As filed with the Securities and Exchange Commission on January 27, 2006
Registration No. 333-128077
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
Amendment No. 2 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
MARINE GROWTH VENTURES, INC.
(Name of small business issuer in its charter)
Delaware 4489 20-0890800
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
405-A Atlantis Road
Cape Canaveral, Florida 32920
(321) 783-1744
(Address and telephone number of principal executive offices and principal place
of business)
Craig Hodgkins, President
Marine Growth Ventures, Inc.
405-A Atlantis Road
Cape Canaveral, Florida 32920
(321) 783-1744
(Name, address and telephone number of agent for service)
Copies to:
Thomas A. Rose, Esq.
Yoel Goldfeder, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. _________
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
Title of each class of Number of Shares Proposed Proposed Amount of
securities to be registered to be registered maximum maximum registration fee
share (1) offering aggregate
price per offering price
- ----------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par 1,017,000 $0.20 $203,400 $23.94
value
- ----------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(e) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement is filed with the Securities and Exchange Commission and becomes
effective. This Prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the sale is not
permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 27, 2006
MARINE GROWTH VENTURES, INC.
1,017,000 SHARES OF
COMMON STOCK
This prospectus relates to the sale of 1,017,000 currently outstanding
shares of our common stock, par value $0.001 per share by certain stockholders
of Marine Growth Ventures, Inc. This is the initial registration of shares of
our common stock. The selling stockholders will sell the shares from time to
time at $0.20 per share. Our common stock is not traded on any national
securities exchange and is not quoted on any over-the-counter market. If our
shares become quoted on the Over-The-Counter Bulletin Board, sales will be made
at prevailing market prices or privately negotiated prices.
We will not receive any proceeds from any sales made by the selling
stockholders. We have paid the expenses of preparing this prospectus and the
related registration expenses.
Investing in these securities involves significant risks. See "Risk
Factors" beginning on page 7.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ________, 2006.
Table of Contents
PROSPECTUS SUMMARY.............................................................2
RISK FACTORS...................................................................2
USE OF PROCEEDS................................................................2
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................2
BUSINESS.......................................................................2
FACILITIES.....................................................................2
EMPLOYEES......................................................................2
LEGAL PROCEEDINGS..............................................................2
MANAGEMENT.....................................................................2
EXECUTIVE COMPENSATION.........................................................2
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................2
DESCRIPTION OF SECURITIES TO BE REGISTERED.....................................2
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.................................2
PLAN OF DISTRIBUTION...........................................................2
PENNY STOCK....................................................................2
SELLING STOCKHOLDERS...........................................................2
LEGAL MATTERS..................................................................2
EXPERTS........................................................................2
AVAILABLE INFORMATION..........................................................2
SIGNATURES..................................................................II-2
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, the terms "MGV," the "Company,"
"us," and "our" refer to Marine Growth Ventures, Inc.
MARINE GROWTH VENTURES, INC.
Our current operations to date, conducted through our wholly owned
subsidiary, Sophlex Ship Management, Inc., have consisted of providing ship
crewing and management services to vessel owners and operators in the United
States and abroad and consulting fees from related parties. However, in light of
the fact that the ship of the current sole customer of Sophlex Ship Management,
Inc. was destroyed by fire, we will earn no further fees from this customer.
Furthermore, we do not expect to receive future consulting fees from related
parties.
In addition, through our other wholly owned subsidiaries, we are
attempting to provide financing to businesses in the marine industry and we are
in the process of entering into a new industry involving the sale of timeshare
opportunities on cruise ships, similar to real estate timeshares. However, these
planned operations are still in the development stage and we currently have no
sources of revenues or other funding to begin any of our planned operations.
There is currently no public market for our common stock. We are currently
in discussions with various market makers in order to arrange for an application
to be made with respect to our common stock, to be approved for quotation on the
Over-The-Counter Bulletin Board upon the effectiveness of this prospectus.
We are registering shares of our common stock for resale pursuant to this
prospectus in order to allow the selling stockholders to sell their holdings in
the public market and to begin developing a public market for our securities.
Our management would like a public market for our common stock to develop in
order to be able to seek public financing opportunities in the future.
For the year ended December 31, 2004, we generated $101,780 in revenue and
a net loss of $126,895. As a result of our net loss and negative cash flow from
operations, our auditors, in their report dated June 22, 2005, have expressed
substantial doubt about our ability to continue as a going concern without
raising additional funds.
Our executive offices are located at 405-A Atlantis Road, Cape Canaveral,
Florida 32920, and our telephone number is (321) 783-1744. We are a Delaware
corporation.
The Offering
Common stock outstanding before the offering........ 21,739,500 shares
Common stock offered by selling stockholders........ Up to 1,017,000 shares
Common stock to be outstanding after the offering... 21,739,500 shares
Use of proceeds..................................... We will not receive any
proceeds from the sale of
the common stock.
1
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
Risks Related to Our Financial Results
We Have A History Of Operating Losses And Accumulated Deficit. There Is No
Certainty That We Will Ever Achieve Profitability.
We have incurred operating losses of $128,689 since inception. We expect
to incur significant increases in operating losses over the next several years,
primarily due to the expansion of our operations into the cruise timeshare
industry. The negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future. Our ability to achieve profitability
depends upon our ability to develop our timeshare operations. There can be no
assurance that we will ever achieve any revenues or profitable operations from
the sale of our timeshare products.
We Will No Longer Be Generating From Our Largest Customer To Date And We
Currently Have No Other Source Of Revenue.
A fire destroyed our sole customer, Rivera I, which has previously
accounted for 66% of our revenue, on June 28, 2005. Although this customer is
currently pursuing an insurance claim from the loss of its ship, with our
assistance, once this claim is complete the relationship will be re-evaluated in
order to determine whether other management services will need to be provided.
If we are unable to replace this source of revenue the continuing operation of
our business may not be possible.
There Is No Guarantee That We Will Be Able To Acquire Or Finance A Cruise Vessel
In developing our cruise timeshare operations we will need to obtain and
refurbish a cruise vessel. This requires our management to travel and inspect
countless vessels until an appropriate vessel has been identified that can
easily be converted into a cruise vessel appropriate for our needs. In addition
to locating an appropriate vessel the vessel must be in satisfactory repair with
a reasonable purchase price. Once a satisfactory vessel is located we will
require financing and the failure to obtain financing to successfully obtain and
refurbish a cruise vessel may jeopardize our ability to continue our business
and operations.
There Is No Guarantee That We Will Complete An Agreement With Cruise Timeshare
Two, Inc.
In developing our cruise timeshare operations we will need to complete an
agreement with Cruise Timeshare Two, Inc., the proposed seller of our cruise
timeshares. While we have tentatively negotiated an agreement that Cruise
Timeshare Two, Inc. is willing to sign, our management is waiting until we have
obtained a vessel appropriate for our cruise timeshare operation use in order to
execute this agreement. While we are waiting to purchase a vessel, Cruise
Timeshare Two, Inc. is looking for other opportunities in the cruise timeshare
industry and may not be able to execute the proposed agreement once our
management is ready to move forward with our plans and execute the proposed
agreement. Our failure to successfully obtain this agreement may jeopardize our
ability to continue our business and operations.
Additional Financing Will Be Necessary For The Implementation Of Our Cruise
Timeshare Operations
We currently do not have operations with which to finance the development
of our cruise timeshare operations.
Furthermore once we have obtained a vessel and commence our cruise
timeshare operations, there can be no assurance that we will generate revenues
from operations. Failure to generate such operating revenues would have an
adverse impact on our financial position and results of operations and ability
to continue as a going concern. Our operating and capital requirements during
2
the next fiscal year and thereafter will vary based on a number of factors,
including the level of sales and marketing activities for our services and
products. Accordingly we may be required to obtain additional private or public
financing including debt or equity financing and there can be no assurance that
such financing will be available as needed, or, if available, on terms favorable
to us. Any additional equity financing may be dilutive to stockholders and such
additional equity securities may have rights, preferences or privileges that are
senior to those of our existing common stock.
Furthermore, debt financing, if available, will require payment of
interest and may involve restrictive covenants that could impose limitations on
our operating flexibility. Our failure to successfully obtain additional future
funding may jeopardize our ability to continue our business and operations.
If We Fail To Maintain Effective Internal Controls Over Financial Reporting, The
Price Of Our Common Stock May Be Adversely Effected.
Our management team has no previous experience in managing a public
company. Accordingly, our internal controls over financial reporting, while they
appear to be sufficient for our needs, may have weaknesses and conditions that
will need to be addressed, the disclosure of which may have an adverse impact on
the price of our common stock. We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish
those controls, or any failure of those controls once established, could
adversely impact our public disclosures regarding our business, financial
condition or operating results. In addition, management's assessment of our
internal controls over financial reporting may identify weaknesses and
conditions that need to be addressed in our internal controls over financial
reporting or other matters that may raise concerns for investors. Any actual or
perceived weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or disclosure of management's assessment of
our internal controls over financial reporting may have an adverse impact on the
price of our common stock.
A Downturn In Economic Conditions Could Adversely Affect Our Business.
The vacation and leisure industry historically has been subject to
substantial cyclical variations, and its business typically relies upon the
expenditure of consumer discretionary income. During times of market instability
less discretionary income is spent on extravagant vacations or travel plans. A
significant downturn in the United States or global economy or any other
uncertainties regarding future economic prospects could affect consumer-spending
habits. This would have a material adverse impact on our operations and
financial results, since consumers may not be willing to invest in the purchase
of our cruise timeshares.
Risks Related To Our Business
We Have A Limited Operating History Upon Which An Evaluation Of Our Prospects
Can Be Made. For That Reason, It Would Be Difficult For A Potential Investor To
Judge Our Prospects For Success.
We had no significant business operations, until our acquisition of
Sophlex Ship Management, Inc. on September 1, 2004. In light of the fact that
there are no other business models that management can look to in the formation
and operation of a cruise timeshare business operation, there can be no
assurance that our proposed operations will be implemented successfully or that
we will ever have profits. If we are unable to sustain our operations, you may
lose your entire investment. We face all the risks inherent in a new business,
which include the expenses, difficulties, complications and delays frequently
encountered in connection with conducting operations, including capital
requirements and management's potential underestimation of initial and ongoing
costs. As a new business, we may encounter delays and other problems in
connection with the operations that we implement. We also face the risk that we
will not be able to effectively implement our business plan. In evaluating our
business and prospects, these difficulties should be considered. If we are not
effective in addressing these risks, we will not operate profitably and we may
not have adequate working capital to meet our obligations as they become due.
3
We Will Need To Raise Additional Equity Or Debt Financing In The Future.
We will need to raise financing in the future to fund our operations. If
successful in raising additional financing, we may not be able to do so on terms
that are not excessively dilutive to our existing stockholders or less costly
than existing sources of financing. Failure to secure additional financing in a
timely manner and on favorable terms if and when needed in the future could have
a material adverse effect on our financial performance, balance sheet and stock
price and require us to implement cost reduction initiatives and curtail
operations.
We May Be Unable To Manage Our Growth Or Implement Our Expansion Strategy.
If management is unable to adapt to the growth of our business operations,
we may not be able to expand our product and service offerings, our client base
and markets, or implement the other features of our business strategy at the
rate or to the extent presently planned. Our projected growth will place a
significant strain on our administrative, operational and financial resources.
If we are unable to successfully manage our future growth, establish and
continue to upgrade our operating and financial control systems, recruit and
hire necessary personnel or effectively manage unexpected expansion
difficulties, our financial condition and results of operations could be
materially and adversely affected.
The Vessel Management Services Industry Is Highly Competitive And We May Be
Unable To Compete Effectively.
The vessel management industry, including crewing and maintenance
services, is highly competitive, rapidly evolving, and subject to technological
change and intense marketing by providers with similar products and services.
Many of our current competitors are significantly larger and have substantially
greater market presence as well as greater financial, technical, operational,
marketing and other resources and experience than we have. In the event that
such a competitor expends significant sales and marketing resources in one or
several markets we may not be able to compete successfully in such markets. We
believe that competition will continue to increase, placing downward pressure on
prices. Such pressure could adversely affect our gross margins if we are not
able to reduce costs commensurate with such price reductions. In addition, the
pace of technological change makes it impossible for us to predict whether we
will face new competitors using different technologies to provide the same or
similar services offered or proposed to be offered by us. If our competitors
were to provide better and more cost effective services, our business
initiatives could be materially and adversely affected.
We Have Only Limited Indications Of Acceptability Of Our Cruise Timeshare
Concept And Therefore Our Management Is Unsure Whether It Will Be A Successful
Venture.
In addition to revenues from vessel management service operations, we
expect to generate revenues through the sale of timeshares to a cruise vessel.
The purchase price for a timeshare is initially targeted at between $9,000 and
$19,000, with annual dues between $650 and $850 for a minimum period of 10
years. As of January 27, 2006, we have not made any timeshare sales, and we have
received limited indications from individuals in the vacation and cruise
industries as to the commercial acceptability of our cruise timeshare program
and fees. As we expand into the cruise timeshare industry, we will be required
to make significant capital expenditures, including the purchase and
refurbishment of a cruise vessel and to add additional employees. The sale of
timeshares is subject to several risks including but not limited to; pricing of
commercial cruises and real estate timeshare properties, the perceived value of
the cruise timeshare, our ability to acquire and maintain a vessel attractive to
prospective members, as well as national and international economic conditions.
Therefore, we cannot predict whether we will be successful in selling our cruise
timeshare concept. If we are unable to sell timeshares in sufficient quantities,
our operations will be negatively impacted.
Inclement Weather Could Adversely Affect Our Business.
Our targeted cruise itineraries are subject to weather-related risks, such
as hurricanes and tropical storms. Weather related incidents could cause damage
to our cruise vessel or could curtail travel in accordance with scheduled
itineraries. Unfavorable weather could result in a significant loss of operating
income.
4
We Are Dependent Upon Key Personnel And Consultants And The Loss Of Any Key
Member Of This Team Could Have A Material Adverse Effect On Our Business.
Our success is heavily dependent on the continued active participation of
our current executive officers listed under "Management." Loss of the services
of one or more of these officers could have a material adverse effect upon our
business, financial condition or results of operations. Further, our success and
achievement of our growth plans depend on our ability to recruit, hire, train
and retain other highly qualified technical and managerial personnel.
Competition for qualified employees among companies in the communications
industry is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate any additional highly skilled employees required
for the expansion of our activities, could have a materially adverse effect on
us. Our inability to attract and retain the necessary personnel and consultants
and advisors could have a material adverse effect on our business, financial
condition or results of operations.
Terrorist Acts Could Adversely Affect Our Business.
Terrorist acts worldwide could adversely affect our business. The travel
and hospitality industry experienced a significant negative impact from
terrorist acts in the past. Since our departure points may need to be accessible
by air travel, terrorist acts or perceived threats of these acts in the future
could affect the willingness of travelers to travel on our cruise vessel. If
travel is significantly reduced, we could experience a significant loss of
operating income.
We Are Controlled By Current Officers, Directors And Principal Stockholders.
Following completion of the Offering, our directors, executive officers
and principal stockholders and their affiliates will beneficially own
approximately 92.75% of the outstanding shares of our common stock. So long as
our directors, executive officers and principal stockholders and their
affiliates controls a majority of our fully diluted equity, they will continue
to have the ability to elect our directors and determine the outcome of votes by
our stockholders on corporate matters, including mergers, sales of all or
substantially all of our assets, charter amendments and other matters requiring
stockholder approval. This controlling interest may have a negative impact on
the market price of our common stock by discouraging third-party investors.
If You Purchase Shares In This Offering, You Will Experience Immediate And
Substantial Dilution.
The $0.20 per share offering price of the common stock being sold under
this prospectus has been arbitrarily set. The price does not bear any
relationship to our assets, book value, earnings or net worth and it is not an
indication of actual value. Accordingly, if you purchase shares in this
offering, you will experience immediate and substantial dilution. You may also
suffer additional dilution in the future from the sale of additional shares of
common stock or other securities.
There Is Currently No Public Market For Our Common Stock. Failure To Develop Or
Maintain A Trading Market Could Negatively Affect The Value Of Our Shares And
Make It Difficult Or Impossible For You To Sell Your Shares.
Prior to this offering, there has been no public market for our common
stock and a public market for our common stock may not develop upon completion
of this offering. While we will attempt to have our common stock quoted on the
Over-The-Counter Bulletin Board, since the OTC Bulleting Board is a dealer
system we will have to seek market-makers to provide quotations for the common
stock and it is possible that no market-maker will want to provide such
quotations. Failure to develop or maintain an active trading market could
negatively affect the value of our shares and make it difficult for you to sell
your shares or recover any part of your investment in us. Even if a market for
our common stock does develop, the market price of our common stock may be
highly volatile. In addition to the uncertainties relating to our future
operating performance and the profitability of our operations, factors such as
variations in our interim financial results, or various, as yet unpredictable
factors, many of which are beyond our control, may have a negative effect on the
market price of our common stock.
5
Even if our common stock is quoted on the OTC Bulletin Board under the
symbol, the OTC Bulletin Board provides a limited trading market. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop
for our common stock, the ability of holders of our common stock to sell our
common stock, or the prices at which holders may be able to sell our common
stock.
Our Common Stock Will Be Subject To The "Penny Stock" Rules Of The SEC.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Securities
There is currently no public trading market for our common stock.
Other than the 1,017,000, shares being registered pursuant to this
prospectus, we have not agreed to register any shares of our common stock under
the Securities Act for sale by stockholders. As of January 27, 2006, we had
21,739,500 shares of common stock issued and outstanding and approximately 117
stockholders of record of our common stock.
6
Dividend Policy
Our payment of dividends, if any, in the future rests within the
discretion of the Board of Directors and will depend, among other things, upon
our earnings, capital requirements and financial condition, as well as other
relevant factors. We have not paid any dividends since our inception and do not
intend to pay any cash dividends in the foreseeable future, but intend to retain
all earnings, if any, for use in our business. There are no restrictions in our
articles of incorporation or bylaws that restrict us from declaring dividends.
However, if we enter into an agreement for debt financing in the future we may
be restricted from declaring dividends.
Equity Compensation Plan Information
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for issuance as of
the fiscal year ended December 31, 2004.
EQUITY COMPENSATION PLAN INFORMATION
- ---------------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ---------------------------------------------------------------------------------------------------------------
Equity compensation plans approved -0- -0- -0-
by security holders
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Equity compensation plans not -0- -0- -0-
approved by security holders
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
The information in this report contains forward-looking statements. All
statements other than statements of historical fact made in report are forward
looking. In particular, the statements herein regarding industry prospects and
future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of
words such as "believes," "estimates," "could," "possibly," "probably,"
anticipates," "projects," "expects," "may," "will," or "should" or other
variations or similar words. No assurances can be given that the future results
anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management's current expectations and are inherently
uncertain. Our actual results may differ significantly from management's
expectations.
The following discussion and analysis should be read in conjunction with
our financial statements, included herewith. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of our management.
Background
We were formed and incorporated in the state of Delaware on November 6,
2003. We are a holding company and conduct our current operations solely through
a wholly-owned subsidiary, Sophlex Ship Management, Inc. ("Sophlex").
We had no significant business operations until our acquisition of Sophlex
on September 1, 2004. Sophlex, which was founded in 1999, provides ship crewing
and management services to vessel owners and operators in the United States and
abroad. Our Chief Operating Officer was the founder and the sole shareholder of
Sophlex prior to the acquisition.
7
We are also currently pursuing opportunities to develop cruise vessels for
a new industry referred to as cruise timeshares, which combines traditional real
estate timeshares with commercial cruise vacations. Purchasers of cruise
timeshares will receive the right to a seven-day cruise each year for a minimum
period of 10 years aboard a cruise ship to be purchased by the Company.
Liquidity and Capital Resources
As of December 31, 2004, we had a negative cash balance of $5,868 and a
negative cash flow from operations of $106,183. We have a negative cash balance
since we released checks on the last day of the fiscal year, with the knowledge
that we would have funds to cover such checks on the first day of the next
fiscal year. Since inception, we have been dependent upon proceeds of loans from
our stockholders and receipt of capital investment to fund our continuing
activities.
On May 5, 2004, we issued a Revolving Secured Note, with an aggregate
principal amount of up to $500,000 to Frank Crivello who is the majority owner
of Farwell Equity Partners II, LLC, one of our significant shareholders. Funds
were advanced to us, as needed, to be used to pay for our ongoing operations and
to provide funding to provide financing services. The Revolving Secured Note had
a maturity date of May 31, 2005, with an interest rate of 10%. In November 2004,
in accordance with the terms of the Revolving Secured Note, we converted
$224,950 of outstanding principal and interest into 17,996,000 shares of our
common stock.
On October 21, 2004, we agreed to loan up to $2,000,000 to King Crown
International Co. ltd., pursuant to a Promissory Note for financing needed to
repair a cruise vessel purchased to provide tourist services focusing on Taiwan.
The Promissory Note has a maturity date of September 15, 2005, with an interest
rate of 15%. Pursuant to the terms of the Promissory Note, we agreed to pay
amounts owed to third parties by the borrower for repair services and vessel
management services in connection with a cruise vessel owned by the borrower and
we secured this note with the general assets of the borrower's business as well
as a first preferred ship's mortgage on the borrower's cruise vessel Riviera I.
We provided the borrower with funding of $258,558.79 under this note from funds
obtained through the Revolving Secured Note. On December 30, 2004 we declared
the borrower in breach of the Promissory Note, by not providing required
information or making the required payments under the Promissory Note, so we
arrested the boat in Spain and filed a claim in the United States District Court
for the Southern District of Florida to foreclose on the first preferred ship's
mortgage that we held. We settled this matter out of court with other related
parties on April 7, 2005, with a payment to us of $329,000. After this
settlement we agreed to continue providing vessel management services to the
Riviera I, until it was destroyed by fire on June 28, 2005,
As of September 30, 2005, we had a cash balance of $10,764 and a negative
cash flow from operations of $441,389. In May 2005, we commenced a private
offering of common stock. This offering closed in July 2005, in which we sold
1,639,500 shares of our common stock at a price of $0.20 per share, raising
$327,900. The proceeds from this offering were used for the repayment of
$133,781 of outstanding debt obligation to Frank Crivello under the Revolving
Secured Note and for professional expenses, working capital and general
corporate expenses.
As of September 30, 2005, we had an accounts receivable of $37,272. This
includes ship management fees and other reimbursable expenses which accrues as
activity incurs monthly. This amount was fully collected on October 31, 2005.
We currently do not have sufficient cash reserves to meet all of our
anticipated obligations for the next twelve months and there can be no assurance
that we will ultimately close on the necessary financing. Accordingly, we will
need to seek funding in the near future.
The report of independent certified public accountants on our consolidated
financial statements as of December 31, 2004 contains an explanatory paragraph
regarding a substantial doubt about our ability to continue as a going concern.
8
Plan of Operation and Financing Needs
To date our only revenues have been derived from consulting and ship
management fees and we have not derived a profit from our operations. We do not
expect to continue receiving consulting or ship management fees in the near
future. We currently plan on significantly expanding our operations by acquiring
a cruise vessel to develop a cruise timeshare operation. There can be no
assurance that we will be able to develop a cruise timeshare operation
profitably in the future, if at all, or that we will continue to generate
revenues from our other operations in the future. We have incurred net losses in
each fiscal period since inception of our operations.
Our initial focus during the next twelve months is the acquisition of a
cruise vessel and the development of our timeshare operations. Once we have
obtained a cruise vessel, we expect to immediately hire approximately 45 new
employees to operate the vessel and within two months thereafter we expect to
hire approximately 40 additional employees to begin providing cruise services.
In addition, once we obtain the cruise vessel, we estimate our cost of
operations will increase by approximately $200,000 per month from our current
monthly operating costs of approximately $77,000, while we prepare the vessel
for full operations. These expenses will increase as we begin to ramp up
activities in connection with the development of our cruise timeshare
operations. Once the cruise vessel is fully operational we estimate the total
cost of operations will increase by approximately $595,000 per month. The
foregoing numbers are based upon the purchase of a vessel with approximately 136
cabins. A vessel of larger capacity would have additional costs associated with
its operation and maintenance. Furthermore, these numbers do not include any
estimates for major modifications to a vessel that maybe necessary to bring any
vessel up to certification requirements, nor do they figure in the monthly
finance cost for the purchase of the cruise vessel.
We estimate that it will cost us approximately $150,000 in additional
expenses once we have become a public company. However, we would anticipate
these costs to increase based upon an expansion of our operations in the future
to reflect additional legal fees, accounting fees, insurance and board related
fees, fees that may be related to a senior exchange and future Sarbanes-Oxley
requirements, and any future public/private equity offerings.
We currently do not have sufficient cash reserves to meet all of our
anticipated obligations for the next twelve months and there can be no assurance
that we will ultimately close on the necessary financing. As a result, we are
currently in discussions with various funding sources seeking funding for our
current operations and additional funding as we develop our cruise timeshares
operations. In addition to any third-party financing we may obtain, we currently
expect that loans from our stockholders may be a continuing source of liquidity
to fund our operations.
We are currently in discussions with lenders for marine related financing.
We utilize third parties to appraise the vessels we wish to purchase on an "as
is" value, on a value assigned by the appraiser based upon expected
refurbishment of the vessel, as well as a determination of a replacement value
for the vessel. We present prospective lenders with these third-party appraised
values in conjunction with our produced projections of revenue and expenses
associated with each particular vessel. The marine financing is based upon the
lenders comfort with the underlying collateral value (as determined by the
appraisal), the strength of our management team, and the vessels projected
revenue producing ability.
To the extent that funds are insufficient to meet management's business
plans, we intend to scale back the size of the cruise vessels we are evaluating,
reduce our role in the cruise vessel operation, and/or seek alternative business
opportunities in the marine space in order to generate revenue.
The likelihood that we will have sufficient funds to meet our identified
obligations will be dependent upon our ability to obtain a vessel that properly
meets our needs. To date, we have been unable to obtain a revenue generating
vessel and financing combination that was found to be satisfactory. There is no
guarantee that we will find such a vessel. We are exploring scaling back our
equity involvement in the cruise timeshare business to focus more on a fee based
relationship within the cruise timeshare industry as an alternative to meet our
funding needs. We are also exploring additional opportunities in the marine
space, outside of cruise timeshares, in order to generate sufficient revenue to
cover our financing needs. To the extent none of these strategies is successful;
we will need to raise additional debt or equity to support our ongoing
operations.
9
Results of Operations
Since our inception, we have been dependent upon the proceeds of loans
from our stockholders and the receipt of capital investment to fund our
continuing activities. We have incurred operating losses since our inception. We
expect to incur significant increasing operating losses over the next several
years, primarily due to the expansion of our business. We will continue to
require the infusion of capital until operations become profitable. We had a net
loss of $126,895 and a negative cash flow from operations of $106,183 for the
ended December 31, 2004.
Year Ended December 31, 2004 and Period from November 6, 2003 (Inception)
Through December 31, 2003:
Revenue: Revenue was $101,780 for the year ended December 31, 2004. There was no
revenue for the period of November 6, 2003 (Inception) through December 31,
2003. Due to the acquisition of Sophlex Ship Management, Inc. there was an
increase in revenue of $66,000 due to the ship management fees it earns. (On
June 28, 2005, Sophlex Ship Management, Inc.'s sole customer's ship was
destroyed by a fire and no further ship management fees will be earned on this
contract.) In addition, $35,780 of revenue was earned from consulting fees from
related parties, this income is not expected to be repeated.
General and Administrative: General and administrative expenses were $183,064
for the year ended date of December 31, 2004. There were no general and
administrative expenses for the period of November 6, 2003 (Inception) through
December 31, 2003. This increase was primarily as a result of an increase in
payroll related expenses of $148,427, professional fees of $22,647, and office
and occupancy expenses of $11,990. Of these increases, payroll expense increased
approximately $49,703, professional fees increased approximately $1,811 and
office and occupancy expenses increased approximately $6,200 due to the
acquisition of Sophlex Ship Management, Inc.
Operating Expenses: Operating expenses were $50,468 for the year ended December
31, 2004. We did not have operating expenses for the period of November 6, 2003
(Inception) through December 31, 2003. Approximately $15,588 of this increase
was due to the acquisition of Sophlex Ship Management, Inc., and the expenses
related to Riveria I.
Other Income (Expenses): Other Income totaled $5,362 for year ended December 31,
2004. Other Expenses totaled $1,794 for the period of November 6, 2003
(Inception) through December 31, 2003. This change was due to loan fee income of
$10,000 offset by $659 in bank charges, $351 in finance charges, $92 in
depreciation, $3,079 in interest and $457 in organizational costs in 2004
compared to $1,794 in organizational costs in 2003. We were able to generate
loan fee income in connection with financing we provided for a borrower that
needed to repair a cruise vessel, the Riveria I, purchased to provide tourist
services focusing on Taiwan.
Net Loss: Net loss before income taxes was $126,895 for the year ended December
31, 2004. Net loss before income taxes was $1,794 for the period of November 6,
2003 (Inception) through December 31 2003. The increase in net loss is
attributed to the increased general operating, and general and administrative
expenses relating to the acquisition of Sophlex Ship Management, Inc.
Nine Months Ended September 30, 2005 and 2004:
Revenue: Revenue was $112,000 for the nine months ended September 30, 2005
compared to $32,648 earned in the nine month period ended September 30, 2004.
This increase was a result of the acquisition of Sophlex Ship Management, Inc.
and the ship management fees it earned from the Riveria I contract. This
included an accounts receivable balance of $37,272 owed to us by Riveria I,
which was paid in full on October 31, 2005. On June 28, 2005, the Riveria I was
lost due to a fire and no further ship management fees will be earned on this
contract.
General and Administrative: General and administrative expenses were $519,706
and $100,762 for the nine months ended September 30, 2005 and 2004,
respectively. General and administrative expenses increased by $418,944 in 2005
as compared to 2004, primarily as a result of an increase in payroll,
professional fees, and office and occupancy expenses, as a result of the
acquisition of Sophlex Ship Management, Inc. on September 1, 2004 and additional
employees hired. As a result, for the nine months ended September 30, 2005, we
incurred substantially increased payroll of $236,000, $158,000 of professional
expenses and $25,000 of office and occupancy expenses. Approximately $106,000 of
increased payroll expenses and approximately $20,000 of the increased office and
occupancy expenses for the nine months ended September 30, 2005, can be
attributed to the Sophlex Ship Management, Inc. acquisition.
10
Operating Expenses: Operating expenses were $46,100 for the nine months ended
September 30, 2005 compared to $707 for the nine months ended September 30,
2004. This increase was primarily due to the acquisition of Sophlex Ship
Management, Inc., and the expenses related to Riveria I.
Other Income (Expenses): Other Income (Expenses) net was ($1,317) and $22,733
for the nine months ended September 30, 2005 and 2004, respectively. This change
was primarily due to interest income totaling $11,894 on the note and settlement
with Riveria I offset by $931 in debt forgiveness, $322 in depreciation and
$11,203 in interest expense in 2005 compared to loan fee income of $24,250
offset primarily by $900 in interest expense and $457 in organizational costs in
2004.
Net Loss. Net loss before income taxes was $468,333 and $46,358 for the nine
months ended September 30, 2005 and 2004, respectively. The increase in net loss
is attributed to the increased payroll and professional fees due to the
acquisition of Sophlex Ship Management, Inc and the addition of other employees.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are
reasonably likely to have a current or future effect on our financial condition,
revenues, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
Concentrations of Credit Risk
Three customers accounted for the total revenue for the year ended
December 31, 2004. One customer, Rivera I, accounted for 66% of our revenue.
This customer accrues expenses, which are paid on behalf of the customer by our
subsidiary, Sophlex Ship Management, Inc and reimbursed by the customer. These
receivables are included in accounts receivable at December 31, 2004. The
remaining customers, Sea Diamond Gaming, LLC and Port Offices, LLC, both related
parties, account for the consulting income for the year ended December 31, 2004.
Revenue Recognition
The Company recognizes ship management revenue and consulting revenue when
earned. At the time of the transaction, the Company assesses whether the fee is
fixed and determinable based on the payment terms associated with the
transaction and whether collectibility is reasonably assured. If a significant
portion of a fee is due after the normal payment terms, the Company accounts for
the fee as not being fixed and determinable. In these cases, the Company
recognizes revenue as the fees become due. Where the Company provides a service
at a specific point in time and there are no remaining obligations, the Company
recognizes revenue upon completion of the service.
BUSINESS
Organizational History
We are a specialized holding company engaged in various marine industry
operations. Our current primary operation, conducted through our wholly owned
subsidiary, Sophlex Ship Management, Inc., is providing ship crewing and
management services to vessel owners and operators in the United States and
abroad. In addition, through our other wholly owned subsidiaries we are
attempting to provide financing to businesses in the marine industry, ship
crewing and management services to vessel owners and operators in the United
States and abroad, and we are in the process of entering into a new industry
involving the sale of timeshare opportunities on cruise ships, similar to real
estate timeshares. Our website address is http://www.marinegrowthventures.com.
11
Overview of Business
We had no significant business operations, until our acquisition of
Sophlex Ship Management, Inc. on September 1, 2004 in exchange for 1,000,000
shares of our common stock. Sophlex Ship Management, Inc., which was founded in
1999, provides ship crewing and management services to vessel owners and
operators in the United States and abroad. Capt. Timothy Levensaler, our Chief
Operating Officer, was the founder and the sole shareholder of Sophlex Ship
Management, Inc. prior to its acquisition by us.
We are also currently pursuing opportunities in a new industry referred to
as cruise timeshares, which combines traditional real estate timeshares with
commercial cruise vacations. Purchasers of cruise timeshares will receive the
right to a seven-day cruise each year for up to 15 years aboard a cruise ship
which we are looking to purchase. However, we intend to continuing providing
ship crewing and management services in addition to our cruise timeshare
operation.
Crewing and Management Services
Currently our primary business is to provide ship crewing and management
services to vessel owners and operators in the United States and abroad.
Although as of the date hereof we are not providing such services to any
vessels, we have provided ship crewing and management services to eight
different vessels since 1998. These services are provided by our wholly-owned
subsidiary Sophlex Ship Management, Inc., which is an International Safety
Management Code certified company holding a Document of Compliance issued by the
American Bureau of Shipping to operate vessels worldwide. This certification
authorizes us to operate any ship anywhere in the world. A DOC (Certificate of
Compliance) is applied for and is held for in each country in which the ship is
under its Flag.
Our crewing services consist of supplying sea staff to our clients. To
ensure the qualifications of the staff a prerequisite to hiring our crew is to
check that each of the crew members has all the required regulatory training and
certificates. Generally we provide crews for ships that we manage, but we also
provide crews to vessels operated by other entities, for which we do not provide
management services, upon request. When providing crew services we generally
charge a fee for each crew member provided. We usually obtain management
customers who come to us either in the process of purchasing a ship or shopping
for a ship. We assist the customers in this process, which usually requires our
inspection of the ship. Once the purchase is made we can provide a crew to
deliver the ship to the buyer's location anywhere in the world. Once the ship is
delivered our goal is to try to be retained to provide continuing management
services for the vessel.
In order to be able to provide crewmembers, we maintain relationships with
employment agencies in the Philipines, Ukraine, Honduras, Mexico and Cuba and
currently have an agreement with an agency in China. These agencies provide
highly qualified and licensed marine crew at all skill levels, many of whom have
experience in operating both United States and foreign flag vessels. We are
therefore able to deploy qualified, responsible crew to our clients' operations
on an expedited basis. These agencies are compensated for their services by
either charging the crew member a fee that is paid up front or garnished from
future wages, by charging us a monthly fee ranging from $25 to $50 per employee
or by charging us an upfront fixed free which ranges from $100 to $300 per
employee contract.
In addition to the provision of crew services, we provide our clients with
general management services including the following:
o purchasing new vessels or second-hand vessels (we have assisted in
the purchase of two vessels);
o vessel maintenance ensuring compliance with all safety and
environmental rules and procedures (we have assisted in ensuring
compliance with all safety and environmental rules and procedures of
four vessels);
o shipyard supervision of new vessels and conversion projects (we have
assisted in three conversion projects);
o assist in devising and obtaining optimal insurance coverage and
management of insurance related matters (we have assisted in two
insurance programs); and
o assist in arranging for client's financing needs (assisted in one
financing package).
These functions are supported by onboard and onshore systems for
maintenance, inventory, purchasing and budget management.
12
In providing management services, we normally enter into agreements to
provide complete vessel management services for a period of two to three years.
However, depending upon the specific needs of the client we may enter into
short-term agreements to provide specific management services, which to date we
have not done. For example, we have or could assist a client for the specific
purpose of purchasing a vessel, without providing any additional management
services.
In connection with our management services, we often provides technical
personnel for a wide range of inspection services, such as feasibility, pre-sale
condition, pre-scrapping condition, estimate of work or shipyard package. These
services may lead to a contract for us to convert the ship and ultimately
provide long-term management services for the ship. Generally these services
requires us to identify a ship for the customers needs and determine the
suitability of the vessel for proposed project and the pre-sale condition of the
vessel. The term "pre-sale condition" refers to the condition of the vessel
before an offer or any negotiation is done with respect to a vessel, while
"pre-scrapping condition" refers to the condition and general value the ship
will have at the end of its usable life. To convert a ship means to change the
ships useful purpose from it intended original purpose. For example, a ferry
designed to transport cars and trucks can be converted into a casino ship by
putting a casino into the former car deck area. This form of conversion requires
ship management expertise to ensure that the converted vessel obtains all proper
certification, which allow it to operate safely and legally.
In addition, we have a record of available ships and an ability to locate
additional ships. Therefore when potential customers contact us seeking a
vessel, after ascertaining the type of vessel being sought we are able to assist
the customer in obtaining a vessel that suits their needs by identifying and
inspecting an appropriate vessel. We will use these contacts as leads so we can
provide conversion management and financing services. Conversion management
means we will (1) suggest initial design changes to make a ship suitable for its
proposed use, (2) prepare a specification for ship yard conversion, (3) mange
the specification during ship yard conversion, and (4) deliver the final vessel
to the customer.
We also provide "Custodial Services." When a ship is confiscated for any
number of reasons, we work with local Maritime lawyers to obtain a contract to
"hold" the ship for the Federal Court. This refers to a Federal "custodian"
service. When a ship gets "arrested" for any reason (most commonly it is non
payment of bills for goods and services) the vendor or a group of vendors can
apply to the Federal Court to "arrest the vessel." With this application they
must propose a custodian for the vessel. The custodian takes possession of the
vessel and preserves and protects it for the Federal Marshall while the court
proceeding is completed. This can take anywhere from days to years. These
contracts generally last from a few hours to one to two years depending on the
case. Since daily rates charged for Custodial Services are senior to all other
creditors liens we are generally assured of payment.
Financing Services
We have begun providing financing solutions to companies involved in the
marine industry. Due to the nature of the assets of vessel owners, obtaining
adequate financing in the marine industry can often be challenging. Through our
experience we are able to work with the companies in arranging for the financing
that they need. So far we have issued a note for up to $2,000,000 in financing
for a borrower that needed to repair a cruise vessel purchased to provide
tourist services focusing on Taiwan. We obtained initial funds to provide this
financing through a Revolving Secured Note, with an aggregate principal amount
of up to $500,000, loaned to us by Frank Crivello. We then secured this
financing with the general assets of the borrower's business as well as a first
preferred ship's mortgage on the cruise vessel purchased by the borrower.
However we only advanced 411,165.66 to the borrower before the borrower
defaulted on this financing arrangement.
We anticipates generating financing revenue in the following ways:
o Loan Origination Fees - This is a fee for originating a loan. We may
simultaneously, or at a later date, sell the loan to a third-party,
or sell participation interests in the loan.
o Loan Placement Fees - This is a fee for arranging financing to be
funded by a third party.
13
o Loan Servicing Fees - This is a fee for servicing/monitoring the
loan provided by a third party on a monthly basis.
o Rate Arbitrage Income - This is the income derived from the
difference between our borrowing costs, and the interest rate
charged to the borrower.
o Credit Enhancement Fees - This is a fee for providing a guarantee or
additional collateral to a third-party's loan.
Cruise Timeshares
We are in the process of entering into a new innovative industry involving
the sale of timeshare opportunities on cruise ships, similar to real estate
timeshares. While timesharing of vacation real estate is a growing industry we
believe, after doing extensive research, that only one other company, Cruise
Timeshare Two, Inc., currently markets and sells timeshares on an existing
cruise vessel. We have reached an agreement in principle with the principals of
Cruise Timeshare Two, Inc. to provide us with marketing and sales broker
services, but we have not signed a formal agreement and do not intend to sign a
formal agreement until an appropriate vessel has been located and we have
obtained sufficient funding.
Industry Overview
Timesharing of real estate properties is, and has been, a successful
method of individual ownership and use of vacation properties for a designated
time period each year. An individual initially purchases the timeshare
allocation and management, operating, maintenance and other expenses are
generally divided amongst all of the timeshare purchasers of the designated real
estate who pay a related annual fee for such expenses. During the last decade
the worldwide timeshare industry has experienced significant growth and recent
average sales have increased by about 7.6% per year (source: American Resorts
Development Association).
Cruises are the fastest growing segment of the multi-billion dollar travel
industry, fed by fresh interest, a substantial increase of new ships,
considerable advertising and increasing number of repeat customers and referral
clients. The average rate of growth in the North American cruise market for 23
years is over 8.1%, which is greater than any other leisure vacation category
(source: Cruise Line International Association). Even during poor economic
conditions and when business travel has been down cruise sales have remained
relatively strong, with approximately 85% of cruise customers reporting overall
satisfaction (source: Cruise Line International Association).
Our Solution
The cruise timeshare concept is an attempt to extend the benefits of a
timeshare vacation by uniting the best attributes of quality real estate
timeshares and better cruises. The cruise timeshare product offers consumers of
real estate timeshares with benefits that would not be available with
traditional timeshares, including:
o all inclusive vacations which include meals and other services at no
additional cost;
o the ability to avoid adverse weather on a seasonal basis; and
o the ability to enjoy different localities without the need to trade
for use of other real estate properties.
Furthermore, unlike the construction and development necessary for real
estate timeshare projects, we will be able to begin our cruise timeshare
operations after acquiring an appropriate cruise vessel and spending
approximately four months outfitting the vessel.
In addition, the cruise timeshare product offers consumers of commercial
cruise vacations benefits that would not be available with traditional
commercial cruises, including:
o the projected costs of a cruise timeshare vacation would cost less
than a comparable commercial cruise vacation;
o cruise timeshare ownership and/or use can be loaned, given away or
sold by the purchasers;
o based upon predetermined preferences, purchasers of cruise
timeshares will be able to receive their preference for food,
beverage and recreational services.
14
Our Strategy
We have reached an agreement in principal with Cruise Timeshare Two, Inc.
pursuant to which we intend to purchase between one and two cabin style cruise
ships per year and Cruise Timeshare Two, Inc. will market and resell the
timeshares to customers. See "Sales and Marketing" below in this section. This
arrangement provides that Cruise Timeshare Two, Inc. and us will split the
profits from the sale of timeshare units and the use of unsold cabins equally,
after we have been paid for our administrative expenses in purchasing the
relevant cruise ships. We currently plan on purchasing additional ships,
accordingly our agreement with Cruise Timeshare Two, Inc. specifies both parties
desire to purchase a ship when the first ship is nearly completely sold.
However, additional purchases are at the discretion of both parties. In
accordance with our agreement, we will purchase and operate the vessel and
Cruise Timeshare Two, Inc. will market and sell the individual time share units.
We have not yet signed a formal agreement with Cruise Timeshare Two, Inc. and do
not intend to sign a formal agreement until an appropriate vessel has been
located and we have obtained sufficient funding.
In addition to our discussions with Cruise Timeshare Two, Inc. we have
created initial trip itinerary's, have begun preliminary discussions with other
timeshare companies for bulk sales of blocks of rooms in order to obtain quicker
cash flow from operations and we are currently searching for an appropriate ship
to purchase.
The cruise timeshares to be sold by us will consist of the right to one
seven-day cruise for two per year for a minimum period of 10 years. Due the
ability of the cruise ship to change localities depending on the weather and the
seasons there will be no "high" or "low" season, as is found with real estate
time shares and the purchase price for the timeshare will therefore be based
upon the cabin categories which will take into account the different sizes,
location on the ship and general configurations.
We have identified three different cruise vessels, suitable for
timeshares, which we are considering for purchase. These vessels have between
137 and 285 cabins, which translates into 50 seven-day timeshares or between
6,850 and 14,250 cruise timeshares available for sale per ship. We intend to
utilize the remaining two weeks of the year for maintenance purposes. The retail
price of the cruise timeshares for a minimum period of 10 years will range
between $9,000 and $19,000. However, we anticipate offering incentive discounts
to customers who purchase units in our cruise timeshare early in amounts to be
determined at management's discretion. In addition to the initial purchase
costs, we anticipate that annual maintenance fees will average between
approximately $650 and $850 per timeshare, which fees will vary depending upon
the cruise vessel acquired and the cabin category of the timeshare purchased.
The cruise timeshares will allow for the use of each cabin by two persons
during cruises along with the full use by such persons of all public areas,
services and entertainment to be provided on the cruise vessel. If timeshare
purchasers would like to use the cabin for more than two people (some cabins
have extra berths) an extra passenger fee would be charged to cover any
additional expenses related to the extra passenger(s). Timeshare purchasers
would be able to reserve the right to use their allocated yearly time period by
providing 120 days prior notice or purchasers would have the option to
accelerate their yearly time periods allocated to future years in order to
extend the seven day cruise or to obtain use of more than one cabin, if there is
availability on the cruise vessel. In addition, by using a timeshare industry
exchange program, purchasers of cruise timeshares will have the ability to trade
a seven-day cruise for 14 days or more at many real estate timeshare property
vacations.
The travel itinerary for the cruise vessel will be changed up to twice
each year and is anticipated to be within the North American and Caribbean
waters. The itineraries of the cruise vessel will be port oriented with minimal
time spent at sea in order to allow for port visits of 10 to 20 hours and
sometimes longer. This will provide timeshare purchasers with an opportunity to
enjoy more shore activities and be able to avail themselves of any local
amenities.
Sales and Marketing
There are many similarities in the demographics of purchasers of real
estate timeshares and commercial cruises, this creates a benefit for us in being
able to market and sell cruise timeshares into both of these readily defined
markets. Accordingly, our costs for sales and marketing of the cruise timeshares
will be minimized by being able to target such clearly defined markets in order
to generate prospective purchasers of this product.
15
Before we are prepared to provide full timeshare services, prospective
buyers will be brought to the cruise vessel for a tour and sales presentation.
These prospective buyers will be targeted based upon existing lists of potential
real estate timeshare purchasers and/or commercial cruise customers. These
existing lists or lists of timeshare and cruise purchasers and customers which
we have from (a) our own present lists that have been acquired while selling
real estate and cruise timeshares, (b) from cooperating and participating
timeshare sales organizations that have acquired list in the same manner, (c)
from timeshare exchange companies, (d) from retail and other travel entities
participating in cruise timeshare sales, (e) from list companies that sell us
specific lists, such as lists of consumers that own a timeshare and have taken a
cruise, (f) from lead generating programs such as trade shows and other
advertising and promotions, and (g) otherwise as opportunities arise. Our
present marketing capabilities, which include the experience of Cruise Timeshare
Two, Inc. from the prior sale of cruise timeshares, we believe are sufficient to
produce prospective buyers and as soon as the cruise vessel has been obtained
and is ready for use the vessel will be moved to an appropriate port in the
United States for use as a sales tool.
Once full service operations begin the cruise vessel will be utilized to
provide commercial cruises whereby cruise customers will be afforded with an
opportunity to purchase a cruise timeshare. In addition, customers of other
cruise ships and vacationing visitors at the cruise vessel's ports of call will
be given tours of the cruise vessel and will be provided with an opportunity to
purchase a cruise timeshare. Advertising and promotions will be targeted towards
special interest medias utilized by those in the vacation industry, including
direct mailings, our website and organized sales seminars.
Competition
We believe that there is currently only one direct competitor in the
cruise timeshare industry and the principals of such competing timeshare have
agreed to market and sell the timeshares to be offered by us. However, real
estate timeshares, commercial cruises and vacation exchange companies will all
compete with our ability to sell cruise timeshares.
Vacation exchange companies, like Resorts Condominium International and
Interval International, place points on their real estate timeshares. They then
allow customers who are eligible to trade these points on some commercial
cruises so that customers can expand their vacation choices. Commercial cruises
traditionally have a higher markup for amenities than real estate timeshare
properties. By contrast, amenities and services wil be provided to our cruise
timeshare customers on a cost basis. Our customers will pay directly for these
services in the form of yearly dues so there is no incentive to make additional
profits on these services. We anticipate that our cruise timeshares will be
associated with a vacation club which will permit cruise timeshare purchasers to
exchange their cruise for use of a real estate time shares and we expect to join
a vacation club that will allow our customers to trade their cruise timeshare
weeks for use of real estate timeshare properties that participate in the same
programs. While we will not be administering any of these exchange programs or
obtain any revenues from such programs, the access of our cruise timeshare
customers to these programs adds value to cruise timeshares units we will be
offering for sale.
In addition, our crew and management services compete both with existing
and established service providers. Many of these companies have longer operating
histories, larger customer bases and significantly greater financial, marketing
and other resources than we do and may have the ability to better attract and
retain the same customers that we target. Once service providers have
established these business relationships, it could be extremely difficult to
convince them to utilize our crew and management services or replace or limit
their existing business practices. We cannot be certain that we will be able to
compete successfully against current and future competitors, and competitive
pressures faced by us could materially adversely affect our business.
Government Regulation
Federal Regulation
16
We do not believe that we are currently subject to federal regulation in
connection with our current operations; however, to the extent that we operate
vessels in United States territorial waters our vessels will be subject to
regulation by the United States Coast Guard. Our cruise timeshare vessel would
be subject to United States Coast Guard regulations if it enters U.S. waters and
ports. These regulations primarily relate to passenger safety. Sophlex has
extensive experience and expertise in adhering to these regulations.
State Regulation
Although real estate timeshares sales personnel must normally have a real
estate license, since a cruise timeshare does not involve real estate, it is
considered a sale of personal property, for which sales personnel are not
required to be licensed. However, we anticipate that we will generally attempt
to comply with state real estate offering requirements, although the materials
will not be reviewed by the states by complying with real estate timeshare
regulations when no State registration requirements or applicable statutes
exist. This will require us to provide a "generic" disclosure statement
(offering circular) modeled after formats used in Florida, where registration is
required. Key consumer protection issues will be adhered to the extent not
prevented because the product is a cruise ship, although not a requirement, such
as providing a "waiting period" during which time a buyer can cancel a purchase.
In addition, prior to the sale of a real estate timeshare, sellers
normally must file a registration containing a public offering statement in each
state in which it desires to sell timeshares. However, in most states this
obligation does not currently extend to the sales of cruise timeshares, since
they are considered sales of personal property. While other states are
considering the enactment of legislation governing the sale of cruise
timeshares, the only state currently requiring registrations for the sale of
cruise timeshares is Florida. While we have no obligation to, and will not, file
such a registration Cruise Timeshare Two, Inc., who will be selling the cruise
timeshare units has completed documentation necessary for a full registration of
a public offering statement in Florida, and even though not required elsewhere,
they do and will continue to provide buyers at every location with documentation
similar to that required by Florida.
FACILITIES
We lease our main office which is located at 405-A Atlantis Road, Cape
Canaveral, Florida 32920. The lease has a term of 36 months, which began on
August 15, 2004 and expires on August 31, 2007, with options to renew. We
currently pay rent and related costs of $1,656.12 per month, which amount is to
be increased 3% on each anniversary of the lease.
We also lease a second office located in Corpus Christi, Texas. We lease
approximately 372 square feet of office space based upon a verbal month to month
lease and we currently pay rent and related costs of $331 per month.
We are not dependent on a specific location for the operation of our
business.
EMPLOYEES
As of January 27, 2006 we had four full time employees and approximately 4
contract employees providing crew services. We have not experienced any work
stoppages and we consider relations with our employees to be good.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages and
positions as of January 27, 2006 are as follows:
17
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
David Marks 37 Chairman of the Board
- --------------------------------------------------------------------------------
Craig Hodgkins 44 President and Director
- --------------------------------------------------------------------------------
Capt. Timothy Levensaler 46 Chief Operating Officer and Director
- --------------------------------------------------------------------------------
Katherine Ostruszka 35 Chief Financial Officer and Controller
- --------------------------------------------------------------------------------
Frank J. Orlando 32 Executive Vice President and Director
- --------------------------------------------------------------------------------
Paul Schwabe 48 Secretary and Director
- --------------------------------------------------------------------------------
Executive Biographies
David Marks, Chairman of the Board - Mr. Marks has been our Chairman since
October 2004. Since November 2004, Mr. Marks has been a director and Chairman of
Thomas Equipment, Inc., a company engaged in the manufacture and distribution of
skid steer and excavating equipment, as well as pneumatic and hydraulic
components and systems for the industrial market. Since August 2002, Mr. Marks
has been a director of Ventures-National Incorporated, a company that is a
fabrication service provider of time sensitive, high tech, prototype and
pre-production printed circuit boards. Since 1994, Mr. Marks has served as the
Trustee of the Irrevocable Children's Trust, Irrevocable Children's Trust No. 2
and Phoenix Business Trust, where he oversees all trust investments, with
responsibilities that begin pre-acquisition and extend through ownership and
disposition. Mr. Marks received a B.S. in economics from the University of
Wisconsin in 1990.
Craig Hodgkins, President - Mr. Hodgkins has been our President since July
2004. From June 2002 until July 2004 Mr. Hodgkins was an executive vice
president and technical manager for Sophlex Ship Management, Inc., responsible
for all technical and engineering programs and maintenance systems for various
ships worldwide. From June 1999 until March 2002 Mr. Hodgkins was president and
general manager of the Sahara Hotel and Casino in Las Vegas, Nevada, responsible
for all aspects of entire operation including casino operations, hotel, food and
beverage, engineering, marketing and human resources. Mr. Hodgkins received a
B.S. in Marine Engineering and a minor in Business from Maine Maritime Academy,
Castine, ME in 1983.
Capt. Timothy Levensaler, Chief Operating Officer - Capt. Levensaler has
been our Chief Operating Officer since September 2004. From January 2000 until
September 2004 he was the president of Sophlex Ship Management, Inc., a Company
which he founded to provide ship crew and management services. Capt. Levensaler
has numerous licenses and certificates and received a B.S. in Nautical
Science/Marine Transportation from the Maine Maritime Academy, Castine, ME in
1983. In addition Capt. Levensaler holds a valid USCG unlimited Masters License,
which qualifies him to be a Captain.
Katherine Ostruszka, Chief Financial Officer - Ms. Ostruszka was our
controller since September 2004 and has been our Chief Financial Officer since
July 2005. Ms. Ostruszka has over fourteen years of experience in financial
analysis particularly in the areas of real estate, gaming, telecommunications
and technology while working for Phoenix Investors, LLC and its family of
companies. In addition, Ms. Ostruszka is also currently and has been the
controller for Phoenix Investors, LLC since 2004. From 1997 until 2004 Ms.
Ostruszka was employed by the Waukesha County Technical College. Ms. Ostruszka
also holds a position as an economics instructor at Waukesha County Technical
College, Wisconsin. Ms. Ostruszka received a BA in Economics and International
Affairs from Marquette University and a MS in Management from the University of
Wisconsin - Milwaukee.
Frank J. Orlando, Executive Vice President - Mr. Orlando has been our
Executive Vice President since September 2004. From September 1996 until April
2002 Mr. Orlando was vice president and director of corporate development for
Phoenix Internet Technologies, Inc., a start up Internet service provider (ISP).
In April 2002, Phoenix Internet Technologies, Inc. was sold and Mr. Orlando was
retained by the new owners and worked there in a similar capacity until
September 2003. From September 2003 through September 2004, Mr. Orlando acted as
a consultant to Phoenix Investors, LLC. Mr. Orlando received Bachelors Degrees
in Marketing and Production & Operations Management from the University of
Wisconsin in 1995.
18
Paul Schwabe, Secretary - Mr. Schwabe has been our Secretary since April
2004. Since April 1994, Mr. Schwabe has served as vice president for Phoenix
Investors, LLC. In that capacity he has also served as an officer for many
subsidiaries of Irrevocable Children's Trust and Irrevocable Children's Trust
No. 2 and their affiliates. Mr. Schwabe has extensive experience in the
management of real estate and the administration of various businesses.
Board of Directors
Our Directors are elected by the vote of a majority in interest of the
holders of our voting stock and hold office until the expiration of the term for
which he or she was elected and until a successor has been elected and
qualified.
A majority of the authorized number of directors constitutes a quorum of
the Board for the transaction of business. The directors must be present at the
meeting to constitute a quorum. However, any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.
Directors may receive compensation for their services and reimbursement
for their expenses as shall be determined from time to time by resolution of the
Board. Each of our directors currently receives no compensation for their
service on the Board of Directors.
19
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation paid
to our Chief Executive Officer and the other executive officers who earned more
than $100,000 per year at the end of the last completed fiscal year. We refer to
all of these officers collectively as our "named executive officers."
Summary Compensation Table
Long-Term
Compensation
--------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------
Securities
Other Under-
Annual Restricted lying
Name and Bonus Compen- Stock Award(s) Options/ LTIP
Principal Position Year Salary ($) ($) sation ($) ($) SARs (#) Payouts ($)
- ----------------------------------------------------------------------------------------------------------------------
Craig Hodgkins 2005 100,000.00
President 2004 33,333.36 0 0
Timothy Levensaler 100,000.00
Chief Operating Officer 2005 33,333.36 0 0
2004
Employment Agreements with Executive Officers
Craig Hodgkins
On July 1, 2004, we entered into an agreement with Craig Hodgkins,
effective September 1, 2004, to employ Mr. Hodgkins as our President. Mr.
Hodgkins' employment agreement is for a term of three years, but his employment
is on an "at will" basis, under which the terms of his employment will continue
unless terminated by either Mr. Hodgkins or by us. Termination by us may be with
or without cause, at any time. However, in the event that Mr. Hodgkins is
terminated by us without cause Mr. Hodgkins is entitled to receive severance pay
in the form of his base salary at the time of termination. Mr. Hodgkins' gross
salary under the agreement is set at an annual rate of $100,000; provided,
however, that Mr. Hodgkins will be entitled to increases of up to $150,000 in
such base salary for any calendar quarter in which our EBIDTA exceeds certain
predetermined milestones.
Capt. Timothy Levensaler
On July 1, 2004, we entered into an agreement with Capt. Timothy
Levensaler, effective September 1, 2004, to employ Capt. Levensaler as our Chief
Operating Officer. Capt. Levensaler's employment agreement is for a term of
three years, but his employment is on an "at will" basis, under which the terms
of his employment will continue unless terminated by either Capt. Levensaler or
by us. Termination by us may be with or without cause, at any time. However, in
the event that Capt. Levensaler is terminated by us without cause Capt.
Levensaler is entitled to receive severance pay in the form of his base salary
at the time of termination. Capt. Levensaler's gross salary under the agreement
is set at an annual rate of $100,000; provided, however, that Capt. Levensaler
will be entitled to increases of up to $150,000 in such base salary for any
calendar quarter in which our EBIDTA exceeds certain predetermined milestones.
We have not entered into employment agreements with our other executive
officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 2004 we issued a Revolving Secured Note with an aggregate
principal amount of $500,000 to Frank Crivello, the majority owner of the
membership interests of Farwell Equity Partners II, LLC, our major stockholder
with an 82.80% interest. In accordance with the terms of the note, $224,950 of
principal and interest was converted into 17,996,000 shares of our common stock
on November 25, 2004. The remainder of the note was paid in full with the
proceeds of our private offering which closed on July 15, 2005.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 27, 2006
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of our executive officers
and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.
- ---------------------------------------------------------------------------------------------------
Prior to Post-Offering
Name of Number of Shares Offering as a as a Percent
Beneficial Owner (1) Beneficially Owned (2) Percent of Total of Total
- ---------------------------------------------------------------------------------------------------
David Marks 18,025,000 (3) 82.91% 82.91%
- ---------------------------------------------------------------------------------------------------
Craig Hodgkins 1,005,000 4.62% 4.62%
- ---------------------------------------------------------------------------------------------------
Capt. Timothy Levensaler 1,015,000 4.67% 4.67%
- ---------------------------------------------------------------------------------------------------
Frank J. Orlando 112,500 * *
- ---------------------------------------------------------------------------------------------------
Katherine Ostruszka 2,500 * *
- ---------------------------------------------------------------------------------------------------
Paul Schwabe 2,500 * *
- ---------------------------------------------------------------------------------------------------
Farwell Equity Partners II, LLC 18,000,000(3) 82.80% 82.80%
- ---------------------------------------------------------------------------------------------------
All Executive Officers and Directors 20,162,500 92.75% 92.75%
as a Group (6 persons)
- ---------------------------------------------------------------------------------------------------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner
is c/o Marine Growth Ventures, Inc., 405-A Atlantis Road, Cape
Canaveral, FL 32920.
(2) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to the shares shown. Except where
indicated by footnote and subject to community property laws where
applicable, the persons named in the table have sole voting and
investment power with respect to all shares of voting securities
shown as beneficially owned by them.
(3) Frank Crivello is the majority owner of the membership interests of
Farwell Equity Partners II, LLC. David Marks is the managing member
of Farwell Equity Partners II, LLC, and has sole investment and
dispositive power with respect to all shares owned by such entity.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Common Stock
We are authorized to issue 100,000,000 shares of common stock, par value
$0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per
share. As of January 27, 2006, we had 21,739,500 shares of common stock
outstanding and no shares of Preferred Stock outstanding.
The holders of the shares of our common stock have equal ratable rights to
dividends from funds legally available therefore, when, as and if declared by
the Board of Directors and are entitled to share ratably in all of our assets
available for distribution to holders of our common stock upon the liquidation,
dissolution or winding up of our affairs. Holders of shares of our common stock
do not have preemptive, subscription or conversion rights.
21
Holders of shares of our common stock are entitled to one vote per share
on all matters which shareholders are entitled to vote upon at all meetings of
shareholders. The holders of shares of our common stock do not have cumulative
voting rights, which means that the holders of more than 50% of our outstanding
voting securities can elect all of our directors.
Our payment of dividends, if any, in the future rests within the
discretion of its Board of Directors and will depend, among other things, upon
our earnings, capital requirements and financial condition, as well as other
relevant factors. We have not paid any dividends since our inception and do not
intend to pay any cash dividends in the foreseeable future, but we intend to
retain all earnings, if any, for use in our business.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our bylaws provide for the indemnification of our directors and officers
against all claims and liability by reason of serving as a director or officer.
We are required to reimburse all legal expenses incurred by any director or
officer in connection with that proceeding. We are not, however, required to
reimburse any legal expenses in connection with any proceeding if a
determination is made that the director or officer did not act in good faith or
in a manner reasonably believed to be in our best interests. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act" or "Securities Act") may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PLAN OF DISTRIBUTION
No market currently exists for our shares. The price reflected in this
prospectus of $0.20 per share is the initial offering price of shares upon the
effectiveness of this prospectus. The selling stockholders may, from time to
time, sell any or all of their shares of common stock covered by this prospectus
in private transactions at a price of $0.20 per share or on any stock exchange,
market or trading facility on which the shares may then be traded. If our shares
are quoted on the Over-the-Counter Bulletin Board ("OTCBB"), the selling
stockholders may sell any or all of their shares at prevailing market prices or
privately negotiated prices. We will pay the expense incurred to register the
shares being offered by the selling stockholders for resale, but the selling
stockholders will pay any underwriting discounts and brokerage commissions
associated with these sales. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o privately negotiated transactions; and
o a combination of any such methods of sale.
In addition, any shares that qualify for sale under Rule 144 may be sold
under Rule 144 rather than through this prospectus.
The $0.20 per share offering price of the common stock being sold under
this prospectus has been arbitrarily set. The price does not bear any
relationship to our assets, book value, earnings or net worth and it is not an
indication of actual value. Additionally, the offering price of our shares is
higher than the price paid by our founders, and exceeds the per share value of
our net tangible assets. Therefore, if you purchase shares in this offering, you
will experience immediate and substantial dilution. You may also suffer
additional dilution in the future from the sale of additional shares of common
stock or other securities, if the need for additional financing forces us to
make such sales. Investors should be aware of the risk of judging the real or
potential future market value, if any, of our common stock by comparison to the
offering price.
In offering the shares covered by this prospectus, the selling
stockholders may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. Any broker-dealers who execute
sales for the selling stockholders will be deemed to be underwriters within the
meaning of the Securities Act. Any profits realized by the selling stockholders
and the compensation of any broker-dealer may be deemed to be underwriting
discounts and commissions.
22
Each selling stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, selling stockholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
SELLING STOCKHOLDERS
The following table sets forth the common stock ownership of the selling
stockholders as of January 27, 2006. The selling stockholders acquired their
securities through a private placement offering which closed on July 15, 2005.
We will not receive any proceeds from the resale of the common stock by
the selling stockholders. Assuming all the shares registered below are sold by
the selling stockholders, none of the selling stockholders will continue to own
any shares of our common stock. Other than as set forth in the following table,
the selling stockholders have not held any position or office or had any other
material relationship with us or any of our predecessors or affiliates within
the past three years.
Name of Selling Shareholder Number of Shares Owned Number of Shares Number of Shares Owned Percentage of Common
Before Offering Offered for Sale After Completion of Stock Owned After
Offering Completion of Offering
Martin McNeill 5,000 5,000 0 0
Barry Forst 5,000 5,000 0 0
Andy Cohen c/f Jesse Cohen 5,000 5,000 0 0
Andy Cohen c/f Erica Cohen 5,000 5,000 0 0
Susan Ackerman 6,000 6,000 0 0
Andrew Cohen 6,000 6,000 0 0
Andrew Hackel 6,000 6,000 0 0
Jessica Hackel 8,000 8,000 0 0
Robert Hackel 7,500 7,500 0 0
Henry Hackel 5,000 5,000 0 0
Debbie Hackel 6,000 6,000 0 0
Joel Ontell 5,000 5,000 0 0
Milton Schwartzberg 6,000 6,000 0 0
Carl Planagan 6,000 6,000 0 0
Elliott Ames IRA ADP
Clearing Custodian 6,000 6,000 0 0
Tim Connelly 5,000 5,000 0 0
William Landberg 6,000 6,000 0 0
David Ofman 9,000 9,000 0 0
Alexandra Sikora 5,000 5,000 0 0
Joyce Sikora 5,000 5,000 0 0
Martin Bookston 5,000 5,000 0 0
Martin Bookston III 5,000 5,000 0 0
Guy B. Crawford IRA ADP
Clearing Custodian 6,500 6,500 0 0
Martin Danon 6,000 6,000 0 0
Daniel Siegel 10,000 10,000 0 0
Jay Shartsis 6,000 6,000 0 0
Tanya Hackel 6,000 6,000 0 0
23
Warren Cohen 5,000 5,000 0 0
Steven Millner 5,000 5,000 0 0
Douglas Newton 6,000 6,000 0 0
Stephan Balsamo 5,000 5,000 0 0
Jeremy Bookston 5,000 5,000 0 0
Mark Hestrin 6,000 6,000 0 0
Janice Crawford 5,000 5,000 0 0
Jack Balsamo 5,000 5,000 0 0
William Bielefeld 5,000 5,000 0 0
Elizabeth Bielefeld 5,000 5,000 0 0
Lawrence Balsamo 5,000 5,000 0 0
Christopher Ahlstedt 5,000 5,000 0 0
Lawrence & Ann D. Balsamo 5,000 5,000 0 0
Daniel & Kathya Balsamo 5,000 5,000 0 0
Lawrence Underwood 12,500 12,500 0 0
Deanie Underwood 12,500 12,500 0 0
Jennifer Underwood 12,500 12,500 0 0
Robert Sirbu 5,000 5,000 0 0
Richard Tessi 5,000 5,000 0 0
Dale Cox 10,000 10,000 0 0
Richard Pisano 5,000 5,000 0 0
Redwood Consultants (1) 5,000 5,000 0 0
Lavonna Hardin 5,000 5,000 0 0
Michael Sirbu 5,000 5,000 0 0
Jens Dalsgaard 5,000 5,000 0 0
Jimmy Perez 10,000 10,000 0 0
Angela Williams 5,000 5,000 0 0
Luciano and Maria
Volpacchio 5,000 5,000 0 0
Maureen Simon 5,000 5,000 0 0
Daniel Friend 5,000 5,000 0 0
Frank Hawkins 5,000 5,000 0 0
Julianna Marshall 5,000 5,000 0 0
Gerald Kieft 5,000 5,000 0 0
Stephen Kravit 25,000 25,000 0 0
Anne Kravit 25,000 25,000 0 0
John Daignault 5,000 5,000 0 0
David and Linda Stone 20,000 20,000 0 0
Greg Johnston 100,000 100,000 0 0
Margo West 10,000 10,000 0 0
Tri-Cor Inc. (2) 25,000 25,000 0 0
Marie Donofrio 37,500 37,500 0 0
David Cohen 10,000 10,000 0 0
Holli Arberman 15,000 15,000 0 0
Alfred and Marcia Arberman 5,000 5,000 0 0
Michael Josephs 5,000 5,000 0 0
Terri Josephs 5,000 5,000 0 0
Joel Arberman 15,000 15,000 0 0
Christina Araj 10,000 10,000 0 0
Jeffrey Araj 25,000 25,000 0 0
Kurt Jensen 2,500 2,500 0 0
Michael Donofrio 50,000 50,000 0 0
Charles Schwab & Co Inc.
Custodian FBO Jill King,
IRA 25,000 25,000 0 0
Charles Schwab & Co Inc.
Custodian FBO John King,
IRA 25,000 25,000 0 0
Valerie Bryan-Wunner 12,500 12,500 0 0
FEA, LLC (3) 12,500 12,500 0 0
Donald Main 5,000 5,000 0 0
Luigi Basso 5,000 5,000 0 0
Gilbert Teitel 8,500 8,500 0 0
Giacomo Fallucca 5,000 5,000 0 0
John B. Lowy, P.C. 12,500 12,500 0 0
John B. Lowy 12,500 12,500 0 0
Barbara Lowy 12,500 12,500 0 0
Olympic Capital Group,
Inc. (4) 12,500 12,500 0 0
24
Michael Senn 5,000 5,000 0 0
Stephen S. Kennedy 5,000 5,000 0 0
Bradley Underwood 12,500 12,500 0 0
Carrie Jensen 2,500 2,500 0 0
4237901 Canada Inc (5) 5,000 5,000 0 0
Elliott Ames 6,000 6,000 0 0
Paul Grass 10,000 10,000 0 0
Eric Fry 5,000 5,000 0 0
Norman Leben 5,000 5,000 0 0
Carl J. Planagan IRA ADP
Clearing Custodian 6,000 6,000 0 0
Jose and Cecilia Serra 5,000 5,000 0 0
Robert C. Klein 25,000 25,000 0 0
Margaret Hodgkins 5,000 5,000 0 0
Lloyd Hodgkins 10,000 10,000 0 0
Peggy Hodgkins 10,000 10,000 0 0
(1) Jens Dalsgaard has the voting and dispositive rights over the shares
held by Redwood Consultants.
(2) John Daignault has the voting and dispositive rights over the shares
held by Tri-Cor Inc.
(3) Bruce Wunner has the voting and dispositive rights over the shares
held by FEA, LLC.
(4) John Lowy has the voting and dispositive rights over the shares held
by Olympic Capital Group, Inc.
(5) Clifford Rhee has the voting and dispositive rights over the shares
held by 4237901 Canada Inc.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Our consolidated financial statements as of December 31, 2004 and 2003,
and for the year ended December 31, 2004 and the period from November 6, 2003
(inception) through December 31, 2003, have been included herein in reliance
upon the report of Weinberg & Company, P.A., independent registered public
accounting firm, appearing elsewhere herein, and upon authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the SEC a
registration statement on Form SB-2 to register the securities offered by this
prospectus. For future information about us and the securities offered under
this prospectus, you may refer to the registration statement and to the exhibits
filed as a part of the registration statement.
In addition, after the effective date of this prospectus, we will be
required to file annual, quarterly, and current reports, or other information
with the SEC as provided by the Securities Exchange Act. You may read and copy
any reports, statements or other information we file at the SEC's public
reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. Our SEC filings are
also available to the public through the SEC Internet site at http\\www.sec.gov.
25
MARINE GROWTH VENTURES, INC.
INDEX TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2004 and December 31, 2003
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-2
Consolidated Statements of Operations for the year ended December 31, 2004
and the period from November 6, 2003 (inception) through December 31, 2003 F-3
Consolidated Statements of Stockholders' Equity (Deficiency) for the period
from November 6, 2003 (inception) through December 31, 2004 F-4
Consolidated Statements of Cash Flows for the year ended December 31, 2004
and the period from November 6, 2003 (inception) through December 31, 2003 F-5
Notes to Consolidated Financial Statements as of December 31, 2004 and 2003 F-6
For the Nine Months Ended September 30, 2005 and 2004
Independent Registered Public Accounting Firm's Review Report F-14
Condensed Consolidated Balance Sheet as of September 30, 2005 (unaudited) F-15
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 2005 and 2004 (unaudited) F-16
Consolidated Statement of Stockholders' Equity (Deficiency) for the nine
months ended September 30, 2005 (unaudited) F-17
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004 (unaudited) F-18
Notes to Condensed Consolidated Financial Statements as of September 30, 2005 (unaudited) F-19
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of:
Marine Growth Ventures, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Marine Growth
Ventures, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and cash flows for the year ended December 31, 2004 and for the period from
November 6, 2003 (inception) through December 31, 2003. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 Marine
Growth Ventures, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
consolidated results of their operations, and their cash flows for the year
ended December 31, 2004 and for the period from November 6, 2003 (inception)
through December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has a net loss of $126,895 and a negative cash
flow from operations of $106,183 for the year ended December 31, 2004. These
matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
June 22, 2005
F-1
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, December 31,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Accounts Receivable $ 16,500 $ --
Notes and Loans Receivable 269,730 --
------------ ------------
Total Current Assets 286,230 --
FIXED ASSETS, NET 1,194 --
OTHER ASSETS 2,181 --
GOODWILL 12,500 --
------------ ------------
TOTAL ASSETS $ 302,105 $ --
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accrued Payroll $ 25,101 $ --
Cash Overdraft 5,868 --
Accrued Interest Payable 1,126 --
Accounts Payable 1,900 --
Other Accounts Payable 9,729 1,794
Note Payable - Stockholder 133,781 --
------------ ------------
Total Current Liabilities 177,505 1,794
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock, $.001 par value, 5,000,000
shares authorized, none issued or outstanding -- --
Common Stock, $0.001 par value, 100,000,000
shares authorized, 20,100,000 and 4,000 issued
and outstanding 20,100 4
Subscription Receivable (1,250) (100)
Additional Paid-In Capital 234,439 96
Accumulated Deficit (128,689) (1,794)
------------ ------------
Total Stockholders' Equity (Deficiency) 124,600 (1,794)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 302,105 $ --
============ ============
See accompanying notes to consolidated financial statements.
F-2
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statements of Operations
For the
Period From
November 6,
2003
For the Year (Inception)
Ended Through
December 31, December 31,
2004 2003
------------ ------------
REVENUE
Consulting Income $ 35,780 $ --
Ship Management Fees 66,000 --
------------ ------------
Total Revenue 101,780 --
------------ ------------
EXPENSES
Operating 50,468 --
Selling 505 --
General and Administrative 183,064 --
------------ ------------
Total Expenses 234,037 --
------------ ------------
LOSS FROM OPERATIONS (132,257) --
------------ ------------
OTHER INCOME (EXPENSES)
Other Income 10,000 --
Other Expenses (4,638) (1,794)
------------ ------------
Total Other Income (Expenses) 5,362 (1,794)
------------ ------------
NET LOSS $ (126,895) $ (1,794)
============ ============
Basic and diluted loss per common share $ (0.05) $ (0.45)
============ ============
Weighted Average number of shares
outstanding - basic & diluted 2,425,808 4,000
============ ============
See accompanying notes to consolidated financial statements.
F-3
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statements of Stockholders'
Equity (Deficiency) For the Period from
November 6, 2003 (Inception) Through December 31, 2004
Common Stock
Additional
Subscription Paid-In Accumulated
Shares Amount Receivable Capital Deficit Total
------------------------ ---------- ---------- ---------- ----------
Common stock subscribed at inception 4,000 $ 4 $ (100) $ 96 $ -- $ --
Net Loss for the year -- -- -- -- (1,794) (1,794)
------------------------ ---------- ---------- ---------- ----------
Balance, December 31, 2003 4,000 4 (100) 96 (1,794) (1,794)
Collection of subscription receivable in
May 2004 -- -- 100 -- -- 100
Common stock issued for cash in September
2004 1,000,000 1,000 -- 11,500 -- 12,500
Shares issued in exchange for shares in
Sophlex Ship Management, Inc. in September
2004 1,000,000 1,000 -- 11,500 -- 12,500
Common stock subscribed in September 2004 100,000 100 (1,250) 1,150 -- --
Conversion of a portion of the balance of
notes payable in November 2004 17,996,000 17,996 -- 206,954 -- 224,950
Debt forgiveness converted to Additional
Paid-In Capital in December 2004 -- -- -- 3,239 -- 3,239
Net Loss for the year -- -- -- -- (126,895) (126,895)
------------------------ ---------- ---------- ---------- ----------
Balance, December 31, 2004 20,100,000 $ 20,100 $ (1,250) $ 234,439 $ (128,689) $ 124,600
======================== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements
F-4
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the
Period From
November 6,
2003
For the Year (Inception)
Ended Through
December 31, December 31,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (126,895) $ (1,794)
Adjustments To Reconcile Net Loss To Net Cash
Used In Operating Activities:
Depreciation 92 --
Changes In Operating Assets & Liabilities:
Accounts Receivable (16,500) --
Other Assets (2,181) --
Accounts Payable 1,900 --
Accrued Interest Payable 1,126 --
Accrued Payroll 25,101 --
Other Accounts Payable 11,174 1,794
------------ ------------
Net Cash Used In Operating Activities (106,183) --
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase Of Fixed Assets (1,286) --
Advances Made On Loans Receivable (269,730) --
------------ ------------
Net Cash Used In Investing Activities (271,016) --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft 5,868 --
Proceeds From Note Payable - Stockholder 369,188 --
Repayments Of Note Payable - Stockholder (10,457) --
Collection Of Subscription Receivable 100 --
Proceeds From Sale Of Common Stock 12,500 --
------------ ------------
Net Cash Provided By Financing Activities 377,199 --
------------ ------------
NET INCREASE IN CASH: -- --
CASH, BEGINNING OF YEAR: -- --
------------ ------------
CASH, END OF YEAR: $ -- $ --
============ ============
SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Common Stock Issued for Acquisition of Subsidiary $ 12,500 $ --
============ ============
Common Stock Issued on Conversion of Note Payable $ 224,950 $ --
============ ============
Common Stock Issued for Subscription Receivable $ 1,250 $ 100
============ ============
See accompanying notes to consolidated financial statements
F-5
NOTE A - ORGANIZATION AND OPERATIONS AND GOING CONCERN
Marine Growth Ventures, Inc. ("MGV") was formed and incorporated in the
state of Delaware on November 6, 2003. MGV is a holding company that
conducts its operations primarily through a wholly-owned subsidiary,
Sophlex Ship Management, Inc. ("Sophlex"). MGV, Sophlex and MGV's other
subsidiaries are referred to collectively herein as the "Company".
The Company had no significant business operations until its acquisition
of Sophlex on September 1, 2004. Sophlex, which was founded in 1999,
provides ship crewing and management services to vessel owners and
operators in the United States and abroad. The founder and the sole
shareholder of Sophlex at the time of the acquisition is the current Chief
Operating Officer of the Company. At the time acquisition both companies
were private entities (See Note I).
The Company is also currently pursuing opportunities in a new industry
referred to as cruise timeshares, which combines traditional real estate
timeshares with commercial cruise vacations. Purchasers of cruise
timeshares will receive the right to a seven-day cruise each year for up
to 15 years aboard a cruise ship to be purchased by the Company.
In addition, the Company is pursuing other opportunities in the shipping
industry.
Since its inception, the Company has been dependent upon the proceeds of
loans from its stockholders and the receipt of capital investment to fund
its continuing activities. The Company has incurred operating losses since
its inception. The Company expects to incur significant increasing
operating losses over the next several years, primarily due to the
expansion of its business. There is no assurance that the Company's
developmental and marketing efforts will be successful. The Company will
continue to require the infusion of capital until operations become
profitable. There can be no assurance that the Company will ever achieve
any revenues or profitable operations from the sale of its proposed
products. During 2005, the Company is seeking additional capital. The
Company had a net loss of $126,895 and a negative cash flow from
operations of $106,183 for the ended December 31, 2004. As a result of the
above, the accompanying consolidated financials have been prepared
assuming that the Company will continue as a going concern. The
consolidated financials do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the parent company, Marine Growth Ventures, Inc., and its wholly-owned
subsidiaries, Marine Growth Finance, Inc., Sophlex Ship Management, Inc.,
Marine Growth Freight, Inc., Marine Growth Charter, Inc. and Gulf Casino
Cruises, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
(2) Cash
The Company maintains its cash balances with various financial
institutions. Balances at the institutions may at times exceed Federal
Deposit Insurance Corporation limits. The Company had a negative cash
balance at December 31, 2004.
F-6
(3) Fixed Assets
Office furniture is stated at cost less accumulated depreciation. The cost
of maintenance and repairs is charged to operations as incurred.
Depreciation is computed by the declining balance method over the
estimated economic useful life of the assets (7 years).
(4) Net Loss Per Share
Net loss per common share (basic and diluted) has been computed by
dividing the net loss available to common stockholders by the weighted
average number of common shares outstanding during each period. Common
stock equivalents were not included in the calculation of diluted loss per
share as there were none outstanding during the periods presented as well
as their effect would be anti-dilutive. Also, see Note K (2) Stock Split.
(5) Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from those estimates.
(6) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized.
(7) Revenue Recognition
The Company recognizes ship management revenue and consulting revenue when
earned. At the time of the transaction, the Company assesses whether the
fee is fixed and determinable based on the payment terms associated with
the transaction and whether collectability is reasonably assured. If a
significant portion of a fee is due after the normal payment terms, the
Company accounts for the fee as not being fixed and determinable. In these
cases, the Company recognizes revenue as the fees become due. Where the
Company provides a service at a specific point in time and there are no
remaining obligations, the Company recognizes revenue upon completion of
the service.
F-7
(8) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
accounts receivable, cash overdraft, accounts payable and accrued expenses
at December 31, 2004, approximate their fair value because of their
relatively short-term nature.
(9) Accounting for the Impairment of Long-Lived Assets
The long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. It is reasonably
possible that these assets could become impaired as a result of technology
or other industry changes. Determination of recoverability of assets to be
held and used is performed by comparing the carrying amount of an asset to
future net undiscounted cash flows to be generated by the assets. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. There were
no impairments of long-lived assets in 2004 and 2003.
(10) Goodwill
Goodwill recognized as a result of the acquisition of Sophlex in September
2004 has an indefinite life and is not amortized (See Note I). Instead, it
is subject to annual impairment tests. There was no impairment to goodwill
during 2004.
(11)Recent Accounting Pronouncements
No recent accounting pronouncements affect the Company's consolidated
financial statements.
NOTE C - CONCENTRATION OF CREDIT RISK
Three customers accounted for the total revenue for the year ended
December 31, 2004. One customer accounted for 66% of the revenue. The
Company's largest customer incurs expenses, which are paid on behalf of
the customer by the subsidiary, Sophlex Ship Management, Inc and
reimbursed by the customer. These receivables are included in accounts
receivable at December 31, 2004. The remaining two customers, both related
parties, account for the consulting income for the year ended December 31,
2004 (See Note F (2) Consulting Income).
NOTE D - NOTES AND LOANS RECEIVABLE
(1) Riveria I
In 2004, the Company entered into an agreement with Riveria I in which the
Company agreed to finance Riviera I's refurbishing of its ship. As part of
this agreement the Company paid certain expenses on behalf of Riveria I
which were to then be reimbursed by Riveria I. As of December 31, 2004 the
balance on this receivable was $263,730. This receivable was settled in
full during 2005 (See Note K (1) Riveria I).
F-8
(2) Officer Loans Receivable
On September 16, 2004 and October 1, 2004, two loans of $3,000 each were
given to the Company's Chief Operating Officer of the Company (See Note F
(5) Officer Loans Receivable). There are no specific terms of repayment on
these loans. This loan was repaid in August, 2005.
NOTE E - FIXED ASSETS
Fixed assets as of December 31, 2004 consist of:
Furniture and Equipment $1,286
Less: Accumulated Depreciation 92
------
Fixed Assets, net $1,194
======
Depreciation expense for the year ended December 31, 2004 amounted to $92.
NOTE F - RELATED PARTY TRANSACTIONS
(1) Revolving Secured Note
On May 5, 2004, the Company issued a Revolving Secured Note (the "Note")
with an aggregate principal amount up to $500,000 to the majority member
of the LLC that is the majority owner of the Company. The Note bears
interest at 10% per annum and was due on May 31, 2005. Prior to maturity,
both parties agreed that the note would be repaid from funds received from
the private placement (See Note K(3)). In accordance with the terms of the
Note, $224,950 of principal and interest was converted into 17,996,000
shares of Common Stock on November 25, 2004. As of December 31, 2004, the
balance of the note is $133,781. This note was repaid in July, 2005.
(2) Consulting Income
In 2004, the Company received $21,530 in consulting income from Port
Offices, LLC. The majority member of the LLC that is the majority owner of
the Company is a member of Port Offices, LLC.
In 2004, the Company received $14,250 in consulting income from Sea
Diamond Gaming, LLC. The Chairman of the board of the Company is the
manager of Sea Diamond Gaming, LLC (See Note K (4) Related Party Loans).
(3) Other Accounts Payable / Debt Forgiveness / Additional Paid-In Capital
The majority member of the LLC that is the majority owner of the Company
advanced a total of $3,239 for entity start up costs ($1,734 and $1,505 in
2003 and 2004, respectively). This debt was forgiven on December 31, 2004,
and was converted to Additional Paid-In Capital for the year ended
December 31, 2004.
(4) Employee Subscription / Receivable
On September 1, 2004, a receivable of $1,250 was owed by an executive
director for the purchase of 100,000 shares of stock, which was recorded
as a subscription receivable. This receivable was collected in August,
2005.
(5) Officer Loans Receivable
On September 16, 2004 and October 1, 2004, two loans of $3,000 each with
no specific repayment terms were given to the Chief Operating Officer of
the Company. This loan was repaid in August, 2005.
F-9
(6) Operating Lease
The Company utilizes space in Milwaukee, Wisconsin owned by an entity
controlled by the Chairman of the Board of Directors. There is currently
no charge for the use of this space. The fair market value of this rent is
$250 per month.
NOTE G - CAPITAL TRANSACTIONS
In 2003, the Company authorized and issued 4,000 shares of common stock to
the founder at $0.025 per share in exchange for a subscription receivable
that was collected in May 2004. In August 2004, through a certificate of
amendment of the certificate of incorporation, the Corporation was
approved to issue 40,000,000 shares of common stock with a par value of
$0.0125 per share. The number of authorized shares were also increased in
2005 (See Note K (2)).
In September 2004, 1,000,000 shares of common stock were sold to the
President of the Company and 100,000 shares of common stock to another
officer of the Company for $0.0125 per share.
In September 2004, as part of a stock exchange agreement, the Company
issued 1,000,000 shares of common stock at $0.0125 per share to the
founder and sole shareholder of Sophlex at the time of acquisition. In
exchange, the Company received all outstanding shares of Sophlex Ship
Management, Inc. (See Note I)
On November 25, 2004, in accordance with the terms of the revolving
secured note with the majority member of the LLC that is the majority
owner of the Company, $224,950 of principal and interest of the note was
converted into 17,996,000 shares of common stock. at $0.0125 per share.
NOTE H - INCOME TAXES
Years ended December 31,
2004 2003
-------- --------
Taxes at U.S. federal statutory rate $(43,143) $ (598)
Valuation Allowance 43,143 598
-------- --------
Tax expense (benefit) $ -- $ --
======== ========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 2004 and
2003 are presented below:
Years ended December 31,
2004 2003
-------- --------
Deferred income tax assets:
Net operating losses carryforwards $ 43,741 $ 598
Tax credits -- --
Deferred income tax liabilities:
Depreciation -- --
-------- --------
43,741 598
Valuation allowance (43,741) (598)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
F-10
As of December 31, 2004, the Company has a net operating loss
carryforwards for federal income tax purposes in the amount of $128,689,
which expire in 2023 and 2024. The valuation allowance increased by
$43,143 for the year ended December 31, 2004.
NOTE I - BUSINESS COMBINATION
On September 1, 2004, the Company entered into a stock exchange agreement
whereby it acquired all of the outstanding stock of Sophlex. At the time
of the acquisition both the Company and Sophlex were private companies.
The Company is considered both the legal and accounting acquirer as the
Company retained control of more than 50% of the merged entity. With the
merger, the Company's stockholders retained 53% of the issued stock, while
the founder and sole shareholder of Sophlex at the time of the acquisition
received 47% of the issued stock. Subsequent to the merger, by the terms
of an employment agreement (See Note J(1) Employment Agreements), the new
47% stockholder of the company became the Chief Operating Officer.
Accordingly, the results of the operations for Sophlex have been included
in the accompanying consolidated financial statements from that date
forward.
The aggregate acquisition price was $12,500 based upon the fair value of
1,000,000 shares of the Company's common stock.
Following is a condensed balance sheet showing the fair values of the
assets acquired and the liabilities assumed as of the date of the
acquisition:
Current Assets $ 6,239
Fixed Assets, Net 1,286
Other Assets 525
--------
Total Assets 8,050
--------
Current Liabilities (8,050)
--------
Total Liabilities (8,050)
--------
Net Assets Acquired --
Acquisition price 12,500
--------
Goodwill $ 12,500
========
The following pro forma information is based on the assumption that the
acquisition took place as of January 1, 2003:
2004 2003
(unaudited) (unaudited)
------------ ------------
Total Revenue $ 264,998 $ 290,340
============ ============
Net (Loss) Income $ (178,251) $ 8,319
============ ============
Basic and diluted loss per common share $ (0.07) $ 0.01
============ ============
NOTE J - COMMITMENTS AND CONTINGENCIES
(1) Employment Agreements
On July 1, 2004, the Company entered into an employment agreement with the
Company's future President. By its terms, the employment agreement is for
a term of three years commencing September 1, 2004, but his employment is
on an "at will" basis, under which the terms of his employment will
continue unless terminated by either party. Termination by the Company may
be with or without cause, at any time. However, in the event that the
F-11
President is terminated by the Company without cause, he is entitled to
receive severance pay in the form of his base salary at the time of
termination. Gross salary under the agreement is set at an annual rate of
$100,000; provided, however, that he will be entitled to increases in such
base salary for any calendar quarter in which the Company's Earnings
Before Interest, Depreciation, Taxes, and Amortization ("EBIDTA") exceeds
certain predetermined milestones.
On July 1, 2004, the Company entered into an agreement with the Company's
future Chief Operating Officer. By its terms, the employment agreement is
for a term of three years commencing September 1, 2004, but his employment
is on an "at will" basis, under which the terms of his employment will
continue unless terminated by either party . Termination by the Company
may be with or without cause, at any time. However, in the event that the
Chief Operating Officer is terminated by the Company without cause, he is
entitled to receive severance pay in the form of his base salary at the
time of termination. His salary under the agreement is set at an annual
rate of $100,000; provided, however, that he will be entitled to increases
in such base salary for any calendar quarter in which the Company's EBIDTA
exceeds certain predetermined milestones.
(2) Operating Leases
The Company leases its main office, which is located in Cape Canaveral,
Florida. The lease has a term of 36 months, which began on August 15, 2004
and expires on August 31, 2007, with options to renew. The Company
currently pays rent and related costs of $1,656 per month with a 3%
increase on each anniversary of the lease. Minimum future lease payments
for the next three years at this location are as follows:
Year Ending December 31, Amount
------------------------ ------
2005 $20,057
2006 20,569
2007 12,206
-------
$52,832
=======
The Company leases a secondary office located in Corpus Christi, Texas.
This lease is a verbal month to month lease which was assumed on September
1, 2004 with the Sophlex acquisition. The Company currently pays rent and
related costs of $331 per month.
The Company utilizes space in Milwaukee, Wisconsin owned by an entity
controlled by the Chairman of the Board of Directors. This space has been
utilized since inception. There is currently no charge for the use of this
space. The fair market value of this rent is $250 per month.
Rent expense charged to operations was $7,310 and $0 in 2004 and 2003,
respectively.
NOTE K - SUBSEQUENT EVENTS
(1) Riveria I
In January 2005, the Company commenced a lawsuit against Royal Pacific
(aka Riveria I) for defaulting on its financing agreement. A settlement
was reached and paid by Riveria I in April 2005. The Company received
$328,984 (including interest of $11,848) related to the $263,730 of notes
receivable outstanding at December 31, 2004 (see Note D (1)) and
additional advances made subsequent to year-end in the amount of $53,406.
F-12
(2) Stock Split
On May 12, 2005, there was a unanimous written consent of the board of
directors, which authorized a forward stock split of 4-for-1 and increased
the authorized capital of the Company. Furthermore, the total number of
shares that the corporation is authorized to have outstanding is
105,000,000 shares, of which 100,000,000 shares shall be common stock with
a par value of $.001 and 5,000,000 shares shall be preferred stock with a
par value of $.001. All share and per share amounts have been
retroactively restated to give effect to the 4-for-1 stock split.
(3) Private Placement
On May 16, 2005, the Company issued a Confidential Offering Memorandum
("Offering"). The Offering is available to a limited number of accredited
investors. The offering period commenced on May 16, 2005 and is closed on
July 15, 2005. The Offering was for a minimum of 1,000,000 shares and a
maximum of 2,000,000 shares. The minimum subscription was for $1,000
(5,000 shares), although the Company reserved the right to accept
subscriptions for less than $1,000. The shares were offered at a price of
$0.20 per share. The Company raised $329,900 from the sale of 1,639,500
common shares. These proceeds were used for the repayment of outstanding
debt obligation, professional expenses and working capital and general
corporate expenses.
(4) Related Party Loans
On May 24, 2005, the Chairman of the Board of the Company loaned $10,000
to the Company with no formal terms of repayment. This loan was repaid in
July, 2005.
(5) Financing Term Sheet
On April 28, 2005, the Company entered into a term sheet for the sale of
an aggregate of $2,200,000 of secured convertible notes. The Company also
entered into a term sheet for a Standby Equity Distribution Agreement in
the amount of $5,000,000 as part of the same transaction. No funds were
received and both of these term sheets were terminated on October 17,
2005.
(6) Riveria I / Goodwill
On June 28, 2005, the Company's sole customer's ship was destroyed by a
fire. The Company's sole customer is currently pursuing an insurance claim
from the loss of its ship. The Company is aiding the customer with this
insurance claim. Once this claim is complete the relationship will be
re-evaluated. As a result of this fire, the goodwill gained through the
merger with Sophlex has been impaired, thus expensed in June 2005.
F-13
Independent Registered Public Accounting Firm's Review Report
We have reviewed the condensed consolidated balance sheet of Marine Growth
Ventures, Inc. and subsidiaries as of September 30, 2005, and the related
condensed consolidated statements of operations and cash flows for the nine
months ended September 30, 2005 and 2004 and stockholders' equity (deficiency)
for the nine months ended September 30, 2005. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a net loss of $468,333, a
negative cash flow from operations of $441,389 for the nine months ended
September 30, 2005, and a working capital deficiency of $61,214 and a
stockholders' deficiency of $14,583 at September 30, 2005. These matters raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Weinberg & Company, PA.
Boca Raton, Florida
November 30, 2005
F-14
Marine Growth Ventures, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
As of September 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 10,764
Accounts Receivable 37,272
------------
Total Current Assets 48,036
------------
FIXED ASSETS, NET 1,950
------------
OTHER ASSETS
Accounting Retainer 5,000
Legal Bond 37,500
Other Deposits 2,181
------------
Total Other Assets 44,681
------------
TOTAL ASSETS $ 94,667
============
LIABILITIES & STOCKHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 31,878
Accrued Payroll 27,372
Accrued Expenses 50,000
------------
Total Current Liabilities 109,250
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIENCY)
Preferred Stock, $0.001 par value, 5,000,000
shares authorized, none issued or outstanding --
Common Stock, $0.001 par value, 100,000,000
shares authorized, 21,739,500 issued and outstanding 21,740
Additional Paid-In Capital 560,699
Accumulated Deficit (597,022)
------------
Total Stockholders' (Deficiency) (14,583)
------------
TOTAL LIABILITIES & STOCKHOLDERS'
(DEFICIENCY) $ 94,667
============
See accompanying notes to condensed consolidated financial statements.
F-15
Marine Growth Ventures, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2005 2004
-------------- --------------
REVENUE
Ship Management Fees $ 112,000 $ 16,500
Consulting Income -- 16,148
-------------- --------------
Total Revenue 112,000 32,648
-------------- --------------
EXPENSES
Operating 46,100 707
Selling 710 270
General and Administrative 519,706 100,762
Impairment of Goodwill 12,500 --
-------------- --------------
Total Expenses 579,016 101,739
-------------- --------------
LOSS FROM OPERATIONS (467,016) (69,091)
-------------- --------------
OTHER INCOME (EXPENSES)
Other Income 12,887 24,250
Other Expenses (14,204) (1,517)
-------------- --------------
Total Other Income (Expenses) (1,317) 22,733
-------------- --------------
NET LOSS $ (468,333) $ (46,358)
============== ==============
Basic and diluted loss per common share $ (0.02) $ (.20)
============== ==============
Weighted average number of common shares
outstanding - basic & diluted 20,562,910 234,769
============== ==============
See accompanying notes to condensed consolidated financial statements.
F-16
Marine Growth Ventures, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders'
Equity (Deficiency) For the Nine Months
Ended September 30, 2005
(Unaudited)
Common Stock
Additional
Subscription Paid-In Accumulated
Shares Amount Receivable Capital Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2004 20,100,000 $ 20,100 $ (1,250) $ 234,439 $ (128,689) $ 124,600
Common stock issued for cash
in July 2005 1,639,500 1,640 -- 326,260 -- 327,900
Collection of subscription
receivable in August 2005 -- -- 1,250 -- -- 1,250
Net loss for the period -- -- -- -- (468,333) (468,333)
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2005 21,739,500 $ 21,740 $ -- $ 560,699 $ (597,022) $ (14,583)
=========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-17
Marine Growth Ventures, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2005 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (468,333) $ (46,358)
Adjustments To Reconcile Net Loss To Net Cash
Used In Operating Activities:
Depreciation 322 23
Loans Receivable Charged to Compensation Expense 6,000 --
Impairment Of Goodwill 12,500 --
Changes In Operating Assets & Liabilities:
Accounts Receivable (20,773) (2,594)
Deposits (42,500) (525)
Accounts Payable 29,978 --
Accrued Interest Payable (1,126) 895
Accrued Expenses 50,000 --
Accrued Payroll 2,272 24,926
Other Accounts Payable (9,729) 10,438
-------------- --------------
Net Cash Used In Operating Activities (441,389) (13,195)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (1,078) (1,286)
Advances Made On Loans Receivable (53,406) (3,000)
Proceeds From Repayment Of Notes And Loans Receivable 317,136 --
-------------- --------------
Net Cash Provided By (Used In) Investing Activities 262,652 (4,286)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Cash Overdraft (5,868) --
Proceeds From Common Stock Issued 327,900 --
Proceeds From Note Payable - Stockholder 210,185 39,732
Repayments Of Note Payable - Stockholder (343,966) --
Collection Of Subscription Receivable 1,250 100
-------------- --------------
Net Cash Provided By Financing Activities 189,501 39,832
-------------- --------------
NET INCREASE IN CASH 10,764 22,351
CASH, BEGINNING OF PERIOD -- --
-------------- --------------
CASH, END OF PERIOD $ 10,764 $ 22,351
============== ==============
See accompanying notes to condensed consolidated financial statements.
F-18
Marine Growth Ventures, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As of September 30, 2005
(Unaudited)
Note 1 - Organization and Operations and Going Concern
Marine Growth Ventures, Inc. ("MGV") was formed and incorporated in the
state of Delaware on November 6, 2003. MGV is a holding company that
conducts its operations primarily through a wholly-owned subsidiary,
Sophlex Ship Management, Inc. ("Sophlex"). MGV, Sophlex and MGV's other
subsidiaries are referred to collectively herein as the "Company".
The Company had no significant business operations until its acquisition
of Sophlex on September 1, 2004. Sophlex, which was founded in 1999,
provides ship crewing and management services to vessel owners and
operators in the United States and abroad. The founder and the sole
shareholder of Sophlex at the time of the acquisition is the current Chief
Operating Officer of the Company. At the time acquisition both companies
were private entities (See Note 8).
The Company is also currently pursuing opportunities in a new industry
referred to as cruise timeshares, which combines traditional real estate
timeshares with commercial cruise vacations. Purchasers of cruise
timeshares will receive the right to a seven-day cruise each year for up
to 15 years aboard a cruise ship to be purchased by the Company.
In addition, the Company is pursuing other opportunities in the shipping
industry.
Since its inception, the Company has been dependent upon the proceeds of
loans from its stockholders and the receipt of capital investment to fund
its continuing activities. The Company has incurred operating losses since
its inception. The Company expects to incur significant increasing
operating losses over the next several years, primarily due to the
expansion of its business. There is no assurance that the Company's
developmental and marketing efforts will be successful. The Company will
continue to require the infusion of capital until operations become
profitable. There can be no assurance that the Company will ever achieve
any revenues or profitable operations from the sale of its proposed
products. During 2005, the Company is seeking additional capital. During
the nine months ended September 30, 2005, the Company had a net loss of
$468,333 and a negative cash flow from operations of $441,389 and as of
September 30, 2005, the Company had a working capital deficiency of
$61,214 and a stockholders' deficiency of $14,583. As a result of the
above, the accompanying condensed consolidated financials have been
prepared assuming that the Company will continue as a going concern. The
condensed consolidated financials do not include any adjustments that
might result from the outcome of this uncertainty.
Note 2 - Summary of Significant Accounting Policies
(A) Principles of Consolidation
The accompanying condensed consolidated financial statements include
the accounts of Marine Growth Ventures, Inc. and its wholly-owned
subsidiaries, Marine Growth Finance, Inc., Sophlex Ship Management,
Inc., Marine Growth Freight, Inc., Marine Growth Charter, Inc. and
Gulf Casino Cruises, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation. Marine Growth
Real Estate, Inc., (an inactive subsidiary) was dissolved on May 11,
2005.
F-19
(B) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments,
including cash, accounts receivable, accounts payable and accrued
expenses at September 30, 2005 approximate their fair value because
of their relatively short-term nature.
(C) Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
(D) Deposits
Deposits as of September 30, 2005 totaled $44,681. Deposits included
accounting retainer, legal bond, office rental security deposit, and
utility deposit. Deposits are reduced as charges are incurred or the
funds are returned.
(E) Accounts Receivable
Accounts receivable includes ship management fees and other
reimbursable expenses incurred on behalf of customers. Accounts
receivable over 180 days old are reviewed on a customer by customer
basis for collectibility and an allowance for uncollectible accounts
is established for those accounts deemed uncollectible.
(F) Accrued Expenses
Accrued expenses as of September 30, 2005 totaled $50,000. These
accrued expenses are from legal fees. Expenses are accrued as
activity incurs a liability.
(G) Loss per Common Share
Net loss per common share (basic and diluted) has been computed by
dividing the net loss available to common stockholders by the
weighted average number of common shares outstanding during each
period. Common stock equivalents were not included in the
calculation of diluted loss per share as there were none outstanding
during the periods presented as well as their effect would be
anti-dilutive.
(H) Interim Consolidated Financial Statements
The condensed consolidated financial statements as of September 30,
2005 and for the nine months ended September 30, 2005 and 2004 are
unaudited. In the opinion of management, such condensed consolidated
financial statements include all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of the
consolidated financial position and the consolidated results of
operations. The condensed consolidated results of operations for the
periods presented are not necessarily indicative of the results to
be expected for the full year. The interim condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31,
2004 and 2003.
F-20
(I) Goodwill
Goodwill that had been recognized as a result of the acquisition of
Sophlex in September 2004 was impaired in June 2005 due to the fire
on Rivera I (See Note 10) and the goodwill was expensed accordingly.
(J) Recent Accounting Pronouncements
No recent accounting pronouncements affect the Company's
consolidated financial statements.
Note 3- Related Party Transaction
On May 24, 2005, the Chairman of the Board of the Company loaned $10,000
to the Company, with no formal terms of repayment. This amount was
converted to common shares as part of the Confidential Offering Memorandum
on July 15, 2005 (See Note 7).
On September 30, 2005, the two loans receivable of $3,000 each that were
outstanding as of December 31, 2004 and due from the Chief Operating
Officer of the Company were charged to compensation expense.
Note 4 - Concentration of Credit Risk
One customer accounted for the total revenue for the nine months ended
September 30, 2005 (See Note 10). The Company's customer incurred
expenses, which were paid on behalf of the customer by the subsidiary,
Sophlex Ship Management, Inc., and reimbursed by the customer. This
receivable is included in accounts receivable at September 30, 2005 (See
Note 10).
Note 5 - Notes Receivable
In January 2005, the Company commenced a lawsuit against Royal Pacific
(aka Riveria I) for defaulting on its financing agreement. A settlement
was reached and paid by Riveria I in April 2005. The Company received
$328,984 (including interest of $11,848) related to the $263,730 of notes
receivable outstanding at December 31, 2004 and additional advances made
in 2005 in the amount of $53,406. As part of this lawsuit, a bond was
placed in the amount of $37,500 in order to "arrest" the ship which
subsequently sank due to a fire on June 28, 2005 (See Note 10). The
$37,500 bond posted to "arrest" the Riviera I ship is being held in a
court bank account in the Company's name. Although the bond is being held
pending resolution of disputed attorney's fees, the Company believes its
payments to date of approximately $35,000 in attorney's fees is payment in
full and no additional fees are owed.
Note 6 - Capital Transactions
On May 12, 2005, there was a unanimous written consent of the board of
directors, which authorized a forward stock split of 4-for-1 and increased
the authorized capital of the Company. Furthermore, the total number of
shares that the corporation is authorized to have outstanding is
105,000,000 shares, of which 100,000,000 shares shall be common stock with
a par value of $0.001 and 5,000,000 shares shall be preferred stock with a
par value of $0.001. All share and per share amounts have been
retroactively restated to give effect to the 4-for-1 stock split.
In July 15, 2005, the Company closed a Confidential Offering Memorandum.
The Company raised $327,900 from the sale 1,639,500 common shares. These
shares were sold for $0.20 per share (See Note 7).
Note 7 - Private Placement
On May 16, 2005, the Company issued a Confidential Offering Memorandum
("Offering"). The Offering was available to a limited number of accredited
investors. The offering period commenced on May 16, 2005 and closed on
July 15, 2005. The Offering was for a minimum of 1,000,000 shares and a
maximum of 2,000,000 shares. The minimum subscription was for $1,000
(5,000 shares), although the Company reserved the right to accept
subscriptions for less than $1,000. The shares were offered at a price of
$0.20 per share. The Company raised $327,900 from the sale of 1,639,500
common shares. These proceeds were used for the repayment of an
outstanding debt obligation, professional expenses and working capital and
general corporate expenses.
F-21
Note 8 - Business Combination
On September 1, 2004, MGV entered into a stock exchange agreement whereby
it acquired all of the outstanding stock of Sophlex. At the time of the
acquisition both MGV and Sophlex were private companies. MGV is considered
both the legal and accounting acquirer as MGV retained control of more
than 50% of the merged entity. With the merger, MGV's stockholders
retained 53% of the issued stock, while the founder and sole shareholder
of Sophlex at the time of the acquisition received 47% of the issued
stock. Subsequent to the merger, by the terms of an employment agreement
effective September 1, 2004, the new 47% stockholder became the Chief
Operating Officer of the Company. Accordingly, the results of operations
for Sophlex have been included in the accompanying condensed consolidated
financial statements from that date forward.
The following pro forma information is based on the assumption that the
Sophlex acquisition took place as of January 1, 2004.
For the Nine Months Ended
September 30, 2004
(Unaudited)
-----------
Total Revenue $ 195,866
=========
Net (Loss) $ (97,714)
=========
Basic and diluted loss per common share $ (0.09)
=========
Note 9 - Commitment
On April 28, 2005, the Company entered into a term sheet for the sale of
an aggregate of $2,200,000 of secured convertible notes. The Company also
entered into a term sheet for a Standby Equity Distribution Agreement in
the amount of $5,000,000 as part of the same transaction. No funds were
received and both of these term sheets were terminated on October 17,
2005.
Note 10 - Riveria I
The Company's sole customer's ship, Riveria I, was destroyed by a fire on
June 28, 2005. The Company's sole customer is currently pursuing an
insurance claim from the loss of its ship. The Company is aiding the
customer with this insurance claim for a fee of $2,000 per month, which is
not contingent upon the customer receiving any insurance proceeds. Once
the claim is complete, the relationship will be re-evaluated. In addition,
the outstanding accounts receivable due from this customer prior to the
fire is not contingent upon the customer receiving any insurance proceeds.
Subsequently, the receivable as of September 30, 2005 from Riviera I was
paid in full on October 31, 2005. As a result of this fire, the goodwill
of $12,500 acquired in the merger with Sophlex has been impaired as of
June 2005 and recorded as an expense for the nine months ended September
30, 2005.
F-22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of Delaware,
we can indemnify our directors and officers against liabilities they may incur
in such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). Our by laws provides that we shall indemnify our
directors and officers against all claims and liability by reason of serving as
a director or officer. We are required to reimburse all legal expenses incurred
by any director or officer in connection with that proceeding. We are not,
however, required to reimburse any legal expenses in connection with any
proceeding if a determination is made that the director or officer did not act
in good faith or in a manner reasonably believed to be in our best interests.
This provision in the by laws does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of the
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant
relating to the sale of common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC registration fee $ 23.94
Printing and engraving expenses $10,000.00
Legal fees and expenses $60,000.00
Accounting fees and expenses $10,000.00
Miscellaneous expenses $ 5,000.00
Total.......................................................... $85,023.94
==========
The Registrant has agreed to bear expenses incurred by the selling
stockholders that relate to the registration of the shares of common stock being
offered and sold by the selling stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with our acquisition of all of the outstanding shares of
common stock of Sophlex Ship Management, Inc. on September 1, 2004, we isssed
1,000,000 shares of common stock to Capt Timothy Levensaler, our Chief Operating
Officer, for his shares of Sophlex Ship Management, Inc. September 1, 2004,
Craig Hodgkins, our President, was issued 1,000,000 shares of common stock for
$12,500. On September 1, 2004, Frank Orlando, our Executive Vice President was
issued 100,000 shares of common stock for a subscription receivable of $1,250.
This receivable was paid on August 31, 2005. These shares were offered pursuant
to an exemption from registration pursuant to section 4(2) of the Securities Act
of 1933.
In accordance with the terms of a promissory note issued to Frank
Crivello, $224,950 of principal and interest was converted into 17,996,000
shares of our common stock on November 25, 2004.
In July 2005, we completed an offering of 1,639,500 shares of our common
stock at a price of $0.20 per share to a total of 116 accredited investors. The
total amount received from this offering was $327,900. We completed this
offering pursuant to an exemption from registration by reason of Section 4(2) of
the Securities Act of 1933 as well as Regulation D of the Act, and Rule 506
promulgated thereunder.
II-1
* All of the above offerings and sales were deemed to be exempt under
Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The offerings and
sales were made to a limited number of persons, all of whom were accredited
investors, business associates of our company or executive officers of our
company, and transfer was restricted by our company in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
ITEM 27. EXHIBITS.
Exhibit
Number Description of Exhibit
3.1 Registrant's Certificate of Incorporation (incorporated by reference
to the exhibits to Registrants Form SB-2 filed on September 2,
2005).
3.2 Certificate of Amendment to Registrant's Certificate of
Incorporation (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
3.3 Certificate of Amendment to Registrant's Certificate of
Incorporation (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
3.4 Certificate of Amendment to Registrant's Certificate of
Incorporation (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
3.5 Registrant's By-Laws (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
5.1 Opinion of Sichenzia Ross Friedman Ference LLP
10.1 Employment agreement dated July 1, 2004 between the Registrant and
Craig Hodgkins (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
10.2 Employment agreement dated July 1, 2004 between the Registrant and
Capt. Timothy Levensaler (incorporated by reference to the exhibits
to Registrants Form SB-2 filed on September 2, 2005).
10.3 Seaman Engagement Contract between Sophlex Ship Management Co. Ltd.
and Xiamen Zhonglianyang Seaman Service Co., Ltd.
10.4 $500,000.00 Revolving Secured Note, dated May 5, 2004, issued by
Marine Growth Ventures Inc., Marine Growth Charter, Inc., Marine
Growth Finance, Inc., Marine Growth Freight, Inc., Marine Growth
Real Estate, Inc. and Gulf Casino Cruises, Inc. to Frank P.
Crivello.
10.5 $2,00,000.00 Promissory Note, dated October 21, 2004, issued by King
Crown International Co. Ltd. to Marine Growth Finance, Inc.
10.6 Settlement Stipulation, dated April 7, 2005, between King Crown
International Co. Ltd., Marine Growth Finance, Inc., Oceans Five
Cruises, Inc. and Lee Young Union Ltd.
21.1 List of Subsidiaries (incorporated by reference to the exhibits to
Registrants Form SB-2 filed on September 2, 2005).
23.1 Consent of Weinberg & Company, P.A.
23.2 Consent of Sichenzia Ross Friedman Ference LLP (contained in Exhibit
5.1)
II-2
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned small business issuer will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business issuer or
its securities provided by or on behalf of the undersigned small business
issuer; and
(iv) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Cape Canaveral,
Florida, on January 27, 2006.
MARINE GROWTH VENTURES, INC.
By: /s/ Craig Hodgkins
---------------------------
Craig Hodgkins
President (Principal Executive Officer)
By: /s/ Katherine Ostruszka
---------------------------
Katherine Ostruszka
Chief Financial Officer and Controller
(Principal Accounting Officer and
Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ---------------------------- --------------------------------------------- ----------------
*
- ---------------------------- Chairman of the Board January 27, 2006
David Marks
/s/ Craig Hodgkins President and Director January 27, 2006
- ----------------------------
Craig Hodgkins
Chief Financial Officer and Controller
/s/ Katherine Ostruszka (Principal Accounting Officer and Principal January 27, 2006
- ---------------------------- Financial Officer)
Katherine Ostruszka
*
- --------------------------- Chief Operating Officer and Director January 27, 2006
Capt. Timothy Levensaler
*
- --------------------------- Executive Vice President and Director January 27, 2006
Frank J. Orlando
*
- --------------------------- Secretary and Director January 27, 2006
Paul Schwabe
* By /s/ Craig Hodgkins, authorized under Power of Attorney filed with Form SB-2
(File No. 333-128077), filed with the Securities and Exchange Commission on
September 2, 2005.
II-4