<PAGE>

                       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, 1999 or

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

             For the transition period from            to
                                            ----------    ----------

                        COMMISSION FILE NUMBER: 000-22273

                           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, 1999, were
approximately $970,558.
        As of April 12,2000, the aggregate market value of the voting
stock held by non-affiliates of the issuer was approximately $12,730,000 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
2000 Annual Meeting of shareholders are incorporated herein by reference into
Part III.


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                                TABLE OF CONTENTS

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

Item 1.  Description of Business                                                        3

Item 2.  Description of Property                                                        12

Item 3.  Legal Proceedings                                                              13

Item 4.  Submission of Matters to a Vote of Security Holders                            13


PART II.

Item 5.  Market for Common Stock and Related Stockholder Matters                        13

Item 6.  Management's Discussion and Analysis or Plan of Operation                      14

Item 7.  Financial Statements                                                           16

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure                                                           37


PART III.

Item 9.  Directors, Executive Officers, Promoters and Control Persons:
         Compliance with Section 16(a) of the Exchange Act                              37

Item 10. Executive Compensation                                                         37

Item 11. Security Ownership of Certain Beneficial Owners and Management                 37

Item 12. Certain Relationships and Related Transactions                                 38

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

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.

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                                     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. To date, Sonic Jet
has generated only limited revenues. As of December 31, 1999, the Company had an
accumulated deficit of approximately $2,132,000. 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. The Company does not
have any agreements obligating watercraft dealers to order, sell or otherwise
offer its products. The Company terminated its agreement with Sonic Jet
International, Inc. and has established an internal sales and marketing group.
This group has focused on establishing dealer networks which will sell Sonic Jet
Performance, Inc. products in North and South America , Europe, some Pacific Rim
Countries and the Middle East. 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.

        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 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. In connection
with the $1,250,000 loan agreement described in the Liquidity and Capital
Resources section of the Management Discussion and Analysis section, the Company
has granted a warrant to purchase 1,250,000 shares of it's common stock and a
beneficial conversion feature described in more details in note 5 to the
consolidated financial statements. As result, the Company would have to record
additional interest expense amounting to approximately $1,005,000 in the year
ending December 31, 2000.


        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

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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 $15,000 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 power train, electrical, plumbing
and control components at competitive prices. The Company has developed its own
hull and deck components and is manufacturing these hull & deck at Nanning Sonic
Jet Performance, LLC, which is owned by Sonic Jet Performance, Inc. , and at
Dalian Sonic Jet Performance, LLC., a joint venture in which Sonic Jet
Performance, Inc. shares 45% of the profit or loss of the joint venture. 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. 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.

                                       4

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        FLUCTUATIONS IN MARKET GROWTH. The number of personal watercraft unit
sales has declined from approximately 200,000 units in 1995 to approximately
106,000 units in 1999. However, boat sales for Sonic Jet's targeted market has
grown from sales of $2.1Billion in 1997 to $2.5 Billion in 1999. The US pleasure
boat market has recorded its gains in over a decade with entry-level boats
joining bigger, pricier models at the top end of the market to drive
double-digit growth for the year 1999. New boat sales reached 605,000 units, a
6% gain for the year, while retail sales surged 20% to 23 billion. In the large
boat sector, outboard and inboard boat manufacturers rated 1999 as a very good
year, with gains of 16% and 6%. 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, that 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, the company's design director, 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.

                                       5

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        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 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, 1999, Sonic Jet performance and its subsidiaries had 144 full-time
employees and various other consultants. 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

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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.

        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 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 has in the recent past been
permitting 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

                                       7

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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. One of the company's facility is owned by
Sino-foreign contractual joint ventures in which the Company has a 45% minority
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. is dedicated to producing pleasure boat and
personal watercraft utilizing the highest design and performance standards. The
Company is a fully integrated commercial, personal watercraft and
recreational/sport boats manufacturing and sales company, which operates both in
the United States and internationally. The Company's products combine power,
safety, handling and stability in rough water along with high-speed performance.
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 two-seater and three-seater personal watercraft have been
completed. Research and development has been completed and production has begun
on the Sonic Jet Delta seven passenger recreational personal watercraft, the
Fire Rescue Jet, the commercial version and Sonic Jet Vortex recreational boats
featuring 22' models. Production models are currently being sold through dealers
worldwide.

        Sonic Jet has spent much of 1999 continuing development of its line of
Water Crafts and boats as well as establishing dealers for the boats throughout
both the United States and internationally. The Personal Water Crafts & boats
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, flood control
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 Dealer News Magazine, Personal Watercraft Illustrated and
Splash Magazine

                                       8

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INDUSTRY PROFILE.

Personal Watercraft

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 exceeded $7
billion in 1999. Historically, it has always followed that as discretionary
income grows, boat sales also grow.


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). Motor sport 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 motor sport dealers.
This is significant because Sonic Jet 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 broad selection of products,
accessories and services, including insurance and financing, in order to assist
customers and ensure the sale. Sonic Jet 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. 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. 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.

                                       9

<PAGE>

        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.

        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.

KEY PRODUCT SEGMENTS

Sport Recreational Boats

        The Sonic Jet Vortex line epitomizes safety, style and performance. Its
patented hull is constructed of hand laid FRP and "S" glass/Biax, which is
kevlar family and with glass, Biax and carbon fiber stringers which makes the
Vortex hulls stronger and lighter than conventional fiberglass hulls. The
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. Each

                                       10

<PAGE>

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 out drive 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 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 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.


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 on the stretchers and can be
dropped by helicopter for immediate rescue services.

3. The Fire Rescue Jet Ice Breaker, with a several new patented unique designs.
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.

Accessories

        Sonic Jet has obtained licensing 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 safety, performance and style, Sonic Jet will offer
programs and policies designed to meet all dealer requirements and needs.

                                       11

<PAGE>

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, 1999, the Company had 144 full-time employees . 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 an assembly operation in Huntington Beach, California, which is
home for the executive office and the "home based" sales team. The Company
operations from a 20,000 square foot facility. This facility is equipped with
CAD-CAM design technology, tooling, welding, fiberglass molding and an assembly
line. Sonic Jet has relocated a portion of its production to its facility in
Cape Coral, Florida.

CAPE CORAL FACILITY

        The Company has the capacity of producing Sonic Delta Jet in a leased
7,000 square foot facility.


        Sonic Jet operates two facilities in China.

1) The Company has 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 a 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
subsidies, the monthly cost of the 70 laborers is approximately $40/person, with
management personnel (10) costing $75/person. The Nanning facility is currently

                                       12

<PAGE>

producing the fiberglass shells for Sonic Jet's boat and PWCs. Testing and
quality control processes are performed before the finished parts are shipped
back to the Huntington Beach and Florida facilities for final 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 World port Los Angeles or
Miami , FL. 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. The output of the Nanning facility is shipped
to both the Florida and California The output of the Nanning facility was
shipped during 1999 to both the Florida and California.

2) Allied with the Chinese government Sonic Jet has joint venture 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 wholesale 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. The primary products to be produced in the Dalian
facility are pleasure boats 19' to 22', 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 and is supervised by the US R&D and
New Product Development management of Sonic Jet Performance, Inc. This includes
the ISO 9000 qualified quality control engineers, a complete staff of fiberglass
engineers, assembly engineers, and electrical engineers. The facility will also
house a domestic sales staff to market the production of the Nanning facility
and the Dalian facility throughout China. The output of the Dalian facility are
shipped to Sonic Jet's California facility for finishing and installation of the
drive train.


                            ITEM 3. LEGAL PROCEEDINGS

        The land which was purchased for new construction was returned to and
foreclosed by Riverside Bank in the best interest of 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, 1999.

                                     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 29 stockholders of
record as of December 31, 1999. The following table sets forth the low and high
sale prices for the Common Stock as reported by Nasdaq..

MONTH ENDED:
                                            LOW SALES PRICE     HIGH SALES PRICE
                                            ----------------    ----------------

Month Ended September 30, 1998                    5.000              5.500
Month Ended October 31, 1998                      4.940              5.500
Month Ended November 30, 1998                     4.500              5.630
Month Ended December 31, 1998                     4.440              6.130

                                       13

<PAGE>

<TABLE>
<CAPTION>

THREE MONTHS ENDED:
                                            LOW SALES PRICE     HIGH SALES PRICE
                                            ----------------    ----------------

<S>                                               <C>                <C>
Month Ended March 31, 1999                        12.500             15.000  stock split
Month Ended June 30, 1999                          5.000              6.000
Month Ended September 30, 1999                     2.250              2.250
Month Ended December 31, 1999                      1.062              1.062

</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, 1999 ("FY99") and December 31, 1998 ("FY98"), December
31, 1997 ("FY97")


<TABLE>
<CAPTION>
                                                1999                      1998                      1997
                                        ----------------------    ----------------------    ----------------------

<S>                                     <C>                        <C>                       <C>
Sales                                      970,558    100.00%       688,991     100.00%       213,583     100.00%
Cost of sales                              578,576     59.62%       375,321      54.47%        90,666      42.45%
Selling, general, & administrative       1,853,214    190.95%       512,313      76.36%       520,450     243.68%
Loss from operations                    (1,461,232)  (150.56%)     (198,643)    (28.83%)     (397,533)   (186.13%)
Interest Expense                           273,264     28.16%        67,205       9.75%        36,946      17.30%
Net loss                                (1,659,116)  (170.95%)      (60,314)     (8.75%)     (412,777)   (193.26%)
</TABLE>


NET SALES


FY 99 COMPARED WITH FY 98
        Net sales for FY 99 increased by $281,567, or 40.87 %, to $970,558
compared to $688,991 for FY 98. Management attributes this increase in sales to
the following. Sales of Trailers decreased by $40,262 or 167% from $64,318 in
1998 and to $24,056 in 1999. Sales of Rescue Jets decreased by $ 174,700 or from
$490,345 in 1998 to $ 315,645 in 1999. Sales of Delta Jets increased by $77,772
or 42.85% from 103,731 in 1998 to $181,503 in 1999. Sale of parts amounted to
$348,996 in 1999 as compared to none in 1998.

FY 98 COMPARED WITH FY 97
        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 decreased by $45,114 or 234% from $19,204 in 1997
and to $64,318 in 1998. Sales of Rescue Jets increased by $ 323,202 or 198% from
$163,143 in 1997 to $ 490,345 in 1998. Sales of Delta Jets amounted to $103,731
in 1998 as compared to none in 1997.

                                       14

<PAGE>

COST OF SALES

FY 99 COMPARED WITH FY 98
        Cost of Sales for FY 99 increased by $203,255 or 54.16%, to $578,576
compared to $375,321 for FY 98. Increase is due to the increase in sales.

FY 98 COMPARED WITH FY 97

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


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

FY 99 COMPARED WITH FY 98
        Selling, general and administrative expenses for FY 99 increased
$1,340,901, or 261.79%, to $1,853,214, compared to $512,213 for FY98. Major
components of selling, general and administrative expenses are as follows:
Administrative wages increased by $329,282 or 320.21% from $102,833 1998 to
$432,115 in 1999; travel expense increased by $29,487 or 118.42% from $24,902 in
1998 to $54,389 in 1999. Increases in travel expenses were mostly due to trips
by management to its China and Florida subsidiary. Insurance expense increased
from $18,784 in 1998 to $47,087 in 1999. Advertising expense decreased by $4,080
from $16,327 in 1998 to $12,247 in 1999. As a result of the increase in
manufacturing efforts of the Company, utilities expense increased by $12,829 or
60.46% from $21,220 in 1998 to $34,049 in 1999. Slow and non moving inventories
amounting to $257,044 was expensed during 1999.

FY 98 COMPARED WITH FY 97
        Selling, general and administrative expenses for FY 98 decreased $8,137,
or 1.56%, to $512,213 compared to $520,450 for FY97. 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 and Florida 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 $18,785 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. Advertising and marketing wages
increases were attributable to the increased sales effort 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 East.
As a result of the increase in manufacturing efforts of the Company, utilities
expense increased by $16,745 or 374.19.9% from $4,475 in 1997 to $21,220 in
1998.


NET LOSS

FY 99 COMPARED WITH FY 98
        Net loss for FY 99 increased by $1,598,802, or 2,650 %, to $1,659,116
for FY 99 compared to $60,314 for FY 98.

FY 98 COMPARED WITH FY 97
        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 and loans on an as needed basis.

        In November 1999, the Company entered into a loan agreement with the
preferred stock holder to borrow upto $1,250,000 at 12% per annum. Company has
$635,000 up to December 31, 1999, and the balance amount was released after the
year end. This loan matures in August 2000 and is secured by Company assets.

                                       15

<PAGE>

        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. The Company incurred
losses from operations for the years ended December 31, 1999 and 1998 and has a
shareholders' deficit at December 31, 1999. The Company's independent certified
public accountants have included a modification to their opinion, which
indicates there is substantial doubt about the Company's ability to continue as
a going concern. See Note 1 to Consolidated Financial Statements for additional
information. The Company is attempting to raise additional to meet future
working capital requirements, But may not be able to do so. Should the Company
not able to raise additional capital, it may have to severely curtail
operations.


               ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       16

<PAGE>

                          SONIC JET PERFORMANCE, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                           DECEMBER 31, 1999 AND 1998




Sonic Jet Performance

                                       17

<PAGE>

<TABLE>
                                                                                        SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                                                                                            CONTENTS
                                                                                                                   DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                                                            Page
<S>                                                                                                        <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                                           19

FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                                                            20 - 21

     Consolidated Statements of Operations                                                                   22

     Consolidated Statements of Stockholders' Equity                                                         23

     Consolidated Statements of Cash Flows                                                                 24 - 25

     Notes to Consolidated Financial Statements                                                            26 - 36
</TABLE>

                                       18

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheet of Sonic Jet
Performance, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sonic
Jet Performance, Inc. and subsidiaries as of December 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the years ended December 31,
1999 and 1998, the Company incurred net losses of $1,659,116 and $60,314,
respectively. In addition, the Company's accumulated deficit was $2,132,207 as
of December 31, 1999. Further, the Company must obtain additional financing to
meet its working capital needs. These factors, as discussed in Note 1 to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 12, 2000

                                       19

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

                                                         ASSETS

CURRENT ASSETS
     Cash                                                       $      80,557
     Accounts receivable - trade                                       11,844
     Inventories                                                    1,131,899
     Due from related parties                                         430,268
     Prepaid inventories                                               20,000
     Other                                                              4,150
                                                                --------------

         Total current assets                                       1,678,718

PROPERTY AND EQUIPMENT, net                                         4,479,359

OTHER ASSETS
     Licensing rights                                                 535,000
     Other                                                             22,575
                                                                --------------

                      TOTAL ASSETS                              $   6,715,652
                                                                ==============

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

                                       20

<PAGE>

<TABLE>
                                                   SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                                     CONSOLIDATED BALANCE SHEET
                                                                              DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------
<CAPTION>

                                          LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                                              <C>
CURRENT LIABILITIES
     Accounts payable                                                            $     522,094
     Accrued payroll taxes                                                              68,403
     Accrued interest and other accrued liabilities                                    290,193
     Current portion of capitalized lease obligations                                    1,303
     Convertible debt - related party                                                  205,450
                                                                                 --------------

         Total current liabilities                                                   1,087,443

CAPITALIZED LEASE OBLIGATIONS, net of current portion                                   13,668
SUBORDINATED NOTE PAYABLE - RELATED PARTY                                              600,000
                                                                                 --------------

              Total liabilities                                                      1,701,111
                                                                                 --------------

MINORITY INTEREST                                                                      646,016
                                                                                 --------------

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
         12,676,000 shares issued and outstanding,
              including 432,500 held in treasury                                     3,618,194
     Additional paid-in capital - stock warrant outstanding                            316,026
     Additional paid-in capital                                                        272,000
     Shares committed to be issued                                                     799,455
     Accumulated comprehensive loss                                                     (4,943)
     Accumulated deficit                                                            (2,132,207)
                                                                                 --------------

                  Total stockholders' equity                                         4,368,525
                                                                                 --------------

                      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $   6,715,652
                                                                                 ==============

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

                                                           21
</TABLE>

<PAGE>

<TABLE>
                                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                               DECEMBER 31, 1999
------------------------------------------------------------------------------------------------

<CAPTION>
                                                                       1999            1998
                                                                  --------------  --------------

<S>                                                               <C>             <C>
SALES                                                             $     970,558   $     688,991

COST OF SALES                                                           578,576         375,321
                                                                  --------------  --------------

GROSS PROFIT                                                            391,982         313,670

GENERAL AND ADMINISTRATIVE EXPENSES                                   1,853,214         512,313
                                                                  --------------  --------------

LOSS FROM OPERATIONS                                                 (1,461,232)       (198,643)
                                                                  --------------  --------------

OTHER INCOME (EXPENSE)
     Other income                                                        49,304         136,116
     Interest income                                                      4,527          33,187
     Interest expense                                                  (273,264)        (67,205)
                                                                  --------------  --------------

         Total other income (expense)                                  (219,433)        102,098
                                                                  --------------  --------------

LOSS BEFORE MINORITY INTEREST                                        (1,680,665)        (96,545)

MINORITY INTEREST                                                        21,549          36,231
                                                                  --------------  --------------

NET LOSS                                                          $  (1,659,116)  $     (60,314)
                                                                  ==============  ==============

BASIC LOSS PER SHARE                                              $       (0.13)  $       (0.01)
                                                                  ==============  ==============

DILUTED LOSS PER SHARE                                            $       (0.13)  $       (0.01)
                                                                  ==============  ==============

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
     BASIC                                                           12,653,198      10,709,438
                                                                  ==============  ==============

     DILUTED                                                         14,982,000      11,509,600
                                                                  ==============  ==============

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

                                                 22
</TABLE>

<PAGE>

<TABLE>
                                                                                        SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                                    FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                                                                    Additional
                                                                                                                      Paid-In
                                                                                                                     Capital -
                                                          Preferred Stock                  Common Stock                Stock
                                                  ------------------------------  ------------------------------      Warrant
                                                      Shares          Amount          Shares          Amount        Outstanding
                                                  --------------  --------------  --------------  --------------  --------------
<S>                                                       <C>     <C>                <C>          <C>             <C>
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               -
ISSUANCE OF COMMON STOCK                                                                 56,000          18,500
CAPITAL CHANGES DUE TO DEBT FINANCING                                                                                   316,026
CUMULATIVE TRANSLATION ADJUSTMENT
NET LOSS
                                                  --------------  --------------  --------------  --------------  --------------

BALANCE, DECEMBER 31, 1999                                1,600   $   1,500,000      12,676,000   $   3,618,194   $     316,026
                                                  ==============  ==============  ==============  ==============  ==============
                                                                                                                     (CONTINUED)
</TABLE>

<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                                      Shares          Compre-
                                                    Additional      Committed         hensive
                                                     Paid-In          to be           Income       Accumulated
                                                     Capital          Issued          (Loss)         Deficit          Total
                                                  --------------  --------------  --------------  --------------  --------------
<S>                                               <C>             <C>             <C>             <C>             <C>
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
ISSUANCE OF COMMON STOCK                                                799,455                                         817,955
CAPITAL CHANGES DUE TO DEBT FINANCING                   272,000                                                         588,026
CUMULATIVE TRANSLATION ADJUSTMENT                                                         5,214                           5,214
NET LOSS                                                                                             (1,659,116)     (1,659,116)
                                                  --------------  --------------  --------------  --------------  --------------

BALANCE, DECEMBER 31, 1999                        $     272,000   $     799,455   $      (4,943)  $  (2,132,207)  $   4,368,525
                                                  ==============  ==============  ==============  ==============  ==============

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

                                                           23
</TABLE>

<PAGE>

<TABLE>
                                                        SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                    FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------

<CAPTION>
                                                                           1999            1998
                                                                      --------------  --------------

<S>                                                                   <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                           $  (1,659,116)  $     (60,314)
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities
       Depreciation and amortization                                        261,080          36,826
       Interest relating to beneficial conversion and warrants              158,232               -
       Minority interest                                                    (34,890)        (16,783)
       Common stock issued for services                                      18,500          30,000
   (Increase) decrease in
     Inventories                                                          1,335,687        (743,044)
     Due from related parties                                                42,275        (443,422)
     Accounts receivable                                                     27,109         133,686
     Prepaid inventories                                                    182,514        (202,514)
     Other receivables                                                       29,264         (23,801)
     Other current assets                                                    14,677         (19,845)
   Increase (decrease) in
     Accounts payable                                                       391,640           4,583
     Accrued payroll taxes                                                   58,776           5,224
     Other accrued liabilities                                              274,414        (110,418)
     Due to related parties                                                  99,994          20,589
     Accrued interest                                                        66,779          88,872
                                                                      --------------  --------------

           Net cash provided by (used in) operating activities            1,266,935      (1,300,361)
                                                                      --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                                       (89,189)       (261,783)
   Purchase of other assets                                                  31,665         (54,245)
   Costs of reorganization                                                        -         (30,000)
   Purchase of business, net of cash acquired                                     -              74
   Tooling                                                               (1,917,418)       (446,266)
                                                                      --------------  --------------

           Net cash used in investing activities                         (1,974,942)       (792,220)
                                                                      --------------  --------------

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

                                                 24
</TABLE>

<PAGE>

<TABLE>
                                                   SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                               FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------

<CAPTION>
                                                                      1999            1998
                                                                 --------------  --------------

<S>                                                              <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from convertible debt - related party                $     635,244   $           -
   Proceeds from capitalized lease obligation                           14,971               -
   Issuance of preferred stock                                               -       1,500,000
                                                                 --------------  --------------

           Net cash provided by financing activities                   650,215       1,500,000
                                                                 --------------  --------------

EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS                     5,214          (3,790)
                                                                 --------------  --------------

              Net decrease in cash                                     (52,578)       (596,371)

CASH, BEGINNING OF YEAR                                                133,135         729,506
                                                                 --------------  --------------

CASH, END OF YEAR                                                $      80,557   $     133,135
                                                                 ==============  ==============


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   INTEREST PAID                                                 $     273,264   $           -
                                                                 ==============  ==============

   INCOME TAXES PAID                                             $           -   $         800
                                                                 ==============  ==============

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1999, the Company issued 50,000 shares of
common stock for consulting services rendered valued at $12,500 and 6,000 shares
of common stock for consulting services rendered valued at $6,000.

During the year ended December 31, 1999, the Company recorded $143,872 of
accrued interest as shares committed to be issued, which represents the
Company's commitment to issue 53,905 shares of common stock to a stockholder
(see Note 6).

During the year ended December 31, 1999, the Company recorded $655,583 of
related party payable as additional paid-in capital, which represents the
Company's commitment to issue 292,267 shares of common stock to a stockholder
(see Note 7).

Cash from investing and financing activities exclude the effect of the
acquisition of real property through the assumption of debt.

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

                                       25
</TABLE>

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business
         ------------------
         Sonic Jet Performance, Inc. ("SJPI"), a Colorado corporation, and
         subsidiaries (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.

         Principles of Consolidation
         ---------------------------
         The consolidated financial statements include the accounts of SJPI and
         its subsidiaries, Nanning Sonic Jet, LLC and Sonic Jet Performance, Inc
         - Florida ("SJPF"), a wholly owned subsidiary of SJPI. 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.

         Going Concern
         -------------
         The accompanying consolidated financial statements have been prepared
         on a going concern basis which contemplates the realization of assets
         and the satisfaction of liabilities in the normal course of business.
         As shown in the financial statements, during the years ended December
         31, 1999 and 1998, the Company incurred losses of $1,659,116 and
         $60,314, respectively, and the Company's accumulated deficit was
         $2,132,207 as of December 31, 1999. Realization of a major portion of
         the assets in the accompanying balance sheet is dependent upon
         continued operations of the Company, obtaining additional financing,
         and the success of its future operations.

         To meet these objectives, the Company is negotiating with its current
         lender to increase the loan amount by $250,000 to $1,500,000. Since
         December 31, 1999, the Company has received $127,000 of the $250,000
         from the lender. The Company has signed an agreement for a fleet credit
         program for its dealer network under which the finance company will
         purchase eligible receivables up to $2,000,000 from the Company.
         Management expects such a receivable-financing program will provide
         sufficient cash to continue the Company's present operations and
         support future new product development activities. In addition, for the
         three months ended March 31, 2000, a total of 13 boats have been sold
         for a total of approximately $380,000. Management is also negotiating
         to obtain an additional $10,000,000 in financing from investors.

         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.

                                       26

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

         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:

                  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

         The Company capitalizes costs incurred on tooling and molds once the
         design of the product is completed and marketability of the product is
         established by independent marketing channels.

         Income Taxes
         ------------
         The Company was a limited liability company 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.

         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.

                                       27

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

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 statements of operations. Gains and losses arising from translation
         of a subsidiary's foreign currency financial statements are shown as a
         component of stockholders' equity as accumulated comprehensive income
         (loss).

         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
         --------------
         The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
         share is computed by dividing loss available to common stockholders by
         the weighted-average number of common shares outstanding. Diluted loss
         per share is computed similar to basic loss 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 (Loss)
         ---------------------------
         For the year ended December 31, 1998, the Company adopted SFAS No. 130,
         "Reporting Comprehensive Income." This statement establishes standards
         for reporting comprehensive income (loss) and its components in a
         financial statement. Comprehensive income (loss) 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
         (loss), which are excluded from net loss, include foreign currency
         translation adjustments and unrealized gains and losses on
         available-for-sale securities. Comprehensive income (loss) consists of
         foreign currency translation adjustments and is presented in the
         consolidated statements of stockholders' equity.

         Recently Issued Accounting Pronouncements
         -----------------------------------------
         In June 1999, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 136, "Transfer of Assets to a Not-for-Profit Organization or
         Charitable Trust that Raises or Holds Contributions for Others." This
         statement is not applicable to the Company.

         In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
         Instruments and Hedging Activities." The Company does not expect
         adoption of SFAS No. 137 to have a material impact, if any, on its
         financial position or results of operations.

                                       28

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 2 - INVENTORIES

         Inventories at December 31, 1999 consisted of the following:

                  Raw materials and supplies                      $     670,441
                  Work in process                                       314,447
                  Finished goods                                         98,021
                  Inventory in transit                                   48,990
                                                                  --------------

                                                                  $   1,131,899
                                                                  ==============

NOTE 3 - CASH

         The Company maintains its cash balances at a bank located in
         California. Deposits at the bank are insured by the Federal Deposit
         Insurance Corporation up to $100,000. At times, the Company holds cash
         with these banks in excess of amounts insured by federal agencies. As
         of December 31, 1999, the uninsured portions of the balances held at
         the bank aggregated to $16,598.


NOTE 4 - PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 1999 consisted of the following:

                  Building and improvements                       $     731,700
                  Furniture and fixtures                                 18,141
                  Machinery and equipment                               459,413
                  Tooling and molds                                     352,836
                  Tooling - new products                              3,207,033
                  Vehicles                                               53,302
                  Leasehold improvements                                 32,296
                                                                  --------------

                                                                      4,854,721
                  Less accumulated depreciation and amortization        375,362
                                                                  --------------

                      TOTAL                                       $   4,479,359
                                                                  ==============

         A total of $2,236,148 of the tooling for new product has not been
         depreciated during the year ended December 31, 1999 as these items will
         be used in production in the following year.

                                       29

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 4 - PROPERTY AND EQUIPMENT (CONTINUED)

         During the year ended December 31, 1999, the Company acquired property
         for $490,792, including $24,206 in building improvements. The
         acquisition was financed by two mortgages. As of December 31, 1999, the
         Company was in default on the mortgages, and the lender has foreclosed
         on the property. A net gain of $32,867 was recorded as of December 31,
         1999, representing the difference between the carrying values of the
         property and the related debts and is included in other income.


NOTE 5 - CONVERTIBLE DEBT - RELATED PARTY

         On November 24, 1999, the Company entered into a loan agreement with
         the preferred stockholder to borrow up to $1,250,000 at 12% per annum,
         payable quarterly. The loan matures in August 2000 and is secured by
         all of the Company's assets. The outstanding principal and unpaid
         interest are convertible at any time after 90 days from the date of the
         note at 70% of the average of the five lowest per share prices during
         the 15 trading days prior to conversion. In accordance with FASB's
         Emerging Issues Task Force Topic No. D-60, the Company accounts for the
         beneficial conversion feature of convertible debt securities based on
         the difference between the conversion price and the fair value of the
         common stock into which the security is convertible, multiplied by the
         number of shares into which the security is convertible. The amount
         attributable to the beneficial conversion feature is recognized as
         additional interest expense over the most beneficial conversion period
         using the effective interest method. Any unamortized beneficial
         conversion feature is recognized as interest expense when the related
         debt security is converted into common stock. The Company has
         recognized the beneficial conversion feature by recording unamortized
         interest of $157,000 and interest expense of $115,000, offset by
         $272,000 of additional paid-in capital. As of December 31, 1999, the
         Company has borrowed $635,294. As additional borrowing takes place
         under this note, the Company would record additional interest expense
         in the first quarter of 2000 of approximately $421,000.

         In connection with the execution of this note, the Company issued
         warrants to purchase 1,250,000 shares of common stock at an exercise
         price of $2.49 per share. The warrant was effective immediately and
         expires on November 24, 2004. The fair value of the warrant was
         calculated using the Black-Scholes option valuation model with the
         following assumptions: dividend yield of 0%, risk-free interest rate of
         7%, expected volatility of 70%, and expected life of five years. As of
         December 31, 1999, the warrant was valued at $0.99 per share and was
         still outstanding. The Company allocates the proceeds received from
         debt or convertible debt with detachable warrants using the relative
         fair value of the individual elements at the time of issuance. The
         amount allocated to the warrants is accounted for as a debt discount
         and is amortized to interest expense over the expected term of the debt
         using the effective interest method. The Company would record
         additional interest expense of approximately $584,000 relating to these
         warrants in the year 2000.

                                       30

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 5 - CONVERTIBLE DEBT - RELATED PARTY (CONTINUED)

         The carrying amount of the convertible debt has been reduced by any
         related unamortized debt discount.


NOTE 6 - SUBORDINATED NOTE PAYABLE - RELATED PARTY

         The Company has a note payable to one of its stockholders, bearing
         interest at 10%, which is subordinated to the convertible debt holders'
         interest. In an agreement dated November 24, 1999 between the Company,
         the holder of the subordinated promissory note, and the convertible
         note holder, the parties agreed to the following:

         a)       All accrued interest as of November 24, 1999 shall be
                  converted into common stock at a conversion price of 120% of
                  the average stock price for the five days prior to November 1,
                  1999. Interest shall continue to accrue thereafter. This
                  agreement to convert accrued interest into common stock has
                  been recorded as 53,905 shares of common stock to be issued at
                  $143,872, which represents 120% of the average stock price for
                  the five days prior to November 1, 1999.

         b)       On March 1, 2000, the principal amount of the loan, together
                  with any further accrued interest, shall, under certain
                  conditions, be converted into shares of common stock at 120%
                  of the average stock price for the five days prior to November
                  1, 1999.

         The outstanding balance at December 31, 1999 was $600,000.

                                       31

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 7 - COMMITMENTS AND CONTINGENCIES

         Lease
         -----
         The Company leases its facility from its majority stockholder under an
         operating lease agreement. On November 24, 1999, under an agreement
         between several parties, including the Company and the lessor, part of
         the rent payment between November 24, 1999 and March 31, 2000 was
         deferred to November 18, 2003. Future minimum lease payments are as
         follows:

                   Year Ending
                  December 31,
                  ------------

                      2000                                        $      82,500
                      2001                                               97,500
                      2002                                               16,500
                      2003                                                6,000
                                                                  --------------

                           TOTAL                                  $     202,500
                                                                  ==============

         Rent expense was $79,150 and $61,315 for the years ended December 31,
1999 and 1998, respectively.

         Future minimum lease payments under a non-cancelable capital lease were
as follows:

                   Year Ending
                  December 31,
                  ------------

                      2000                                        $       2,666
                      2001                                                2,666
                      2002                                               12,615
                                                                  --------------

                                                                         17,947
                  Less amount representing interest                       2,976
                                                                  --------------

                                                                         14,971
                  Less current portion                                    1,303
                                                                  --------------

                           LONG-TERM PORTION                      $      13,668
                                                                  ==============

         Capitalized leased assets included in property and equipment consisted
of the following:

                  Vehicles                                        $      20,899
                  Less accumulated amortization                           2,787
                                                                  --------------

                      TOTAL                                       $      18,112
                                                                  ==============

                                       32

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Employment Agreement
         --------------------
         On June 19, 1998, the Company amended an employment agreement, dated
         July 18, 1997, with its Design Director and Chairman/Chief Executive
         Officer of International Operations. The agreement was modified on
         November 24, 1999 and states that the officer will be paid not more
         than $5,000 per month between November 24, 1999 and March 31, 2000 and
         not more than $140,000 per annum thereafter.

         Royalty/Licensing Agreements
         ----------------------------
         On August 3, 1998, the Company assumed a royalty agreement with its
         Design Director and Chairman/Chief Executive Officer of International
         Operations. On November 24, 1999, the royalty agreement was canceled by
         payment of common stock to the officer and replaced by a licensing
         agreement. The licensing agreement provides for license fees (a) in the
         amount of $2,000 to be paid monthly between November 24, 1999 and March
         31, 2000 and (b) in amounts equal to 4% of the Company's sales, or 5%
         of the Company's sales if the Company's profit margin exceeds 30%, to
         be paid thereafter until November 18, 2003.

         Settlement Agreement
         --------------------
         On November 24, 1999, under a settlement agreement between the Company
         and its Design Director and Chairman/Chief Executive Officer of
         International Operations, the officer has agreed to accept 292,267
         shares of the Company's common stock as full and final settlement of
         the licensing rights and all delinquent royalties and delinquent salary
         in the royalty and employment agreements outlined above. This agreement
         has been recorded as $655,583 of common stock to be issued, which
         represents the total amount of the licensing rights and the delinquent
         royalties and salary.

         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 8 - OTHER RELATED PARTY TRANSACTIONS

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

                  Dalian Sonic Jet, Ltd.                          $     354,584
                  Sonic Marketing International, LLC                     35,172
                  Majed Al Rashid                                        40,512
                                                                  --------------

                      TOTAL                                       $     430,268
                                                                  ==============

                                       33

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 8 - OTHER RELATED PARTY TRANSACTIONS (CONTINUED)

         Dalian Sonic Jet, Ltd. is a joint venture partner with SJPI, in which
         SJPI shares 45% of the profit or loss of the joint venture. 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. Majed Al Rashid is a stockholder of the Company.

         During the year ended December 31, 1999, the Company recorded $535,000
         in licensing rights as part of a settlement agreement with its Design
         Director and Chairman/Chief Executive Officer of International
         Operations. Under the agreement, the Company has the right to
         manufacture products covered by the licensing agreement through 2015.


NOTE 9 - 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 holder of the Series A
         Preferred Stock is not entitled to receive dividends. The Series A
         Preferred Stock is convertible into common stock at the option of the
         holder, subject to certain limitations, and is limited to a formula of
         either a fixed conversion price of $4 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 holder is 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.

                                       34

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES

         The Company has incurred no income tax expenses since inception. The
         actual tax benefit differs from the expected tax benefit computed by
         applying the United States federal corporate tax rate of 34% to loss
         before income taxes as follows:

<TABLE>
<CAPTION>
                                                                       1999            1998
                                                                  --------------  --------------

                  <S>                                             <C>             <C>
                  Expected tax benefit                            $    (564,000)  $     (20,000)
                  State income taxes, net of federal benefit            (32,000)         (1,000)
                  Other                                                  23,000               -
                  Changes in valuation allowance                        573,000          21,000
                                                                  --------------  --------------

                      TOTAL                                       $           -   $           -
                                                                  ==============  ==============
</TABLE>

         The tax effects of temporary differences that give rise to deferred tax
         assets were as follows:
<TABLE>
<CAPTION>
                                                                       1999            1998
                                                                  --------------  --------------

                  <S>                                             <C>             <C>
                  Net operating loss carryforwards                $     651,000   $      16,000
                  Less valuation allowance                              651,000          16,000
                                                                  --------------  --------------

                      TOTAL                                       $           -   $           -
                                                                  ==============  ==============
</TABLE>

         At December 31, 1999, the Company had federal and state net operating
         loss carryforwards of approximately $1,629,000 and $835,000,
         respectively, which expire in 2014 and 2002, respectively.


NOTE 11 - STOCK COMPENSATION 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 of common stock 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. During
         the year ended December 31, 1999, the Company issued 56,000 shares of
         common stock to consultants. The fair value of the consultants'
         services of $18,500 has been recorded as compensation expense.

                                       35

<PAGE>

                                    SONIC JET PERFORMANCE, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               DECEMBER 31, 1999
--------------------------------------------------------------------------------

NOTE 12 - YEAR 2000 ISSUE

         The Company has completed a comprehensive review of its computer
         systems to identify the systems that could be affected by ongoing Year
         2000 problems. Upgrades to systems judged critical to business
         operations have been successfully installed. To date, no significant
         costs have been incurred in the Company's systems related to the Year
         2000.

         Based on the review of the computer systems, management believes all
         action necessary to prevent significant additional problems has been
         taken. While the Company has taken steps to communicate with outside
         suppliers, it cannot guarantee that they have all taken the necessary
         steps to prevent any service interruption that may affect the Company.


NOTE 13 - SUBSEQUENT EVENTS

         Employment Agreement
         --------------------
         On February 15, 2000, the Company executed a three-year employment
         agreement with its President/Chief Executive Officer of SJPI. In
         addition to incentives, the agreement calls for the officer to be paid
         the following base salary:

                  Year Ending
                  December 31,
                  ------------

                      2000                                        $     125,000
                      2001                                        $     170,833
                      2002                                        $     195,833
                      2003                                        $      33,333

         Issuance of Common Stock
         ------------------------
         Subsequent to December 31, 1999, the Company issued 20,000 shares of
         common stock to a consultant. The fair value of the consultant's
         services was estimated at $40,000. The Company also issued 4,000 shares
         of common stock to various officers as bonuses. The monetary value of
         the bonuses was estimated at $8,000. Another 30,000 shares were issued
         to a former officer of the Company as consideration for the transfer of
         the domain name to the Company.

         Nanning Facility (UNAUDITED)
         ----------------------------
         On January 30, 2000, the joint venture agreement with China Guangxi
         Nanning Shipyard of Nanning, Guangxi, China was dissolved, and Nanning
         Sonic Jet, LLC became a wholly owned subsidiary of SJPI. Management of
         SJPI does not expect to incur a loss as a result of this agreement.

                                       36

<PAGE>

      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.

                                       37

<PAGE>

             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:



    EXHIBIT
    NUMBER                             DESCRIPTION
    ------                             -----------

     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)
    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 Mardikian (2)
    27.1        Financial Data Schedule (3)

-----------
     (1)     Previously Filed.
     (2)     To Be Filed by Amendment.
     (3)     Filed Herewith.

(b)     Reports on Form 8-K

        None.

                                       38

<PAGE>

                                   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, 2000.

                                            SONIC JET PERFORMANCE, INC.



                                            By:  /s/ Vatche Khedesian
                                               ---------------------------------
                                               Name:   Vatche Khedesian
                                               Title:  Secretary / Directors

        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, 2000.



               SIGNATURE                          TITLE


/s/ Hratch Khedesian
---------------------------------------
         Hratch Khedesian                 Chairman and Director


/s/ Vatche Khedesian
---------------------------------------
         Vatche Khedesian                 Secretary  and Director


/s/ George Tfaye
---------------------------------------
         George Tfaye                     Director


---------------------------------------
         Shiekh Mohamed Al-Rashid         Director


---------------------------------------
         Alex Mardikian                   Director


---------------------------------------
         Alan Weaver                      Chief Executive Officer


---------------------------------------
         Madhava Rao Mankal               Chief Financial Officer

                                       39