During what situation was the famous quote "I have not yet begun to fight" spoken?

In the year 1779, Captain John Paul Jones of the U.S. Navy, was in a desperate battle with a British frigate off the coast of England. Jones commanded the Bonhomme Richard, a refitted merchant ship given to the U.S. by France.

Jones faced off against 2 newly built British fighting ships, that were escorting a convoy of merchant ships. The British ship Serapis became entangled with the much smaller Bonhomme Richard which had begun to sink. The battle then became hand to hand and continued between the two ships.

At one point Captain Pearson of the Serapis, shouted down to Captain Jones "Has your ship struck"? This was asking if Jones had struck (lowered) his colors (flag) and surrendered. This is when Jones made his famous reply " I have not yet begun to fight". Although the American crew was an odd assortment of nationalities and talents their efforts won the day against the larger British ship and crew.