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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
APRIL 29, 2005
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MARINE JET TECHNOLOGY CORP.
(Exact name of registrant as specified in charter)
NEVADA
(State or other Jurisdiction of Incorporation or Organization)
000-33297 88-0450923
(Commission File Number) (IRS Employer Identification
No.)
5804 E. SLAUSON AVE., COMMERCE, CA 90040
(Address of Principal Executive
Offices and zip code)
(323) 725-5555
(Registrant's telephone number, including area code)
936A BEACHLAND BOULEVARD, SUITE 13
VERO BEACH, FL 32963
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12(b))
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information included in this Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause Marine's and Antik Denim, LLC's actual results,
performance or achievements to be materially different from future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
Marine's and Antik Denim, LLC's future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
Forward-looking statements are based on assumptions that may be incorrect, and
there can be no assurance that any projections or other expectations included in
any forward-looking statements will come to pass. Marine's and Antik Denim,
LLC's actual results could differ materially from those expressed or implied by
the forward-looking statements as a result of various factors. Except as
required by applicable laws, Marine undertakes no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
On April 14, 2005, Marine Jet Technology Corp., a Nevada corporation
("Marine"), entered into an Exchange Agreement ("Exchange Agreement") with Antik
Denim, LLC, a California limited liability company ("Antik"), the members of
Antik (the "Antik Members"), and Keating Reverse Merger Fund, LLC ("KRM Fund").
The closing of the transactions contemplated by the Exchange Agreement (the
"Closing") occurred on April 29, 2005. At the Closing, pursuant to the terms of
the Exchange Agreement, Marine acquired all of the outstanding membership
interests of Antik (the "Interests") from the Antik Members, and the Antik
Members contributed all of their Interests to Marine. In exchange, Marine issued
to the Antik Members 843,027 shares of Series A Convertible Preferred Stock, par
value $0.001 per share, of Marine ("Preferred Shares"), which will be
convertible into 708,984,875 shares of Marine's common stock ("Conversion
Shares"). The issuance of the Preferred Shares and, upon conversion, the shares
of Marine common stock underlying the Preferred Shares, to the Antik Members was
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof.
On April 29, 2005, Marine filed a press release announcing the Closing,
a copy of which is attached to this Current Report on Form 8-K as Exhibit 99.1.
At the Closing, Antik became a wholly-owned subsidiary of Marine.
Except for the Exchange Agreement and the transactions contemplated by
that agreement, neither Marine, nor its directors and officers, had any material
relationship with Antik or any of the Antik Members.
Marine is presently authorized under its Articles of Incorporation to
issue 45,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share. Of the
5,000,000 shares of preferred stock authorized, 850,000 shares were designated
as Series A Convertible Preferred Stock pursuant to a certificate of
designations ("Certificate of Designations"), which was approved by Marine's
board of directors, and filed with and accepted by, the Secretary of State of
the State of Nevada prior to the Closing. As of the Closing, Marine had
28,122,570 shares of common stock issued and outstanding and 843,027 shares of
Series A Convertible Preferred Stock issued and outstanding.
Under the terms of the Exchange Agreement, all of the outstanding
Interests were exchanged for 843,027 Preferred Shares. Each Preferred Share will
be convertible into 841 shares of Marine's common stock (the "Conversion Rate").
The Preferred Shares will immediately and automatically be converted into shares
of Marine's common stock (the "Mandatory Conversion") upon the approval by a
majority of Marine's stockholders (voting together on an
as-converted-to-common-stock basis), following the Closing, of an increase in
the number of authorized shares of Marine's common stock from 45,000,000 to
75,000,000, and a 1 for 29 reverse stock split of Marine's outstanding common
stock ("Reverse Split"). The Conversion Rate will be adjusted downward to
account for the Reverse Split.
The holders of Preferred Shares are entitled to vote together with the
holders of the common stock, as a single class, upon all matters submitted to
holders of common stock for a vote. Each Preferred Share will carry a number of
votes equal to the number of shares of common stock issuable in a Mandatory
Conversion based on the then applicable Conversion Rate. As such, immediately
following the Closing, the Antik Members owned 95.8% of the total combined
voting power of all classes of Marine stock entitled to vote.
Upon Mandatory Conversion of the Preferred Shares, and subject to an
adjustment of the Conversion Rate as a result of the Reverse Split, the Antik
Members will, in the aggregate, receive approximately 24,447,783 shares of
Marine's common stock, representing 95.8% of the outstanding shares of Marine's
common stock immediately following the Mandatory Conversion. The existing
stockholders of Marine will, following the Mandatory Conversion and Reverse
Split, own approximately 969,745 shares of Marine's common stock, representing
3.8% of the outstanding shares of common stock. Following the Closing, Marine
also issued a finder approximately 102,079 shares of common stock on a
post-Reverse Split basis, representing 0.4% of the outstanding shares of common
stock.
Accordingly, if the Mandatory Conversion and the Reverse Split occurred
as of the date of this report, Marine's currently issued and outstanding Series
A Convertible Preferred Stock (currently 843,027 shares) and common stock
(currently 28,122,570 shares) would be converted into 24,447,783 and 969,745
shares of common stock, respectively, and would represent 95.8 % and 3.8%,
respectively, of Marine's total common stock issued and outstanding.
In connection with the Reverse Split, Marine's board of directors may,
in its discretion, provide special treatment to certain Marine stockholders to
preserve round lot holders (i.e., holders owning at least 100 shares) after the
Reverse Split. In the event Marine's board determines to provide such special
treatment, Marine stockholders holding 2,900 or fewer shares of common stock
but at least 100 shares of common stock will receive 100 shares of common stock
after the Reverse Split, and persons holding less than 100 shares of common
stock would not be affected. The terms and conditions of special treatment
afforded to Marine stockholders to preserve round lot stockholders, if any,
including the record dates for determining which stockholders may be eligible
for such special treatment, will be established in the discretion of Marine's
board of directors.
Effective as of the Closing, the following directors of Marine were
appointed:
NAME AGE POSITION
---------------------- --- ---------------------------------------------
Paul Guez 60 Chairman, Chief Executive Officer, and
President
David Weiner 48 Director designated by Mr. Guez
Kevin Keating 65 Director of Marine prior to the Closing, and
designated following the Closing by KRM
Fund
Also effective as of the Closing, the existing officers of Marine
resigned, and the following officers were appointed by the newly constituted
Board of Directors:
NAME AGE POSITION
---------------------- --- ---------------------------------------------
Paul Guez 60 Chairman, Chief Executive Officer, and
President
Elizabeth Guez 51 Chief Operating Officer
Patrick Chow 51 Chief Financial Officer and Secretary
Additionally, effective as of the Closing, KRM Fund and each Antik
Member have agreed to vote their shares of Marine's common stock to (i) elect
Mr. Keating or such other person designated by KRM Fund from time to time (the
"KRM Designate") to Marine's board for a period of one year following the
Closing, (ii) elect such other persons that may be designated by Paul Guez from
time to time to fill any vacant position on the board of directors (other than
KRM Designate), and (iii) approve the Reverse Split, an increase in Marine's
authorized common stock from 45,000,000 to 75,000,000, a corporate name change,
and a stock incentive plan.
At the Closing, Marine entered into a financial advisory agreement
with Keating Securities, LLC ("Keating Securities"), a registered broker-dealer,
pursuant to which Keating Securities was compensated by Marine for its advisory
services rendered to Marine in connection with the exchange transaction. The
transaction advisory fee was $350,000, which fee was paid at Closing. The
financial advisory agreement is attached as Exhibit 10.1 to this Current Report
on Form 8-K, and is incorporated herein by reference.
Kevin R. Keating, Marine's sole officer and director prior to the
exchange transaction, is the father of the principal member of Keating
Investments, LLC. Keating Investments, LLC is the managing member of KRM Fund,
which was the majority stockholder of Marine prior to the exchange transaction,
and Keating Securities, LLC, the registered broker-dealer affiliate of Keating
Investments, LLC. Kevin R. Keating is not affiliated with and has no equity
interest in Keating Investments, LLC, KRM Fund or Keating Securities, LLC and
disclaims any beneficial interest in the shares of Marine's common stock owned
by KRM Fund. Similarly, Keating Investments, LLC,
KRM Fund and Keating Securities, LLC disclaim any beneficial interest in the
shares of Marine's common stock currently owned by Kevin R. Keating.
On March 28, 2005, in its Current Report on Form 8-K dated March 24,
2005, Marine reported the execution of a letter of intent to acquire Antik. On
April 15, 2005, in its Current Report on Form 8-K dated April 14, 2005, Marine
reported the execution of the Exchange Agreement and included a copy of the
Exchange Agreement therein as Exhibit 2.5. These Current Reports are hereby
incorporated by reference. Additionally, on April 19, 2005, Marine filed an
Information Statement on Schedule 14f-1 reporting the proposed acquisition of
Antik and the pending change of control of Marine at the Closing.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
The issuance of the Preferred Shares and, upon conversion, the shares
of Marine common stock underlying the Preferred Shares, to the Antik Members was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. Marine made this determination based on the representations of the
Antik Members which included, in pertinent part, that such members were
"accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act, that such members were acquiring the
Preferred Shares, and the shares of Marine's common stock underlying the
Preferred Shares, for investment purposes for their own respective accounts and
not as nominees or agents, and not with a view to the resale or distribution
thereof, and that each member understood that the Preferred Shares, and the
shares of Marine's common stock underlying the Preferred Shares, may not be sold
or otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom.
In the event of any liquidation, dissolution or winding up of Marine,
the assets of Marine available for distribution to shareholders will be
distributed among the holders of Preferred Shares and the holders of any other
class of equity securities of Marine, including its common stock, pro rata, on
an as-converted-to-common-stock basis, after the payment to the holders of
Preferred Shares of a di minimus par value amount.
The holders of Preferred Shares are entitled to dividends in the event
that Marine pays cash or other dividends in property to holders of outstanding
shares of its common stock, which dividends would be made pro rata, on an
as-converted-to-common-stock basis.
The Conversion Rate applicable to the Preferred Shares is subject to
adjustment from time to time in the event of any stock dividend, stock split,
reverse stock split, reorganization or other corporate event affecting the
outstanding capital stock of Marine (including the Reverse Split).
During any period in which the Preferred Shares are outstanding, Marine
is not permitted to,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding Preferred
Shares, voting as a separate class:
- create (by reclassification or otherwise) any new class or
series of shares having rights, preferences or privileges
equal or senior to the Series A Convertible Preferred Stock.
- directly or indirectly, alter or change the rights,
preferences or privileges of the Series A Convertible
Preferred Stock.
- amend Marine's Articles of Incorporation in a manner that
materially adversely affects the rights, preferences or
privileges of the holders of the Series A Convertible
Preferred Stock.
- increase or decrease the authorized number of shares of
preferred stock of Marine as a whole;
- liquidate or wind-up Marine; or
- redeem, purchase or otherwise acquire (or pay into or set
funds aside for a sinking fund for such purpose) any share or
shares of preferred stock or common stock; provided, however,
that this restriction will not apply to the repurchase of
shares of common stock from employees, officers, directors,
consultants or other persons performing services for Marine or
any subsidiary pursuant to agreements under which Marine has
the option to repurchase such shares at cost upon the
occurrence of certain events, such as the termination of
employment, or through the exercise of any right of first
refusal.
Upon the occurrence of the Mandatory Conversion, or any other
redemption or extinguishment of the Series A Convertible Preferred Stock, the
shares converted, redeemed or extinguished will be automatically returned to the
status of authorized and unissued shares of preferred stock, available for
future designation and issuance pursuant to the terms of Marine's Articles of
Incorporation.
Marine's Certificate of Designations, Preferences, Rights and
Limitations of Series A Convertible Preferred Stock, as filed with the Secretary
of State of the State of Nevada, is attached as Exhibit 4.1 to this Current
Report on Form 8-K, and is incorporated herein by reference.
ITEM 3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS
Reference is made to the disclosure set forth under Items 2.01 and 3.02
of this Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
As a result of the Closing and the issuance of the Preferred Shares,
the Antik Members own 95.8% of the total combined voting power of all classes of
Marine stock entitled to vote.
Upon Mandatory Conversion of the Preferred Shares, and subject to an
adjustment of the Conversion Rate as a result of the Reverse Split, the Antik
Members will, in the aggregate, receive approximately 24,447,783 shares of
Marine's common stock, representing 95.8% of the outstanding shares of Marine's
common stock immediately following the Mandatory Conversion. The existing
stockholders of Marine will, following the Mandatory Conversion and Reverse
Split, own approximately 969,745 shares of Marine's common stock, representing
3.8% of the outstanding shares of common stock.
Accordingly, if the Mandatory Conversion and the Reverse Split occurred
as of the date of this report, Marine's currently issued and outstanding Series
A Convertible Preferred Stock (currently 843,027 shares) and common stock
(currently 28,122,570 shares) would be converted into 24,447,783 and 969,745
shares of common stock, respectively, and would represent 95.8 % and 3.8%,
respectively, of Marine's total common stock issued and outstanding.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
Effective as of the Closing, Kevin R. Keating resigned as the prior
sole officer of Marine, and the following officers were appointed by the newly
constituted Board of Directors:
NAME AGE POSITION
---------------------- --- ---------------------------------------------
Paul Guez 60 Chairman, Chief Executive Officer, and
President
Elizabeth Guez 51 Chief Operating Officer
Patrick Chow 51 Chief Financial Officer and Secretary
Mr. Guez is the co-owner and Chief Executive Officer of Blue Concept,
LLC and its several affiliates, which are engaged in the design, marketing,
manufacturing and wholesale distribution of premium fashion collections for a
growing stable of contemporary brands, including Yanuk, U, Taverniti So Jeans,
Duarte Jeans, Elvis, Memphis Blues and Grail Jeans. For the nine year period
prior to the formation of Blue Concept in 2002, Mr. Guez co-operated Azteca
Production International, Inc., a Los Angeles based manufacturer of denim
apparel. Mr. Guez started his career in the apparel industry in 1976, when he
launched Sasson Jeans.
Ms. Guez is the Chief Operating Officer for Blue Concept and several of
its affiliates. From 1970 through 1978, Ms. Guez attended Monmouth (West
Longbranch, NJ) and Fashion Institute of Technology of New York City. From
1974-1982, she held various buying and store line positions for the
Bamberger/Macy organization. Ms. Guez subsequently held various sales and
merchandising positions with Esprit de Corp, Chaus, and Jag of Beverly Hills.
Mr. Chow was Chief Financial Officer and a director of Tarrant Apparel
Group from January 2002 to August 2004 and stayed as a consultant until January,
2005. He joined Tarrant as Treasurer in November, 1998. From 1996 to 1998, he
served as General Manager of Fortune Chart Consultants Limited in Hong Kong
where he provided financial consulting services to corporate clients. Mr. Chow
has a Bachelor of Arts degree from the University of Hong Kong and two diplomas
in Banking and Financial Studies from the Chartered Institute of Bankers, United
Kingdom.
Mr. Weiner is the President of W-Net, Inc., an investment and
consulting firm he founded in 1998. From December 2002 to April 2003 Mr. Weiner
was Co-President for Trestle Holding Inc., a provider of digital imaging and
telemedicine products. In 1993, Mr. Weiner joined K-tel, a music retailer, as
Vice President of Corporate Development. After creating and successfully
executing a business plan for K-tel, he advanced to the position of President in
1996, which he held until he left to form W-Net in 1998.
Paul and Elizabeth Guez are husband and wife.
None of the newly appointed executive officers have entered into an
employment agreement with Marine or Antik.
At the Closing, the following directors of Marine were appointed:
NAME AGE POSITION
---------------------- --- ---------------------------------------------
Paul Guez 60 Chairman, Chief Executive Officer, and
President
David Weiner 48 Director designated by Mr. Guez
Kevin Keating 65 Director of Marine prior to the Closing, and
designated following the Closing by KRM
Fund
Please see the biographies of Messrs. Guez and Weiner set forth above.
Mr. Keating is an investment executive and for the past nine years has
been the Branch Manager of the Vero Beach, Florida, office of Brookstreet
Securities Corporation. Brookstreet is a full-service, national network of
independent investment professionals. Mr. Keating services the investment needs
of private clients with special emphasis on equities. For more than 35 years, he
has been engaged in various aspects of the investment brokerage business. Mr.
Keating began his Wall Street career with the First Boston Company in New York
in 1965. From 1967 through 1974, he was employed by several institutional
research boutiques where he functioned as Vice President Institutional Equity
Sales. From 1974 until 1982, Mr. Keating was the President and Chief Executive
Officer of Douglas Stewart, Inc., a New York Stock Exchange member firm. Since
1982, he has been associated with a variety of firms as a registered
representative servicing the needs of
individual investors. Mr. Keating is also the manager and sole member of Vero
Management, LLC, which had a management agreement with Marine that was
terminated effective as of the Closing.
Additionally, effective as of the Closing, KRM Fund and each Antik
Member have agreed to vote their shares of Marine's common stock to (i) elect
Mr. Keating or such other person designated by KRM Fund from time to time (the
"KRM Designate") to Marine's board for a period of one year following the
Closing, (ii) elect such other persons that may be designated by Paul Guez from
time to time to fill any vacant position on the board of directors (other than
KRM Designate), and (iii) approve the Reverse Split, an increase in Marine's
authorized common stock from 45,000,000 to 75,000,000, a corporate name change,
and a stock incentive plan.
None of the newly appointed officers and directors, nor any of their
affiliates, currently beneficially own any equity securities or rights to
acquire any securities of Marine except as otherwise described in this report,
and no such persons have been involved in any transaction with Marine or any of
its directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"), other than with respect to the transactions that have been
described in this report or in any prior reports filed by Marine with the SEC.
None of the newly appointed officers and directors have been convicted in a
criminal proceeding, excluding traffic violations or similar misdemeanors, nor
have they been a party to any judicial or administrative proceeding during the
past five years, except for matters that were dismissed without sanction or
settlement, that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
Until further determination by the Board, the full Board of Directors
will undertake the duties of the Audit Committee, Compensation Committee and
Nominating Committee of the Board of Directors.
ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
Effective as of the Closing, pursuant to the provisions of the bylaws
of Marine, applicable to all holders of capital stock, the Board of Directors of
Marine, by resolution increased the number of directors on the Board of
Directors of Marine from one to three.
SECTION 8
ITEM 8.01 OTHER EVENTS.
Reference is made to the disclosure set forth under Items 2.01, 3.02,
3.03, 5.01, 5.02 and 5.03 of this Current Report on Form 8-K, which disclosure
is incorporated herein by reference.
BUSINESS OF MARINE
Prior to the Closing, Marine was a public "shell" company with nominal
assets whose sole business was to identify, evaluate and investigate various
companies to acquire or with which to merge.
BUSINESS OF ANTIK
DESCRIPTION OF BUSINESS
ANTIK'S BUSINESS
Effective as of the Closing, Antik Denim, LLC ("Antik") became the
wholly-owned subsidiary of Marine. As a result of the Closing, the historical
business operations of Antik will comprise Marine's principal business
operations going forward.
Antik was formed in September 2004 to design, develop, manufacture,
market, distribute and sell high end fashion jeans, apparel and accessories with
a western flair. Antik markets, distributes and sells "Antik Denim" brand
products in the United States, and internationally in countries that include,
but are not limited to, Canada, Mexico, the United Kingdom, Denmark, Sweden,
Norway, Finland, Belgium, Italy, Austria, Germany, France, Spain, Japan, Brazil,
Israel, Lebanon, UAE, South Africa and Korea.
Antik markets and distributes its products by participating in industry
trade shows, as well as through its show rooms in Los Angeles and New York.
Currently, Antik has no exclusive or long term distribution agreements with any
party covering any territory, and does not depend on any single distributor to
distribute its products.
Antik's products are sold in the United States to department stores
such as Saks Fifth Avenue, Neiman Marcus, Nordstrom, Barney's, Bloomingdales,
Bergdorf Goodman, Macy's East, Saks 5th Avenue, Planet Blue, Atrium, Fred Segal,
Intermix, and Lulu's, as well as smaller boutiques throughout the country.
While Antik does not depend on any individual department store to sell
its products, at December 31, 2004, approximately 15% of its accounts receivable
were due from two customers.
EMPLOYEES
As of April 15, 2005, Antik had 78 employees, not including Marine's
three new executive officers, Paul Guez, Marine's new Chairman, Chief Executive
Officer and President, Elizabeth Guez, Marine's Chief Operating Officer, and
Patrick Chow, Marine's Chief Financial Officer and Secretary. Of those
employees, 6 are employed on a full time basis. The remaining 72 employees are
part-time and season based employees. All of Antik's employees are allocated
under a cost allocation letter agreement with Blue Concept, LLC, an entity
co-owned by Paul and Elizabeth Guez. A description of that letter agreement is
set forth below in the section entitled "Certain Relationships and Related
Transactions." Mr. Guez leads Antik's product development, marketing and sales,
and Ms. Guez oversees all product production, including Antik's contract
manufacturing activities.
ANTIK'S PRODUCTS
Antik's principal products are high end fashion jeans with a western
flair that Antik designs,
manufactures, markets, distributes and sells under the "Antik Denim" label.
Antik currently sells men's and women's styles and is in the process of
launching a children's line. Antik Denim brand jeans are made from high quality
fabrics milled in the United States, Japan, Italy and Spain and are processed
with cutting edge treatments and finishes. Its concepts, designs,
embellishments, patent pending pockets, and great attention to detail and
quality give it a competitive advantage in the high end fashion jean market.
Antik's distinct vintage western flair sets it apart both in appearance and fit.
BUSINESS STRATEGY
The Antik Denim brand already has broad consumer recognition in the
vintage western flair market niche. Antik's strategy is to continuing building
and expanding this recognition by target marketing its lines to high end buyers
who shop in boutiques and department stores. Due to limited distribution and a
significant level of "buzz" surrounding the Antik Denim line, Antik believes
that the retail price for its jeans will continue to be in the $150 to $400
range. By using contract manufacturers both in the United States and abroad,
Antik will strive to control its costs and improve its margins as sales grow.
Antik intends to change its product offerings on a seasonal basis, as well as in
relation to changing trends and tastes.
SUPPLY STRATEGY
Antik purchases its fabric, thread and other raw materials from various
industry suppliers within the United States and abroad. Antik does not currently
have any long-term agreements in place for the supply of its fabric, thread or
other raw materials. The fabric, thread and other raw materials used by Antik
are available from a large number of suppliers worldwide. Although Antik does
not depend on any one supplier, from September 13, 2004 (its inception) to
December 31, 2004, two suppliers provided for greater than 10% of Antik's
fabric, thread and other raw material purchases, comprising 51.3% and 34.1% of
its total purchases, respectively.
MANUFACTURING
Antik presently outsources all of its manufacturing to contract vendors
using just in time ordering. It uses several contract vendors for its
manufacturing needs with the bulk of purchases currently occurring from domestic
factories. Antik is not reliant on any one manufacturer and manufacturing
capacity is readily available to meet its current and planned needs. Antik
maintains rigorous quality control systems for both raw and finished goods. To
maintain low fixed expenses, Antik will continue to outsource the vast majority
of its production. Antik will add additional contractors as required to meet its
needs.
COMPETITION
Competition in the high end fashion denim industry is very competitive
and very fragmented. Antik's competitors are both large companies such as Levi
Strauss, Calvin Klein, Joe's Jeans and True Religion Apparel, as well as smaller
companies such as Seven For All Mankind and Citizens of Humanity.
Antik's competitive edge lies in its ability to create innovative
concepts and designs, as well as the high quality of its fabrics, treatments and
embellishments. At a retail price point of $150 to $400, Antik believes that it
offers a competitively valued product.
TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Antik is the holder of trademark applications for the "Antique Denim"
and "Antik Denim" marks in the United States and various other foreign
jurisdictions. Antik also owns several proprietary concepts and designs,
including pending trademark and patent applications on its pocket designs. Antik
will continue to expand the Antik Denim brand, and its proprietary trademarks
and designs, worldwide.
GOVERNMENT REGULATION AND SUPERVISION
Antik benefits from certain international treaties and regulations,
such as the North American Free Trade Agreement (NAFTA), which allows for the
duty and quota free entry into the United States of certain qualifying
merchandise. International trade agreements and embargoes by entities such as
the World Trade Organization also can affect its business, although their impact
has historically been favorable as it relates to Antik.
Antik has implemented various programs and procedures, including
unannounced inspections, to ensure that all of the apparel manufacturers with
whom it contracts fully comply with employment and safety laws and regulations
governing their place of operation.
RESEARCH AND DEVELOPMENT
Mr. Guez, along with a team of designers, is responsible for the design
and development of Antik's product lines. There is no formal research and
development plan at this time, however, since inception, Antik has apportioned
significant resources on its research and development activities related to its
designs.
PRINCIPAL EXECUTIVE OFFICES
Antik's principal executive offices, and the principal executive
offices of Marine following the Closing, are located at 5804 E. Slauson Ave.,
Commerce California 90040. Antik's telephone number, and the telephone number of
Marine following the Closing, is (323) 725-5555.
DESCRIPTION OF PROPERTY
Antik's offices and warehouse are located in Commerce, California. It
is from this facility that Antik conducts all of its executive and
administrative functions, and ships Antik Denim brand products to its customers.
Antik also maintains showrooms in both Los Angeles and New York City. The cost
of operations at the Commerce facility and the showrooms is shared by several
companies and is allocated to Antik pursuant to the cost allocation letter
agreement with Blue Concept, LLC. A description of that agreement is set forth
below in the section entitled "Certain Relationships and
Related Transactions." Antik utilizes approximately 15,000 sq. ft of the
Commerce, California facility and pays approximately $.18 per square foot under
the cost allocation letter agreement. Antik believes that the facilities
utilized by it are well maintained, in good operating condition and adequate to
meet its current and foreseeable needs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Because Antik was formed on September 13, 2004, it has limited
operating history. The following is a summary of Antik's operating results for
the period from inception (September 13, 2004) through December 31, 2004.
SALES ..................................................... $ 424,702
Less returns and allowances ............................... 59,412
-----------
NET SALES ................................................. 365,290
COST OF GOODS SOLD ........................................ 157,545
-----------
GROSS PROFIT .............................................. 207,745
-----------
OPERATING EXPENSES ........................................ 838,700
NON-CASH DEVELOPMENT COSTS ................................ 500,000
-----------
TOTAL OPERATING EXPENSES ............................... 1,338,700
-----------
LOSS FROM OPERATIONS BEFORE PROVISION FOR
STATE INCOME TAXES ..................................... (1,130,955)
PROVISION FOR STATE INCOME TAXES .......................... 800
-----------
NET LOSS .................................................. $(1,131,755)
===========
RESULTS OF OPERATIONS
Antik incurred a net loss of $1,131,755 for the period from inception
(September 13, 2004) through December 31, 2004. This loss represents a loss from
operations of $1,130,955, before any provision for state income taxes. Antik's
net loss occurred primarily as a result of operating expenses and costs related
to the start up of operations, and non-cash development costs of $500,000
attributed to pending patent and trademark applications and proprietary designs
and design concepts contributed by certain of Antik's former members.
Antik had net sales of $365,290 for the period from inception
(September 13, 2004) through December 31, 2004. Antik's management expects that
sales will increase significantly in the year ended December 31, 2005, although
the rate of this increase will depend on the success of Antik's products and
their ability to achieve acceptance in the marketplace.
Antik's gross profit for the period from inception (September 13, 2004)
through December 31, 2004 was $207,745, and its gross margin was 56%. Antik's
management anticipates that Antik
will continue to experience similar levels of gross margin as management seeks
out manufacturers, suppliers and other vendors with competitive pricing for
quality products and services.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, Antik had cash of $73,823 and $378,594 due
from its factor, FTC Commercial Corp. Antik uses this factor for working capital
and credit administration purposes. Under the factoring agreement, the factor
purchases a substantial portion of the trade accounts receivable and assumes all
credit risk with respect to such accounts.
The factor agreement, which terminates on October 18, 2005, provides
that Antik can borrow an amount up to 85% of the value of its approved factored
customer invoices, less a reserve of 15% of unpaid accounts purchased and 100%
of all such accounts which are disputed. As of December 31, 2004, the amount of
the reserve held by the factor was $89,641. The factor commission is 0.08% of
the customer invoice amount for terms up to 90 days, plus one quarter of one
percent (.25%) for each additional thirty-day term.
Receivables sold in excess of maximums established by the factor are
subject to recourse against Antik in the event of nonpayment by the customer. At
December 31, 2004, items subject to recourse approximated $157,000. Antik is
contingently liable to the factor for merchandise disputes, customer claims and
the like on receivables sold to the factor.
To the extent that Antik draws funds prior to the deemed collection
date of the accounts receivable sold to the factor, interest is charged at the
rate of 1% over the factor's prime lending rate per annum. Factor advances are
collateralized by the non-factored accounts receivable, inventories and personal
guarantees executed by Blue Concept, LLC and Paul Guez. The guarantees provide
that the factor may pursue claims against Blue Concept, LLC or Mr. Guez in the
event that Antik defaults on its obligations to the factor.
Net cash provided by financing activities was $539,073 for the period
from inception (September 13, 2004) through December 31, 2004. These amounts
consisted primarily from initial cash contributions of two of the Antik members,
and loans from Paul Guez and companies co-owned by Paul Guez, in each case made
with respect to inventory or for working capital purposes.
Pursuant to the provisions of the Exchange Agreement, the former
members of Antik agreed that, in the event that the stockholders' equity of
Marine (on a consolidated basis following the Closing) as reported in Marine's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the
"Consolidated Equity") is less than $5,000,000, the members would contribute,
within fifteen (15) days following the filing of such periodic report, equity
capital to Marine in an amount equal to the difference between $5,000,000 and
the actual Consolidated Equity reported in such periodic report ("Required
Contribution"). In the case of such Required Contribution, each of the Antik
members agreed that no additional shares of capital stock of Marine would be
issued in consideration of such Required Contribution, and therefore, the
existing shareholders of Marine, including Antik's former members, would not be
further diluted.
The management of Antik expects that, with its factor arrangement used
for working capital and credit administration purposes, additional cash
contributions from the former members of Antik, as necessary, and additional
debt or equity financing, Anik will have adequate working capital to continue to
grow its operations and develop its products and business plan as anticipated.
There is currently no definitive plan of debt or equity financing, however,
Antik does anticipate it will require additional financing to continue to grow
its operations and there can be no assurance that any such financing will be
available, or if available, that it would be available on terms acceptable to
the management of Antik.
CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES. The discussion and analysis of Antik's financial
condition and results of operations is based upon Antik's financial statements,
which have been prepared in accordance with generally accepted accounting
principles in the United States. The preparation of financial statements
requires Antik's management to make estimates and judgments that affect the
reported amounts of assets and liabilities, revenues and expenses and
disclosures on the date of the financial statements. On an on-going basis,
Antik's management evaluates its estimates, including, but not limited to, those
related to revenue recognition. Antik uses authoritative pronouncements,
historical experience and other assumptions as the basis for making judgments.
Actual results could differ from those estimates.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS REPORT BEFORE PURCHASING SHARES OF MARINE'S COMMON
STOCK. INVESTING IN MARINE'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY
OF THE FOLLOWING EVENTS OR OUTCOMES ACTUALLY OCCURS, ANTIK'S BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. AS A RESULT, THE TRADING
PRICE OF MARINE'S COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
THE MONEY YOU PAID TO PURCHASE MARINE'S COMMON STOCK.
RISKS RELATED TO ANTIK'S BUSINESS
ANTIK HAS A LIMITED OPERATING HISTORY AND FOR THE PERIOD SINCE INCEPTION
(SEPTEMBER 13, 2004) THROUGH DECEMBER 31, 2004, HAS EXPERIENCED OPERATING LOSSES
MAKING IT DIFFICULT TO EVALUATE WHETHER IT WILL OPERATE PROFITABLY.
Antik was formed in September 2004 to design, develop, manufacture, market,
distribute and sell high end fashion jeans, apparel and accessories with a
western flair. As a result, it does not have a meaningful historical record of
sales and revenues nor an established business track record. While the
management of Antik believes that it has an opportunity to be successful in the
high end fashion jean market, there can be no assurance that Antik will be
successful in accomplishing its business initiatives, or that it will achieve
any significant level of revenues, or ever recognize net income, from the sale
of its products.
Unanticipated problems, expenses and delays are frequently encountered in
increasing production and sales and developing new products, especially in the
current stage of Antik's business. Antik's ability to continue to successfully
develop, produce and sell its products and to generate significant operating
revenues will depend on its ability to, among other matters:
- successfully market, distribute and sell its products or enter
into agreements with third parties to perform these functions
on its behalf; and
- obtain the financing required to implement its business plan.
Given Antik's limited operating history, lack of long-term sales history and
other sources of revenue, there can be no assurance that it will be able to
achieve any of its goals and develop a sufficiently large customer base to be
profitable.
ANTIK MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE.
Antik may not be able to fund its future growth or react to competitive
pressures if it lacks sufficient funds. Currently, management believes Antik has
sufficient cash on hand and cash available through its factor to fund existing
operations for the foreseeable future. However, in the future, Antik may need to
raise additional funds through equity or debt financings or collaborative
relationships, including in the event that it loses its relationship with its
factor. This additional funding may not be available or, if available, it may
not be available on economically reasonable terms. In addition, any additional
funding may result in significant dilution to existing shareholders. If adequate
funds are not available, Antik may be required to curtail its operations or
obtain funds through collaborative partners that may require it to release
material rights to its products.
FAILURE TO MANAGE ANTIK'S GROWTH AND EXPANSION COULD IMPAIR ITS BUSINESS.
Management believes that Antik is poised for significant growth in 2005. No
assurance can be given that it will be successful in maintaining or increasing
its sales in the future. Any future growth in sales will require additional
working capital and may place a significant strain on Antik's management,
management information systems, inventory management, sourcing capability,
distribution facilities and receivables management. Any disruption in Antik's
order processing, sourcing or distribution systems could cause orders to be
shipped late, and under industry practices, retailers generally can cancel
orders or refuse to accept goods due to late shipment. Such cancellations and
returns would result in a reduction in revenue, increased administrative and
shipping costs and a further burden on Antik's distribution facilities.
ANTIK'S OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Management expects that Antik will experience substantial variations in its net
sales and operating results from quarter to quarter. Antik believes that the
factors which influence this variability of quarterly results include:
- the timing of its introduction of new product lines;
- the level of consumer acceptance of each new product line;
- general economic and industry conditions that affect consumer
spending and retailer purchasing;
- the availability of manufacturing capacity;
- the seasonality of the markets in which it participates;
- the timing of trade shows;
- the product mix of customer orders;
- the timing of the placement or cancellation of customer
orders;
- the weather;
- transportation delays;
- quotas and other regulatory matters;
- the occurrence of charge backs in excess of reserves; and
- the timing of expenditures in anticipation of increased sales
and actions of competitors.
As a result of fluctuations in Antik's revenue and operating expenses that may
occur, management believes that period-to-period comparisons of Antik's results
of operations are not a good indication of its future performance. It is
possible that in some future quarter or quarters, Antik's operating results will
be below the expectations of securities analysts or investors. In that case,
Marine's stock price could fluctuate significantly or decline.
THE FINANCIAL CONDITION OF ANTIK'S CUSTOMERS COULD AFFECT ITS RESULTS OF
OPERATIONS.
Certain retailers, including some of Antik's customers, have experienced in the
past, and may experience in the future, financial difficulties, which increase
the risk of extending credit to such retailers and the risk that financial
failure will eliminate a customer entirely. These retailers have attempted to
improve their own operating efficiencies by concentrating their purchasing power
among a narrowing group of vendors. There can be no assurance that Antik will
remain a preferred vendor for its existing customers. A decrease in business
from or loss of a major customer could have a material adverse effect on Antik's
results of operations. There can be no assurance that Antik's factor will
approve the extension of credit to certain retail customers in the future. If a
customer's credit is not approved by the factor, Antik could assume the
collection risk on sales to the customer itself, require that the customer
provide a letter of credit, or choose not to make sales to the customer.
ANTIK'S BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.
A portion of Antik's import operations are subject to tariffs imposed on
imported products and quotas imposed by trade agreements. In addition, the
countries in which its products are imported may from time to time impose
additional new duties, tariffs or other restrictions on its imports or adversely
modify existing restrictions. Adverse changes in these import costs and
restrictions, or Antik's suppliers' failure to comply with customs or similar
laws, could harm its business. Antik cannot assure that future trade agreements
will not provide its competitors with an advantage over it, or increase its
costs, either of which could have an adverse effect on Antik's business and
financial condition.
Antik's operations are also subject to the effects of international trade
agreements and regulations such as the North American Free Trade Agreement, and
the activities and regulations of the World
Trade Organization. Generally, these trade agreements benefit Antik's business
by reducing or eliminating the duties assessed on products or other materials
manufactured in a particular country. However, trade agreements can also impose
requirements that adversely affect Antik's business, such as limiting the
countries from which Antik can purchase raw materials and setting duties or
restrictions on products that may be imported into the United States from a
particular country.
Antik's ability to import raw materials in a timely and cost-effective manner
may also be affected by problems at ports or issues that otherwise affect
transportation and warehousing providers, such as labor disputes. These problems
could require Antik to locate alternative ports or warehousing providers to
avoid disruption to its customers. These alternatives may not be available on
short notice or could result in higher transit costs, which could have an
adverse impact on Antik's business and financial condition.
ANTIK'S DEPENDENCE ON INDEPENDENT MANUFACTURERS AND SUPPLIERS OF RAW MATERIALS
REDUCES ITS ABILITY TO CONTROL THE MANUFACTURING PROCESS, WHICH COULD HARM ITS
SALES, REPUTATION AND OVERALL PROFITABILITY.
Antik depends on independent contract manufacturers and suppliers of raw
materials to secure a sufficient supply of raw materials and maintain sufficient
manufacturing and shipping capacity in an environment characterized by declining
prices, labor shortage, continuing cost pressure and increased demands for
product innovation and speed-to-market. This dependence could subject Antik to
difficulty in obtaining timely delivery of products of acceptable quality. In
addition, a contractor's failure to ship products to Antik in a timely manner or
to meet the required quality standards could cause it to miss the delivery date
requirements of its customers. The failure to make timely deliveries may cause
Antik's customers to cancel orders, refuse to accept deliveries, impose
non-compliance charges through invoice deductions or other charge-backs, demand
reduced prices or reduce future orders, any of which could harm its sales,
reputation and overall profitability.
Antik does not have long-term contracts with any of its independent contractors
and any of these contractors may unilaterally terminate their relationship with
it at any time. While management believes that there exists an adequate supply
of contractors to provide products and services to Antik, to the extent Antik is
not able to secure or maintain relationships with independent contractors that
are able to fulfill its requirements, its business would be harmed.
Antik has initiated standards for its suppliers, and monitors its independent
contractors' compliance with applicable labor laws, but it does not control its
contractors or their labor practices. The violation of federal, state or foreign
labor laws by one of Antik's contractors could result in Antik being subject to
fines and its goods that are manufactured in violation of such laws being seized
or their sale in interstate commerce being prohibited. To date, Antik has not
been subject to any sanctions that, individually or in the aggregate, have had a
material adverse effect on its business, and it is not aware of any facts on
which any such sanctions could be based. There can be no assurance, however,
that in the future it will not be subject to sanctions as a result of violations
of applicable labor laws by its contractors, or that such sanctions will not
have a material adverse effect on its business and results of operations.
ANTIK MAY NOT BE ABLE TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY RIGHTS.
The loss of or inability to enforce its trademark "Antik Denim" and its other
proprietary designs, patents, know-how and trade secrets could adversely affect
Antik's business. If any third party copies or otherwise gains access to its
trademarks or other proprietary rights, or develops similar products
independently, it may be costly to enforce Antik's rights and it would not be
able to compete as effectively. Additionally, the laws of foreign countries may
provide inadequate protection of intellectual property rights, making it
difficult to enforce such rights in those countries.
Antik may need to bring legal claims to enforce or protect its intellectual
property rights. Any litigation, whether successful or unsuccessful, could
result in substantial costs and diversions of resources. In addition,
notwithstanding the rights Antik has secured in its intellectual property, third
parties may bring claims against Antik alleging that it has infringed on their
intellectual property rights or that its intellectual property rights are not
valid. Any claims against Antik, with or without merit, could be time consuming
and costly to defend or litigate and therefore could have an adverse affect on
Antik's business.
THE LOSS OF PAUL GUEZ OR OTHER SIGNIFICANT MANAGEMENT PERSONNEL WOULD HAVE AN
ADVERSE EFFECT ON ANTIK'S FUTURE DEVELOPMENT AND COULD SIGNIFICANTLY IMPAIR ITS
ABILITY TO ACHIEVE ITS BUSINESS OBJECTIVES.
Antik's success is largely dependent upon the expertise and knowledge of
Marine's new Chairman, Chief Executive Officer and President, Paul Guez, and
other significant management personnel, and its ability to continue to hire and
retain other key personnel. The loss of Mr. Guez, or any of Antik's other key
management personnel, could have a material adverse effect on its business,
development, financial condition, and operating results. Antik does not maintain
"key person" life insurance on any of its management, including Mr. Guez.
RISKS RELATED TO ANTIK'S INDUSTRY
ANTIK'S SALES ARE HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.
Apparel is a cyclical industry that is heavily dependent upon the overall level
of consumer spending. Purchases of apparel and related goods tend to be highly
correlated with cycles in the disposable income of Antik's consumers. Antik's
customers anticipate and respond to adverse changes in economic conditions and
uncertainty by reducing inventories and canceling orders. As a result, any
substantial deterioration in general economic conditions, increases in interest
rates, acts of war, terrorist or political events that diminish consumer
spending and confidence in any of the regions in which Antik competes, could
reduce its sales and adversely affect its business and financial condition.
ANTIK'S BUSINESS IS HIGHLY COMPETITIVE AND DEPENDS ON CONSUMER SPENDING
PATTERNS.
The apparel industry is highly competitive. Antik faces a variety of competitive
challenges including:
- anticipating and quickly responding to changing consumer
demands;
- developing innovative, high-quality products in sizes and
styles that appeal to consumers;
- competitively pricing its products and achieving customer
perception of value; and
- the need to provide strong and effective marketing support.
ANTIK MUST SUCCESSFULLY GAUGE FASHION TRENDS AND CHANGING CONSUMER PREFERENCES
TO SUCCEED.
Antik's success is largely dependent upon its ability to gauge the fashion
tastes of its customers and to provide merchandise that satisfies retail and
customer demand in a timely manner. The apparel business fluctuates according to
changes in consumer preferences dictated in part by fashion and season. To the
extent Antik misjudges the market for its merchandise, its sales may be
adversely affected. Antik's ability to anticipate and effectively respond to
changing fashion trends depends in part on its ability to attract and retain key
personnel in its design, merchandising and marketing staff. Competition for
these personnel is intense, and Antik cannot be sure that it will be able to
attract and retain a sufficient number of qualified personnel in future periods.
ANTIK'S BUSINESS MAY BE SUBJECT TO SEASONAL TRENDS.
In the experience of Antik's management, operating results in the high end
fashion denim industry have been subject to seasonal trends when measured on a
quarterly basis. This trend is dependent on numerous factors, including:
- the markets in which Antik operates;
- holiday seasons;
- consumer demand;
- climate;
- economic conditions; and
- numerous other factors beyond Antik's control.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning all compensation
paid for services to Antik by its executive officers in all capacities for the
period from its inception (September 13, 2004) through December 31, 2004. No
other executive officer received total annual salary and bonus in excess of
$100,000 during these periods.
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------------------ -------
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Compensation Award(s) SARs (#) Payouts Compensation
Position Year Salary ($) Bonus ($) ($) ($) (2) ($) ($)
-------------------- ----- ---------- --------- ------------ ---------- ---------- ------- ------------
Paul Guez 2004 N/A N/A N/A N/A N/A N/A N/A
(Chief Executive
Officer and Manager)
Under the terms of Antik's Operating Agreement dated to be effective
September 13, 2004 (the "Operating Agreement"), by and among the Antik Members,
including Mr. Guez, certain of the Antik Members (not including Mr. Guez) were
entitled to receive, and were receiving since September 13, 2004, distributions
under the Operating Agreement. Since inception through December 31, 2004, such
distributions totaled $79,190. At the Closing, the terms and conditions of the
Operating Agreement terminated and those Antik Members previously receiving
distributions are no longer entitled to such distributions. At the Closing,
Marine became the sole member of Antik and intends to establish such terms and
conditions with respect to the operation and governance of Antik as it deems
appropriate.
OPTION GRANTS
Antik is a limited liability company formed under the laws of the State
of California. During the period from its inception (September 13, 2004) through
December 31, 2004, it did not maintain any membership interest option or profits
interest plan. Accordingly, Antik did not grant options to purchase membership
or profits interests during the period from its inception (September 13, 2004)
through December 31, 2004.
EMPLOYMENT CONTRACTS
Antik does not have employment agreements with any of its executive
officers or key employees. Marine does not have employment agreements with any
of its newly appointed executive officers.
Antik executed a letter agreement dated March 21, 2005 with Messrs.
Philippe Naouri and Alex Caugant, two of its key designers and former members,
pursuant to which Antik agreed that, to the extent Antik closed its exchange
transaction with Marine, Antik would, or would use its best efforts to cause
Marine to, enter into employment agreements with each of Messrs. Naouri and
Caugant whereby such individuals would (i) perform fashion design services for
Antik or Marine, (ii) be entitled to receive annual salaries of $240,000, plus
bonuses based on net sales arising from the "Antik Denim" brand apparel, and
(iii) be entitled to receive such other benefits as Antik or Marine may elect to
offer to its other employees from time to time. Antik anticipates executing such
agreements no later than June 1, 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding Marine's
common stock beneficially owned on April 29, 2005, prior to giving effect to the
Closing, for (i) each stockholder known to be the beneficial owner of 5% or more
of Marine's outstanding common stock, (ii) each executive officer and director,
and (iii) all executive officers and directors as a group. In general, a person
is deemed to be a "beneficial owner" of a security if that person has or shares
the power to vote or direct the voting of such security, or the power to dispose
or to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within 60 days. At April 29, 2005, immediately prior to the
Closing, Marine had 28,122,570 shares of common stock outstanding.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED SHARES
--------------------------------------- ------------------- ----------
Kevin R. Keating 1,000,000 (1) 3.6%
936A Beachland Boulevard, Suite 13
Vero Beach, Florida 32963
Keating Reverse Merger Fund, LLC 20,306,500 (2) 72.2%
5251 DTC Parkway, Suite 1090
Greenwood Village, Colorado 80111
All Executive Officers and Directors as 1,000,000 3.6%
a group (1 person)
----------
(1) On February 17, 2005, Marine issued 1,000,000 shares of its common
stock to Kevin R. Keating, its then existing sole officer and director,
for services rendered to Marine with a fair value of $10,000. Kevin R.
Keating is not affiliated with and has no equity interest in Keating
Reverse Merger Fund, LLC and disclaims any beneficial interest in the
shares of Marine's common stock owned by Keating Reverse Merger Fund,
LLC.
(2) On February 9, 2005, Jeff Jordan sold 15,306,500 shares of Marine's
common stock owned by him to Keating Reverse Merger Fund, LLC for a
purchase price of $440,000. On February 17, 2005, Marine issued
5,000,000 shares of its common stock to Keating Reverse Merger Fund,
LLC for an aggregate purchase price of $50,000. Keating Reverse Merger
Fund, LLC is not owned by or affiliated with Kevin R. Keating and
disclaims any beneficial interest in the shares of Marine's common
stock owned by Kevin R. Keating.
The following table sets forth certain information regarding Marine's
common stock beneficially owned on April 29, 2005, after giving effect to the
Closing, for (i) each stockholder known to be the beneficial owner of 5% or more
of Marine's outstanding common stock, (ii) each executive officer and director,
and (iii) all executive officers and directors as a group, on an approximated
pre- and post- Reverse Split basis. Unless otherwise indicated, each person in
the table has sole voting and investment power with respect to the shares shown.
The table assumes a total of 740,067,719 and 25,519,607 shares of Marine's
common stock outstanding as of April 29, 2005, on a pre- and post- Reverse Split
basis, respectively, and on an as-converted basis.
AMOUNT OF AMOUNT OF
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP PERCENT OF
(PRE-REVERSE (POST-REVERSE BENEFICIAL
NAME OF BENEFICIAL OWNER SPLIT) SPLIT) OWNERSHIP
------------------------------------ ------------ ------------- ----------
Paul Guez (1), (2) ................. 534,574,596 18,433,647 72.23%
Meyer Abbou (1), (2) ............... 58,136,760 2,004,741 7.86%
Philippe Naouri (1), (2) ........... 58,136,760 2,004,741 7.86%
Alex Caugant (1), (2) .............. 58,136,760 2,004,741 7.86%
Elizabeth Guez (1), (3) ............ 534,574,596 18,433,647 72.23%
David Weiner (1) ................... 0 0 0.0%
Kevin R. Keating ................... 1,000,000 34,483 0.14%
936A Beachland Boulevard, Suite 13
Vero Beach, Florida 32963
Keating Reverse Merger Fund, LLC (2) 20,306,500 700,225 2.74%
5251 DTC Parkway, Suite 1090
Greenwood Village, Colorado 80111
All Executive Officers and Directors
as a group ...................... 535,574,596 18,468,130 72.37%
----------
(1) Address is c/o Antik Denim, LLC, 5804 E. Slauson Avenue Commerce,
California 90040. The beneficial ownership of Marine's common stock is
based on the holder's respective ownership of Marine's Series A
Convertible Preferred Stock, on an as-converted basis prior to the
proposed Reverse Split. Each share of Series A Convertible Preferred
Stock is convertible into 841 shares of Marine's common stock on a
pre-Reverse Split basis. The shares of Series A Convertible Preferred
Stock will immediately and automatically be converted into shares of
Marine's common stock upon the approval by a majority of Marine's
stockholders (voting together on an as-converted-to-common-stock
basis), following the Closing, of an increase in the number of
authorized shares of Marine's common stock from 45,000,000 to
75,000,000, and a 1 for 29 reverse stock split of Marine's outstanding
common stock.
(2) Effective as of the Closing, KRM Fund and each Antik Member have agreed
to vote their shares of Marine's common stock (voting together on an
as-converted-to-common-stock basis) to (i) elect Mr. Keating or such
other person designated by KRM Fund from time to time (the "KRM
Designate") to Marine's board for a period of one year following the
Closing, (ii) elect such other persons that may be designated by Paul
Guez from time to time to fill any vacant position on the board of
directors (other than the KRM Designate), and (iii) approve the Reverse
Split, an increase in Marine's authorized common stock from 45,000,000
to 75,000,000, a corporate name change, and a stock incentive plan.
(3) Includes all shares beneficially owned by her spouse, Paul Guez.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the employment arrangements described above in "Executive
Compensation" and the transactions described below, since September 13, 2004
(inception), there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which Antik was or will be a
party:
- in which the amount involved exceeds $60,000; and
- in which any director, executive officer, shareholder who
beneficially owns 5% or more of Marine's common stock or any
member of their immediate family had or will have a direct or
indirect material interest.
TRANSACTIONS WITH OFFICERS, DIRECTORS AND 5% HOLDERS
On February 28, 2005, in accordance with the provisions of the
Operating Agreement described below, Paul Guez contributed piece goods inventory
with a fair market value at cost of $1,200,000 to Antik.
Antik is a party to an allocation letter agreement dated January 2,
2005 with Blue Concept, LLC, an entity co-owned by Paul and Elizabeth Guez,
pursuant to which, for the year ended December 31, 2005, the parties agreed to
allocate, and Antik is ultimately liable for, operating expenses of Blue
Concept, LLC allocable to Antik. The allocations are to be on terms no less
favorable than those that could be reasonably obtained in arms' length
transactions with independent third parties and will be subject to final
approval by Antik's, or its successor's, audit committee, as applicable. The
allocation agreement applies to, among other matters, employees of Blue Concept,
LLC providing services to or on behalf of Antik, and covers salaries, payroll
taxes, and various employment benefits and benefit plans, including medical,
dental and 401(k) plans for such employees. The allocation agreement also
applies to other expenses consisting of utilities, common area services, rent,
insurance and other office services.
Antik is a party to a similar allocation letter agreement dated
December 31, 2004 with Blue Concept, LLC, for the period from inception through
December 31, 2004. Pursuant to this letter agreement, Antik was allocated
approximately $104,049 per month of operating expenses allocable to its
operations, or a total of $390,185 for the entire period. Antik has confirmed
that such allocations were made on terms no less favorable than those that could
be reasonably obtained in arms' length transactions with independent third
parties.
During the period from inception through December 31, 2004, Paul Guez
and several companies co-owned by Paul Guez, provided advance loans to Antik in
the form of inventory with a fair market value at cost, or cash for working
capital purposes, in an amount equal to $246,857. The advances are unsecured and
non-interest bearing, with no formal terms of repayment.
Advances made by Antik's factor are collateralized by non-factored
accounts receivable, inventories, general intangibles and personal guarantees
executed by Blue Concept, LLC and Paul Guez. The guarantees provide that the
factor may pursue claims against Blue Concept, LLC or Mr. Guez in the event that
Antik defaults on its obligations to the factor.
Under the terms of Antik's Operating Agreement dated to be effective
September 13, 2004 (the "Operating Agreement"), by and among the Antik Members,
including Mr. Guez, certain of the Antik Members (not including Mr. Guez) were
entitled to receive, and were receiving since September 13, 2004, distributions
under the Operating Agreement. Since inception through December 31, 2004, such
distributions totaled $79,190. Pursuant to the provisions of the Operating
Agreement, the Antik Members contributed cash or property (or agreed to
contribute cash or property), including patent and trademark applications and
proprietary designs and design concepts, in exchange for their respective
membership interests. At the Closing, the terms and conditions of the Operating
Agreement terminated and those Antik Members previously receiving advances
against distributions are no longer entitled to such advances. At the Closing,
Marine became the sole member of Antik and intends to establish such terms and
conditions with respect to the operation and governance of Antik as it deems
appropriate.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Weinberg & Co. ("Weinberg"), our independent public accountants,
billed Antik aggregate audit fees of approximately $30,000 for professional
services rendered for the audit of its annual financial statements for the
period since inception through December 31, 2004 (the "Inception Period").
Paul Guez, Antik's manager, was directly responsible for interviewing
and retaining its independent accountant, considering the accounting firm's
independence and effectiveness, and pre-approving the engagement fees and other
compensation to be paid to, and the services to be conducted by, the independent
accountant. Mr. Guez did not delegate these responsibilities. During the
Inception Period, Mr. Guez pre-approved 100% of the services described above.
LEGAL PROCEEDINGS
Antik is not involved in any lawsuit outside the ordinary course of
business the disposition of which would have a material effect upon either its
results of operations, financial position, or cash flows.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Audited Financial Statements of Antik Denim, LLC as of
December 31, 2004, and for the period from inception
(September 13, 2004) through December 31, 2004.
The Financial Statements of Antik Denim, LLC as of March 31,
2005, and for the quarter ended March 31, 2005, will be
included in an amendment to this Current Report on Form 8-K
which Marine anticipates filing within the time period
provided by this form.
ANTIK DENIM, LLC
(A CALIFORNIA LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 13, 2004 (INCEPTION)
TO DECEMBER 31, 2004
ANTIK DENIM, LLC
DECEMBER 31, 2004
TABLE OF CONTENTS
PAGE NO.
--------
Report of Independent Registered Public Accounting Firm................... 1
FINANCIAL STATEMENTS:
Balance Sheet as of December 31, 2004.................................. 2
Statement of Operations and Members' Equity as of
December 31, 2004................................................... 3
Statement of Cash Flows for the period from September 13, 2004
(Inception) to December 31, 2004................................... 4
Notes to Financial Statements as of December 31, 2004.................. 5-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors:
Antik Denim, L.L.C.
We have audited the accompanying balance sheet of Antik Denim, L.L.C. as
of December 31, 2004 and the related statements of operations and members'
equity and cash flows for the period September 13, 2004 (Inception) to December
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 conducted 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 supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Antik Denim, L.L.C. as of
December 31, 2004 and the results of its operations and its cash flows for the
period September 13, 2004 (Inception) to December 31, 2004 in conformity with
accounting principles generally accepted in the United States of America.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
April 25, 2005
- 1 -
ANTIK DENIM, LLC
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSET:
Cash ..................................................... $ 73,823
Due from factor .......................................... 378,594
Accounts receivable ...................................... 125,673
Inventories .............................................. 812,188
Due from affiliate ....................................... 1,583
Prepaid expenses and other current assets ................ 14,624
----------
Total current assets .............................. 1,406,485
----------
PROPERTY AND EQUIPMENT - at cost, less
Accumulated depreciation and amortization ................ 10,483
----------
$1,416,968
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 995,220
Due to affiliates ........................................ 210,657
Due to customers ......................................... 90,000
Due to member ............................................ 36,200
Accrued expenses and other current liabilities ........... 45,836
----------
1,377,913
COMMITMENTS
MEMBERS' EQUITY ............................................. 39,055
----------
$1,416,968
==========
See footnotes to accompanying financial statements.
-2-
ANTIK DENIM, LLC
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 13, 2004 (INCEPTION)
TO DECEMBER 31, 2004
SALES ................................................... $ 424,702
Less returns and allowances ............................. 59,412
-----------
NET SALES ............................................... 365,290
COST OF GOODS SOLD ...................................... 157,545
-----------
GROSS PROFIT ............................................ 207,745
-----------
OPERATING EXPENSES ...................................... 838,700
NON-CASH DEVELOPMENT COSTS .............................. 500,000
-----------
TOTAL OPERATING EXPENSES ............................. 1,338,700
-----------
LOSS FROM OPERATIONS BEFORE PROVISION FOR
STATE INCOME TAXES ................................... (1,130,955)
PROVISION FOR STATE INCOME TAXES ........................ 800
-----------
NET LOSS ................................................ (1,131,755)
MEMBERS' CONTRIBUTIONS .................................. 1,250,000
MEMBERS' WITHDRAWALS .................................... (79,190)
-----------
MEMBERS' EQUITY AT END OF PERIOD ........................ $ 39,055
===========
See notes to accompanying financial statements.
-3-
ANTIK DENIM, LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 13, 2004 (INCEPTION)
TO DECEMBER 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(1,131,755)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash development costs ........................... 500,000
Depreciation ......................................... 389
Changes in assets and liabilities:
Accounts receivable ............................... (125,673)
Inventories ....................................... (812,188)
Prepaid expenses and other current assets ......... (14,624)
Accounts payable .................................. 995,220
Due to customers .................................. 90,000
Other current liabilities ......................... 45,836
-----------
Net cash used in operating activities .............. (452,795)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .................... (10,872)
Loan to Affiliate ........................................ (1,583)
-----------
Net cash used by investing activities .............. (12,455)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from factor .............................. (378,594)
Members' contributions ................................... 750,000
Members' withdrawals ..................................... (79,190)
Loans from Affiliates .................................... 210,657
Loans from Member ........................................ 36,200
-----------
Net cash provided by financing activities .......... 539,073
-----------
NET INCREASE IN CASH AT END OF PERIOD ..................... $ 73,823
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes ............................... $ 800
===========
See notes to accompanying financial statements.
-4-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
(a) ORGANIZATION:
ANTIK DENIM, LLC ("the Company" or "Antik") was organized as a
California limited liability company under the laws of the State of California
on September 13, 2004.
(b) NATURE OF OPERATIONS:
The Company operates exclusively in the wholesale apparel
industry. Antik designs, develops, markets and distributes high fashion jeans
and accessories with an Old West flair under the brand name "Antik Denim."
Antik's products include jeans, jackets, belts, purses and t-shirts. Antik
currently sells its products in the United States, Canada, Japan and the
European Union directly to department stores and boutiques and through
distribution arrangements in certain foreign jurisdictions. Antik is
headquartered in Commerce, California, and maintains showrooms in New York and
Los Angeles.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
(b) INVENTORY VALUATION:
Inventories are stated at the lower of cost (first-in, first
-out method) or market.
(c) REVENUE RECOGNITION:
Revenue is recognized when merchandise is shipped to a
customer based upon agreed terms. Revenue is recorded net of estimated returns,
charge backs and markdowns based upon management's estimates and historical
experience. The Company often arranges for the purchase of fabric that is
shipped and invoiced directly to the cutting factory. Generally, the factories
pay for the fabric with offsets against the price of the finished goods.
-5-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
(d) ADVERTISING:
Advertising costs are expensed as of the first date the
advertisements take place. Advertising expenses included in selling expenses
approximated $3,500.
(e) PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is
provided by the straight-line method at rates calculated to amortize cost over
the estimated useful lives of the respective assets. Upon sale or retirement of
such assets, the related cost and accumulated depreciation are eliminated from
the accounts and gains or losses are reflected in operations. Repairs and
maintenance expenditures not anticipated to extend asset lives are charged to
operations as incurred.
(f) INCOME TAXES:
The taxes on the income of a Limited Liability Company are
payable individually by each member. The amount that might be withdrawn by the
partners in order to pay such taxes will be determined as necessary and
distributed from members equity.. The Company is subject to California minimum
tax of $800 and a fee based on total annual revenue.
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES:
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds 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.
(h) CONCENTRATION OF CREDIT RISK:
Financial instruments, which potentially expose us to
concentration of credit risk, consist primarily of cash, trade accounts
receivable, and amounts due from factor. Concentration of credit risk with
respect to trade accounts receivable at December 31, 2004 is limited due to the
number of customers comprising the Company's customer base and their dispersion
throughout the United States. The Company extends unsecured credit to its
customers in the normal course of business.
The Company's cash balances on deposit with banks are
guaranteed by the Federal Deposit Insurance Corporation up to $100,000. The
Company may be exposed to risk for the amounts of funds held in one bank in
excess of the insurance limit. In assessing the risk, the Company's policy is to
maintain cash balances with high quality financial institutions.
-6-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
(h) CONCENTRATION OF CREDIT RISK (CONTINUED):
The Company's products are primarily sold to department stores
and specialty retail stores. These customers can be significantly affected by
changes in economic, competitive or other factors. The Company makes substantial
sales to a relatively few, large customers. In order to minimize the risk of
loss, the Company assigns a certain amount of domestic accounts receivable to a
factor without recourse or require letters of credit from its customers prior to
the shipment of goods. For non-factored receivables, account-monitoring
procedures are utilized to minimize the risk of loss. Collateral is generally
not required. At December 31, 2004, approximately 15% of accounts receivable
were due from two customers, and 85% of sales for the period ended December 31,
2004 were for 34 customers. All sales were made to customers in North America.
(i) MERCHANDISE RISK:
The Company's success is largely dependent upon its ability to
gauge the fashion tastes of its targeted consumers and provide merchandise that
satisfies consumer demand. Any inability to provide appropriate merchandise in
sufficient quantities in a timely manner could have a material adverse effect on
the Company's business, operating results and financial condition.
(j) ACCOUNTS RECEIVABLE - ALLOWANCE FOR RETURNS, DISCOUNTS AND BAD
DEBTS:
The Company evaluates the collectibility of accounts
receivable and charge backs (disputes from the customer) based upon a
combination of factors. In circumstances where the Company is aware of a
specific customer's inability to meet its financial obligations (such as in the
case of bankruptcy filings or substantial downgrading by credit sources), a
specific reserve for bad debts is taken against amounts due to reduce the net
recognized receivable to the amount reasonably expected to be collected. For all
other customers, the Company recognizes reserves for bad debts and uncollectible
charge backs based on its historical collection experience. If collection
experience deteriorates (for example, due to an unexpected material adverse
change in a major customer's ability to meet its financial obligations to the
Company, the estimates of the recoverability of amounts due could be reduced by
a material amount.
(k) SHIPPING AND HANDLING COSTS:
Freight charges are included in selling and distribution
expenses in the statement of operations and approximated $23,000 for the period
ended December 31, 2004.
-7-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 3 - DUE FROM FACTOR
The Company uses a factor for working capital and credit administration
purposes. Under the factoring agreement, the factor purchases a substantial
portion of the trade accounts receivable and assumes all credit risk with
respect to such accounts.
The factor agreement, which terminates on October 18, 2005, provides
that the Company can borrow an amount up to 85% of the value of its approved
factored customer invoices, less a reserve of 15% of unpaid accounts purchased
and 100% of all such accounts which are disputed. As of December 31, 2004, the
amount of the reserve held by the factor was $89,641. The factor commission is
0.08% of the customer invoice amount for terms up to 90 days, plus one quarter
of one percent (.25%) for each additional thirty-day term.
Receivables sold in excess of maximums established by the factor are
subject to recourse in the event of nonpayment by the customer. At December 31,
2004, items subject to recourse approximated $157,000. The Company is
contingently liable to the factor for merchandise disputes, customer claims and
the like on receivables sold to the factor.
To the extent that the Company draws funds prior to the deemed
collection date of the accounts receivable sold to the factor, interest is
charged at the rate of 1% over the factor's prime lending rate per annum. Factor
advances and ledger debt are collateralized by the non-factored accounts
receivable, inventories, general intangibles and the personal guarantees of a
member and a company co-owned by a member.
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
Piece goods ............................ $633,005
Trim ................................... 66,393
Finished goods ......................... 112,790
--------
$812,188
========
-8-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Furniture ................................... $ 1,064
Leasehold improvements ...................... 7,000
Computer equipment .......................... 2,808
-------
10,872
Less: Accumulated depreciation .............. 389
-------
$10,483
=======
NOTE 6 - RELATED PARTY TRANSACTIONS
During the period from inception, September 13, 2004, to December 31,
2004, the Company reimbursed $390,185 for certain expenses (consisting of
salaries, payroll taxes, utilities, common area services, rent, insurance and
other office services) to Blue Concept, LLC, an entity that is co-owned by a
member of the Company. These amounts were for the benefit of the Company and are
included in operating expenses in the accompanying Statement of Operations. A
75.4% member and Blue Concept, LLC have personally guaranteed all advances and
ledger debt due to the Company's factor.
NOTE 7 - DUE FROM/TO AFFILIATES
The Affiliates are all Limited Liability Companies that are co-owned by
a 75.4% member of the Company. The advances are unsecured and non-interest
bearing, with no formal terms of repayment.
NOTE 8 - MAJOR SUPPLIERS
During the period from inception, September 13, 2004, to December 31,
2004, two suppliers comprised greater than 10% of the Company's piece goods
purchases. Purchases from these suppliers were 51.3% and 34.1%, respectively.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of Cash, Due from factor, Accounts receivable, Due
from affiliates, accounts payable, Due to Affiliates, Due to customers, Accrued
expenses and other current liabilities approximate fair value because of the
short maturity of these items.
-9-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 10 - OFF-BALANCE SHEET RISK
Financial instruments that potentially subject the Company to
off-balance sheet risk consist of factored accounts receivable. As described in
Note 3, the Company sells the majority of its trade accounts receivable to a
factor and is contingently liable to the factor for merchandise disputes and
other customer claims. At December 31, 2004, total factor receivables
approximated $515,000.
NOTE 11 - MEMBERS' EQUITY
The Company is a limited liability company; therefore, no member,
manager, agent or employee of the Company is personally liable for the debts,
obligations, or liabilities of the Company, whether arising in contract, tort or
otherwise, or for the acts or omissions of any other member, director, manager,
agent or employee of the Company, unless the individual has signed a specific
personal guarantee.
The Company was formed on September 13, 2004 with 4 members, one of
which has a 75.4% ownership interest, and the other 3 members each having a 8.2%
ownership interest. Member contributions in cash were as follows: contributions
of $500,000 by the 75.4 % member and contribution of $250,000 by an 8.2 %
member. The other 8.2% members each contributed patent and trademark
applications, design concepts and other items to form a complete line of
high-end fashion apparel. For financial statement purposes, the Company valued
each of the contributions at $250,000 ($500,000 in total), which was equal to
the cash consideration paid by the other 8.2% member. The $500,000 has been
reflected as non-cash development costs in the statement of operations for the
period ending December 31, 2004.
The members' equity account, as of December 31, 2004, was as follows:
Contributions by a 75.4 % member- cash .......... $ 500,000
Contributions by a 8.2 % member- cash ........... 250,000
Contributions by two 8.2% members ($250,000 each)
- non-cash development costs ................. 500,000
-----------
Total ............. 1,250,000
Less Net Loss .............................. (1,131,755)
Less Members' withdrawals .................. (79,190)
-----------
Balance at the end of the period ........... $ 39,055
===========
Net profits and losses are allocated to the capital account of each
member at the end of each accounting period as follows:
-10-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 11 - MEMBERS' EQUITY (CONT'D)
Net profits are first allocated to the 75.4% Member to the extent of
the amount by which the cumulative Net Losses for the current and all prior
fiscal years of the Company allocated to such Member exceeds the cumulative Net
Profits for the current and all prior fiscal years of the Company allocated to
such Member; thereafter, to all of the 8.2% Members in the same manner that
allocations of profits are made to the 75.4% Member and finally to Members in
proportion to their respective negative capital accounts, if any.
Net losses are first allocated to the 75.4% Member to the extent of
such Member's positive capital account balance, second to the 8.2% Members in
proportion to, and to the extent of, their positive capital account balances and
thereafter to Members in proportion to their respective percentage interests.
In accordance with the operating agreement governing the rights of the
members, the majority member is required to contribute an additional $3,200,000
of cash and/or property to the Company as one or more additional capital
contributions, in each case as may be required in the sole discretion of the
75.4% Member.
NOTE 12 - SUBSEQUENT EVENTS
On February 28, 2005, a member having 75.4% interest in the Company
contributed piece goods inventory with a fair market value of $1,200,000 to the
Company.
Antik executed a letter agreement dated March 21, 2005 with Messrs.
Philippe Naouri and Alex Caugant, two of its key designers and former members,
pursuant to which Antik agreed that, to the extent Antik closed its exchange
transaction with Marine (described below), Antik would, or would use its best
efforts to cause Marine to, enter into employment agreements with each of
Messrs. Naouri and Caugant whereby such individuals would (i) perform fashion
design services for Antik or Marine, (ii) be entitled to receive annual salaries
of $240,000, plus bonuses based on net sales arising from the "Antik Denim"
brand apparel, and (iii) be entitled to receive such other benefits as Antik or
Marine may elect to offer to its other employees from time to time. Antik
anticipates executing such agreements no later than June 1, 2005.
On March 24, 2005, the Company entered into a Letter of Intent with
Marine Jet Technology Corp., a Nevada corporation ("Marine"). On April 14, 2005,
the Company entered into an Exchange Agreement with Marine governing the
principal terms set forth in the Letter of Intent. Under the transactions
contemplated by the Exchange Agreement, Marine will, at the closing of the
transactions contemplated by the Exchange Agreement, acquire all of the
outstanding membership interests of the Company (the "Interests") from the
Company's members, and the Company's members will contribute all of their
Interests to Marine. In exchange, Marine will issue to the Company's members
843,027 shares of Series A Convertible Preferred Stock, par value $0.001 per
share, of Marine ("Preferred Shares"), which will be convertible into
708,984,875 shares of Marine's common stock ("Conversion Shares"). As such,
immediately following the closing and upon the conversion of the Preferred
Shares, the Antik members will own 95.8% of the total issued and outstanding
common stock on a fully-diluted basis. Following completion of the exchange
transaction, the Company will become a wholly-owned subsidiary of Marine.
-11-
ANTIK DENIM, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 12 - SUBSEQUENT EVENTS (CONT'D)
Pursuant to the provisions of the Exchange Agreement, the members of
Antik agreed that, in the event that the stockholders' equity of Marine (on a
consolidated basis following the Closing) as reported in Marine's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2005 (the "Consolidated
Equity") is less than $5,000,000, the members would contribute, within fifteen
(15) days following the filing of such periodic report, equity capital to Marine
in an amount equal to the difference between $5,000,000 and the actual
Consolidated Equity reported in such periodic report ("Required Contribution").
In the case of such Required Contribution, each of the Antik members agreed that
no additional shares of capital stock of Marine would be issued in consideration
of such Required Contribution, and therefore, the existing shareholders of
Marine, including Antik's former members, would not be further diluted.
The acquisition will be accounted for as a reverse merger
(recapitalization) with Antik deemed to be the accounting acquirer, and Marine
deemed to be the legal acquirer.
-12-
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Financial Statements of Marine Jet
Technology Corp. and Antik Denim, LLC as of December 31, 2004,
and for the period ended December 31, 2004.
The unaudited Pro Forma Financial Statements of Marine Jet
Technology Corp. and Antik Denim, LLC as of March 31, 2005,
and for the quarter ended March 31, 2005, will be included in
an amendment to this Current Report on Form 8-K which Marine
anticipates filing within the time period provided by this
form.
Pro Forma Financial Statements of
Marine Jet Technology Corp. and Antik Denim, LLC
as of December 31, 2004, and
for the period ended December 31, 2004.
The pro-forma unaudited financial statements reflect the Closing of the exchange
transaction as of December 31, 2004, for Balance Sheet purposes, and for the
period ending December 31, 2004 for Statements of Operations purposes, as if the
Closing had occurred as of such date. The unaudited pro-forma financial data and
the notes thereto should be read in conjunction with each of Marine and Antik's
historical financial statements. The unaudited pro-forma financial data is based
upon certain assumptions and estimates of management that are subject to change.
The unaudited pro-forma financial data is presented for illustrative purposes
only and is not necessarily indicative of any future results of operations or
the results that might have occurred if the exchange transaction had actually
occurred on the indicated date.
[The remainder of this page has intentionally been left blank.]
MARINE JET TECHNOLOGY, CORP. AND SUBSIDIARY
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004
Pro Forma Pro Forma
MARINE JET Adjustments Consolidated
TECHNOLOGY Antik (See Notes) (See Note A)
CORP. Denim, LLC (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash .......................................... $ 869 $ 73,823 $ (869) D $ 73,823
Accounts Receivable ........................... -- 125,673 -- 125,673
Due from Factor ............................... -- 378,594 -- 378,594
Inventories ................................... -- 812,188 -- 812,188
Prepaids expenses and other current assets .... -- 14,624 -- 14,624
Other ......................................... -- 1,583 -- 1,583
----------- ----------- ----------- -----------
Total current assets ....................... 869 1,406,485 (869) 1,407,354
----------- ----------- ----------- -----------
PROPERTY & EQUIPMENT-AT COST, LESS ............ -- 10,872 -- 10,872
ACCUMLATED DEPRECIATION .................... -- (389) -- (389)
ASSETS HELD- FOR-SALE ............................... 48,186 -- (48,186) D 0
----------- ----------- ----------- -----------
Total assets ........................................ $ 49,055 $ 1,416,968 $ (49,055) $ 1,416,968
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
-------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable .............................. $ -- $ 995,220 -- $ 995,220
Customer Deposits ............................. -- 90,000 -- 90,000
Due to Affiliate .............................. -- 210,657 -- 210,657
Due to Member ................................. -- 36,200 -- 36,200
Accrued Expenses and other current liabilities 44,754 45,836 (44,754) D 45,836
----------- ----------- ----------- -----------
Total current liabilities .................. 44,754 1,377,913 (44,754) 1,377,913
----------- ----------- ----------- -----------
STOCKHOLDERS' AND MEMBERS' EQUITY:
Member's equity ............................... -- 39,055 (39,055) B --
Common stock, $0.001 par value
Authorized 75,000,000 shares
Issued and outstanding 25,519,607 shares ... 21,823 -- 3,697 C 25,520
Preferred stock, $0.001 par value
Authorized 5,000,000 shares
Issued and outstanding none ................ -- --
Additional paid-in capital .................... 287,355 -- 39,055 B 326,410
(3,697) C
Accumulated deficit during development stage .. (304,877) -- (4,301) D (309,178)
----------- ----------- ----------- -----------
Total stockholders' and Members' equity .... 4,301 39,055 (4,301) 39,055
----------- ----------- ----------- -----------
Total liabilities and stockholders' / Members' equity $ 49,055 $ 1,416,968 $ (49,055) $ 1,416,968
=========== =========== =========== ===========
NOTES:
(A) The Consolidated Balance Sheet includes the accounts of the Company and its
wholly owned subsidiary, Antik Denim, LLC ("Antik"). This acquisition will
be accounted for as a reverse merger (recapitalization) with Antik deemed
to be the accounting acquirer, and Marine Jet deemed to be the legal
acquirer.
(B) At the Closing, the Members' equity of Antik, $39,055, will be reclassified
to additional paid-in capital.
(C) At the Closing, additional paid-in capital in the amount of $3,697 will be
reclassified to common stock to reflect the additional shares that will be
issued at a par value of $.001. Shares are shown assuming a post closing
issuance of preferred shares, immediately followed by a mandatory
conversion into common shares and a reverse split of Marine's outstanding
common stock 1 for 29 shares.
(D) Accounts for the sale of the assets & liabilities of Marine for $2,500
before Closing the Antik exchange transaction.
MARINE JET TECHNOLOGY, CORP. AND SUBSIDIARY
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Pro Forma Pro Forma
MARINE JET Adjustments Consolidated
TECHNOLOGY Antik (See Notes) (See Note A)
CORP. Denim, LLC (unaudited) (unaudited)
------------ ------------ ------------ ------------
SALES ...................................... $ -- $ 424,702 $ 424,702
Less: returns and allowances ......... -- 59,412 59,412
------------ ------------ ------------
NET SALES .................................. -- 365,290.00 365,290.00
COST OF GOODS SOLD ......................... -- 157,545.00 157,545.00
------------ ------------ ------------
GROSS PROFIT ............................... -- 207,745.00 207,745.00
------------ ------------ ------------
EXPENSES:
Operating expenses .................... 147,198 838,311 985,509
Development Cost ...................... -- 500,000 500,000
Depreciation expense .................. 6,098 389 6,487
Amortization expense .................. 4,047 -- 4,047
Ajustment on disposal of held-for-sale
assets ............................. -- -- 4,301 4,301
------------ ------------ ------------ ------------
TOTAL EXPENSES ............................. 157,343 1,338,700 4,301 1,500,344
------------ ------------ ------------ ------------
OPERATING LOSS ............................. (157,343) (1,130,955) (4,301) (1,292,599)
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest expense ...................... (2,051) -- -- (2,051)
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR STATE INCOME TAXES (159,394) (1,130,955) (4,301) (1,294,650)
------------ ------------ ------------ ------------
PROVISION FOR STATE INCOME TAXES ........... -- 800 -- 800
NET LOSS ................................... $ (159,394) $ (1,131,755) (4,301) $ (1,295,450)
============ ============ ============ ============
Weighted Average Shares Outstanding ........ 21,277,871 25,519,607
Basic Income (Loss) per share .............. $ (0.01) $ (0.05)
Diluted Income (Loss) per share ............ $ -- $ (0.05)
(A) The consolidated Statement of Operations includes the accounts of the
Company and its wholly owned subsidiary, Antik Denim, LLC. This acquisition
will be accounted for as a reverse merger (recapitalization) with Antik
deemed to be the accounting acquirer, and Marine deemed to be the legal
acquirer.
(c) EXHIBITS.
4.1 Certificate of Designations, Preferences, Rights and
Limitations of Series A Convertible Preferred Stock
of Marine Jet Technology Corp.
10.1 Financial Advisory Agreement dated April 29, 2005,
between Marine Jet Technology Corp. and Keating
Securities, LLC.
99.1 Press Release announcing the Closing filed on April
29, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Marine Jet Technology Corp. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
MARINE JET TECHNOLOGY CORP.
Date: April 29, 2005 By: /s/ Paul Guez
------------------------------------
Paul Guez, Chairman, Chief Executive
Officer and President
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- --------------------------------------------------------------
4.1 Certificate of Designations, Preferences, Rights and
Limitations of Series A Convertible Preferred Stock of Marine
Jet Technology Corp.
10.1 Financial Advisory Agreement dated April 29, 2005, between
Marine Jet Technology Corp. and Keating Securities, LLC.
99.1 Press Release announcing the Closing filed on April 29, 2005.