in the North
Cape Duty-Free Industrial Zone.

In addition to production/assembly of its PWCs, the Company will soon be capable
of producing 30-40 boats per week (20-25 Fire and Rescue Jets, 6-8 Delta Jets
and 6-8 Vortex Boats).

Sonic Jet operates two facilities in China under two separate joint ventures.

1)  Allied with the Chinese government, the Company has opened a 50,000 square
    foot facility (expandable to 250,000 sq. ft.) in Nanning, China. Sonic Jet
    has a 50-year land lease with an option to extend the lease for an
    additional 50 years. The Company has structured a package that includes no
    taxation during the first three years of operation, 7% taxation for years
    4-6 and a flat 15% tax on profits thereafter. Due to housing and health
    subsidization's, the monthly cost of the 100 laborers is approximately
    $40/person, with management personnel (10) costing $75/person. The Nanning
    facility is currently producing the fiberglass shells for Sonic Jet's boats
    and PWCs.

    Fiberglass materials made in the US are shipped to the Nanning factory where
    fabrication of the fiberglass boat parts are done. Testing and quality
    control processes are performed before the finished parts are shipped back
    to the Huntington Beach and Florida facilities for assembly. The Nanning
    facility will accommodate all documentation at the factory using an on-site
    customs broker and a representative from the Bank of China to facilitate all
    financial transactions, including payroll. Strategically located on the
    Yong-Jiang River, the Nanning facility allows containers to be loaded at the
    factory and proceed to Hong Kong and terminate at Worldport Los Angeles.
    This strategic alliance provides cost effective labor while conforming to
    the criteria for US-made products. The Nanning facility began producing
    parts in January, 1998.

2)  Allied with the Chinese government Sonic Jet opened its second Chinese
    facility located in Dalian, China, a port area in the Northeast business
    corridor. This 50,000 square foot facility is capable of producing 2,500
    pleasure boats per year that will be wholesaled to dealers in the U.S. for
    $37,500 when fully equipped. As demand for the product lines grow, the
    Dalian facility can be expanded to 250,000 square feet. The primary products
    to be produced in the Dalian facility are pleasure boats 19' to 21', a
    31-foot rescue craft and the 50-foot Super Velocci.

    Sonic Jet Performance, Inc. is in a joint venture with Sonic Jet Dalian of
    China which operates the state-of-the-art boat manufacturing facility. The
    facility will employ nearly 100 people. Albert Mardikian the Chairman and
    Hratch Khedesian Vice-Chairman, head of R & D and new product development,
    will supervise all production at these facilities. This includes the ISO
    9000 qualified quality control engineers, a complete staff of fiberglass
    engineers, assembly engineers, and electrical engineers.



                                       15
<PAGE>   16



    The facility will also house a domestic sales staff to market the production
    of the Nanning facility and the Dalian facility throughout China. Mr.
    Mardikian Chairman of Sonic Jet Dalian, stated "There is a huge market in
    China for the company's rescue craft and personal water craft such as jet
    skis and pleasure models of the rescue boats, as well as, the full line of
    Rescue Craft and a new 15 foot pleasure boat specially designed for the
    Chinese market."

    The output of the Dalian facility will be shipped to Sonic Jet's Florida
    facility for finishing and installation of the drive train. The output of
    the Nanning facility is shipped to both the Florida and California
    facilities.



                           ITEM 3. LEGAL PROCEEDINGS

        The Company is not a party to any litigation and is not aware of any
pending or threatened litigation against the Company.


          ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1998, except as follows:

        In July 1998, pursuant to a Notice of Arrangement Regarding Appointment
of Directors Without A Meeting, as filed on a Form 14f, the following persons
were appointed directors of the Company: Alex Mardikian, Hratch Khedesian,
Vatche Khedesian and George T. Faye.

        On November 2, 1998, the Company held a Special Meeting of Shareholders.
At such meeting, at which no proxies were solicited, shareholders holding
5,000,000 out of 6,310,000 shares approved an amendment to the Company's
Articles of Incorporation to change the name of the Company from Boulder Capital
Opportunities III, Inc. to Sonic Jet Performance, Inc.



                                       16
<PAGE>   17



                                     PART II

        ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock began trading on the Nasdaq Over-the-Counter
Market ("NASDAQ") on September 25, 1998 under the symbol SJET. Pursuant to
records of the Company's transfer agent, the Company had 30 stockholders of
record as of December 31, 1998. The following table sets forth the low and high
sale prices for the Common Stock as reported by Nasdaq. All prices do not give
effect to a two-for-one stock split that the Company effected in March 1999.

<TABLE>
<CAPTION>
         YEAR ENDED DECEMBER 31, 1998:       LOW SALES PRICE   HIGH SALES PRICE
         -----------------------------       ---------------   ----------------
<S>                                          <C>               <C>
         Month Ended September 30, 1998           5.00              5.50
         Month Ended October 30, 1998             4.94              5.50
         Month ended November 30, 1998            4.50              5.63
         Month Ended December 31, 1998            4.44              6.13
</TABLE>



      ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

        The following sets forth selected items from the Company's statements of
operations and the percentages that such items bear to net sales for the fiscal
years ended December 31, 1998 ("FY98") and December 31, 1997 ("FY97").

<TABLE>
<CAPTION>
                                              1998                       1997
                                      -------------------         ------------------
<S>                                   <C>         <C>             <C>        <C>    
Sales                                 $688,991     100.00%        $213,583    100.00%
Cost of sales                         $375,321      54.47%         $90,666     42.45%
Selling, general, and                 $512,313      76.36%        $520,450    243.68%
administrative
Loss from operations                 ($198,643)    (28.83%)      ($397,533)  (186.13%)
Interest Expense                       $67,205       9.75%         $36,946     17.30%
Net loss                              ($60,314)     (8.75%)      ($412,777)  (193.26%)
</TABLE>


FY 98 COMPARED WITH FY 97

NET SALES Net sales for FY 98 increased by $475,408, or 222%, to $688,991
compared to $213,583 for FY 97. Management attributes this increase in sales to
the following. Sales of Trailers increased by $45,144 or 234% from $19,204 in
1997 and to $64,318 in 1998. Sales of Rescue Jets increased by $323,202 or 193%
from $167,143 in 1997 to $490,345 in 1998. Sales of Delta Jets amounted to
$103,731 in 1998 as compared to none in 1997.

COST OF SALES Cost of Sales for FY 98 increased by $284,655 or 314%, to $375,321
compared to $90,666 for FY 97.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses for FY 98 decreased $8,137, or 1.56%, to $512,213 compared to $520,450
for FY 97. Major components of selling, general and administrative expenses are
as follows: Administrative wages increased by $26,983 or 34% from $78,580 in
1997 to $102,833 in 1998; travel expense increased by $22,905 or 1,163% from
$1,968 in 1997 to $24,902 in 1998. Increases in travel expenses were mostly due
to trips by management to its China subsidiary. Outside services mostly
attributable to increased temporary administrative staff needs amounted to
$37,805 in 1998 as compared to none in 1997. Insurance expense increased from
$6,187 in 1997 to $18,784 in 1998. Commission expense increased by $17,327 from
$6,823 to $24,150 as a result of the increase in sales volume for 1998.
Advertising expense increased by $13,263 from $2,614 in 1997 to $16,327 in 1998
and marketing wages for 1998 were $10,541 as compared to none for 1997.
Advertising and marketing wages increases were attributable to the increased
sales efforts introduced by Sonic Jet International, Inc., the exclusive
marketer of the Company's products in North and South America, Europe, some
Pacific Rim countries and the Middle



                                       17
<PAGE>   18


East. As a result of the increase in manufacturing efforts of the Company,
utilities expense increased by $16,745 or 352.9% from $4,475 in 1997 to $21,220
in 1998.

NET LOSS Net loss for FY 98 decreased by $352,463, or 85.39%, to $60,314 for FY
98 compared to $412,777 for FY 97.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's principal sources of capital have been cash flow from its
operations, the sale of Series A Convertible Preferred Stock and loans on an as
needed basis.

        On June 17, 1998, the Company issued 1,600 shares of Series A
Convertible Preferred Stock ("Series A Preferred Stock") for $1,500,000, net of
a discount of $100,000. The holders of Series A Preferred Stock are not entitled
to receive dividends. The Series A Preferred Stock is convertible to common
stock at the option of the holders, subject to certain limitations, and is
limited to a formula of either a fixed conversion price of $4.00 per share or a
variable conversion price, as defined, not to exceed the fixed conversion price
or at a price that includes an unpaid premium if said premium is not paid in
cash prior to conversion. For conversion purposes, the holders of Series A
Preferred Stock stockholders are entitled to an 8% premium from the day
following the date of issuance to the conversion date. If said premium is not
paid in cash, the premium is added to the face amount of $1,000 per share to
determine the number of common shares to be received on conversion. A total of
800,000 shares of common stock have been reserved for the conversion of the
Series A Preferred Stock.

        The Series A Preferred stock is automatically convertible into common
stock on the fifth anniversary of the issuance date. If such conversion does not
take place at maturity, then the holders of the Series A Preferred Stock can
require the Company to purchase the shares for cash at a redemption amount as
defined.

        Subsequent to December 31, 1998, Sonic Jet International, Inc., which
currently has exclusive rights to market the Company's products in North and
South America, Europe, some Pacific Rim countries and the Middle East, loaned
the Company approximately $400,000. The Company expects to collect on its
receivable from Sonic Jet International, Inc. which stood at $366,123 as of
December 31, 1998 and pay off substantially all of the loan balance or settle
the amount by set-off.

        Based on its current operating plan, the Company anticipates that
additional financing will be required to finance its operations and capital
expenditures. The Company's currently anticipated levels of revenues and cash
flow are subject to many uncertainties and cannot be assured. Further,
unforeseen events may occur causing the Company to raise additional funds. The
amount of funds required by the Company will depend upon many factors, including
without limitation, the extent and timing of sales of the Company's products,
future product costs, the timing and costs associated with the establishment
and/or expansion, as appropriate, of the Company's manufacturing, development,
engineering and customer support capabilities, the timing and cost of the
Company's product development and enhancement activities and the Company's
operating results. Until the Company generates cash flow from operations which
will be sufficient to satisfy its cash requirements, the Company will need to
seek alternative means for financing its operations and capital expenditures
and/or postpone or eliminate certain investments or expenditures. Potential
alternative means for financing may include leasing capital equipment, obtaining
a line of credit, or obtaining additional debt or equity financing. There can be
no assurance that, if and when needed, additional financing will be available,
or available on acceptable terms. The inability to obtain additional financing
or generate sufficient cash from operations could require the Company to reduce
or eliminate expenditures for capital equipment, research and development,
production or marketing of its products, or otherwise curtail or discontinue its
operations, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, if the
Company raises funds through the sale of additional equity securities, the
Common Stock currently outstanding may be further diluted.

YEAR 2000 COMPLIANCE

        We have completed a comprehensive review of our computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). We are also continuing to
monitor our computer systems and we are monitoring the adequacy of the processes
and progress of third-party vendors of systems that may be affected by the Year
2000 issue. We are dependent on third-party computer systems and applications,
particularly with respect to such


                                       18
<PAGE>   19


critical tasks as accounting, billing and buying. We also rely on our own
computer systems. The company expects to complete its Year 2000 compliance
program by mid-1999 and anticipates that its total additional expenditures on
such program will not exceed $5,000. However, we may experience cost overruns in
the future, which could have a material adverse effect on our business, results
of operations and financial condition. While we believe our procedures are
designed to be successful, because of the complexity of the Year 2000 issue and
the interdependence of organizations using computer systems, our efforts, or
those of third parties with whom we interact, may not be satisfactorily
completed in a timely fashion. If we fail to adequately address the Year 200
issue, then our business, results of operations and financial condition could be
materially adversely affected.


              ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<PAGE>   20

                           SONIC JET PERFORMANCE, INC.
                                 AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                           DECEMBER 31, 1998 AND 1997



Sonic Jet Performance Dec98 Aud     #7419    4/14/99


<PAGE>   21



                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                                                        CONTENTS
                                                               DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                           Page
                                                                          ------
<S>                                                                       <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                           1

FINANCIAL STATEMENTS

      Consolidated Balance Sheet                                           2 - 3

      Consolidated Statements of Operations                                  4

      Consolidated Statements of Stockholders' Equity                        5

      Consolidated Statements of Cash Flows                                6 - 7

      Notes to Consolidated Financial Statements                           8 - 16
</TABLE>



<PAGE>   22


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Sonic Jet Performance, Inc. and subsidiary

We have audited the accompanying consolidated balance sheet of Sonic Jet
Performance, Inc. and subsidiary as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sonic Jet
Performance, Inc. and subsidiary as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

The Securities Exchange Commission is currently conducting an informal
investigation of the Company. Management is of the opinion that the outcome of
this investigation will not be unfavorable.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 1, 1999



<PAGE>   23



                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                               DECEMBER 31, 1998

================================================================================
<TABLE>
<S>                                                                   <C>       
                       ASSETS

CURRENT ASSETS
      Cash                                                            $  133,135
      Accounts receivable - trade                                         38,953
      Inventories                                                      2,467,586
      Due from related parties                                           472,536
      Prepaid inventories                                                202,514
      Other receivables                                                   33,414
      Other current assets                                                14,677
                                                                      ----------

           Total current assets                                        3,362,815

PROPERTY AND EQUIPMENT, net                                            2,706,269

OTHER ASSETS
      Organization cost, net                                              27,565
      Other                                                               54,245
                                                                      ----------

        TOTAL ASSETS                                                  $6,150,894
                                                                      ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                        2


<PAGE>   24



                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                          CONSOLIDATED BALANCE SHEET (CONTINUED)
                                                               DECEMBER 31, 1998

================================================================================

<TABLE>
<S>                                                                     <C>
               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable                                                  $   130,454
      Accrued payroll taxes                                                   9,627
      Other accrued liabilities                                               4,000
      Due to related parties                                                 20,589
      Accrued interest payable                                               88,872
                                                                        -----------

           Total current liabilities                                        253,542

NOTE PAYABLE - STOCKHOLDER                                                  600,000
                                                                        -----------

                Total liabilities                                           853,542
                                                                        -----------
                                                                            
MINORITY INTEREST                                                           680,906
                                                                        -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
      Preferred stock, no par value
           10,000,000 shares authorized
           Series A Convertible Preferred stock
           1,600 shares issued and outstanding                            1,500,000
      Common stock, no par value
           100,000,000 shares authorized
           12,620,000 shares issued and outstanding                       3,599,694
      Accumulated comprehensive income                                      (10,157)
      Accumulated deficit                                                  (473,091)
                                                                        -----------

                Total stockholders' equity                                4,616,446
                                                                        -----------

                     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $ 6,150,894
                                                                        ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                        3

<PAGE>   25



                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                FOR THE YEARS ENDED DECEMBER 31,

================================================================================

<TABLE>
<CAPTION>
                                                       1998                  1997 
                                                   ------------          ------------
<S>                                                <C>                   <C>         
SALES                                              $    688,991          $    213,583

COST OF SALES                                           375,321                90,666
                                                   ------------          ------------

GROSS PROFIT                                            313,670               122,917

GENERAL AND ADMINISTRATIVE EXPENSES                     512,313               520,450
                                                   ------------          ------------

LOSS FROM OPERATIONS                                   (198,643)             (397,533)
                                                   ------------          ------------

OTHER INCOME (EXPENSE)
      Other income                                      136,116                    97
      Other expense                                          --               (10,002)
      Interest income                                    33,187                 9,021
      Interest expense                                  (67,205)              (36,946)
                                                   ------------          ------------

           Total other income (expense)                 102,098               (37,830)
                                                   ------------          ------------

LOSS BEFORE MINORITY INTEREST                           (96,545)             (435,363)

MINORITY INTEREST                                        36,231                22,586
                                                   ------------          ------------

NET LOSS                                           $    (60,314)         $   (412,777)
                                                   ============          ============

BASIC LOSS PER SHARE                               $      (0.01)         $      (0.04)
                                                   ============          ============

DILUTED LOSS PER SHARE                             $      (0.01)         $      (0.04)
                                                   ============          ============

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING           10,709,438            10,000,000
                                                   ============          ============
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>   26



                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                FOR THE YEARS ENDED DECEMBER 31,

================================================================================

<TABLE>
<CAPTION>
                                                                                                              
                                                                                                              
                                                   Preferred Stock                   Common Stock             
                                                Shares         Amount           Shares           Amount       
                                               --------      -----------       ----------      -----------    
<S>                                            <C>           <C>               <C>             <C>            
BALANCE, DECEMBER 31, 1996                           --      $        --               --      $        --    
CAPITAL CHANGES DUE TO RECAPITALIZATION                                        10,000,000        5,765,234    
ADJUSTMENT TO CONTRIBUTED CAPITAL                                                               (2,195,415)   
NET LOSS                                                                                                      
                                               --------      -----------       ----------      -----------    
BALANCE, DECEMBER 31, 1997                           --               --       10,000,000        3,569,819    
ISSUANCE OF COMMON STOCK                                                          600,000           30,000    
ISSUANCE OF PREFERRED STOCK                       1,600        1,500,000                                      
CAPITAL CHANGES DUE TO RECAPITALIZATION                                         2,020,000             (125)   
CUMULATIVE TRANSLATION ADJUSTMENT                                                                             
NET LOSS                                                                                                      
                                               --------      -----------       ----------      -----------    
      BALANCE, DECEMBER 31, 1998                  1,600      $ 1,500,000       12,620,000      $ 3,599,694    
                                               ========      ===========       ==========      ===========    
</TABLE>

<TABLE>
<CAPTION>
                                               Accumulated
                                                 Compre-
                                                 hensive         Accumulated
                                                  Income           Deficit           Total   
                                                -----------      -----------      -----------
<S>                                            <C>               <C>              <C>
BALANCE, DECEMBER 31, 1996                      $        --      $        --      $        --
CAPITAL CHANGES DUE TO RECAPITALIZATION                                             5,765,234
ADJUSTMENT TO CONTRIBUTED CAPITAL                                                  (2,195,415)
NET LOSS                                                            (412,777)        (412,777)
                                                -----------      -----------      -----------
BALANCE, DECEMBER 31, 1997                               --         (412,777)       3,157,042
ISSUANCE OF COMMON STOCK                                                               30,000
ISSUANCE OF PREFERRED STOCK                                                         1,500,000
CAPITAL CHANGES DUE TO RECAPITALIZATION                                                  (125)
CUMULATIVE TRANSLATION ADJUSTMENT                   (10,157)                          (10,157)
NET LOSS                                                             (60,314)         (60,314)
                                                -----------      -----------      -----------
      BALANCE, DECEMBER 31, 1998                $   (10,157)     $  (473,091)     $ 4,616,446
                                                ===========      ===========      ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       5
<PAGE>   27

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                FOR THE YEARS ENDED DECEMBER 31,


================================================================================


<TABLE>
<CAPTION>
                                                            1998             1997
                                                         -----------      -----------
<S>                                                      <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                              $   (60,314)     $  (412,777)
   Adjustments to reconcile net loss to net cash
      used in operating activities
        Depreciation and amortization                         36,826          108,518
        Minority interest                                    (16,783)              --
        Common stock issued for services                      30,000               --
   (Increase) decrease in
      Inventories                                           (743,044)      (1,109,542)
      Due from related parties                              (443,422)         (29,114)
      Accounts receivable                                    133,686         (172,639)
      Prepaid inventories                                   (202,514)          (9,613)
      Other receivables                                      (23,801)              --
      Other current assets                                   (19,845)          (1,200)
   Increase (decrease) in
      Accounts payable                                         4,583          124,607
      Accrued payroll taxes                                    5,224            4,403
      Other accrued liabilities                             (110,418)         114,418
      Due to related parties                                  20,589               --
      Accrued interest                                        88,872               --
                                                         -----------      -----------

           Net cash used in operating activities          (1,300,361)      (1,382,939)
                                                         -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                       (261,783)        (576,714)
   Purchase of other assets                                  (54,245)              --
   Costs of reorganization                                   (30,000)              --
   Purchase of business, net of cash acquired                     74               --
   Tooling                                                  (446,266)              --
                                                         -----------      -----------

           Net cash used in investing activities            (792,220)        (576,714)
                                                         -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from stockholder note                                 --          600,000
   Capital contribution                                           --        2,089,159
   Issuance of preferred stock                             1,500,000               --
                                                         -----------      -----------

           Net cash provided by financing activities       1,500,000        2,689,159
                                                         -----------      -----------

EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS          (3,790)              --
                                                         -----------      -----------
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>   28

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                                FOR THE YEARS ENDED DECEMBER 31,

================================================================================

<TABLE>
<CAPTION>
                                                        1998           1997
                                                      ---------      ---------
<S>                                                   <C>            <C>      
             Net increase (decrease) in cash          $(596,371)     $ 729,506

CASH, BEGINNING OF YEAR                                 729,506             --
                                                      ---------      ---------

CASH, END OF YEAR                                     $ 133,135      $ 729,506
                                                      =========      =========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   INTEREST PAID                                      $      --      $  13,279
                                                      =========      =========

   INCOME TAXES PAID                                  $     800      $      --
                                                      =========      =========
</TABLE>


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, cash from investing and financing
activities exclude the effect of a capital contribution in the form of
inventory, equipment, and a building amounting to $2,178,000.



   The accompanying notes are an integral part of these financial statements.

                                       7
<PAGE>   29

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Nature of Business
           Sonic Jet Performance, Inc. ("SJPI"), a Colorado corporation, and
           subsidiary (collectively, the "Company") are engaged in the design
           and production of personal watercrafts, jet boats, trailers, and
           accessories. The principal executive office is located in Huntington
           Beach, California.

           Sonic Jet Performance, LLC (the "Predecessor Company") was organized
           in California on May 8, 1997 as a limited liability company.

           In June 1998, Boulder Capital Opportunities III, Inc. ("BCO"), a
           Colorado Corporation organized on November 27, 1996, entered into a
           Share Exchange Agreement with the Predecessor Company to acquire all
           of the assets and business of the Predecessor Company and assume the
           liabilities. The acquisition was consummated and effective as of June
           30, 1998. The transaction was treated as a "purchase transaction" and
           has been accounted as a reverse acquisition of BCO by Sonic Jet
           Performance, LLC, resulting in a recapitalization of Sonic Jet
           Performance, LLC. Subsequently, the name of the new entity became
           Sonic Jet Performance, Inc. and subsidiary.

           On August 9, 1997, SJPI entered into a joint venture agreement with
           China Guangxi Nanning Shipyard of Nanning, Guangxi, China to form the
           Nanning Sonic Jet, LLC, a contractual limited liability company
           organized under the laws of the People's Republic of China. The joint
           venture was formed to design, manufacture, and sell a series of
           watercraft jet products internationally and in China. The Company is
           responsible for providing technical personnel and training. The
           Company shall receive 70% of the profits and shall share 70% of the
           risks and losses under the venture.

           Principles of Consolidation
           The consolidated financial statements include the accounts of Sonic
           Jet Performance, Inc. and its subsidiary, Nanning Sonic Jet, LLC. All
           intercompany balances and transactions are eliminated in
           consolidation. Minority interest represents the minority's share of
           the initial capital contribution in Nanning Sonic Jet, LLC and 30% of
           the results of its operations. SJPI manages the day-to-day operations
           of the subsidiary and is represented by three of the five directors
           of the subsidiary.

           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 and disclosure of contingent assets and liabilities at
           the date of the financial statements, as well as the reported amounts
           of revenues and expenses during the reporting period. Actual results
           could differ from those estimates.



                                       8
<PAGE>   30

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           Organization Costs
           Costs incurred to organize the Company include costs for professional
           fees and are being amortized on a straight-line basis over a
           sixty-month period.

           Cash Equivalents
           For purposes of reporting cash flows, the Company considers all
           highly-liquid debt instruments purchased with a maturity of three
           months or less to be cash equivalents. Cash equivalents consist
           primarily of United States government securities.

           Inventories
           Inventories are stated at the lower of cost (first-in, first-out
           method) or market. Work in process and finished goods include
           materials and labor.

           Property and Equipment
           Property and equipment are stated at cost or at the value of the
           operating agreement. Depreciation and amortization are computed using
           the straight-line method over the following estimated useful lives:

<TABLE>
<S>                                                                <C>     
                     Building and improvements                     20 years
                     Furniture and fixtures                         7 years
                     Machinery and equipment                        7 years
                     Tooling and molds                              7 years
                     Vehicles                                       7 years
                     Leasehold improvements                        15 years
</TABLE>

           Income Taxes
           The Company was a limited liability company up until June 18, 1998
           and was taxed as a partnership, whereby the members were liable for
           federal and state income taxes on their respective shares of the
           Company's taxable income.

           As a result of the reverse acquisition, the Company became a "C"
           corporation effective June 19, 1998. The Company uses the asset and
           liability method of accounting for income taxes. The asset and
           liability method accounts for deferred income taxes by applying
           enacted statutory rates in effect for periods in which the difference
           between the book value and the tax bases of assets and liabilities
           are scheduled to reverse. The resulting deferred tax asset or
           liability is adjusted to reflect changes in tax laws or rates.
           Because the Company has incurred a loss from operations, no benefit
           is realized for the tax effect of the net operating loss carryforward
           due to the uncertainty of its realization.



                                       9
<PAGE>   31

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           Foreign Currency Transaction
           Assets and liabilities in foreign currencies are translated at the
           exchange rate prevailing at the balance sheet date. Revenues and
           expenses are translated at the exchange rate prevailing at the
           transaction date, and the resulting gains and losses are reflected in
           the statement of operations. Gains and losses arising from
           translation of the subsidiary's foreign currency financial statements
           are shown as a component of stockholders' equity as other
           comprehensive income. At December 31, 1997, such gains and losses
           were not material.

           Treasury Stock
           On June 12, 1998, BCO acquired 432,500 shares of common stock from
           its President for no consideration. These shares are held in treasury
           and will be reissued.

           Impairment of Long-Lived Assets
           The Company reviews long-lived assets to be held and used for
           impairment whenever events or changes in circumstances indicate that
           the carrying amount of an asset may not be recoverable. If the sum of
           the expected future cash flows (undiscounted and without interest
           charges) is less than the carrying amount of the asset, the Company
           would recognize an impairment loss based on the estimated fair value
           of the asset.

           Loss per Share
           For the year ended December 31, 1997, the Company adopted SFAS No.
           128, "Earnings per Share." Basic earnings per share is computed by
           dividing income available to common stockholders by the
           weighted-average number of common shares outstanding. Diluted
           earnings per share is computed similar to basic earnings per share
           except that the denominator is increased to include the number of
           additional common shares that would have been outstanding if the
           potential common shares had been issued and if the additional common
           shares were dilutive. Because the Company has incurred net losses,
           basic and diluted loss per share are the same.

           Comprehensive Income
           For the year ended December 31, 1998, the Company adopted SFAS No.
           130, "Reporting Comprehensive Income." This statement establishes
           standards for reporting comprehensive income and its components in a
           financial statement. Comprehensive income as defined includes all
           changes in equity (net assets) during a period from non-owner
           sources. Examples of items to be included in comprehensive income,
           which are excluded from net income, include foreign currency
           translation adjustments and unrealized gains and losses on
           available-for-sale securities. Comprehensive income consists of a
           foreign currency translation adjustment and is presented in the
           consolidated statement of stockholders' equity.



                                       10
<PAGE>   32

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           Recently Issued Accounting Pronouncements
           SFAS No. 133, "Accounting for Derivative Instruments and Hedging
           Activities," is effective for financial statements with fiscal years
           beginning after June 15, 1999. SFAS No. 133 establishes accounting
           and reporting standards for derivative instruments, including certain
           derivative instruments embedded in other contracts, and for hedging
           activities. The Company does not expect adoption of SFAS No. 133 to
           have a material effect, if any, on its financial position or results
           of operations.

           SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained
           after the Securitization of Mortgage Loans Held for Sale by a
           Mortgage Banking Enterprise," is effective for financial statements
           with the first fiscal quarter beginning after December 15, 1998. The
           Company does not expect adoption of SFAS No. 134 to have a material
           effect, if any, on its financial position or results of operations.

           SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
           Corrections," is effective for financial statements with fiscal years
           beginning February 1999. This statement is not applicable to the
           Company.


NOTE 2 - INVENTORIES

           Inventories at December 31, 1998 consisted of the following:

<TABLE>
<S>                                                        <C>          
                     Raw materials and supplies            $   1,626,694
                     Work in process                             240,678
                     Finished goods                              600,214
                                                           -------------

                                                           $   2,467,586
                                                           =============
</TABLE>



                                       11
<PAGE>   33

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================


NOTE 3 - PROPERTY AND EQUIPMENT

           Property and equipment at December 31, 1998 consisted of the 
           following:

<TABLE>
<S>                                                                       <C>         
                     Building and improvements                            $    720,000
                     Furniture and fixtures                                     10,493
                     Machinery and equipment                                   465,039
                     Tooling and molds                                         302,442
                     Tooling - new products                                    446,266
                     Molds - watercrafts                                       843,350
                     Vehicles                                                   32,404
                     Leasehold improvements                                     28,119
                                                                          ------------

                                                                             2,848,113
                     Less accumulated depreciation and amortization            141,844

                          TOTAL                                           $  2,706,269
                                                                          ============
</TABLE>

           Tooling for new product and molds for watercrafts have not been
           depreciated during the year ended December 31, 1998 as these will be
           used in production in the following year.


NOTE 4 - NOTE PAYABLE - STOCKHOLDER

           Note payable - stockholder at December 31, 1998 consisted of the
           following:

<TABLE>
<S>                                                                             <C>
           Note payable, bearing interest at 10% per annum. Annual
                payments are to commence July 18, 2001 in an amount equal
                to 60% of cash available for distribution, as defined, for
                the nearest preceding accounting period. The agreement
                provides an option to convert the note to common stock at
                a price to be agreed upon by the Company and the note
                holder. All unpaid principal is due July 18, 2003. The
                note is secured by Company assets.                              $      600,000
                                                                                ==============
</TABLE>



                                       12
<PAGE>   34

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 5 - COMMITMENTS AND CONTINGENCIES

           Lease
           The Company leases its facility under an operating lease agreement.
           Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
                 Year Ending
                 December 31,
                 ------------
<S>                                          <C>
                    1999                     $ 78,390
                    2000                       81,000
                    2001                       81,000
                    2002                       13,500
                                             --------

                             TOTAL           $253,890
                                             ========
</TABLE>

           Rent expense was $61,315 for the year ended December 31, 1998.

           Employment Agreement
           On June 19, 1998, the Company amended an employment agreement with
           its Design Director and Chairman/Chief Executive Officer of
           International Operations that originated with the Predecessor
           Company. The agreement calls for the Vice President to be paid on a
           bimonthly basis the following annual salary:

<TABLE>
<CAPTION>
                Year Ending
                December 31,
                ------------
<S>                                    <C>
                    1999               $120,000
                    2000               $140,000
                    2001               $175,000
                    2002               $200,000
</TABLE>

           Royalty Agreement
           On August 3, 1998, the Company assumed a royalty agreement with its
           Design Director and Chairman/Chief Executive Officer of International
           Operations that originated with the Predecessor Company. The royalty
           is for a maximum amount of 2% of Company sales for a period of five
           years commencing November 18, 1998. Royalty amounts are to be paid on
           a quarterly basis with a minimum royalty of $4,167 per month for the
           twelve-month period commencing January 18, 1999 and increasing to
           $8,333 per month thereafter.



                                       13
<PAGE>   35

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================


NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           Investment in Joint Venture - Dalian
           The Company has entered into an agreement to invest in a joint
           venture in Dalian, China for the design, manufacture, and selling of
           watercraft jet products. The Company is committed to invest
           $1,000,000 in the form of molds, tooling, and know-how. The Company
           will share 45% of the profits or loss from this venture.


NOTE 6 - RELATED PARTY TRANSACTIONS

           Included in due from related parties are amounts due from the
following related parties:

<TABLE>
<S>                                                                     <C>     
                    Sonic Jet Performance, Inc. - Florida               $ 30,445
                    Sonic Marketing International, LLC                    35,172
                    Sonic Jet International, Inc.                        366,123
                    Majed Al Rashid                                       40,511
                    Vatche Khedesian                                         285
                                                                        --------

                         TOTAL                                          $472,536
                                                                        ========
</TABLE>

           Sonic Jet Performance, Inc. - Florida ("SJPF") is 100% owned by the
           Company. SJPF has not been consolidated because the amounts involved
           are not material. Sonic Marketing International, LLC is owned by a
           stockholder of the Company. It used to market the Company's products
           and has since ceased doing business. Sonic Jet International, Inc. is
           owned by a stockholder and markets the Company's products
           exclusively. Subsequent to the balance sheet date, a stockholder of
           Sonic Jet International, Inc. loaned the Company approximately
           $400,000. The Company expects to collect on its receivable and pay
           off the loan balance or settle the amount by set-off. Majed Al Rashid
           is a stockholder of the Company, and Vatche Khedesian is an officer
           of the Company.



                                       14
<PAGE>   36

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 7 - SERIES A CONVERTIBLE PREFERRED STOCK

           On June 17, 1998, the Company issued 1,600 shares of Series A
           Convertible Preferred Stock ("Series A Preferred Stock") for
           $1,500,000, net of a discount of $100,000. The holders of Series A
           Preferred Stock are not entitled to receive dividends. The Series A
           Preferred Stock is convertible to common stock at the option of the
           holders, subject to certain limitations, and is limited to a formula
           of either a fixed conversion price of $4.00 per share or a variable
           conversion price, as defined, not to exceed the fixed conversion
           price or at a price that includes an unpaid premium if the said
           premium is not paid in cash prior to conversion. For conversion
           purposes, the Series A Preferred Stock stockholders are entitled to
           an 8% premium from the day following the date of issuance to the
           conversion date. If the said premium is not paid in cash, the premium
           is added to the face amount of $1,000 per share to determine the
           number of common shares to be received on conversion. A total of
           800,000 shares of common stock have been reserved for the conversion
           of the Series A Preferred Stock.

           The Series A Preferred Stock is automatically convertible into common
           stock on the fifth anniversary of the issuance date. If such
           conversion does not take place at maturity, then the holders of the
           Series A Preferred Stock can require the Company to purchase the
           shares for cash at a redemption amount as defined.


NOTE 8 - STOCK OPTION PLAN

           The Company's 1998 Employee Consultant Stock Compensation Plan
           provides for the granting of stock options to employees and certain
           consultants to the Company. A total of 1,000,000 shares have been
           reserved for issuance upon exercise of options granted under the
           plan. In November 1998, the Company issued 600,000 shares of the
           Company's common stock to a consultant. The fair value of the
           consultant's services of $30,000 has been recorded as compensation
           expense.


NOTE 9 - FOURTH QUARTER ADJUSTMENTS

           Certain automobile molds valued at $1,710,000 were contributed as
           capital of the Predecessor Company. These molds are not used in the
           Company's business and will not be used in the business in the near
           future. The cost basis of these molds could not be established.
           Accordingly, these were written off with a corresponding adjustment
           to opening equity.

           Similarly, an adjustment to beginning equity amounting to $485,000
           was made to inventory of spare parts, which were also part of the
           initial capital contribution of the Predecessor Company. The
           adjustment resulted from an error in the valuation of inventory for
           capital contribution purposes.



                                       15
<PAGE>   37

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1998

================================================================================

NOTE 9 - FOURTH QUARTER ADJUSTMENTS (CONTINUED)

           In addition, during the fourth quarter of 1998, a reclassification
           adjustment was made to capitalize tooling and molds amounting to
           approximately $336,000, which were erroneously expensed.


NOTE 10 - OTHER INCOME

           Other income includes approximately $70,000 of reduction in liability
           on a lawsuit and has been treated as a change in accounting estimate.


NOTE 11 - YEAR 2000 ISSUE

           The Company is conducting a comprehensive review of its computer
           systems to identify the systems that could be affected by the Year
           2000 Issue and is developing an implementation plan to resolve the
           Issue.

           The Issue is whether computer systems will properly recognize
           date-sensitive information when the year changes to 2000. Systems
           that do not properly recognize such information could generate
           erroneous data or cause a system to fail. The Company is dependent on
           computer processing in the conduct of its business activities.

           Based on the review of the computer systems, management does not
           believe the cost of implementation will be material to the Company's
           financial position and results of operations.


NOTE 12 - SUBSEQUENT EVENTS

           Stock Split
           On March 11, 1999, the Company's Board of Directors declared a
           2-for-1 stock split. All applicable share and per share data have
           been retroactively restated for the stock split.

           Securities Exchange Commission ("SEC") Investigation
           In a letter dated March 31, 1999, the SEC stated that as part of its
           enforcement and regulatory responsibilities under the federal
           securities laws, it is conducting an informal investigation of the
           Company. As part of this investigation, the SEC has requested certain
           documents from the Company. Management is of the opinion that the
           SEC's investigation is of a routine nature, and it will not have any
           unfavorable impact on the Company.



                                       16
<PAGE>   38

      ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE.

                                      None.



                                    PART III


           ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by Item 9 is incorporated by reference from the
Company's definitive proxy statement (the "Proxy Statement") for its 1999 annual
shareholder's meeting, which is hereby incorporated by this reference.


                        ITEM 10. EXECUTIVE COMPENSATION

        The information required by Item 10 will be contained in the Proxy
Statement, which is hereby incorporated herein by this reference.


    ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by Item 11 will be contained in the Proxy
Statement, which is hereby incorporated by this reference.


            ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by Item 12 will be contained in the Proxy
Statement, which is incorporated herein by this reference.


                   ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)     The following exhibits are filed as part of this report as required by
        Item 601 of Regulation S-B:

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                             DESCRIPTION
    ------                             -----------
<S>             <C>

     3.1        Articles of Incorporation of the Registrant, as amended (1)
     3.2        Bylaws of the Registrant (1)
     3.3        Certificate of Designation of Preferences and Rights for Series A Preferred Stock (1)
     4.1        Share Exchange Agreement (1)
</TABLE>



                                       19
<PAGE>   39

<TABLE>
<S>             <C>
    10.1        Purchase Agreement with Robert Soehngen (1)
    10.2        Securities Purchase Agreement (1)
    10.3        1998 Employee/Consultant Stock compensation Plan (1)
    10.4        Contract for Sino-Foreign Contractual Joint Venture of Dalian Sonic Jet Co., Ltd. (2)
    10.5        Contract for Sino-Foreign Contractual Joint Venture of Nanning Sonic Jet Co., Ltd. (2)
    10.6        Employment Agreement with Albert Madikian (2)
    27.1        Financial Data Schedule (3)
</TABLE>
-----------
     (1)     Previously Filed.
     (2)     To Be Filed by Amendment.
     (3)     Filed Herewith.

(b)     Reports on Form 8-K

        None.



                                       20
<PAGE>   40

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Huntington Beach, State of California, on April 14, 1999.

                                            SONIC JET PERFORMANCE, INC.



                                            By:  /s/ Vatche Khedesian
                                               ---------------------------------
                                               Name:   Vatche Khedesian
                                               Title:  Treasurer (Principal
                                                       Accounting Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated on April 14, 1999.

<TABLE>
<CAPTION>
             SIGNATURE                                    TITLE
<S>                                     <C>
         /s/ Alex Mardikian                    Vice President and Director
--------------------------------------
           Alex Mardikian
                                                        Director
--------------------------------------
          Hratch Khedesian
        /s/ Vatche Khedesian            Treasurer (Principal Accounting Officer)
                                                      and Director
--------------------------------------
          Vatche Khedesian
          /s/ George Tfaye                              Director
--------------------------------------
            George Tfaye
</TABLE>



                                       21