Filed Pursuant to Rule 424(b)(3)
under the Securities Act of 1933, as amended (File No. 333-128077)
Prospectus
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 April 10, 2006.
Table of Contents
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................2
USE OF PROCEEDS................................................................6
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................6
BUSINESS......................................................................11
FACILITIES....................................................................17
EMPLOYEES.....................................................................17
LEGAL PROCEEDINGS.............................................................17
MANAGEMENT....................................................................17
EXECUTIVE COMPENSATION........................................................19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................20
DESCRIPTION OF SECURITIES TO BE REGISTERED....................................20
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES................................21
PLAN OF DISTRIBUTION..........................................................21
PENNY STOCK...................................................................21
SELLING STOCKHOLDERS..........................................................22
LEGAL MATTERS.................................................................24
EXPERTS.......................................................................24
AVAILABLE INFORMATION.........................................................24
SIGNATURES..................................................................II-4
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, 2005, we generated $118,000 in revenue and
a net loss of $586,996. As a result of our net loss and negative cash flow from
operations, our auditors, in their report dated March 24, 2006, 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 $715,685 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.
2
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
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.
We Will Need To Raise Additional Equity Or Debt Financing In The Future.
3
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 March 31, 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 March 31, 2006, we had
21,739,500 shares of common stock issued and outstanding and approximately 117
stockholders of record of our common stock.
Dividend Policy
6
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, 2005.
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 had a maturity date of September 15, 2006, 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 $263,730 under this note from funds
obtained through the Revolving Secured Note as of December 31, 2004. 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 December 31, 2005, we had a cash balance of $3,334 and a negative
cash flow from operations of $433,176. 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
$315,400 (net of direct placement costs). 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 December 31, 2005, we had a note receivable of $3,143. This is a
note receivable from an entity controlled by our chief operating officer. This
note was repaid in March, 2006.
On January 5, 2006 we issued a revolving note, with an aggregate principal
amount of $50,000 to Frank Crivello who is the majority owner of Farwell Equity
Partners II, LLC, one of our significant shareholders. Funds are advanced to us
as needed to pay for ongoing operations. This note has a maturity date of June
30, 2006. It has been agreed that the maturity date will extend to December 31,
2006 unless the lender notifies us in writing 30 days prior to the maturity
date. This note has an interest rate of 10%. As of March 23, 2006 the balance
outstanding on this note is $35,750.
8
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, 2005 contains an explanatory paragraph
regarding a substantial doubt about our ability to continue as a going concern.
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.
9
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.
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 $586,996 and a negative cash flow from operations of $433,176 for the
year ended December 31, 2005.
Year Ended December 31, 2005 and December 31, 2004:
Revenue: Revenue was $118,000 for the year ended December 31, 2005 compared to
$101,780 earned in the year ended December 31, 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. 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 $643,147
and $183,064 for the years ended December 31, 2005 and 2004, respectively.
General and administrative expenses increased by $460,083 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 year ended December 31, 2005, we incurred substantially
increased payroll of $205,000, $200,000 of professional expenses and $55,100 of
office and occupancy expenses. Approximately $162,000 of increased payroll
expenses and approximately $41,000 of the increased office and occupancy
expenses for the year ended December 31, 2005, can be attributed to the Sophlex
Ship Management, Inc. acquisition.
Operating Expenses: Operating expenses were $46,511 for the year ended December
31, 2005. compared to $50,468 for the year ended December 31, 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 ($1,878) and $5,362 for
the years ended December 31, 2005 and 2004, respectively. This change was
primarily due to interest income totaling $11,894 on the note and settlement
with Riveria I, $250 in other income and $742 in subsidiary earnings offset by
$11,203 in interest expense, $931 in debt forgiveness, $423 in depreciation,
$1,280 in bank charges and $928 in finance charges in 2005 compared to loan fee
income of $10,000 offset by $3,079 in interest expense, $92 in depreciation,
$659 in bank charges, $351 in finance charges and $457 in organizational costs
in 2004.
Net Loss. Net loss before income taxes was $586,996 and $126,895 for the year
ended December 31, 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
10
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.
One customer accounted for the total revenue for the year ended December
31, 2005. On June 28, 2005 the Riviera I was lost due to a fire and no further
management fees were earned on this contract.
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.
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.
11
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 and Mexico 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.
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.
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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.
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).
13
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.
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.
14
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.
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.
15
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
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.
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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 $1,797.94 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 March 31, 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 March 31, 2006 are as follows:
- ----------------------------- ----- ---------------------------------------
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.
17
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.
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.
18
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 0 0 0
Timothy Levensaler 2005 100,000.00
Chief Operating Officer 2004 33,333.36 0 0 0 0 0
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
19
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.
On January 5, 2006 we issued another Revolving Note with an aggregate
principal amount of $50,000 to Frank Crivello. Funds are advanced to us as
needed to pay for ongoing operations. This note has a maturity date of June 30,
2006. It has been agreed that the maturity date will extend to December 31, 2006
unless the lender notifies us in writing 30 days prior to the maturity date.
This note has an interest rate of 10%. As of March 23, 2006 the balance
outstanding on this note is $35,750.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 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
20
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 March 31, 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.
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.
21
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.
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 March 31, 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.
Number of Shares Owned Percentage of Common
Name of Selling Number of Shares Owned Number of Shares After Completion of Stock Owned After
Shareholder Before Offering Offered for Sale 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
22
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
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
23
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
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.
24
MARINE GROWTH VENTURES, INC.
INDEX TO FINANCIAL STATEMENTS
Table of Contents Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2005 and 2004 F-2
Consolidated Statements of Operations for the Year ended
December 31, 2005 and 2004 F-3
Consolidated Statement of Stockholders' Equity (Deficiency) for the
Year ended December 31, 2005 and 2004 F-4
Consolidated Statements of Cash Flows for the Year ended
December 31, 2005 and 2004 F-5
Notes to Consolidated Financial Statements as of December 31, 2005 and 2004 F-6
Sophlex Ship Management, Inc.
Table of Contents Page
Report of Independent Registered Public Accounting Firm F-15
Statement of Operations for the period from January 1, 2004 through August 31, 2004 F-16
Statement of Stockholders' Equity (Deficiency) for the period from January 1,
2004 through August 31, 2004 F-17
Statement of Cash Flows for the period from January 1, 2004 through August 31, 2004 F-18
Notes to Financial Statements for the period from January 1, 2004 through August 31, 2004 F-19
Report of Independent Registered Public Accounting Firm
To the Board of Directors of:
Marine Growth Ventures, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Marine Growth
Ventures, Inc. and Subsidiaries (the "Company"), as of December 31, 2005 and
2004 and the related statements of operations, changes in stockholders' equity
(deficiency) and cash flows for the years ended. 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 audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Marine Growth
Ventures, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's working capital deficiency of
$154,776, stockholders' deficiency of $145,746, net loss from operations of
$586,996 and net cash used in operations of $433,176 raise substantial doubt
about its ability to continue as a going concern. Management's plan in regards
to these matters is also described in Note 1. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEINBERG & COMPANY, P.A.
/s/ Weinberg & Company, P.A.
Boca Raton, Florida
March 24, 2006
F-1
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, December 31,
2005 2004
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 3,334 $ --
Legal Bond 37,500 --
Accounts Receivable -- 16,500
Notes Receivable -- 263,730
Note Receivable, Related Party 3,143 6,000
------------- -------------
Total Current Assets 43,977 286,230
------------- -------------
FIXED ASSETS, NET 1,849 1,194
------------- -------------
OTHER ASSETS
Accounting Retainer 5,000 --
Goodwill -- 12,500
Other Deposits 2,181 2,181
------------- -------------
Total Other Assets 7,181 14,681
------------- -------------
TOTAL ASSETS $ 53,007 $ 302,105
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accrued Payroll $ 74,020 $ 25,101
Accounts Payable 40,303 1,900
Cash Overdraft -- 5,868
Deferred Income 2,000 --
Accrued Interest Payable -- 1,126
Accrued Expenses 82,430 --
Other Accounts Payable -- 9,729
Note Payable - Stockholder -- 133,781
------------- -------------
Total Current Liabilities 198,753 177,505
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (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 and 20,100,000 issued
and outstanding in 2005 and 2004, respectively 21,740 20,100
Subscription Receivable -- (1,250)
Additional Paid-In Capital 548,199 234,439
Accumulated Deficit (715,685) (128,689)
------------- -------------
Total Stockholders' Equity (Deficiency) (145,746) 124,600
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 53,007 $ 302,105
============= =============
See accompanying notes to consolidated financial statements.
F-2
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2005 and 2004
2005 2004
------------ ------------
REVENUE
Ship Management Fees $ 118,000 $ 66,000
Consulting Income -- 35,780
------------ ------------
Total Revenue 118,000 101,780
------------ ------------
EXPENSES
Operating 46,511 50,468
Selling 960 505
General and Administrative 643,147 183,064
Impairment of Goodwill 12,500 --
------------ ------------
Total Expenses 703,118 234,037
------------ ------------
LOSS FROM OPERATIONS (585,118) (132,257)
------------ ------------
OTHER INCOME (EXPENSE)
Other Income 12,887 10,000
Other Expense (14,765) (4,638)
------------ ------------
Total Other Income (Expense) (1,878) 5,362
------------ ------------
NET LOSS $ (586,996) $ (126,895)
============ ============
Basic and diluted loss per common share $ (0.03) $ (.05)
============ ============
Weighted average number of common shares
outstanding - basic & diluted 20,859,111 2,425,808
============ ============
See accompanying notes to consolidated financial statements.
F-3
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statement of Stockholders'
Equity (Deficiency) For the Years Ended
December 31, 2005 and 2004
Additional
Common Stock Subscription Paid-In Accumulated
Shares Amount Receivable Capital Deficit Total
---------- ---------- ---------- ---------- ---------- ----------
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 acquisition of
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
Common stock issued for
cash in July 2005 1,639,500 1,640 -- 313,760 -- 315,400
Collection of subscription
receivable in August 2005 -- -- 1,250 -- -- 1,250
Net loss for the year -- -- -- -- (586,996) (586,996)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2005 21,739,500 $ 21,740 $ -- $ 548,199 $ (715,685) $ (145,746)
========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
Marine Growth Ventures, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2005 and 2004
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(586,996) $(126,895)
Adjustments To Reconcile Net Loss To Net Cash
Used In Operating Activities:
Depreciation 423 92
Loans Receivable Charged to Compensation Expense 6,000 --
Impairment Of Goodwill 12,500 --
Changes In Operating Assets & Liabilities:
Accounts Receivable 16,500 (16,500)
Deposits (42,500) (2,181)
Accounts Payable 38,403 1,900
Accrued Interest Payable (1,126) 1,126
Accrued Expenses 82,430 --
Accrued Payroll 48,919 25,101
Deferred Income 2,000 --
Other Accounts Payable (9,729) 11,174
--------- ---------
Net Cash Used In Operating Activities (433,176) (106,183)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (1,078) (1,286)
Advances Made On Notes Receivable (56,549) (269,730)
Proceeds From Repayment Of Note Receivable 317,136 --
--------- ---------
Net Cash Provided By (Used In) Investing Activities 259,509 (271,016)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease)Increase in Cash Overdraft (5,868) 5,868
Net Proceeds From Common Stock Issued 315,400 12,500
Proceeds From Note Payable - Stockholder 211,184 369,188
Repayments Of Note Payable - Stockholder (344,965) (10,457)
Collection Of Subscriptions Receivable 1,250 100
--------- ---------
Net Cash Provided By Financing Activities 177,001 377,199
--------- ---------
NET INCREASE IN CASH 3,334 --
CASH, BEGINNING OF PERIOD -- --
--------- ---------
CASH, END OF PERIOD $ 3,334 $ --
========= =========
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
========= =========
See accompanying notes to consolidated financial statements.
F-5
Marine Growth Ventures, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2005 and 2004
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 10).
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 investments
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 or loans 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. The Company is seeking additional
capital at this time. During the year ended December 31, 2005, the
Company had a net loss of $586,996 and a negative cash flow from
operations of $433,176 and as of December 31, 2005, the Company had a
working capital deficiency of $154,776 and a stockholders' deficiency
of $145,746. 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 2 - Summary of Significant Accounting Policies
(A) Principles of Consolidation
The accompanying 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-6
(B) Cash
The Company maintains its cash balances with various financial
institutions. Balances at the institutions may at times exceed
Federal Deposit Insurance Corporation limits.
(C) Fixed Assets
Office furniture and computer equipment is stated at cost less
accumulated depreciation. The cost of maintenance and repairs
is charged to operations as incurred. Depreciation is computed
by the double declining balance method over the estimated
economic useful life of the assets (5-7 years).
(D) 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.
(E) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments,
including cash, accounts payable and accrued expenses at
December 31, 2005 approximate their fair value because of
their relatively short-term nature.
(F) 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.
(G) 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 2005 and 2004.
(H) Deposits
Deposits as of December 31, 2005 included accounting retainer,
office rental security deposit, and utility deposit. Deposits
are reduced as charges are incurred or the funds are returned.
F-7
(I) Deferred Income
Deferred Income as of December 31, 2005 was comprised of the
prepayment of the management fees for January 2006. Deferred
Income is not recognized until the first of the month in which
the service has been rendered.
(J) Accrued Expenses
Accrued expenses as of December 31, 2005 were comprised of
accrued legal fees.
(K) Loss per Share
Net loss per 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.
(L) 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 14) and was
expensed accordingly.
(M) Recent Accounting Pronouncements
In December 2004, the FASB issued a revised SFAS No. 123(R),
"Accounting for Stock-Based Compensation", which supersedes
APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related implementation guidance. SFAS No.
123 (R) requires a public entity to recognize and measure the
cost of the employee services it receives in exchange for an
award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). These costs will be
recognized over the period during which an employee is
required to provide services in exchange for the award- the
requisite service period (usually the vesting period). This
statement also establishes the standards for the accounting
treatment of these share-based payment transactions in which
an entity exchanges its equity instruments for goods or
services. It addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based
on the fair value of the entity's equity instruments or that
may be settled by the issuance of those equity instruments.
This statement shall be effective the first interim or annual
reporting period that begins after December 15, 2005 for small
business public entities and nonpublic companies.
In May 2005, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 154, "Accounting Changes and Error Corrections
("SFAS 154"). SFAS 154 supersedes Accounting Principles Board
Opinion No. 20, "Accounting Changes", and FASB No. 3, "Report
Accounting Changes in Interim Financial Statements". SFAS No.
154 requires that the Company retrospectively application to
prior periods' financial statements of changes in accounting
principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the
change. This Statement requires that the new accounting
principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings (or other appropriate components of equity
or net assets in the statement of financial position) for that
period rather than being reported in an income statement. This
Statement requires that retrospective application of a change
in accounting principle be limited to the direct effects of
the change. This Statement also requires that a change in
depreciation, amortization, or depletion method for
long-lived, nonfinancial assets be accounted for as a change
in accounting estimate effected by a change in accounting
principle.
These recent accounting pronouncements do not effect the
Company's consolidated financial statements.
F-8
Note 3- Related Party Transactions
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 bares 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 8). 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 principal balance of
the Note was $133,781. Additional proceeds were received on the Note
during 2005 and the Note was repaid in July, 2005 utilizing proceeds
received from the Private Placement.
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.
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.
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.
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 (See Note
5)
On February 8, 2005, a loan of $3,143 with no specific repayment terms
was made to an entity controlled by the Chief Operating Officer of the
Company. This loan was repaid on March 24, 2006 (See Note 5 and Note
15(C)).
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 8).
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.
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 4 - Concentration of Credit Risk
One customer accounted for the total revenue for the twelve months
ended December 31, 2005 (See Note 14). The Company's customer incurred
expenses, which were paid on behalf of the customer by Sophlex Ship
Management, Inc., and reimbursed by the customer.
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.
F-9
Note 5 - Notes Receivable
On September 16, 2004 and October 1, 2004, two loans of $3,000 each
were made to the Company's Chief Operating Officer of the Company (See
Note 3). There are no specific terms of repayment on these loans. This
loan was repaid in August, 2005
In January 2005, the Company commenced a lawsuit against Royal Pacific
(aka Riveria I) for defaulting on its financing agreement with the
Company. In 2004, the Company had entered into a promissory note (the
"Note") with King Crown International Co. Ltd in which the Company
agreed to finance up to $2,000,000 for King Crown's refurbishing of the
ship, Riveria I, it purchased to provide tourist services focusing on
Taiwan. The Note has a maturity date of September 15, 2006, with an
interest rate of 15%. Pursuant to the terms of the Note, the Company
agreed to pay amounts owed to third parties by the borrower for repair
services and management services in connection with a cruise vessel
owned by the borrower and the Company 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 Riveria I. On December
30, 2004, the Company declared the borrower in breach of the Note for
not providing required information or making the required payments
under the Note. Due to this breach, the Company 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 the Company held. 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 posted 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 14). The bond posted to
"arrest" the Riviera I ship was held in a bank account controlled by
the Court in the Company's name. This bond was held in court pending
the resolution of disputed attorney's fees. A verbal settlement was
reached in 2006 regarding these fees (See Note 7 and Note 15(B)). This
bond was released in 2006 minus the settlement amount.
On February 8, 2005, a loan of $3,143 with no specific repayment terms
was made to an entity controlled by the Chief Operating Officer of the
Company. This loan was repaid on March 24, 2006 (See Note 3 and Note 15
(C)).
Note 6 - Fixed Assets
Fixed assets as of December 31, 2005 consisted of:
Office Furniture $ 1,286
Computer Equipment 1,078
Less: Accumulated Depreciation 515
------------
Fixed Assets, net $ 1,849
============
Depreciation expense for the years ended December 31, 2005 and 2004
amounted to $423 and $92, respectively.
Note 7 - Legal Bond
In February 2005, the Company was required to post a bond to "arrest"
the ship Riveria I as a result of the breach in the promissory note
with King Crown International, Ltd. (See Note 5). This bond remained in
a Court bank account pending the resolution of disputed attorney's
fees. The Company believed its payments of approximately $35,000 in
attorney's fees was payment in full and no additional fees were owed,
however, a verbal settlement was reached in 2006 in order to retrieve
these funds, accordingly legal fees of $17,100 were accrued in 2005
(See Note 15 (B)).
F-10
Note 8 - Stockholders' Equity
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.
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 10)
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.
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.
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 $315,400 (net of direct
placement costs of $12,500) from the sale of 1,639,500 common shares.
The net proceeds were used for the repayment of an outstanding debt
obligation, professional expenses and working capital and general
corporate expenses.
Note 9 - Income Taxes
Years ended December 31,
2005 2004
------------ -------------
Taxes at U.S. federal statutory rate $ (199,363) $ (43,239)
Valuation Allowance 199,363 43,239
------------ -------------
Tax expense (benefit) $ - $ -
============ =============
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 2005
and 2004 are as presented below:
Years ended December 31,
2005 2004
----------- ----------
Deferred income tax assets:
Net operating losses carryforwards $ 715,961 $ 128,689
Tax credits-Travel & Entertainment 50% (1,045) --
-- --
Deferred income tax liabilities:
Amortization of goodwill 417 278
----------- ----------
Net operating losses carryforwards tax
purposes $ 715,333 $ 128,967
=========== ==========
Deferred tax asset $ 243,213 $ 43,849
Valuation allowance (243,213) (43,849)
----------- ----------
Net deferred tax assets $ -- $ --
=========== ==========
F-11
As of December 31, 2005, the Company has a net operating loss
carryforwards for federal income tax purposes in the amount of
$715,333, which expire at various dates through 2025. The valuation
allowance increased by $199,363 for the year ended December 31, 2005.
Note 10 - 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 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 Year Ended
December 31, 2004
(Audited)
------------------
Total Revenue $ 298,010
================
Net (Loss) $ (142,179)
================
Basic and diluted loss per common share $ (0.05)
================
Note 11 - 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 12 - Employment Agreements
On July 1, 2004, the Company entered into an employment agreement with
the Company's 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 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.
F-12
On July 1, 2004, the Company entered into an agreement with the
Company's 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.
Note 13 - 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.
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.
Minimum future required lease payments under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as
of December 31, 2005 was as follows:
Year Ending December 31, Amount
------------------------ ---------
2006 $ 20,569
2007 12,206
---------
Total Minimum Payments Required $ 32,775
Rent expense charged to operations was $21,635 and $7,310 in 2005
and 2004, respectively.
Note 14 - 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. This
fee is not contingent upon the customer receiving any insurance
proceeds, nor were any of the fees outstanding prior to the fire
contingent upon the customer receiving any insurance proceeds. Once
this claim is complete, the relationship will be re-evaluated. As a
result of this fire, the goodwill of $12,500 acquired in the merger
with Sophlex has been impaired as of June 2005.
Note 15 - Subsequent Event
A. Stockholder Loan
On January 5, 2006 the Company issued a revolving note (the
"Note"), with an aggregate principal amount of $50,000 to a
stockholder, who is also the majority member of the LLC that
is the majority owner of the Company. Funds are advanced to
the Company, as needed, to pay for ongoing operations. The
Note has a maturity date of June 30, 2006. It has been agreed
that the maturity date will extend to December 31, 2006 unless
the lender notifies the borrower, in writing, thirty days
prior to the maturity date. This Note has an interest rate of
10%. As of March 24, 2006 the balance on this note is $35,750.
F-13
B. Bond Settlement
On February 10, 2006, the Company received $20,282 of its
legal bond that was posted to "arrest" the ship Riveria I as a
result of the breach in the promissory note with King Crown
International, Ltd. (See Note 5). This bond remained in a
court bank account pending the resolution of disputed
attorney's fees. The Company believed its payments of
approximately $35,000 in attorney's fees was payment in full
and no additional fees were owed, however, a verbal settlement
in the amount of $17,217 was reached in 2006 in order to
retrieve these funds. Legal fees of $17,100 were accrued in
2005 and bank fees of $117 were expensed in February 2006 to
reflect this settlement (See Note 5 and Note 7).
C. Related Party Receivable
On February 8, 2005, a loan of $3,143 with no specific
repayment terms was made to an entity controlled by the Chief
Operating Officer of the Company. This loan was repaid on
March 24, 2006 (See Note 3 and Note 5).
F-14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of:
Marine Growth Ventures, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficiency) and cash flows of Sophlex Ship Management, Inc. for the period from
January 1, 2004 through August 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We have our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence support the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Sophlex Ship Management, Inc.'s operations
and cash flows for the period from January 1, 2004 through August 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 22, 2006
F-15
Sophlex Ship Management, Inc.
Statement of Operations
For the period from January 1, 2004 through August 31, 2004
2004
---------
REVENUE
Ship Management Revenue $ 196,230
---------
Total Revenue, Net 196,230
---------
EXPENSES
Operating 115,614
General and Administrative 94,968
---------
Total Expenses 210,582
---------
LOSS FROM OPERATIONS (14,352)
---------
OTHER INCOME (EXPENSES)
Other Income 2,266
Loss on Disposal of Assets (3,198)
---------
Total Other Income (Expenses) (932)
---------
NET LOSS $ (15,284)
=========
Basic and diluted loss per common share $ (30.57)
=========
Weighted average number of shares
outstanding - basic & diluted 500
=========
See accompanying notes to financial statements
F-16
Sophlex Ship Management, Inc.
Statement of Stockholders'
Equity (Deficiency) For the Period from
January 1, 2004 Through August 31, 2004
Retained
Earnings
Common Stock (Accumulated
Shares Amount Deficit) Total
-------- --------- ------------ ---------
Balance January 1, 2004 500 $ 50 $ 15,234 $ 15,284
Net Loss for the year -- -- (15,284) (15,284)
-------- --------- ------------ ---------
Balance, August 31, 2004 500 $ 50 $ (50) $ --
======== ========= ============ =========
See accompanying notes to financial statements
F-17
Sophlex Ship Management, Inc.
Statement of Cash Flows
For the Period from January 1, 2004 through August 31, 2004
2004
-------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(15,284)
Adjustments To Reconcile Net Loss To Net Cash
Used In Operating Activities:
Depreciation 854
Loss On Disposal of Assets 3,198
Changes In Operating Assets And Liabilities:
Increase In Accounts Receivable (5,677)
Decrease In Accounts Payable (2,355)
-------
Net Cash Used In Operating Activities (19,264)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases Of Property And Equipment (1,500)
-------
Net cash used in Investing Activities (1,500)
-------
NET DECREASE IN CASH: (20,764)
CASH, BEGINNING OF PERIOD: 21,326
-------
CASH, AS OF AUGUST 31, 2004: $ 562
========
F-18
Sophlex Ship Management, Inc.
Notes to Financial Statements
For the Period from January 1, 2004 through August 31, 2004
NOTE 1 - ORGANIZATION AND OPERATIONS
Sophlex Ship Management, Inc. ("Sophlex" or the "Company") was
incorporated on April 7, 2000. Sophlex provides ship crewing and
management services to vessel owners and operators in the United States
and abroad.
Sophlex had a net loss of $15,284 and a negative cash flow from
operations of $19,264 for the period from January 1, 2004 through
August 31, 2004.
On September 1, 2004, Sophlex entered into a stock exchange agreement
whereby all of its outstanding stock was acquired by Marine Growth
Ventures, Inc., thus there is no going concern clause for these
financials (See Note 5 - Stock Exchange Agreement).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Sophlex recognizes ship management revenue when earned. At the time of
the transaction, Sophlex 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, Sophlex
accounts for the fee as not being fixed and determinable. In these
cases, Sophlex recognizes revenue as the fees become due. Where Sophlex
provides a service at a specific point in time and there are no
remaining obligations, Sophlex recognizes revenue upon completion of
the service.
Use of Estimates
The preparation of 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 financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results may differ from those estimates.
Recent Accounting Pronouncements
No recent accounting pronouncements affect Sophlex's financial
statements.
Property and Equipment
Property and Equipment 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).
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 the 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.
F-19
NOTE 3 - CONCENTRATION OF CREDIT RISK
Two customers accounted for 92% of revenue for the period from January
1, 2004 through August 31, 2004. As of August 31, 2004, Sophlex had one
remaining customer.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leased an office in Corpus Christi, Texas along with
another entity also entirely owned by the Company's sole stockholder.
This lease was a verbal month to month lease with rent and related
costs of $331 per month. During the period from January 1, 2004 through
August 31, 2004, Sophlex paid $993 in rent as its portion. The initial
lease for the space commenced in May 2002.
NOTE 5 - SUBSEQUENT EVENTS
Stock Exchange Agreement
On September 1, 2004, Sophlex entered into a stock exchange agreement
whereby all of its outstanding stock was acquired by Marine Growth
Ventures, Inc.
F-20
1,017,000 Shares
Common Stock
----------------------------
PROSPECTUS
April 10, 2006
----------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is set forth in this prospectus. We are offering to sell shares of our
common stock and seeking offers to buy shares of our common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of these securities. Our
business, financial condition, results of operation and prospects may have
changed after the date of this prospectus.