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, 2000

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

              For the transition period from 1-1-2000 to 12-31-2000

                        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, 2000, were
approximately $1,032,355.

        As of December 31, 2000 the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $136,818.69 based upon
the average closing bid and asked price of such stock on such date. At December
31,2000 there were 13,024,767 shares of Common stock issued and outstanding and
1,600 shares of class `A' convertible Preferred stock outstanding.



                       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

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                                              38

Item 11. Security Ownership of Certain Beneficial Owners and Management       40

Item 12. Certain Relationships and Related Transactions                       42

Item 13. Exhibits and Reports on Form 8-K                                     43


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Forward-Looking Statements

        In addition to historical information, this Annual Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Actions 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.

<PAGE>


                                     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, 2000, the Company had an
accumulated deficit of approximately $9,373,739. 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 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"), 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 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.

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Going Concern
-------------

The Company's independent public accountants have included an emphasis of matter
paragraph relating to the Company's ability to continue as a going concern to
their opinion as fallow: 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, 2000 and
1999, the Company incurred losses of $7,458,046 and $1,659,116, respectively,
and the Company's accumulated deficit was $9,590,253 as of December 31, 2000.
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.

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

        HIGH-COST, LEISURE SPORT PRODUCT. Sales of Sonic Jets' products, at a
price of between approximately $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

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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.

        FLUCTUATIONS IN MARKET GROWTH. The number of personal watercraft unit
sales has declined from approximately 200,000 units in 1995 to approximately
-92,000 units in 2000. However, boat sales for Sonic Jet's targeted market has
grown from sales of $2.1Billion in 1997 to $2.7 Billion in 2000. 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 2000. In the large boat sector, outboard and
inboard boat manufacturers rated 1999 as a very good year, with gains of 13% and
18%. 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

<PAGE>

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 $4,000,000 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,
in-validated, or circumvented or that the rights granted thereunder will provide
a competitive advantage to the Company. Furthermore, no assurance can be given
that the protection of any patents or trademarks that have been secured by Mr.
Mardikian and assigned to the Company, or that may be issued in the future, will
be held valid if subsequently challenged. Issued patents or trademarks can later
be held invalid by a court. In addition, other entities may currently have, or
may obtain in the future, patent or trademark rights which they may claim
conflict with the Company's patents and may attempt to block the Company's use
of its patents. The foregoing possibilities may require the Company to obtain a
license from or other arrangement with an unknown entity. There can be no
assurance that the Company will be able to obtain any such licenses or
cooperative arrangements on reasonable terms, if at all, or that the patents or
trademarks underlying any such licenses will be valid or enforceable. In
addition, if the Company becomes involved in litigation over such patents or
other proprietary rights, such litigation could consume a substantial portion of
the Company's time and resources.

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

<PAGE>

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, 2000, Sonic Jet performance and its subsidiaries had 115 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
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

<PAGE>

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
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

<PAGE>

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. Research and development
has been completed and production has begun on the Sonic Jet Delta seven
passenger recreational personal watercraft, the Fire Rescue Jet and Sonic Jet
Vortex recreational boats featuring twenty two-foot. Production models are
currently being sold through dealers worldwide.

        Sonic Jet is 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 and rescue
teams. These boats offer fire and de-watering pumps, water-tight emergency
equipment compartments and capacity for 5- 7 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 as several
industry-related organizations are also in Southern California and several
publishers including Dealer News Magazine, Hot Boats, Boating World, Boating
Magazine, Fire Engineering and Splash Magazine


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

<PAGE>

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). Motorsport dealers sell the majority of
personal watercraft. Industry observers agree that approximately 85% to 90% of
all personal watercraft sold in the U.S. are sold by 2500 motorsport dealers.
This is significant because Sonic Jet 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 is selling its watercraft and accessories through
established distributors and dealers. Although Sonic Jet is primarily
concentrating its marketing of PWC's and Boats in the US market, overseas
distribution of the Rescue Jet and Fire-Rescue expanded more in year 2000.

COMPETITION

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

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

<PAGE>

        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 "S" glass/kevlar family and carbon
fiber makes the Vortex hulls stronger and lighter than conventional fiberglass
hulls. The patented 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 Each model in
this line includes covered headlights, Electric engine hatch opener and full
instrumentation.

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

2. 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

<PAGE>

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

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.


SALES PROGRAMS

Dealer Sales Programs

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

Key Dealer Sales Program elements are:

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

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

3. Exclusive Dealer Markets. Dealers will be given a detailed plan for their
market area, location and information on all other local dealers. Each dealer
will receive a service agreement in an exclusive dealer area in which no other
Sonic Jet dealer will compete. This gives dealers the assurance of exclusivity
in their market and will motivate them to put maximum effort in promoting and
selling Sonic Jet products. Sonic Jet's commitment to exclusive dealer sales
locations will give dealers confidence in its line and allow them to promote
Sonic Jet's products aggressively. No other company offers the assurance of
exclusivity to its dealers. In virtually every major market in the U.S., too
many dealers exist, all competing with each other and selling the same major
brands. This results in lower average unit sales per dealer and lower profit

<PAGE>

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, 2000, the Company had 105 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.


        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 35 laborers is approximately $40/person, with
management personnel (5) costing $75/person. The Nanning facility is currently
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
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. 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 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 2,000 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 22' Vortex. 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 employs nearly 50 people and is
supervised by the US R&D and New Product Development management of Sonic Jet
Performance, Inc. This includes 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

        1.       The Company is a Co-defendant in a wrongful death case in
                 Orange County, California resulting in an accident involving a
                 boat manufactured by the Company. The outcome of the verdict is

<PAGE>

                 uncertain and that the amount of loss cannot be estimated. In
                 the event of a verdict or attachment in excess of any
                 applicable insurance, the Company could be materially and
                 adversely impacted. The Company is vigorously defending the
                 case.

        2.     The Company is a defendant in a case brought in Orange County,
               California for alleged breach of Company's contract by Mr. Alan
               Weaver and Mr. Harry Yamada. The Company is vigorously defending
               the case.


           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, 2000.

<PAGE>

                                     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 589 stockholders of
record as of December 31, 2000. The following table sets forth the low and high
sale prices for the Common Stock as reported by Nasdaq.


MONTHS ENDED:
                                                   LOW                 HIGH
First Quarter                                        12.500             15.000
Second Quarter                                        5.000              6.000
Third Quarter                                         2.250              2.250
Forth Quarter                                         1.062              1.062

PRICE 2000
First Quarter                                         1.375              1.875
Second Quarter                                        0.594              0.625
Third Quarter                                         0.313              0.046
Forth Quarter                                         0.047              0.078



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, 2000 ("FY00") and December 31, 1999 ("FY99"), December
31, 1998 ("FY98")


                         2000                    1999                    1998
                      ----------  ----------  ----------- -----------  ---------

Sales                  1,032,355  100.00%    970,558  100.00%  688,991 100.00%
Cost of sales            870,676   84.33%    578,576   59.62%  375,321  54.47%
Selling,general,admin. 5,451,082  528.02%  1,853,214  190.95%  512,313  76.36%
Operations loss       (5,289,403)(512.36%)(1,461,232)(150.56%)(198,643)(28.83%)
Interest Expense       2,187,800  211.92%    273,264   28.16%   67,205   9.75%
Net loss              (7,458,046) 722.43% (1,659,116)(170.95%) (60,314) (8.75%)

<PAGE>


NET SALES
FY 00 COMPARED WITH FY 99
        Net sales for FY 00 increased by $61,797 or 5.33%, to $1,032,355
compared to $970,558 for FY 99. Management attributes this increase in sales to
the following. Sales of Trailers increased by $24,294 or 100% from $24,056 in
1999 and to $48,350 in 2000. Sales of Rescue Jets decreased by $101,616 or
32.19% from $315,645 in 1999 to $214,029 in 2000. Sales of Delta Jets increased
by $94,271 or 51.93% from 181,503 in 1999 to $275,774 in 2000. Sale of parts
amounted to $106,000 in 2000 as compared to $348,996 in 1999. Vortex 22' was
introduced in the market during the year 2000.

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.


COST OF SALES
FY 00 COMPARED WITH FY 99
        Cost of Sales for FY 00 increased by $292,099 or 50.48% to $870,675
compared to $578,576 for FY 99. Increase is due to the increase in sales of
delta and decrease in Rescue jets.

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.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES INCLUDING IMPAIRMENT LOSS
FY 00 COMPARED WITH FY 99
        Selling, general and administrative expenses for FY 00 increased
$3,597,868 or 194.14%, to $5,451,082, compared to $1,853,214 for FY99. Major
components of selling, general and administrative expenses are as follows:
Administrative wages increased by $127,912 or 29.60% from $432,115 in 99 to
$560,027 in 2000. travel expense decreased by $15,250 or 28.00% from $54,389 in
1999 to $39,139 in 2000. Travel expenses were mostly due to trips by management
to its China and Florida subsidiary, now closed; Insurance expense increased by
35,737 or 291.80% from $47,087 in 1999 to $95,071 in 2000. Insurance increased
due to coverage of Insurance for directors and officers liability, Medical
insurance for employees, Workman Comp Insurance and General and commercial
liability. Advertising expense increased by $35,737 or 291.80% from $12,247 in
1999 to $46,724 in 2000. This was due to advertisement in leading boat magazine.
As a result of the increase in manufacturing efforts of the Company, utilities
expense decreased by $5,053 or 14.84% from $34,049 in 1999 to $28,995.46 in
2000. Slow and non moving inventories amounting to $531,482 was expensed during
2000.

FOURTH QUARTER ADJUSTMENTS
       During the fourth quarter of 2000, approximately $2,000,000 of impairment
loss was recorded to reflect the following: a) certain molds and tooling
relating to discontinued product lines were written off and b) the carrying
value of certain molds and tooling relating to existing product lines were
reassessed to reflect the current realizable value. Company also wrote off
Intangible assets amounting to $213,412 at Nanning due to impairment loss.

An adjustment to the licensing rights amounting to $267,500 was made to reflect
the value of the licensing rights relating to discontinued products.

<PAGE>

A provision of $172,000 was made to inventory located in Florida subsequent to
the closing of operations in Florida for parts which require additional
reconditioning costs. Another provision in the amount of $148,000 was made to
slow moving raw materials and parts stored at the Huntington Beach location.


In addition, during the fourth quarter of 2000, approximately $217,000 of
accounts receivable was written off for un-collectible accounts.


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.


NET LOSS
FY 00 COMPARED WITH FY 99
        Net loss for FY 00 increased by $5,585,518 or 336.65% to $7,244,634 for
FY 00 compared to $1659,116 for FY 99. The per share loss was ($.58) in 2000 and
($.13) in 1999.

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.


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
amended the loan agreement to increase the loan to $2,798,000 and received
$2,786,395. This loan matures in July 1, 2001 and is secured by Company assets.

        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

<PAGE>

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.


               ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The  response  to this item is included  as a separate  exhibit to this  report.
Please see pages F-1 through F-14.



                                    PART III



           ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The names, background and periods of service of the present directors
are as follows:

        SHEIKH MOHAMMED AL RASHID (age 55). For more than five years Sheikh
Mohammed has been an independent businessman, with investments and operations in
a wide range of industries, including the real estate, commercial trading,
cement and light industries. Sheikh Mohammed is a member of the Board of
Directors of Bin Sulaiman Company. He was educated in Saudi Arabia, Egypt and
England.

     JAMES Q. CHAU (age 45). Mr. James Chau is a Managing  Member and  President
of Encore  Capital  Management,  LLC. Mr. Chau was formerly  general  partner of
several  Genesee  entities,  president of Genesee  Advisers  In. and  Co-General
Manager of Genesee Fund Limited.

From 1992 to February 1995, Mr. Chau was a Senior Managing Director at M.D Sass
Investors Service Inc. responsible for marketing and client services. In 1991,
he became Vice President and Director of Global Derivatives Marketing for
Citicorp Investment Bank. From 1987 to 1991, Mr. Chau served as a principal and
client executive for Delaware Investment Advisers, a major investment management
and mutual fund company in Philadelphia.

From 1984 to 1987, Mr. Chau was a Vice President of the First Boston
Corporation, with responsibility for structuring complex financial strategies
for major institutions using US derivative products and capital market
transactions. From 1982 to 1984, Mr. Chau was a Vice President and Investment
manager for HF Ahmanson & Co. and for its largest subsidiary, Home Savings of
America. There he was responsible for managing short-term assets money market
instruments.

Mr. Chau holds a Bachelor of Science degree with  distinction  from George Mason
University.  In 1978,  he received  his MBA in Finance  from the  University  of
Pennsylvania's  Wharton  School.  Mr.  Chau  currently  serves  on the  Board of
Directors of Hanoi  International  School,  Hanoi,  Vietnam,  as well as several
other U.S. public and private companies.

Mr. Chau resigned effective May 16, 2001.

           ALBERT MARDIKIAN (age 54). In 1998, he became Design Director and
Chairman/CEO of International Operations. Prior thereto, from 1997 to July 1998,
Mr. Mardikian was a member of Sonic Jet Performance, LLC, the predecessor to the
Company. Prior thereto, from 1986 to 1997, he was in manufacturing various types
of personal watercrafts. In addition, Mr. Mardikian has been a Director and/or
executive officer of various privately held companies owned by his family and
others. Mr. Mardikian holds a degree from Northrop University in aircraft
maintenance, design and engineering.

<PAGE>

           NEIL CHAU(age 44) For more than five years, Mr. Chau has been
involved in the private investment business. He is currently Managing Member and
Chief Investment Officer of Encore Capital Management, LLC. Mr. Chau was
Managing Director of Genesee Advisors Inc. handling the private placement
investments activities. His responsibilities included covering all aspects of
private placement investments, including screening transactions, conducting
fundamental analysis on prospective investment opportunities, and negotiating
the terms of the investments. From 1989 to 1995, Mr. Chau served as Senior
Manager and First Vice President of Yasuda Trust with responsibilities for
directing all corporate finance activities and managing over $3.7 billion in
loans and commitments to corporate clients. Between 1984 and 1989, Mr. Chau was
with the Irving Trust Company as Vice President-Manager and was responsible for
sourcing, negotiating and closing large international financing covering all
major emerging markets. Prior thereto, he worked with the American Express Bank
Ltd. Where he was responsible for marketing and structuring large trades and
project financing transactions using both private and government risk mitigating
tools. Mr. Chau has served as a director of the Proton Opportunity Fund Ltd. and
the JNC Opportunity Fund Ltd. since their inception in 1996, and as a director
of the Proton Strategic Fund Ltd. And the JNC Strategic Fund Ltd. since their
inception in 1998. In addition, Mr. Chau has served as a Manager of the Encore
Strategic Fund LLC. since its inception in 1998. Mr. Chau holds a Bachelor of
Science degree with distinction from George Mason University and earned his
M.B.A in International Corporate Finance in February 1979 from New York
University's Stern Graduate Business School. He resigned in 2001 for health
reasons.

            ALAN WEAVER (age 57) Mr. Weaver served Sonic jet Performance, Inc.
as President and CEO from February 2000 to January 2001. From 1990 to 1999, Mr.
Weaver served as President of InCirT Technology, Inc. There he was responsible
for the company's contract services business, which supported high technology
customers with specialized outsourcing services. His responsibilities were for
operations, sales and marketing, as well as financial functions. Also during the
1990 to 1995 period, Mr. Weaver was Senior Vice President of the Cerplex Group,
a Southern California based computer services corporation, supporting the high
technology services and logistics support of major corporations. Earlier in his
career, he held senior management positions with Digital Equipment, Northern
Telecom and AT&T. Alan weaver holds a B.S. and M.B.A. from Oklahoma City
University. He was terminated in 2001.

         COMPENSATION OF DIRECTORS

         We pay no director compensation and have no retirement plan for
directors.


                             EXECUTIVE COMPENSATION


EXECUTIVE OFFICERS

         The following table contains the title and name of each executive
officer of SJPI:

Title                         Name                 Served Since
-----                         ----                 ------------
Interim CEO                Albert Mardikian    February 2001
President/CEO              Alan Weaver         February 2000(Terminated 1/23/01)
CFO                        Madhava Rao Mankal  May 1999
V. President, Operations   Harry Yamada        June 2000 (Terminated 1/31/01)

         ALBERT MARDIKIAN (age 54). In 1998, he became Design Director and
Chairman/CEO of International Operations. Prior thereto, from 1997 to July 1998,
Mr. Mardikian was a member of Sonic Jet Performance, LLC, the predecessor to the
Company. Prior thereto, from 1986 to 1997, he was in manufacturing various types
of personal watercrafts. In addition, Mr. Mardikian has been a Director and/or
executive officer of various privately held companies owned by his family and

<PAGE>

others. Mr. Mardikian holds a degree from Northrop University in aircraft
maintenance, design and engineering.

         MADHAVA RAO MANKAL, age 49. Mr. Mankal has served as Chief Financial
Officer of SJPI since May 1999. Prior to that, he served as Controller of
American Power Products, Inc. from July 1997 to May 1999, and Manager at
American Power Products, Inc.. from September 1994 to July 1997. He has
international experience in various manufacturing industries as Controller for
over 20 years including Financial Advisor, New Halfa Agricultural Corporation,
Government of Sudan (Rehabilitation Project Management Unit, World Bank). He has
Bachelors degree in Commerce, Certificate from Institute of Chartered
Accountants of India, Certificate from Institute of Cost Accountants of India.



                         ITEM 10. EXECUTIVE COMPENSATION


EXECUTIVE COMPENSATION TABLES


         The following table sets forth the compensation for 2000 for the
persons who held the titles of President or Chief Executive Officer, and the
only senior executive who earned in excess of $100,000 in 2000.


     Name and                  Other Annual       Stock  Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options    Compensation
 ----      ------  ----- ----- -----  ------      ------- -----     ------------
Albert Mardikian   2000  91,538
Interim CEO        1999 107,500
                   1998   ---

Alan Weaver        2000 127,586
President & CEO
(Terminated on 1/23/01)
EMPLOYMENT AGREEMENTS

Albert Mardikian is employed by the Company as its Design Director. He also
holds the title Interim CEO of the Company and Chairman/Chief Executive Officer
of International Operations. During 1999, he was paid a total of $107,500. In
November 1999, his employment agreement was amended to provide that he would 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.


     ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS,  DIRECTORS  AND  EXECUTIVE
OFFICERS

         COMMON STOCK. The following tables set forth, as of June 20, 2000, the
ownership of our common stock by

         o        each existing, and nominee for, director and named executive
                  officer of the company,

         o        all executive officers and directors of the company as a
                  group, and

         o        all persons known by us to beneficially own more than 5% of
                  our common stock.

<PAGE>
<TABLE>
<CAPTION>

                          DIRECTORS AND OFFICERS TABLE

Directors, Nominees                 Amount and Nature of Percent of
or Executive Officers               Beneficial Ownership(1)            Stock Outstanding
---------------------               -----------------------            -----------------
<S>                                    <C>                              <C>
Sheikh Mohammed Al Rashid              2,600,000(2)                     19.96%
Sonic Jet, LLC                          7,147,040(3)                    57.13%(3)
Albert Mardikian (Interim CEO)           292,267(2)                      2.24%
Madhava Rao Mankal (CFO)                   3,333(5)                       *
Thomas French (Sales Manager)              3,333(5)                       *
Daniel Medina (Director Marketing)         3,333(5)                       *
Hratch Khedesian                          26,000(4)                       .19%*

Directors and Executive Officers as a group  10,075,306                 77.65%
</TABLE>


         *        Less than one percent
         (1)      Each person has sole voting and investment power.
         (2)      Current director.
         (3)      Mr. Chau is Managing Member and Chief Investment Officer of
                  Encore Capital Management, LLC. Encore holds a proxy to vote
                  7,439,307 shares owned by Sonic Jet Performance, LLC and
                  Albert Mardikian. See "More than 5% Ownership Tables" below.
         (4)      Each of these persons owns 1,000 shares plus the right to
                  acquire the balance listed pursuant to presently exercisable
                  options at an exercise price of $0.80 per share.

         (5)      Each of these persons the right to acquire the balance listed
                  pursuant to presently exercisable options at an exercise price
                  of $0.80 per share.

<TABLE>
<CAPTION>

                          MORE THAN 5% OWNERSHIP TABLES

                               COMMON STOCK TABLE

Nature of                           Name and Address of Beneficial Owner                Amount and
Beneficial Ownership(1)             Percent of Class                                    Percent of Class
-----------------------------------------------------------    -----------------------------------------------------
<S>                                  <C>                                                <C>
Sonic Jet Performance, LLC
15662 Commerce Lane
Huntington Beach, California 92649   7,147,040(2)                                       54.88%

Albert Mardikian
15662 Commerce Lane
Huntington Beach, California 92649     292,267(2)                                        2.25%

Sheikh Mohammed Al Rashid
P.O. Box 5490
Jeddah, 2422
Kingdom of Saudi Arabia              2,600,000                                          19.96%

</TABLE>

(1)           Unless otherwise stated below, each such person has sole voting
              and investment power with respect to all such shares. Under Rule
              13d-3(d), shares not outstanding which are subject to options,
              warrants, rights or conversion privileges exercisable within 60
              days are deemed outstanding for the purpose of calculating the
              number and percentage owned by such person, but are not deemed
              outstanding for the purpose of calculating the percentage owned by
              each other person listed.
(2)           Mr. Mardikian has voting control of Sonic Jet Performance, LLC,
              and has granted an irrevocable proxy to Encore Capital Management,
              LLC covering all shares over which he has voting power.

<PAGE>

         PREFERRED STOCK TABLE. The following table sets forth information
regarding the beneficial ownership of our voting preferred stock as of the date
of this prospectus:

Name and Address                             Number of Shares     Percent Class
of Beneficial Owner                          Beneficially Owned    of Class
-------------------                          ------------------   --------------
Series A Convertible Preferred
JNC Strategic Fund, Ltd.                      1600 (1)               100%
c/o Encore Capital Management, LLC
12007 Sunrise Valley Drive
Suite 460
Reston, Virginia 20191

(1) Convertible into 19,971,507 whole shares on the record date for a
    special shareholders Meeting

             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     LEASE.  The  Company  has  entered  into a lease for its  principal  office
facilities in Huntington  Beach,  California,  with MGS Grand Sport, Inc. Albert
Mardikian is a shareholder  of MGS Grand Sport,  Inc. and he is also a principal
shareholder  and executive  officer of SJPI. SJPI paid $80,000 in lease payments
to MGS Grand Sport, Inc. in 2000.

         CONVERTIBLE LOAN. In November 1999, SJPI entered into a loan agreement
with JNC Strategic Fund, Ltd., the holder of all of SJPI's outstanding Series A
Convertible Preferred Stock. The agreement permits SJPI to borrow up to
$1,250,000 at 12% per annum and is 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 into common stock of SJPI 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 the conversion date. As of
December 31, 1999, the Company had borrowed $635,294, which borrowings had
increased to $665,294, as of June 30, 2000. In connection with the execution of
this note, SJPI issued warrants to purchase 1,250,000 shares of its common stock
at an exercise price of $2.49 per share. The warrant was effective immediately
and expires on November 24, 2004. For additional accounting information about
this transaction, see footnote 5 to the Company's financial statements.

         SUBORDINATED NOTE. SJPI has a note payable in the amount of $600,000 to
Sheikh Mohammed, bearing interest at ten percent per annum, which is
subordinated to the convertible note holders' interest described in the previous
paragraph. In an agreement dated November 24, 1999, between SJPI, Sheikh
Mohammed, and JNC Strategic Fund, Ltd. (the "convertible note holder"), the
parties agreed to the following: (i) all accrued interest as of November 24,
1999 on the subordinated note is to 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 and interest is permitted to accrue thereafter at the above
rate; and (ii) On March 1, 2000, the principal amount of the subordinated loan,
together with any further accrued interest, was to be, under certain conditions,
converted into shares of common stock at 120% of the average stock price for the
five days prior to November 1, 1999. No conversions pursuant to clauses (i) or
(ii) have occurred to date.

         MARDIKIAN SETTLEMENT. In August 1998, SJPI assumed a royalty agreement
with its Design Director, Albert Mardikian. On November 29, 1999, the royalty
agreement was canceled by payment of common stock to Mr. Mardikian and replaced
by a licensing agreement. The licensing agreement provides for license fees (i)
in the amount of $2,000 per month to be paid between November 24, 1999 and March
31, 2000 and (ii) in amounts equal to four percent of the Company's sales, or
five percent of the Company's sales if its profit margin exceeds 30%, to be paid
thereafter until November 2003. As part of the arrangement in November 1999, Mr.
Mardikian received 292,267 shares of the Company's common stock as full and
final settlement of his prior licensing rights and delinquent royalties and
50,000 shares of common stock for delinquent salary. The value of such common
stock received in the settlement aggregated $655,583.

     CHINESE JOINT VENTURE. SJPI has entered into a joint venture agreement with
Dalian Sonic Jet, Ltd. to form Dalian Sonic Jet Performance  Co., Ltd. In China.

<PAGE>

The  purpose  of the  joint  venture  is  design,  manufacture  and  selling  of
watercraft  jet  products.  SJPI owns 45%  interest in the joint  venture and is
committed to invest  $1,000,000 in the form of molds,  tooling and know-how.  At
the end of 1999, our joint venture partner,  Dalian Sonic Jet, Ltd. was indebted
to the Company in the amount of $354,584.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16 of the Securities Exchange Act of 1934, as amended, requires
officers, directors and more than ten percent shareholders to report their
holdings and transactions in SJPI's equity securities to the Securities and
Exchange Commission on a timely basis. All of our officers, directors and more
than ten percent shareholders were delinquent in all required filings in 1998
and 1999. Such filings are expected to be brought current shortly.

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)
    10.4        Contract for Sino-Foreign Contractual Joint Venture of Dalian
                Sonic Jet Co., Ltd. (2)
    10.5        Contract for Sino-Foreign Contractual Joint Venture of Nanning
                Sonic Jet Co., Ltd. (2)
    10.6        Employment Agreement with Albert Madikian (2)
    27.1        Financial Data Schedule (3)
               (1)     Previously Filed.
               (2)     To Be Filed by Amendment.
               (3)     Filed Herewith.

(b)     Reports on Form 8-K        Filed Mr. Alan Weaver appointment

<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 May 15, 2001.

                                            SONIC JET PERFORMANCE, INC.



                                            By:  /s/ Madhava Rao Mankal
                                               ---------------------------------
                                                Name: Madhava Rao Mankal
                                                Title:  Secretary/CFO


    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 20, 2001.



          SIGNATURE                               TITLE



/S/ Sheikh Mohammed Al Rashid
---------------------------------------
Shiekh Mohamed Al-Rashid                       Director


/S/ Albert Mardikian
---------------------------------------
Albert Mardikian                               Director


<PAGE>

                           SONIC JET PERFORMANCE, INC.
                                 AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                           DECEMBER 31, 2000 AND 1999






<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                                                        CONTENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------


                                                                         Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-1

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                        F-2 - F-3

     Consolidated Statements of Operations                               F-4

     Consolidated Statements of Stockholders' Equity (Deficit)           F-5

     Consolidated Statements of Cash Flows                             F-6 - F-8

     Notes to Consolidated Financial Statements                       F-9 - F-20



<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheet of Sonic Jet
Performance, Inc. and subsidiary as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the two years in the period ended December 31, 2000. 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
in the United States of America. 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 subsidiary as of December 31, 2000, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 2000 in conformity with
generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the years ended December 31,
2000 and 1999, the Company incurred net losses of $7,458,046 and $1,659,116,
respectively. In addition, the Company's accumulated deficit was $9,590,253 as
of December 31, 2000. The Company must also obtain additional financing to meet
its working capital needs. These factors, as discussed in Note 2 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 2.

Further, as discussed in Note 13, the Company is a co-defendant in a lawsuit, of
which the outcome and the amount of loss cannot be estimated.

No adjustment has been made in the financial statements for the outcome of these
uncertainties.


/s/ Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 9, 2001

                                      F-1

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 2000

--------------------------------------------------------------------------------


                                     ASSETS

Current assets
     Cash                                                    $         40,129
     Restricted cash                                                  203,120
     Accounts receivable                                               45,760
     Inventories                                                      574,903
     Due from related party                                           393,291
     Other current assets                                               3,450
                                                             ----------------

         Total current assets                                       1,260,653

Property and equipment, net                                         1,359,910

Other assets
     Licensing rights                                                 267,500
                                                             ----------------

                      Total assets                           $      2,888,063
                                                             ================


   The accompanying notes are an integral part of these financial statements.
                                      F-2

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 2000

--------------------------------------------------------------------------------


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
     Accounts payable                                          $        192,206
     Accrued payroll taxes                                               68,486
     Accrued interest                                                   300,834
     Other accrued liabilities                                          386,215
     Current portion of capitalized lease obligations                     1,432
     Convertible debt - related party                                 2,801,301
                                                               ----------------

         Total current liabilities                                    3,750,474

Capitalized lease obligations, net of current portion                    12,236
Subordinated note payable - related party                               600,000
                                                               ----------------

              Total liabilities                                       4,362,710
                                                               ----------------

Commitments and contingencies

Stockholders' deficit
     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
         13,024,767 shares issued and outstanding                     4,328,777
     Additional paid-in capital - stock warrant outstanding           1,024,627
     Additional paid-in capital                                       1,098,000
     Shares committed to be issued                                      143,872
     Accumulated comprehensive income                                    20,330
     Accumulated deficit                                             (9,590,253)
                                                               ----------------

          Total stockholders' deficit                                (1,474,647)
                                                               ----------------

              Total liabilities and stockholders' deficit      $      2,888,063
                                                               ================

   The accompanying notes are an integral part of these financial statements.
                                      F-3

<PAGE>
<TABLE>
<CAPTION>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------
<S>                                                            <C>                <C>

                                                                     2000               1999
                                                               ---------------    ----------------

Sales                                                          $     1,032,355    $        970,558

Cost of sales                                                          870,676             578,576
                                                               ---------------    ----------------

Gross profit                                                           161,679             391,982
                                                               ---------------    ----------------

Operating expenses
     General and administrative expenses                             3,101,037           1,853,214
     Impairment loss                                                 2,350,045                   -
                                                               ---------------    ----------------

         Total operating expenses                                    5,451,082           1,853,214
                                                               ---------------    ----------------

Loss from operations                                                (5,289,403)         (1,461,232)
                                                               ---------------    ----------------

Other income (expense)
     Other income                                                       15,694              49,304
     Interest income                                                     3,463               4,527
     Interest expense                                               (2,187,800)           (273,264)
                                                               ---------------    ----------------

         Total other income (expense)                               (2,168,643)           (219,433)
                                                               ---------------    ----------------

Loss before minority interest                                       (7,458,046)         (1,680,665)

Minority interest                                                            -              21,549
                                                               ---------------    ----------------

Net loss                                                       $    (7,458,046)   $     (1,659,116)
                                                               ===============    ================

Basic and diluted loss per share                               $         (0.58)   $          (0.13)
                                                               ===============    ================

Weighted-average shares used to compute basic and
     fully diluted loss per share                                   12,896,202          12,653,198
                                                               ===============    ================

</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------


                                                               Additional
                                                                Paid-In                           Accumulated
                                                                Capital -               Shares    Compre-
                                                                 Stock     Additional  Committed  hensive
                      Preferred Stock      Common Stock         Warrant     Paid-In      to be
                   -------------------- ---------------------                                      Income     Accumulated
                   Shares       Amount    Shares      Amount   Outstanding  Capital     Issued
                                                                                                   (Loss)      Deficit        Total
                  --------     -------- ----------  --------- ----------- ----------  ----------- ---------   ------------   -------
<S>                   <C>   <C>         <C>        <C>        <C>    <C>   <C>       <C>       <C>        <C>          <C>

Balance, December
   31, 1998           1,600 $1,500,000  12,620,000 $3,599,694 $        -  $        - $      -  $ (10,157) $ (473,091)  $  4,616,446
Issuance of common
   stock                                    56,000     18,500                         799,455                               817,955
Capital changes due
   to debt financing                                             316,026     272,000                                        588,026
Cumulative translation
   adjustment                                                                                      5,214                      5,214
Net loss
                                                                                                           (1,659,116)   (1,659,116)
Balance, December
   31, 1999           1,600  1,500,000  12,676,000  3,618,194    316,026     272,000  799,455     (4,943)  (2,132,207)    4,368,525
Issuance of common
   stock                                   348,767    710,583                        (655,583)                               55,000
Capital changes due
   to debt financing                                             708,601     826,000                                      1,534,601
Cumulative translation
   adjustment                                                                                     25,273                    25,273
Net loss                                                                                                   (7,458,046)  (7,458,046)

Balance, December
   31, 2000           1,600 $1,500,000  13,024,767 $4,328,777 $1,024,627  $1,098,000 $143,872  $  20,330  $(9,590,253) $(1,474,647)
                      ===== ==========  ========== ========== ==========  ========== ========  =========  ============ ============

</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                      F-5


<PAGE>

<TABLE>
<CAPTION>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------


                                                                                 2000               1999
                                                                           ---------------    ----------------
<S>                                                                        <C>                <C>
Cash flows from operating activities
   Net loss                                                                $    (7,458,046)   $     (1,659,116)
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities
       Depreciation and amortization                                                49,735             261,080
       Write off of molds and tools on discontinued product                      2,350,045                   -
       Write off of licensing rights                                               267,500                   -
       Write off of inventories                                                    533,181                   -
       Loss from sale of property and equipment                                     43,491                   -
       Bad debts                                                                   293,835                   -
       Interest relating to beneficial conversion of debt and below
         market warrants                                                         1,959,302             158,232
       Minority interest                                                                 -             (34,890)
       Common stock issued for services                                             55,000              18,500
       (Increase) decrease in
         Accounts receivable                                                      (327,751)             27,109
         Other receivables                                                             699              29,264
         Inventories                                                                23,815           1,335,687
         Due from related party                                                     36,977              42,275
         Prepaid inventories                                                        20,000             182,514
         Other current assets                                                            -              14,677
       Increase (decrease) in
         Accounts payable                                                         (255,491)            391,640
         Accrued payroll taxes                                                          83              58,776
         Accrued interest                                                          289,055              66,779
         Other accrued liabilities                                                 107,801             274,414
         Due to related parties                                                          -              99,994
                                                                           ---------------    ----------------

           Net cash provided by (used in) operating activities                  (2,010,769)          1,266,935
                                                                           ---------------    ----------------

Cash flows from investing activities
   Restricted cash                                                                (203,120)                  -
   Purchase of property and equipment                                              (56,522)            (89,189)
   Proceeds from sale of property and equipment                                      1,000                   -
   Proceeds from sale of other assets                                               22,575              31,665
   Tooling                                                                               -          (1,917,418)
                                                                           ---------------    ----------------

           Net cash used in investing activities                                  (236,067)         (1,974,942)
                                                                           ---------------    ----------------
</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                      F-6

<PAGE>
<TABLE>
<CAPTION>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------


                                                                         2000               1999
                                                                   ---------------    ----------------
<S>                                                                <C>                <C>

Cash flows from financing activities
   Proceeds from convertible debt - related party                  $     2,171,151    $        635,244
   Proceeds from (payments on) capitalized lease obligation                 (1,303)             14,971
                                                                   ---------------    ----------------

           Net cash provided by financing activities                     2,169,848             650,215
                                                                   ---------------    ----------------

Effect of exchange rate on cash and cash equivalents                        36,560               5,214
                                                                   ---------------    ----------------

              Net decrease in cash                                         (40,428)            (52,578)

Cash, beginning of year                                                     80,557             133,135
                                                                   ---------------    ----------------

Cash, end of year                                                  $        40,129    $         80,557
                                                                   ===============    ================


Supplemental disclosures of cash flow information

   Interest paid                                                   $           537    $        273,264
                                                                   ===============    ================

   Income taxes paid                                               $           800    $              -
                                                                   ===============    ================

</TABLE>

Supplemental schedule of non-cash investing and financing activities
During the year ended December 31, 2000, the Company recorded the retirement of
$731,700 in building and improvements, a reduction of $74,397 in accounts
payable, and a write-off of $213,412 in molds and tools pursuant to the
dissolution of a joint venture agreement with China Guangxi Shipyard of Nanning,
Guangxi, China.

During the year ended December 31, 2000, the Company issued 292,267 restricted
shares of common stock valued at $655,583 under a settlement agreement between
the Company and one of its officers.

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.

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.

   The accompanying notes are an integral part of these financial statements.
                                      F-7

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

--------------------------------------------------------------------------------


Supplemental schedule of non-cash investing and financing activities (Continued)
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.
                                      F-8

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------


NOTE 1 - NATURE OF BUSINESS

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


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation
         ---------------------------

         The consolidated financial statements include the accounts of SJPI and
         its wholly owned subsidiary, Nanning Sonic Jet, LLC. During the year
         ended December 31, 2000, the operations of Sonic Jet Performance, Inc.
         - Florida, a wholly owned subsidiary of SJPI, ceased. All intercompany
         balances and transactions are eliminated in consolidation.

         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, 2000 and 1999, the Company incurred losses of $7,458,046 and
         $1,659,116, respectively, and the Company's accumulated deficit was
         $9,590,253 as of December 31, 2000. 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.

         Since December 31, 2000, the Company has received $50,000 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 $1,000,000 from the Company. Management
         expects such a receivable-financing program will provide sufficient
         cash to continue the Company's present operations. In addition,
         subsequent to December 31, 2000, a total of 26 boats have been sold for
         a total of approximately $580,000. Management is also negotiating to
         obtain an additional $5,000,000 in financing from investors.

                                      F-9

<PAGE>
                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Comprehensive Income (Loss)
         ---------------------------

         The Company utilizes Statement of Financial Accounting Standards
         ("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 (deficit).

         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.

         Restricted Cash
         ---------------

         Restricted cash consists of money deposited in a money market account
         to secure a letter of credit for approximately the same amount. The
         letter of credit was issued under a Floor Plan Repurchase Agreement
         with a financing company which finances certain customers of the
         Company who are dealers and distributors.

         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

         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.

                                      F-10

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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.

         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 (deficit) as accumulated
         comprehensive income (loss).

         Income Taxes
         ------------

         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 losses from operations, no
         benefit is realized for the tax effect of the net operating loss
         carryforward due to the uncertainty of its realization.

         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.

                                      F-11

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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.

         Recently Issued Accounting Pronouncements
         -----------------------------------------

         In December 1999, the Securities and Exchange Commission staff released
         Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
         Financial Statements," to provide guidance on the recognition,
         presentation, and disclosure of revenue in financial statements.
         Changes in accounting to apply the guidance in SAB No. 101 may be
         accounted for as a change in accounting principle effective January 1,
         2000. Management has not yet determined the complete impact of SAB No.
         101 on the Company; however, management does not expect that
         application of SAB No. 101 will have a material effect on the Company's
         revenue recognition and results of operations.

         In March 2000, the Financial Accounting Standards Board ("FASB") issued
         FASB Interpretation No. 44, "Accounting for Certain Transactions
         Involving Stock Compensation," (an Interpretation of Accounting
         Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
         provides guidance on the application of APB 25, particularly as it
         relates to options. The effective date of FIN 44 is July 1, 2000, and
         the Company has adopted FIN 44 as of that date.

         In June 2000,  the FASB  issued SFAS No. 138,  "Accounting  for Certain
         Instruments and Certain Hedging Activities."  This statement is not
         applicable to the Company.

         In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB State-
         ment No. 53 and  Amendments to Statements No. 63, 89, and 121."  This
         statement is not applicable to the Company.

         In  September 2000, the FASB issued SFAS No. 140, "Accounting for
         Transfers and Servicing of Financial Assets and Extinguishments of
         Liabilities, a replacement of FASB Statement No. 125."  This statement
         is not applicable to the Company.


                                      F-12

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------


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, 2000, the uninsured portions of the balances held at
         the bank aggregated to $160,400.


NOTE 4 - INVENTORIES

         Inventories at December 31, 2000 consisted of the following:

                  Raw materials and supplies               $        104,242
                  Work in process                                   163,524
                  Finished goods                                    307,137
                                                           ----------------

                      Total                                $        574,903
                                                           ================


NOTE 5 - PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 2000 consisted of the following:

                  Building and improvements                    $         32,933
                  Furniture and fixtures                                 13,613
                  Machinery and equipment                               487,229
                  Tooling and molds                                      71,917
                  Tooling - new products                              1,242,798
                  Vehicles                                               52,792
                                                               ----------------

                                                                      1,901,282
                  Less accumulated depreciation and amortization        541,372
                                                               ----------------
                      Total                                    $      1,359,910
                                                               ================

         A total of $1,242,798 of the tooling for new product has not been
         depreciated during the year ended December 31, 2000 as these items will
         be used in production in the following year.

                                      F-13

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------


NOTE 5 - 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 6 - CONVERTIBLE DEBT - RELATED PARTY

         Beginning on November 24, 1999, the Company entered into several loan
         agreements with the preferred stockholder to borrow from time to time
         up to $2,798,000 at 12% interest per annum, payable quarterly. The loan
         matures on June 30, 2001 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 recognized the beneficial conversion feature
         by recording unamortized interest of $5,094 and interest expense of
         $820,906, offset by $826,000 of additional paid-in capital. As of
         December 31, 2000, the Company had borrowed $2,806,395.

         In connection with the execution of these notes, the Company issued
         warrants to purchase 2,798,000 shares of common stock at exercise
         prices ranging from $0.04 to $2.49 per share. The warrants were
         effective immediately and expire through December 2005. The fair value
         of the warrants were calculated using the Black-Scholes option
         valuation model with the following assumptions: dividend yield of 0%,
         risk-free interest rate of 6% to 7%, expected volatility of 70% to
         100%, and expected life of five years. As of December 31, 2000, the
         warrants were valued between $0.03 and $1.27 per share and were 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 recorded additional interest
         expense of approximately $969,000 relating to these warrants during the
         year ended December 31, 2000.

                                      F-14

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 6 - CONVERTIBLE DEBT - RELATED PARTY (Continued)

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


NOTE 7 - SUBORDINATED NOTE PAYABLE - RELATED PARTY

         The Company has a note payable to one of its stockholders, bearing
         interest at 10% per annum, 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 loan matures on July 18, 2001. The outstanding balance at December
         31, 2000 was $600,000.


NOTE 8 - 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.

                                      F-15

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)

         Lease (Continued)
         -----
         Future minimum lease payments at December 31, 2000 were as follows:

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

                      2001                                      $     97,500
                      2002                                            16,500
                      2003                                             7,750
                                                                ------------

                           Total                                $    121,750
                                                                ============

         Rent expense was $80,000 and $79,150 for the years ended December 31,
         2000 and 1999, respectively.

         Future minimum lease payments under a non-cancelable capital lease at
         December 31, 2000 were as follows:

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

                      2001                                       $         2,666
                      2002                                                12,236
                                                                 ---------------

                                                                          14,902
                  Less amount representing interest                        1,234
                                                                 ---------------

                                                                          13,668
                  Less current portion                                     1,432
                                                                 ---------------

                           Long-term portion                     $        12,236
                                                                 ===============

         Capitalized leased assets included in property and equipment at
December 31, 2000 consisted of the following:

                  Vehicles $                                              20,899
                  Less accumulated amortization                            2,986
                                                                 ---------------

                      Total                                      $        17,913
                                                                 ===============

                                      F-16

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 8 - 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. No expense was incurred for
         the years ended December 31, 2000 and 1999.

         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 sales 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.

         Litigation
         ----------

         During the year ended December 31, 2000, the Company was named
         co-defendant along with several parties in a wrongful death legal
         action. A court hearing date has not been set. The Company is unable to
         provide an estimate of its liabilities and has not made a provision for
         such amounts.


NOTE 9 - STOCKHOLDERS' DEFICIT

         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.


                                      F-17

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)

         Series A Convertible Preferred Stock (Continued)
         ------------------------------------
         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.

         Common Stock Warrants
         ---------------------

         During the year ended December 31, 2000, the Company granted seven
         warrants to a related party for an outstanding debt balance of
         $1,548,000.

<TABLE>
<CAPTION>

         A summary of the Company's warrant activity is listed below:

                                                                                    Weighted-       Weighted-
                                                                  Weighted-          Average          Average
                                                                   Average           Exercise         Exercise
             Range of              Stock             Stock       Remaining           Price of         Price of
             Exercise           Warrants          Warrants       Contractual         Warrants        Warrants
               Prices        Outstanding        Exercisable            Life       Outstanding       Exercisable
         ------------------  -----------       ---------------  ----------------  -----------      ----------------
<S>      <C>                       <C>               <C>              <C>         <C>              <C>

         $             2.49        1,500,000         1,500,000        3.90 years  $          3.90  $           3.90
         $             1.00          750,000           750,000        4.42 years  $          4.42  $           4.42
         $     0.47 to 0.04          548,000           548,000        4.85 years  $          4.85  $           4.85
                             ---------------   ---------------

                                   2,798,000         2,798,000
                             ===============   ===============

</TABLE>

         The weighted-average fair value of the warrants issued during the years
         ended December 31, 2000 and 1999 was $0.55 and $0.99, respectively.

         The fair value of the warrants was calculated using the Black-Scholes
         option valuation model with the following weighted-average assumptions
         for the years ended December 31, 2000 and 1999: dividend yields of 0%
         and 0%, respectively; risk free interest rates of 6.4% and 7%,
         respectively; expected volatility of 87% and 70%, respectively; and
         expected lives of five and five years, respectively.


                                      F-18

<PAGE>


                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)

         Stock Compensation Plan
         -----------------------

         The Company's 1998 Employee Consultant Stock Compensation Plan provides
         for the granting of stock options to employees and certain consultants
         of the Company and was amended in July 2000. A total of 2,000,000
         shares of common stock have been reserved for issuance upon exercise of
         options granted under the plan, as amended. 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 $55,000 has
         been recorded as compensation expense.


NOTE 10 - INCOME TAXES

         The Company has not incurred any 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>

                                                                           2000               1999
                                                                     ---------------    ----------------
<S>                                                                  <C>                <C>

                  Expected tax benefit                               $    (2,380,000)   $       (564,000)
                  State income taxes, net of federal benefit                (410,000)            (32,000)
                  Other                                                            -              23,000
                  Changes in valuation allowance                           2,790,000             573,000
                                                                     ---------------    ----------------

                      Total                                          $             -    $              -
                                                                     ===============    ================
</TABLE>


<TABLE>
<CAPTION>

         The tax effects of temporary differences that give rise to deferred tax assets were as follows:

                                                                           2000               1999
                                                                     ---------------    ----------------
<S>                                                                  <C>                <C>

                  Net operating loss carryforwards                   $     3,454,000    $        651,000
                  Less valuation allowance                                 3,454,000             651,000
                                                                     ---------------    ----------------

                      Total                                          $             -    $              -
                                                                     ===============    ================
</TABLE>

         At December 31, 2000, the Company had federal and state net operating
         loss carryforwards of approximately $8,636,000 and $4,339,000,
         respectively, which expire in 2015 and 2003, respectively.


                                      F-19

<PAGE>

                                      SONIC JET PERFORMANCE, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2000

--------------------------------------------------------------------------------

NOTE 11 - OTHER RELATED PARTY TRANSACTIONS

         At December 31, 2000, the Company was due $393,291 from Dalian Sonic
         Jet, Ltd., a joint venture partner with SJPI, in which SJPI shares 45%
         of the profit or loss of the joint venture.

         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.

         On January 30, 2000, the joint venture agreement with China Guangxi
         Shipyard of Nanning, Guangxi, China was dissolved, and Nanning Sonic
         Jet, LLC became a wholly owned subsidiary of SJPI. The minority
         stockholder took back the building and assumed $74,397 of liabilities
         in return for its equity interest for $657,303. As a result, minority
         interest is eliminated, and the Company recorded the retirement of
         $731,700 in building and improvements and a reduction of $74,397 in
         accounts payable.


NOTE 12 - FOURTH QUARTER ADJUSTMENTS

         During the fourth quarter of 2000, approximately $2,000,000 of
         impairment loss was recorded to reflect the following: a) certain molds
         and tooling relating to discontinued product lines were written off and
         b) the carrying value of certain molds and tooling relating to existing
         product lines were reassessed to reflect the current realizable value.

         An adjustment to the licensing rights amounting to $267,500 was made to
         reflect the value of the licensing rights relating to discontinued
         products.

         A provision of $172,000 was made to inventory located in Florida
         subsequent to the closing of operations in Florida for parts which
         require additional reconditioning costs. Another provision in the
         amount of $148,000 was made to slow moving raw materials and parts
         stored at the Huntington Beach location.

         In addition, during the fourth quarter of 2000, approximately $217,000
         of accounts receivable was written off for uncollectible accounts.


NOTE 13 - SUBSEQUENT EVENT

         Subsequent to December 31, 2000, the President/Chief Executive Officer
         of SJPI was terminated.