UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2006

                        COMMISSION FILE NUMBER: 000-33297


                               BLUE HOLDINGS, INC.
        (Exact name of small business issuer as specified in its charter)


             NEVADA                                      88-0450923
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                    5804 E. SLAUSON AVE., COMMERCE, CA 90040
                    (Address of principal executive offices)

                                 (323) 725-5555
                           (Issuer's telephone number)


         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.

                                 YES |X|    NO |_|

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act). YES |_|   No |X|

         As of August 1,  2006,  26,057,200  shares of the  registrant's  common
stock were outstanding.

         Transitional Small Business Disclosure Format (Check One):

                                 YES |_|    NO |X|





                                      TABLE OF CONTENTS


                                                                            Page


PART I   Financial Information


Item 1.  Financial Statements

           Condensed Consolidated Balance Sheets (Unaudited)                  3

           Condensed Consolidated Statements of Operations (Unaudited)        4

           Condensed Consolidated Statements of Shareholders'
             Equity (Unaudited)                                               5

           Condensed Consolidated Statements of Cash Flows (Unaudited)        6

           Notes to the Condensed Consolidated Financial
             Statements (Unaudited)                                           7


Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           18


Item 3.  Controls and Procedures                                             33



PART II  Other Information

Item 4.  Submission of Matters to a Vote of Security Holders                 34

Item 6.  Exhibits                                                            34


                                       2



                                     PART I

ITEM 1.           FINANCIAL STATEMENTS

       BLUE HOLDINGS INC. (FORMERLY KNOWN AS MARINE JET TECHNOLOGY CORP.)
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2006 AND DECEMBER 31, 2005

           ASSETS                                        June 30,   December 31,
                                                           2006          2005
                                                       -----------   -----------
                                                       (Unaudited)
Current assets:
   Cash ............................................   $   107,564   $   228,127
   Due from factor, net of reserves of $130,430
      and $96,849, respectively ....................       763,379       693,474
   Accounts receivable, net of reserves of
      $529,659 and $484,421, respectively:
        - Purchased by factor with recourse ........     9,095,574     4,287,163
        - Others ...................................       188,417         2,504
   Due from related parties ........................          --          15,974
   Inventories .....................................    13,275,707     9,925,162
   Deferred income taxes ...........................       861,514       492,574
   Prepaid expenses and other current assets .......       535,098       351,919
                                                       -----------   -----------
      Total current assets .........................    24,827,253    15,996,897


   Deferred income taxes ...........................     1,667,266     1,671,135
   Deferred acquisition costs ......................       236,619          --
   Property and equipment, less accumulated
      depreciation .................................       486,294       198,927
                                                       -----------   -----------
Total assets .......................................   $27,217,432   $17,866,959
                                                       ===========   ===========

       LIABILITIES AND EQUITY

Current liabilities:
   Bank overdraft ..................................   $      --     $   616,020
   Accounts payable ................................     3,641,751     2,911,598
   Short-term borrowings ...........................     8,007,105     4,583,936
   Due to related parties ..........................     1,038,337       372,311
   Advances from majority shareholder ..............     2,519,106        96,875
   Income taxes payable ............................       826,523       650,468
   Accrued expenses and other current
      liabilities ..................................       524,155       599,166
                                                       -----------   -----------
      Total current liabilities ....................    16,556,977     9,830,374
                                                       -----------   -----------

Stockholders' equity:
   Common stock $0.001 par value,
    75,000,000 shares authorized,
    26,057,200 shares issued and outstanding .......        26,057        26,057
   Additional paid-in capital ......................     5,225,950     4,996,752
   Retained earnings ...............................     5,408,448     3,013,776
                                                       -----------   -----------
      Total stockholders' equity ...................    10,660,455     8,036,585
                                                       -----------   -----------
Total liabilities and stockholders' equity .........   $27,217,432   $17,866,959
                                                       ===========   ===========

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3




       BLUE HOLDINGS INC. (FORMERLY KNOWN AS MARINE JET TECHNOLOGY CORP.)
                                AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


                                                            THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                 JUNE 30,                    JUNE 30,
                                                         -------------------------   -------------------------
                                                            2006          2005          2006          2005
                                                         -----------   -----------   -----------   -----------
                                                                                       
Net sales ............................................   $15,180,652   $ 5,681,614   $27,058,531   $10,691,047

Cost of goods sold ...................................     7,752,299     2,081,363    13,680,915     5,428,182
                                                         -----------   -----------   -----------   -----------

Gross profit .........................................     7,428,353     3,600,251    13,377,616     5,262,865

Selling, distribution & administrative expenses ......     4,322,680     1,956,741     8,923,087     3,152,506
                                                         -----------   -----------   -----------   -----------

Income before interest expense, expenses relating to
   exchange transaction and provision for income taxes     3,105,673     1,643,510     4,454,529     2,110,359

Interest expense .....................................       214,449         7,588       385,762         7,588


Expenses relating to exchange transaction ............          --         477,617          --         477,617
                                                         -----------   -----------   -----------   -----------

Income before provision for income taxes .............     2,891,224     1,158,305     4,068,767     1,625,154


Provision for income taxes ...........................     1,176,728       135,484     1,674,095       136,284
                                                         -----------   -----------   -----------   -----------

Net income ...........................................   $ 1,714,496   $ 1,022,821   $ 2,394,672   $ 1,488,870
                                                         ===========   ===========   ===========   ===========

Earnings per common share, basic and diluted .........   $      0.07   $      0.04   $      0.09   $      0.06
                                                         ===========   ===========   ===========   ===========

Weighted average shares outstanding, basic and diluted    26,057,200    26,057,200    26,057,200    26,057,200
                                                         ===========   ===========   ===========   ===========


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4




 BLUE HOLDINGS INC. (FORMERLY KNOWN AS MARINE JET TECHNOLOGY CORP.) AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006


                                      Shares Issued
                                ------------------------     Additional
                                               Par Value      Paid In      Retained
                                   Number        0.001        Capital      Earnings        Total
                                -----------   -----------   -----------   -----------   -----------
                                                                         
Balance, January 1, 2006 ....    26,057,200   $    26,057   $ 4,996,752   $ 3,013,776   $ 8,036,585


Fair value of options granted          --            --         229,198          --         229,198


Net Income for the period ...          --            --            --       2,394,672     2,394,672
                                -----------   -----------   -----------   -----------   -----------

Balance,  June 30, 2006 .....    26,057,200   $    26,057   $ 5,225,950   $ 5,408,448   $10,660,455
                                ===========   ===========   ===========   ===========   ===========


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5



       BLUE HOLDINGS INC. (FORMERLY KNOWN AS MARINE JET TECHNOLOGY CORP.)
                                AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005

                                                          Six Months Ended
                                                               June 30,
                                                     --------------------------
                                                         2006           2005
                                                     -----------    -----------
Cash flows from operating activities:
Net Income .......................................   $ 2,394,672    $ 1,488,870
Adjustments to reconcile net income to cash used
in operating activities:
   Depreciation and amortization .................        77,470          4,833
   Stock based exchange transaction expense ......          --          177,617
   Fair value of stock options granted ...........       229,198           --
Changes in assets and liabilities:
   Accounts receivable ...........................    (4,994,324)      (192,596)
   Due from factor ...............................       (69,905)       (42,585)
   Inventories ...................................    (3,350,545)    (4,814,376)
   Due from related parties ......................        15,974       (251,383)
   Deferred income taxes .........................      (365,071)      (197,580)
   Due to related parties ........................       666,026      1,091,599
   Prepaid expenses and other current assets .....      (183,178)      (173,511)
   Income tax payable ............................       176,055        332,264
   Bank overdraft ................................      (616,020)          --
   Accounts payable ..............................       730,153      1,650,703
   Other current liabilities .....................       (75,012)        68,463
                                                     -----------    -----------
Net cash used in operating activities ............    (5,364,507)      (857,682)
                                                     -----------    -----------

Cash flows from investing activities:
   Purchase of equipment .........................      (364,837)       (38,697)
   Deferred acquisition costs ....................      (236,619)          --
                                                     -----------    -----------
Net cash used in investing activities ............      (601,456)       (38,697)
                                                     -----------    -----------

Cash flows from financing activities:
   Short-term borrowings .........................     3,423,169           --
   Additional paid in capital ....................          --          686,200
   Advances from majority shareholder ............     2,422,231        157,083
                                                     -----------    -----------
Net cash provided by financing activities ........     5,845,400        843,283
                                                     -----------    -----------

Net decrease in cash .............................      (120,563)       (53,096)
Cash at beginning of period ......................       228,127         84,635
                                                     -----------    -----------
CASH AT END OF PERIOD ............................   $   107,564    $    31,539
                                                     ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for income tax .........................   $ 1,855,200    $     2,500
                                                     ===========    ===========

Cash paid for interest ...........................   $   385,762    $     7,588
                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
AND INVESTING ACTIVITIES:

Inventory contributed by a stockholder at its
   historical cost ...............................   $      --      $ 1,200,000
                                                     ===========    ===========

Value of common stock issued for finders fee
   relating to exchange transaction ..............   $      --      $   177,617
                                                     ===========    ===========


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       6



       BLUE HOLDINGS INC. (FORMERLY KNOWNS AS MARINE JET TECHNOLOGY CORP.)
                                AND SUBSIDIARIES

           NOTES TO CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2006
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS

         (a)      BASIS OF PRESENTATION:

         The interim condensed  consolidated financial statements are unaudited,
but in the opinion of management of the Company, contain all adjustments,  which
include normal recurring adjustments,  necessary to present fairly the financial
position  at June 30,  2006,  the results of  operations  and cash flows for the
three and six months  ended June 30,  2006 and 2005.  The  consolidated  balance
sheet as of December 31, 2005 is derived from the  Company's  audited  financial
statements.

         Certain  information  and  footnote  disclosures  normally  included in
financial  statements  that have been  presented in  accordance  with  generally
accepted  accounting  principles have been condensed or omitted  pursuant to the
rules and regulations of the Securities and Exchange  Commission with respect to
interim financial  statements,  although management of the Company believes that
the disclosures contained in these financial statements are adequate to make the
information presented therein not misleading. For further information,  refer to
the  consolidated  financial  statements  and  notes  thereto  included  in  the
Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December 31,
2005, as filed with the Securities and Exchange Commission.

         The Company's  results of operations for the three and six months ended
June 30, 2006 are not necessarily  indicative of the results of operations to be
expected for the full fiscal year ending December 31, 2006.

         The condensed  consolidated financial statements include the operations
of  Blue  Holdings, Inc.  and  its   wholly-owned   subsidiaries.   Intercompany
transactions and balances are eliminated in consolidation.

         (b)      ORGANIZATION:

         Blue Holdings,  Inc. (a Nevada corporation formerly known as Marine Jet
Technology  Corp.) was  incorporated in the State of Nevada on February 9, 2000.
On April 14, 2005, Blue Holdings  entered into an Exchange  Agreement with Antik
Denim,  LLC ("Antik").  At the closing of the  transactions  contemplated by the
Exchange Agreement, which occurred on April 29, 2005, Blue Holdings acquired all
of the  outstanding  membership  interests of Antik (the  "Interests")  from the
members of Antik,  and the members  contributed  all of their  Interests to Blue
Holdings.  In exchange,  Blue Holdings  issued to the members  843,027 shares of
Series A  Convertible  Preferred  Stock,  par value  $0.001 per  share,  of Blue
Holdings ("Preferred  Shares"),  which, on June 7, 2005, as a result of a change
to Marine Jet  Technology  Corp.'s  name to Blue  Holdings,  Inc. and a 1 for 29
reverse stock split,  were  converted into  24,447,783  shares of Blue Holding's
common stock on a post-reverse stock split basis.


                                       7



         As such,  immediately  following the closing and upon the conversion of
the Preferred  Shares,  the Antik members and Elizabeth  Guez,  our former Chief
Operating Officer and wife of Paul Guez, owned  approximately 95.8% of the total
issued and outstanding  common stock of Blue Holdings on a fully-diluted  basis.
Following  completion of the exchange  transaction,  Antik became a wholly-owned
subsidiary  of Blue  Holdings.  The  acquisition  was accounted for as a reverse
merger  (recapitalization)  in the accompanying  financial statements with Antik
deemed to be the  accounting  acquirer and Blue Holdings  deemed to be the legal
acquirer.  As such, the financial statements herein include those of Antik since
September 13, 2004 (the date of its  inception).  All assets and  liabilities of
Marine  Jet  Technology  Corp.  were  assumed by the major  shareholder  of Blue
Holdings, Inc. prior to the exchange transaction and were inconsequential to the
merged companies.

         On June 7, 2005,  Marine Jet Technology Corp.  changed its name to Blue
Holdings, Inc., and increased its authorized number of shares of common stock to
75,000,000.

         On October 31, 2005,  the Company  entered  into an exchange  agreement
with  Taverniti  So  Jeans,   LLC,  a  California   limited   liability  company
("Taverniti"), and the members of Taverniti (the "Taverniti Members"). Under the
exchange  agreement,  the Company  acquired  all of the  outstanding  membership
interests of Taverniti (the "Taverniti  Interests") from the Taverniti  Members,
and the Taverniti  Members  contributed all of their Taverniti  Interests to the
Company. In exchange, the Company issued to the Taverniti Members, on a pro rata
basis, an aggregate of 500,000 shares of the Common Stock,  par value $0.001 per
share, of the Company,  and paid to the Taverniti Members,  on a pro rata basis,
an aggregate of Seven Hundred Fifty Thousand Dollars ($750,000).  At the closing
of the exchange transaction,  Taverniti became a wholly-owned  subsidiary of the
Company. Paul Guez, the Company's Chairman,  Chief Executive Officer,  President
and majority  shareholder,  was and remains the sole manager and was a member of
Taverniti.  Elizabeth  Guez,  Paul Guez's spouse and the Company's  former Chief
Operating Officer, was also a member of Taverniti.  Two other members of Mr. and
Mrs. Guez's family,  including  Gregory Abbou, the President of Taverniti,  were
the  remaining  members of  Taverniti.  The  transaction  was accounted for as a
combination of entities under common control. As such, the financial  statements
herein  have been  presented  to  include  the  operations  of  Taverniti  since
September  13, 2004,  the date of its  inception,  and the $750,000  payment was
considered as a deemed distribution to the members of Taverniti upon the closing
of the combination.

         (c)      NATURE OF OPERATIONS:

         The Company operates exclusively in the wholesale apparel industry. The
Company  designs,  develops,  markets and  distributes  high  fashion  jeans and
accessories  under the brand names  "Antik  Denim",  "Taverniti  So Jeans",  and
"Yanuk". The Company's products currently include jeans, jackets,  belts, purses
and T-shirts.  The Company  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.  The
Company is headquartered in Commerce,  California and maintains showrooms in New
York and Los Angeles.  The Company  opened a retail store in Los Angeles  during
August  2005,  whose  operations  are not yet  significant  to the  consolidated
operations.


                                       8



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)      REVENUE RECOGNITION:

         Revenue is  recognized  when  merchandise  has been  shipped  against a
customer's  written  purchase order,  the risk of ownership has passed,  selling
price has been fixed and determined  and  collectibility  is reasonably  assured
either through payment received,  or fulfillment of all the terms and conditions
of the particular purchase order.  Revenue is recorded net of estimated returns,
charge  backs and  markdowns  based on  management's  estimates  and  historical
experience.

         (c)      ADVERTISING:

         Advertising costs are expensed as of the first date the  advertisements
take  place.  Advertising  expenses  included in selling  expenses  approximated
$69,897  and  $576,062  for the  three  and six  months  ended  June  30,  2006,
respectively, compared to $36,236 and $70,166 for the three and six months ended
June 30, 2005, respectively.

         (d)      CONCENTRATION OF CREDIT RISK:

         Financial   instruments,   which  potentially  expose  the  Company  to
concentration  of  credit  risk,  consist  primarily  of  cash,  trade  accounts
receivable,  and  amounts due from our factor.  With  respect to trade  accounts
receivable at June 30, 2006, two customers  comprised  approximately 24% and 17%
of our total receivables.  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.

         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 certain amounts of domestic  accounts  receivable to a
factor without  recourse or requires  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.


                                       9



         (e)      STOCK-BASED COMPENSATION:

         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
Stock-Based  Compensation" ("SFAS No. 123"),  established a fair value method of
accounting for stock-based  compensation  plans and for transactions in which an
entity  acquires  goods or services  from  non-employees  in exchange for equity
instruments.  SFAS No. 123 was  amended by  Statement  of  Financial  Accounting
Standards No. 148,  "Accounting  for  Stock-Based  Compensation  -Transition and
Disclosure",   which  required   companies  to  disclose  in  interim  financial
statements  the pro forma effect on net income  (loss) and net income (loss) per
common share of the  estimated  fair market  value of stock  options or warrants
issued to  employees.  Through  December 31,  2005,  the Company  accounted  for
stock-based  compensation  utilizing  the intrinsic  value method  prescribed in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" ("APB No. 25"), with pro forma disclosures of net income (loss) as if
the fair value method had been applied. Accordingly, compensation cost for stock
options  was  measured as the  excess,  if any, of the fair market  price of the
Company's  stock at the date of grant  over the amount an  employee  must pay to
acquire the stock.

         As the exercise price of stock options and warrants issued to employees
was not less than the fair market  value of the  Company's  common  stock on the
date of grant, and in accordance with accounting for such options  utilizing the
intrinsic value method,  there was no related  compensation  expense recorded in
the Company's 2005 consolidated  financial  statements.  The fair value of stock
options and warrants  issued to officers,  directors  and  employees at not less
than fair market  value of the  Company's  common stock on the date of grant was
estimated using the  Black-Scholes  option-pricing  model, and the effect on the
Company's  results of operations  was shown in a proforma  disclosure as if such
stock options and warrants had been accounted for pursuant to SFAS No. 123.

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
issued SFAS No. 123 (revised 2004),  "Share Based Payment" ("SFAS No. 123R"),  a
revision to SFAS No. 123,  "Accounting for Stock-Based  Compensation".  SFAS No.
123R  superseded APB No. 25 and amended SFAS No. 95,  "Statement of Cash Flows".
Effective  January 1, 2006,  SFAS No. 123R requires that the Company measure the
cost of employee  services  received in exchange for equity  awards based on the
grant  date  fair  value  of the  awards,  with  the  cost to be  recognized  as
compensation  expense in the  Company's  financial  statements  over the vesting
period of the awards.

         Accordingly,  the Company recognizes compensation cost for equity-based
compensation  for all new or modified  grants issued after December 31, 2005. In
addition,  commencing  January 1, 2006,  the  Company  recognizes  the  unvested
portion of the grant date fair value of awards  issued prior to adoption of SFAS
No. 123R based on the fair values previously  calculated for disclosure purposes
over the remaining vesting period of the outstanding stock options and warrants.

         The Company  adopted SFAS No. 123R  effective  January 1, 2006,  and is
using the modified  prospective  method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS No. 123R
for all share-based  payments  granted after the effective date and (b) based on
the  requirements  of SFAS No. 123R for all awards granted to employees prior to
the effective date of SFAS No. 123R that remain unvested on the effective date.

         The total stock based compensation expense for the three and six months
ended June 30, 2006 was  $114,701  and  $229,198,  respectively.  As of June 30,
2006, the unamortized value of these option awards was $1,173,958, which will be
amortized as  compensation  cost in future periods as the options vest. The fair
value of options  was  estimated  on the date of grant  using the  Black-Scholes
option  pricing model with the following  weighted-average  assumptions  for the
periods indicated:


                                       10



                                                                      Six Months
                                                                         Ended
                                                                        June 30,
                                                                          2006
                                                                       ---------

Dividend yield ..................................................          --
Risk-free interest rate .........................................          4.50%
Expected volatility .............................................         46.01%
Expected life of options ........................................       5 years


         During the three and six months  ended June 30, 2005,  the Company  did
not grant any options to purchase shares of its common stock, nor were there any
options  vesting during that period.  Accordingly,  no proforma  information for
June 30, 2005 is required.

         (f)      NET INCOME PER SHARE

         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
Share",  requires  presentation  of basic  earnings per share  ("Basic EPS") and
diluted earnings per share ("Diluted  EPS").  Basic earnings (loss) per share is
computed by dividing  earnings  (loss)  available to common  stockholders by the
weighted average number of common shares outstanding during the period.  Diluted
earnings per share  reflects the potential  dilution,  using the treasury  stock
method,  that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common  stock that then shared in the  earnings  of the  Company.  In  computing
diluted  earnings per share,  the treasury stock method assumes that outstanding
options and warrants are exercised and the proceeds are used to purchase  common
stock at the average  market price during the period.  Options and warrants will
have a dilutive  effect  under the  treasury  stock method only when the average
market price of the common stock during the period exceeds the exercise price of
the options and warrants.

         At June 30, 2006 and 2005, potentially dilutive securities consisted of
outstanding common stock options to acquire 685,000 and 0 shares,  respectively.
These  potentially  dilutive  securities were not included in the calculation of
income per share for the quarter  ended June 30, 2006 as the  exercise  price of
the options exceeded the average market price of the shares. Accordingly,  basic
earnings  per share for the three and six months  ended June 30,  2006 and 2005,
are the same as diluted earnings per share for each such period.

         (g)      SHIPPING AND HANDLING COSTS:

         Freight   charges   are   included   in   selling,   distribution   and
administrative expenses in the statement of operations and approximated $156,145
and $324,791 for the three and six months ended June 30, 2006, respectively,  as
compared with $37,278 and $79,224 for the same period last year.

         (h)      MAJOR SUPPLIERS:

         We purchase  our fabric,  thread and other raw  materials  from various
industry suppliers within the United States and abroad. We do not currently have
any long-term agreements in place for the supply of our fabric,  thread or other
raw  materials.  The  fabric,  thread  and  other raw  materials  used by us are
available from a large number of suppliers worldwide.  During fiscal 2006, three
suppliers  accounted for more than 10% of our  purchases.  Purchases  from these
suppliers were 19.7%,  14.9% and 10.2% for the three months ended June 30, 2006,
and 13.9%, 11% and 10.9% for six months ended June 30, 2006, respectively.


                                       11



         We  presently  outsource  all of our  manufacturing  needs to  contract
vendors using just in time  ordering.  We use several  contract  vendors for our
manufacturing  needs with the bulk of purchases  (approximately  70%)  currently
made from domestic  manufacturers.  It has been our strategy to increase the use
of contract  manufacturers in Mexico and the Far East. We do not rely on any one
manufacturer and we believe  additional  manufacturing  capacity is available to
meet our current and planned needs. We maintain rigorous quality control systems
for both raw and finished  goods.  We will continue to outsource the majority of
our production  capacity to maintain low fixed expenses.  We will add additional
contractors  as required to meet our needs.  During the three  months ended June
30, 2006, three  sub-contractors  accounted for 17.2%, 15.5% and 14.1% and three
contractors  accounted for 22.7%,  17.3% and 11.2%, of our manufacturing  during
the six  months  ended  June  30,  2006.  One of  these  sub-contractors,  which
principally provided manufacturing  services to Taverniti,  is Azteca Production
International  Inc.,  a company  co-owned by Paul Guez,  our  Chairman and Chief
Executive Officer.

         (i)      MAJOR CUSTOMERS:

         During the three months ended June 30, 2006,  two  customers  accounted
for more than 10% of the Company's sales.  Sales to those customers were 15% and
11%,  respectively.  During the six months  ended June 30,  2006,  one  customer
accounted for 16% of our total sales.

         International sales accounted for approximately 23% and 29% of sales in
the three and six months  ended  June 30,  2006,  respectively.  Geographically,
Japan has become one of our major growth areas.  During the three and six months
ended June 30, 2006, Japan accounted for 13.2% and 18.5%,  respectively,  of our
total sales compared to 8.5% and 6%, respectively, in the prior year periods.

         (j)      RECLASSIFICATIONS:

         Certain  prior  year  balance  sheet  items have been  reclassified  to
conform to the current period presentation.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

         In May 2005, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No. 154,  "Accounting Changes and Error Corrections" ("SFAS No. 154"). SFAS
No. 154 is a replacement  of APB Opinion No. 20,  "Accounting  Changes" and SFAS
No. 3,  "Reporting  Accounting  Changes in Interim  Financial  Statements  - (an
Amendment of APB Opinion No. 28)" and provides  guidance on the  accounting  for
and  reporting  of  accounting  changes  and  error  corrections.  SFAS No.  154
establishes  retrospective  application  as the required  method for reporting a
change in accounting  principle,  and provides guidance for determining  whether
retrospective  application of a change in accounting  principle is impracticable
and for  reporting a change when  retrospective  application  is  impracticable.
Retrospective application is the application of a different accounting principle
to a prior accounting period as if that principle had always been used or as the
adjustment of previously issued financial  statements to reflect a change in the
reporting entity. SFAS No. 154 also addresses the reporting of the correction of
an error by  restating  previously  issued  financial  statements.  The  Company
adopted the provisions of SFAS No. 154 effective January 1, 2006.

         On September 22, 2005, the Securities and Exchange  Commission  ("SEC")
issued  rules to delay by one-year  the  required  reporting  by  management  on
internal controls over financial reporting for  non-accelerated  filers. The new
SEC rule extends the compliance date for such registrants to fiscal years ending
on or after July 15, 2007.  Accordingly,  the Company qualifies for the deferral
until its year ending  December  31, 2007 to comply  with the  internal  control
reporting requirements.


                                       12



NOTE 3 - DUE FROM FACTOR

         We use a factor for working capital and credit administration purposes.
Under the various factoring agreements entered into separately by Blue Holdings,
Antik Denim, LLC and Taverniti So Jeans, LLC, the factor purchases all the trade
accounts receivable assigned by the Company and its subsidiaries and assumes all
credit risk with respect to those accounts approved by it.

         The factor agreements provide that we can borrow an amount up to 90% of
the value of our purchased  customer  invoices,  less a reserve of 10% of unpaid
accounts purchased and 100% of all such accounts which are disputed.  The factor
agreements  provide for  automatic  renewal  after July 24, 2006  subject to 120
days' termination  notice from any party. The factor also makes available to all
three  companies  a  combined  line of credit up to the  lesser of $2.4  million
(increased  from $1.5  million  effective  as of January 1, 2006) and 50% of the
value of eligible raw materials and finished goods. The increase in this line of
credit - from $1.5 million to $2.4  million - became  effective as of January 1,
2006.  As of June 30,  2006,  the Company  drew down $2.4 million of this credit
line against inventory.

         As of June 30, 2006, the factor holds $3,073,753 of accounts receivable
purchased  from us on a without  recourse  basis and has made  advances to us of
$2,179,944 against those receivables, resulting in a net balance amount Due from
Factor of  $763,379,  net of  reserves of  $130,430,  as of June 30,  2006.  The
Company has  accounted for the sale of  receivables  to the factor in accordance
with SFAS  No.140,  "Accounting  for the  Transfers  and  Servicing of Financial
Assets and Extinguishments of Liabilities".

         As of June 30,  2006,  the  factor  also held  $9,095,574  of  accounts
receivable that were subject to recourse, against which the Company has provided
reserves of $430,097  and as of June 30,  2006,  the Company  received  advances
totaling $8,007,105 against such receivables and against eligible inventory. The
Company has included the  $9,095,574 in accounts  receivable,  and has reflected
the $8,007,105 as short term borrowings on the  accompanying  balance sheet. The
factor  commission  against such  receivables is 0.4% and interest is charged at
the rate of 1% over the factor's prime lending rate per annum.

         Before January 1, 2006, the factor commission on receivables  purchased
on a without recourse basis was 0.8% of the customer invoice amount for terms up
to 90  days,  plus  one  quarter  of one  percent  (.25%)  for  each  additional
thirty-day term.  Effective  January 1, 2006, the factor  commission is 0.75% if
the aggregate amount of approved invoices is below $10 million per annum,  0.70%
if between  $10 million and $20 million and 0.65% if between $20 million and $30
million.  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  are
collateralized  by the  non-factored  accounts  receivable,  inventories and the
personal  guarantees  of Paul  Guez,  our  Chairman,  Chief  Executive  Officer,
President and majority  shareholder,  and the living trust of Paul and Elizabeth
Guez.


                                       13



NOTE 4 - INVENTORIES

         Inventories  at June 30, 2006 and December 31, 2005 are  summarized  as
follows:

                                                 June 30,           December 31,
                                                   2006                 2005
                                               -----------           -----------
                                               (Unaudited)

Raw Materials ......................           $ 4,138,926           $ 3,850,916
Work-in-Process ....................             4,641,884             2,842,531
Finished Goods .....................             4,494,897             3,231,715
                                               -----------           -----------
TOTAL ..............................           $13,275,707           $ 9,925,162
                                               ===========           ===========


NOTE 5 - PROPERTY AND EQUIPMENT

         Property  and  equipment  at June 30,  2006 and  December  31, 2005 are
summarized as follows:

                                                June 30,            December 31,
                                                  2006                 2005
                                               -----------          -----------
                                               (Unaudited)

Furniture ..........................           $    12,973          $    11,217
Leasehold Improvements .............                46,626               44,600
Computer Equipment .................               523,715              162,659
                                               -----------          -----------
                                                   583,314               218,476
Less: Accumulated depreciation
   and amortization ................               (97,020)             (19,549)
                                               -----------          -----------
                                               $   486,294          $   198,927
                                               ===========          ===========

         Depreciation expenses for the three months ended June 30, 2006 and 2005
were $51,450 and $2,226, respectively and for the six months ended June 30, 2006
and 2005 were $77,470 and $3,679, respectively.

NOTE 6 - RELATED PARTY TRANSACTIONS

         The Company  purchased  fabric at cost from Blue Concept,  LLC which is
owned by Paul Guez,  the Company's  Chairman and Chief  Executive  Officer,  for
$10,092  and  $251,658  during  the three and six months  ended  June 30,  2006,
respectively, and $476,786 and $997,281,  respectively, for the same period last
year.

         Azteca  Production  International  Inc.  is one of our  contractors  in
Mexico and is co-owned by Paul Guez, our majority stockholder.  During the three
and  six  months   ended  June  30,   2006,   we  paid  them  sewing  and  other
sub-contracting charges in the amount of $551,712 and $1,370,514,  respectively,
and $279,990 for six months ended June 30,  2005.  Azteca  principally  provided
manufacturing services to Taverniti.


                                       14



         Since January 1, 2006, the Company has leased its facility at Commerce,
California  from Azteca  Production  International  Inc. as a sub-tenant  and is
paying it $19,030 per month.

         On July 5, 2005 the Company entered into a ten-year  license  agreement
with Yanuk  Jeans,  LLC,  effective  as of July 1, 2005.  Under the terms of the
agreement,   the  Company   became  the  exclusive   licensor  for  the  design,
development,  manufacture, sale, marketing and distribution of the "Yanuk" brand
products to the wholesale and retail trade. The Company pays to Yanuk Jeans, LLC
a  royalty  of six  percent  of all net  sales of the  licensed  products  and a
guaranteed  minimum royalty on an annual basis. In addition,  during the term of
the license agreement,  the Company has the option to purchase from Yanuk Jeans,
LLC the property  licensed under the agreement.  The royalties for the three and
six months  ended June 30,  2006 paid or payable  to Yanuk  Jeans,  LLC  totaled
$68,312 and  $182,931,  respectively.  Yanuk Jeans,  LLC is solely owned by Paul
Guez, our majority stockholder.

         Paul  Guez  and the  living  trust  of Paul  and  Elizabeth  Guez  have
guaranteed all advances and ledger debt due to the Company's factor.

         Taverniti  is the  exclusive  licensee  for  the  design,  development,
manufacture,  sale,  marketing  and  distribution  of the  "Taverniti  So Jeans"
trademark in the denim and knit sports wear  categories for men and women. It is
paying  royalties  to  Taverniti  Holdings,  LLC in the  ranges  of 5-8  percent
depending  on the net  sales of the  licensed  products  pursuant  to a  license
agreement with Taverniti Holdings, LLC. Taverniti Holdings, LLC is jointly owned
by Paul Guez (60%) and Jimmy Taverniti  (40%),  the designer of the products for
the brand, and Mr. Guez is the sole manager. The license agreement was signed in
May 2004 and expires on December  31,  2015.  Royalties  paid or payable for the
three and six months  ended June 30, 2006  amounted  to $ 305,744 and  $656,526,
respectively.

NOTE 7 - DUE TO/FROM RELATED PARTIES:

         The related parties are the Company's majority shareholder (who is also
the Chairman,  Chief Executive Officer and President of the Company) and limited
liability companies that are co-owned by the majority shareholder. These amounts
are all unsecured and non-interest  bearing. All non-trade related advances from
related parties have been repaid. Trade-related outstanding items follow regular
payment  terms as invoiced.  As of June 30,  2006,  total  trade-related  due to
related parties amounted to $1,038,337.

         From time to time, the Company's majority  shareholder,  Mr. Paul Guez,
made  advances  to the  Company to support  its  working  capital  needs.  These
advances  were  non-interest  bearing  and  unsecured,  with no formal  terms of
repayment.  As of June 30, 2006, the balance of these  advances was  $2,519,106.
Subsequent to June 30, 2006, Mr. Guez converted the advances to a line of credit
in an  agreement  with the  Company.  The line of credit  allows the  Company to
borrow  from him up to a maximum  of $3 million  at an  interest  rate of 6% per
annum.  The Company may repay the  advances in full or in part at any time until
the credit line expires on December 31, 2007.

NOTE 8 -- INCOME TAX:

         The Company  accounts for income taxes and the related  accounts  under
the liability  method.  Deferred tax liabilities and assets are determined based
on the  difference  between the financial  statement and tax bases of assets and
liabilities  using  enacted  rates  expected to be in effect  during the year in
which the basis differences reverse.

         The  Company's  provision for income taxes was  $1,674,095  for the six
months ended June 30, 2006 compared to $136,284 for the same period of the prior
year.  For the four months  ended  April 29, 2005 the income  earned and related
Federal and State income tax obligations for the period of Antik Denim, LLC were
passed through to its previous  members.  For the six months ended June 30, 2005
the income earned and related  Federal and State income tax  obligations for the
period of Taverniti So Jeans,  LLC were passed through to its previous  members.
The Company recorded no provision for such taxes.


                                       15



         The provision for income taxes consists of the following for six months
ended June 30, 2006:

                                                                        2006
                                                                    -----------
Current
   Federal ..............................................           $ 1,464,225
   State ................................................               436,649
Deferred
   Federal ..............................................              (188,416)
   State ................................................               (38,363)
                                                                    -----------
Provision for income tax expense ........................           $ 1,674,095
                                                                    ===========


         A  reconciliation  of the  statutory  federal  income  tax  rate to the
effective tax rate is as follows for six months ended June 30, 2006:

                                                                        2006
                                                                    -----------

Statutory federal rate ..................................                  34.0%
State taxes, net of federal benefit .....................                   6.5
Income not taxed at the Company level ...................                     0
Permanent differences ...................................                     0
Other ...................................................                   0.6
                                                                    -----------
Effective tax rate ......................................                  41.1%
                                                                    ===========


NOTE 9 - STOCK OPTIONS:

         Under the Company's 2005 Stock Incentive Plan (the "Company Plan"), the
Company may grant  qualified and  nonqualified  stock options and stock purchase
rights to selected  employees.  The Company reserved  2,500,000 shares of common
stock for issuance under the Company Plan. Options to purchase 270,000 shares of
common stock were granted in 2006. No options to purchase shares of common stock
were exercised or terminated in 2006.


                                       16



         At June 30, 2006, options outstanding are as follows:
                                                                       Weighted
                                                                        average
                                                        Number of      exercise
                                                         options        price
                                                       ----------     ----------

Balance at January 1, 2006 ........................       427,000     $     7.18
Granted ...........................................       270,000     $     5.20
Exercised .........................................          --             --
Cancelled .........................................       (12,000)    $     5.20
                                                       ----------     ----------

Balance at June 30, 2006 ..........................       685,000     $     6.44
                                                       ==========     ==========

         Additional  information  regarding  options  outstanding as of June 30,
2006 is as follows:



                            OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
----------------------------------------------------------------   -------------------------------
                              Weighted average
                                 Remaining         Weighted                          Weighted
                   Number       Contractual         Average          Number          Average
Exercise Price   Outstanding    Life (Years)     Exercise Price    Exercisable    Exercise Price
---------------- ------------ ----------------- ----------------   ------------- -----------------
                                                                       
    $8.10           62,000          8.93             $8.10            22,000          $8.10
    $7.40          300,000          9.11             $7.40           100,000          $7.40
    $5.30           65,000          9.12             $5.30            25,000          $5.30
    $5.20          258,000          9.50             $5.20              --               --
                 ------------ ----------------- ----------------   ------------- -----------------
$5.20 - $8.10      685,000          9.24             $6.44           147,000          $7.15
                 ============ ================= ================   ============= =================



NOTE 10 - AGREEMENT AND PLAN OF MERGER:

         On June 19, 2006,  we entered into an Agreement and Plan of Merger (the
"Merger  Agreement")  with LR  Acquisition  Corporation,  a District of Columbia
corporation and its wholly-owned subsidiary ("LR Acquisition"),  Long Rap, Inc.,
a District of Columbia  corporation  ("Long Rap"), and the three stockholders of
Long Rap,  pursuant to which Long Rap, Inc. will merge (the  "Merger")  with and
into LR Acquisition with LR Acquisition surviving the Merger as our wholly-owned
subsidiary  and changing its name to Long Rap, Inc. as of the effective  time of
the Merger. Each stockholder of Long Rap will receive,  as merger  consideration
(collectively,  the "Merger  Consideration") for each share of Long Rap's common
stock  held,  (1)  an  amount  of  cash  equal  to  $16,000,000  divided  by the
outstanding shares of the common stock of Long Rap on a fully-diluted basis, and
(2) that number of shares  obtained by dividing (A)  $16,000,000  divided by the
average  closing price of a share of our common  stock,  as quoted on the NASDAQ
Capital Market (or such other market, exchange or quotation system in which such
security is then quoted),  over the ten (10) trading days immediately  preceding
the effective time of the Merger by (B) the number of shares of the common stock
of Long Rap on a fully-diluted basis.

         The consummation of the Merger is conditioned on, among other customary
requirements, the registration of the shares of our common stock to be issued as
Merger  Consideration  to holders of outstanding  shares of the capital stock of
Long Rap, our  completion of due diligence of Long Rap, the delivery by Long Rap
of the audited  financial  statements  of Long Rap, and our  obtaining  adequate
financing  to fund the cash portion of the Merger  Consideration  payable to the
stockholders  of Long Rap  under the  Merger  Agreement  and to obtain  adequate
working capital to fund both our and Long Rap's operations post-merger.


                                       17



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         Statements made in this Form 10-QSB (the  "Quarterly  Report") that are
not historical or current facts are  "forward-looking  statements" made pursuant
to the safe harbor  provisions of Section 27A of the  Securities Act of 1933, as
amended (the "Act"), and Section 21E of the Securities  Exchange Act of 1934, as
amended (the  "Exchange  Act").  The Company  intends that such  forward-looking
statements  be subject to the safe  harbors  for such  statements.  The  Company
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking  statements,   which  speak  only  as  of  the  date  made.  Any
forward-looking  statements represent  management's best judgment as to what may
occur in the future. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties.  Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future  economic,   competitive  and  market   conditions  and  future  business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are  beyond the  control  of the  Company.  Although  the  Company
believes that the  assumptions  underlying  the  forward-looking  statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Form 10-QSB
will prove to be accurate. In light of the significant uncertainties inherent in
the   forward-looking   statements   included  herein,  the  inclusion  of  such
information  should not be  regarded as a  representation  by the Company or any
other person that the objectives and plans of the Company will be achieved.  The
Company  disclaims any  obligation  subsequently  to revise any  forward-looking
statements to reflect events or  circumstances  after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.

         The words "we," "us," "our," and the "Company," refer to Blue Holdings,
Inc. The words or phrases  "may,"  "will,"  "expect,"  "believe,"  "anticipate,"
"estimate,"  "approximate,"  or "continue,"  "would be," "will allow,"  "intends
to," "will likely result," "are expected to," "will continue," "is anticipated,"
"estimate,"  "project," or similar  expressions,  or the negative  thereof,  are
intended to identify  "forward-looking  statements." Actual results could differ
materially from those projected in the forward looking statements as a result of
a number of risks and  uncertainties,  including  but not  limited  to:  (a) our
failure to  implement  our  business  plan within the time period we  originally
planned  to  accomplish;  and (b) other  risks that are  discussed  in this Form
10-QSB or included in our  previous  filings  with the  Securities  and Exchange
Commission ("SEC").

DESCRIPTION OF BUSINESS

OVERVIEW

         We design,  manufacture and market high-end fashion jeans,  apparel and
accessories under the principal brand names ANTIK DENIM,  TAVERNITI SO JEANS and
YANUK. Our products include jeans, jackets,  belts, purses and T-shirts. We sell
premium denim products and accessories in high-end department stores and fashion
boutiques that cater to fashion conscious consumers.  Our products are currently
sold in the United  States,  Canada,  Japan and the European  Union  directly to
department stores and boutiques,  including  Bloomingdales,  Nordstrom,  Macy's,
Saks and Fred  Segal,  and  through  distribution  arrangements  in a number  of
countries abroad.

         We  operate  in  the  high-end  fashion  denim  industry.  Our  current
competitors are companies that market such brands as Joe's Jeans, True Religion,
Seven For All Mankind and Citizens of Humanity.

         Our  goal is to  build a broad  and  diversified  portfolio  of  brands
selling  premium denim products and  accessories  across a range of retail price
points through wholesale and retail distribution channels.


                                       18



CORPORATE BACKGROUND

         We were  incorporated  in the State of Nevada on February 9, 2000 under
the name Marine Jet Technology Corp. From our inception through January 2005, we
focused on developing and marketing boat propulsion technology.  Between January
and February 2005, we entered into separate  transactions  whereby,  among other
matters,  Keating Reverse Merger Fund, LLC ("KRM Fund"), an existing shareholder
of the Company,  agreed to purchase a  substantial  majority of our  outstanding
common  stock,  and  Intellijet  Marine,  Inc.,  a company  formed by our former
majority  shareholder  and principal  executive  officer and  director,  Jeff P.
Jordan, acquired all of our boat propulsion technology assets and assumed all of
our then existing liabilities.

         Between  February  4, 2005 and April 29,  2005,  we existed as a public
"shell" company with nominal assets.

SIGNIFICANT DEVELOPMENTS

         On June 19, 2006,  we entered into an Agreement and Plan of Merger (the
"Merger  Agreement")  with LR  Acquisition  Corporation,  a District of Columbia
corporation and our wholly-owned subsidiary ("LR Acquisition"),  Long Rap, Inc.,
a District of Columbia  corporation  ("Long Rap"), and the three stockholders of
Long Rap,  pursuant to which Long Rap will merge (the "Merger") with and into LR
Acquisition  with  LR  Acquisition  surviving  the  Merger  as our  wholly-owned
subsidiary  and changing its name to Long Rap, Inc. as of the effective  time of
the Merger. Each stockholder of Long Rap will receive,  as merger  consideration
(collectively,  the "Merger Consideration") for each shares of Long Rap's common
stock  held,  (1)  an  amount  of  cash  equal  to  $16,000,000  divided  by the
outstanding shares of the common stock of Long Rap on a fully-diluted basis, and
(2) that number of shares  obtained by dividing (A)  $16,000,000  divided by the
average  closing price of a share of our common  stock,  as quoted on the NASDAQ
Capital Market (or such other market, exchange or quotation system in which such
security is then quoted),  over the ten (10) trading days immediately  preceding
the effective time of the Merger by (B) the number of shares of the common stock
of Long Rap on a fully-diluted basis.

         The consummation of the Merger is conditioned on, among other customary
requirements, the registration of the shares of our common stock to be issued as
Merger  Consideration  to holders of outstanding  shares of the capital stock of
Long Rap, our  completion of due diligence of Long Rap, the delivery by Long Rap
of the audited  financial  statements  of Long Rap, and our  obtaining  adequate
financing  to fund the cash portion of the Merger  Consideration  payable to the
stockholders  of Long Rap  under the  Merger  Agreement  and to obtain  adequate
working capital to fund both our and Long Rap's operations post-merger.

         In light of the  number  of  conditions  required  to be  satisfied  to
accomplish the close of the Merger, we cannot assure you that the Merger will be
completed or that it will be completed within the time frame contemplated by the
Merger Agreement (on or before September 30, 2006).

OUR PRODUCTS AND BRANDS

         We offer  multiple  brands of apparel in the premium  and better  denim
segments.  As a result of a license  agreement  with  Yanuk  Jeans,  LLC and the
acquisition  of Taverniti So Jeans LLC, we currently  market our products  under
the ANTIK DENIM,  TAVERNITI SO JEANS and YANUK brands.  Our products are sold in
the United States and abroad to upscale  retailers and  boutiques.  We currently
sell men's and women's styles and have launched a children's line for both ANTIK
DENIM and TAVERNITI SO JEANS.  In addition,  Antik Denim is a party to a license
agreement  with Titan  Industries,  Inc. that  provides  Titan with an exclusive
right to use the ANTIK DENIM brand for the sale of men's and women's footwear in
the United States,  Canada and Mexico,  and a right of first refusal for similar
use of the brand in Europe and South America.  The footwear line was launched in
July 2006.


                                       19



         Our products are made from high  quality  fabrics  milled in the United
States,  Japan,  Italy and Spain and are processed with cutting-edge  treatments
and finishes. Our concepts and designs, including Antik Denim's distinct vintage
western  flair,  and  our  extraordinary  fit,  embellishments,  patent  pending
pockets, unique finishes, hand stitching,  embroidery detail and other attention
to detail and quality give our products a competitive  advantage in the high-end
fashion denim and accessories market.

         Our jeans are available in multiple combinations of washes, fabrics and
finishes,  with as many as 20  different  combinations  of colors,  fabrics  and
finishes on certain  styles.  We typically  introduce  new versions of our major
styles each month in different colors,  washes and finishes.  Although our denim
products have  accounted for the  substantial  majority of our total sales,  our
product lines include knits,  woven tops and accessories,  the sales of which we
anticipate will continue to increase.

         Each of our brands has an independent design team striving to develop a
distinct look and feel to the products  based on an overall  design  philosophy.
Product mix between denim and non-denim products and retail price points vary by
brand.

         ANTIK  DENIM.  The  designers of ANTIK DENIM are  Philippe  Naouri and
Alexandre  Caugant,  both of  whom  have  significant  experience  in the  denim
industry,  in both  selling and  designing  vintage  inspired  offerings.  Their
principal design philosophy is based on vintage western styling featuring a very
unique and distinctive back pocket.

         TAVERNITI  SO JEANS.  The  designer of the  TAVERNITI  SO JEANS line is
Jimmy  Taverniti,  well known as an Italian  couture  designer with  significant
experience as a denim designer.  The principal  design  philosophy is sportswear
driven looks with vintage and rock and roll styling.

         YANUK. The designer of the YANUK line is Benjamin Taverniti, the son of
Jimmy Taverniti.  The principal design philosophy is focused on clean looks with
little or no embroidery, and attention to detail and fit.

DESIGN AND DEVELOPMENT

         We use  independent  design teams to develop  distinct  and  innovative
designs for each of our  brands.  Mr. Guez  participates  in design  efforts and
provides  significant  input with  respect to the  development  of new lines and
brands.  We do not have in place any formal design and development  plan at this
time.  However,  since our  inception  in 2004,  we have  allocated  significant
resources to our design and development activities.  In the three and six months
ended June 30, 2006,  our design and  development  expenses  were  approximately
$0.44 million and $0.90 million, respectively.

MANUFACTURING AND SOURCING

         We purchase  our fabric,  thread and other raw  materials  from various
industry suppliers within the United States and abroad. We do not currently have
any long-term agreements in place for the supply of our fabric,  thread or other
raw  materials.  The  fabric,  thread  and  other raw  materials  used by us are
available from a large number of suppliers worldwide.  During fiscal 2006, three
suppliers  accounted for more than 10% of our  purchases.  Purchases  from these
suppliers were 19.7%,  14.9% and 10.2% for the three months ended June 30, 2006,
and 13.9%, 11% and 10.9% for six months ended June 30, 2006, respectively.


                                       20



         We  presently  outsource  all of our  manufacturing  needs to  contract
vendors using just in time  ordering.  We use several  contract  vendors for our
manufacturing  needs with the bulk of purchases  (approximately  70%)  currently
made from domestic  manufacturers.  It has been our strategy to increase the use
of contract  manufacturers in Mexico and the Far East. We do not rely on any one
manufacturer and we believe  additional  manufacturing  capacity is available to
meet our current and planned needs. We maintain rigorous quality control systems
for both raw and finished  goods.  We will continue to outsource the majority of
our production  capacity to maintain low fixed expenses.  We will add additional
contractors  as required to meet our needs.  During the three  months ended June
30, 2006, three  sub-contractors  accounted for 17.2%, 15.5% and 14.1% and three
contractors  accounted for 22.7%,  17.3% and 11.2%, of our manufacturing  during
the six  months  ended  June  30,  2006.  One of  these  sub-contractors,  which
principally provided manufacturing  services to Taverniti,  is Azteca Production
International  Inc.,  a company  co-owned by Paul Guez,  our  Chairman and Chief
Executive Officer.

         We  believe  we  can  realize   significant  cost  savings  in  product
manufacturing  because of our strong  relationships with a diverse group of U.S.
and  international  contract  manufacturers  established by our management  team
through  their  prior  experience  in the apparel  industry.  In  addition,  the
increase in production volume as a result of our multi-brand  strategy will give
us economies of scale to achieve further cost savings.

MARKETING, DISTRIBUTION AND SALES

         We market,  distribute  and sell our products in the United  States and
internationally in a number of other countries such as Canada, Belgium,  France,
Germany, Sweden, Italy, Korea and Japan.

         Our products  are sold in the United  States to  department  stores and
boutiques such as Saks, Neiman Marcus,  Nordstrom,  Bloomingdales,  Atrium, Fred
Segal, Intermix,  Kitson and Bendel, as well as smaller boutiques throughout the
country.  Our  products  are  sold  internationally  to  department  stores  and
boutiques such as Lane Crawford in Hong Kong,  Harrods and Harvey Nichols in the
United Kingdom,  Barneys and Isetan in Japan, Galleries Lafayette in France, and
Holt Renfrew in Canada.

         We market and  distribute  our  products by  participating  in industry
trade shows,  as well as through our show rooms in Los Angeles and New York.  We
maintain  distributor  relationships  in the United  Kingdom,  France,  Germany,
Sweden, Greece,  Belgium,  Italy, Mexico and Japan. Except for Mexico, Japan and
Canada, we currently have no exclusive or long term distribution agreements with
any party covering any territory, and do not depend on any single distributor to
distribute  our  products.  Our  distributors  often,  but not always,  purchase
products from us at a discount for resale to their customers in their respective
territories.  Our distributors  warehouse our products at their expense and they
ship to and collect payment from their customers directly.

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY

         Antik Denim, is the holder of trademark  applications  for the "Antique
Denim" and "Antik  Denim" marks in the United  States and various  other foreign
jurisdictions.  Antik Denim also owns several proprietary  concepts and designs,
including pending trademark and patent applications on its pocket designs. Yanuk
Jeans,  LLC, from whom we hold exclusive  licenses to exploit  products based on
the YANUK and U brands,  is the holder of  several  United  States  and  foreign
trademarks.

         Taverniti  So Jeans,  LLC is the  exclusive  licensee  for the  design,
development,  manufacture,  sale, marketing and distribution of the TAVERNITI SO
JEANS trademark in the denim and knit  sportswear  categories for men and women.
It is paying  royalties  to  Taverniti  Holdings LLC in the range of 5-8 percent
depending  on the net  sales of the  licensed  products  pursuant  to a  license
agreement with Taverniti  Holdings LLC.  Taverniti Holdings LLC is jointly owned
by Paul Guez (60%) and Jimmy Taverniti  (40%),  the designer of the products for
the brand, and Mr. Guez is the sole manager. The license agreement was signed in
May 2004 and expires on December 31, 2015.


                                       21



         We anticipate continuing to expand the ANTIK DENIM, TAVERNITI SO JEANS,
YANUK, and U brands, and their proprietary trademarks and designs, worldwide. We
also anticipate  taking,  and have already taken,  coordinated action to curb an
increase in the  domestic  and  international  counterfeiting  of Antik  Denim's
stylized  pocket  design and other  intellectual  property,  including,  without
limitation, through litigation if necessary.

GOVERNMENT REGULATION AND SUPERVISION

         We benefit 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  our  business,   although   their  impact  has
historically been favorable.

         We  have  implemented   various  programs  and  procedures,   including
unannounced  inspections,  to ensure that all of the apparel  manufacturers with
whom we contract fully comply with  employment  and safety laws and  regulations
governing their place of operation.

EMPLOYEES

         As of August 1, 2006,  we had 120  employees,  not  including our three
executive  officers,  Paul Guez,  our  Chairman,  Chief  Executive  Officer  and
President,  and Patrick Chow, our Chief  Financial  Officer and  Secretary,  and
Gregory Abbou,  President of Taverniti So Jeans, LLC. Mr. Guez leads our product
development, marketing and sales, and Mr. Chow oversees all financial aspects of
our business.  Our employees  are not unionized and except for  agreements  with
Messrs.  Naouri and  Caugant,  who  comprise the design team for our ANTIK DENIM
brand, no employees are subject to existing employment agreements.

FACILITIES

PRINCIPAL EXECUTIVE OFFICES

         Our  principal  executive  offices  are  located  at 5804 East  Slauson
Avenue, Commerce, California 90040. Our telephone number is (323) 725-5555.

DESCRIPTION OF PROPERTY

         Our offices and  warehouse are located in Commerce,  California.  It is
from this  facility  that we conduct  all of our  executive  and  administrative
functions,  and ship products to our  customers.  We also maintain  showrooms in
both Los Angeles and New York City.  Since the  beginning of this year,  we have
been paying for the use of these  showrooms based on our actual use. The rentals
at the Commerce facility and the showrooms are shared by several companies.  The
entire  Commerce  facility  consists  of  approximately  270,222  sq. ft. We now
utilize  approximately 73,000 sq. ft. of the Commerce,  California facility.  On
April 27, 2006,  we entered  into a sublease  agreement  with Azteca  Production
International,  Inc.,  which is co-owned by Paul Guez,  and we contracted to pay
$19,030 per month,  retroactive  to January 1, 2006, for the use of the Commerce
facility.

         On August 27, 2005, we opened a retail store in Los Angeles and assumed
all the obligations of a 10-year  property lease which was previously  signed by
Blue Concept,  LLC in April, 2005. We are paying $22,510 per month for the lease
of the shop space.


                                       22



LIQUIDITY AND CAPITAL RESOURCES

         For the six months  ended  June 30,  2006,  net cash used in  operating
activities was $(5.4  million).  The deficit was primarily due to an increase of
$3.4  million in  inventory  and $4.9  million in accounts  receivables  and was
offset by an increase in accounts payable of $0.7 million and an increase in due
to related  parties of $0.7 million.  Net cash provided by financing  activities
included $3.4 million from short-term  borrowings and $2.4 million advances from
the  majority  shareholder.  The  Company  utilized  $0.6  million in  investing
activities  which  consisted of $0.4 million to purchase new  equipment and $0.2
million to finance deferred acquisition costs.

         We use a factor,  FTC Commercial  Corp., for working capital and credit
administration  purposes.  Under the various factoring  agreements  entered into
separately by Blue Holdings,  Antik Denim, LLC and Taverniti So Jeans,  LLC, the
factor  purchases all the trade accounts  receivable  assigned by us and assumes
all credit risk with respect to those accounts approved by it.

         The factor agreements provide that we can obtain an amount up to 90% of
the value of our purchased  customer  invoices,  less a reserve of 10% of unpaid
accounts  purchased  and 100% of all  accounts  that are  disputed.  The  factor
agreements,  provide for the automatic  renewal of the agreements  after July24,
2006, subject to 120 days' termination notice from any party. We receive amounts
against purchased  customer invoices on a recourse basis or a non-recourse basis
under these agreements.  Amounts received against customer invoices purchased on
a recourse basis are classified as "short-term  borrowings" and amounts received
against customer invoices  purchased on a non-recourse  basis are reflected on a
net basis against such receivables  purchased by the factor in "due from factor"
on the balance sheets included in our financial statements.

         In addition,  the factor also makes  available to all three companies a
combined  line of credit up to the lesser of $2.4 million  (increased  from $1.5
million  effective  as of January 1, 2006) and 50% of the value of eligible  raw
materials  and finished  goods.  The increase in this line of credit - from $1.5
million to $2.4 million - became effective as of January 1, 2006. As of June 30,
2006, we drew down $2.4 million of this credit line.

         Before January 1, 2006, the factor  commission was 0.8% of the customer
invoice  amount for terms up to 90 days,  plus one quarter of one percent (.25%)
for each  additional  thirty-day  term.  Effective  January 1, 2006,  the factor
commission  is 0.75% if the aggregate  amount of approved  invoices is below $10
million per annum,  and will be reduced by 5 basis  points for each  increase by
$10  million  in the  aggregate  amount of  approved  invoices.  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 and the personal  guarantees of
Paul Guez,  our  Chairman,  Chief  Executive  Officer,  President  and  majority
shareholder, and the living trust of Paul and Elizabeth Guez.

         The factor also purchased customer invoices on a "with recourse" basis.
These advances and the advances against inventory were classified as "short-term
borrowings".  These short-term  borrowings amounted to $8 million as of June 30,
2006.  The  factor  commission  is 0.4% for  receivables  purchased  subject  to
recourse.  Receivables  subject to  recourse  approximated  $9.2  million net of
reserves as of June 30, 2006.

         From time to time, the Company's majority  shareholder,  Mr. Paul Guez,
made  advances  to the  Company to support  its  working  capital  needs.  These
advances were  non-interest  bearing . As of June 30, 2006, the balance of these
advances was  $2,519,106.  Subsequent to June 30, 2006,  Mr. Guez  converted the
advances  to a line of  credit in an  agreement  with the  Company.  The line of
credit allows the Company to borrow from him up to a maximum of $3 million at an
annual  interest  rate of 6%. The Company  may repay the  advances in full or in
part at any time until the credit line expires on December 31, 2007.


                                       23



         Our primary  source of liquidity is expected to be cash flow  generated
from  operations,  cash and cash  equivalents  currently  on hand,  and  working
capital  attainable  through our factor.  We may seek to finance  future capital
needs through various means and channels,  such as issuance of long-term debt or
sale of equity securities.

OFF-BALANCE SHEET ARRANGEMENTS

         Financial   instruments  that   potentially   subject  the  Company  to
off-balance  sheet risk  consist of factored  accounts  receivable.  The Company
sells certain of its trade accounts  receivable to a factor and is  contingently
liable to the factor for merchandise disputes and other customer claims.

         As of June 30, 2006, the factor holds $3,073,753 of accounts receivable
purchased  from us on a without  recourse  basis and has made  advances to us of
$2,179,944 against those receivables, resulting in a net balance amount Due from
Factor of  $763,379,  net of  reserves of  $130,430,  as of June 30,  2006.  The
Company has  accounted for the sale of  receivables  to the factor in accordance
with SFAS  No.140,  "Accounting  for the  Transfers  and  Servicing of Financial
Assets and Extinguishments of Liabilities".

RESULTS OF OPERATIONS

         The acquisition of Antik Denim, LLC ("Antik") in 2005 was accounted for
as a reverse merger  (recapitalization) in the accompanying financial statements
with Antik deemed to be the accounting acquirer,  and Blue Holdings deemed to be
the legal acquirer.  The exchange  transaction  with Taverniti So Jeans, LLC was
accounted for as a combination  of entities under common  control,  and its 2005
results were combined with those of Antik and Blue Holdings, Inc., respectively.
Accordingly,   our  results  of  operations   before  the  completion  of  these
transactions,  including  our operating  results  before April 29, 2005 (when we
completed  the  acquisition  of  Antik),  reflect  the  operations  of Antik and
Taverniti.

THREE MONTHS ENDED JUNE 30, 2006 VS. 2005

         Net sales  increased  from $5.7 million for the three months ended June
30, 2005 to $15.1 million for the three months ended June 30, 2006. The increase
was due to the continued growth and acceptance of our brands and products.

         Gross profit for the three months ended June 30, 2006 increased to $7.4
million,  or 48.9% of net sales  from $ 3.6  million or 63 % of net sales in the
three months ended June 30, 2005. We expect our gross margin to be maintained at
approximately 50% in the future.

         Selling,  distribution and administrative expenses for the three months
ended June 30, 2006 totaled $4.3  million or 28% of net sales  compared  with $2
million  or 35% of net sales for the  three  months  ended  June 30,  2005.  The
principal components during the three months ended June 30, 2006 were payroll of
$1.7  million  (compared  to $0.5  million in the  second  quarter  last  year),
professional  fees of $0.3  million  (compared  to $0.43  million  in the second
quarter of 2005),  royalties of $0.37 million  ($0.15  million in same period of
2005)  and  stock-based  compensation  of  $0.11  million  (none in  2005).  The
reduction in the rate of overhead  expenses came mainly from increased sales and
better utilization of our fixed costs.


                                       24



         Net Income after  provision for taxes in the second quarter of 2006 was
$1.7 million or 11 % of net sales compared to $1 million or 17 % of net sales in
the second quarter of 2005.  Basic and diluted  earnings per share  increased to
$0.07 from $0.04 in the same  period of last year.  For the three  months  ended
June 30, 2006,  the Company  provided  $1.18  million for income tax compared to
$0.14  million in the same period last year.  During the three months ended June
30, 2005, the income (loss) and related Federal and State income tax obligations
were passed  through to the previous  members of Taverniti So Jeans,  LLC. These
tax  obligations  for Antik  Denim,  LLC before  April 29, 2005 were also passed
through to its previous members. The Company only recorded provisions for income
taxes on the  income of Antik  Denim,  LLC  between  April 30 and June 30 in the
second quarter of 2005.

SIX MONTHS ENDED JUNE 30, 2006 VS. 2005

         Net sales  increased  from $10.7  million for the six months ended June
30, 2005 to $27.1  million for the six months ended June 30, 2006. We expect our
brands to continue to grow steadily both domestically and internationally.

         Gross profit for the six months ended June 30, 2006  increased to $13.4
million,  or 49.4% of net sales  from $5.3  million or 49.2% of net sales in the
six months ended June 30, 2005.  We expect our gross margin to be  maintained at
approximately 50% in the future.

         Selling,  distribution and  administrative  expenses for the six months
ended June 30, 2006 totaled $8.9 million  compared with $3.2 million for the six
months ended June 30, 2005. The principal components during the six months ended
June 30, 2006 were  payroll of $3.5 million  (compared  to $0.62  million in the
first six months of last  year),  advertising  and trade show  expenses of $0.71
million  ($0.14  million in the same period of 2005),  travel  expenses of $0.35
million ($0.12  million in the same period of 2005),  royalties of $0.83 million
($0.15 million in 2005) and  stock-based  compensation of $0.23 million (none in
2005).

         Net Income  after  provision  for taxes in the first six months of 2006
was $2.39  million or 8.9 % of net sales  compared to $1.49 million or 13.9 % of
net sales in the first six months of 2005.  Basic and diluted earnings per share
increased  to $0.09  from  $0.06 in the same  period of last  year.  For the six
months ended June 30,  2006,  the Company  provided  $1.7 million for income tax
compared to $0.14  million in the same  period last year.  During the six months
ended June 30, 2005, the income (loss) and related  Federal and State income tax
obligations  for the  period  were  passed  through to the  previous  members of
Taverniti So Jeans,  LLC.  These tax  obligations  for Antik Denim,  LLC between
January 1 and April 29, 2005 were also passed  through to its previous  members.
The Company  only  recorded  provisions  for income taxes on the income of Antik
Denim, LLC between April 30 and June 30 in the first six months of 2005.

CRITICAL ACCOUNTING POLICIES

         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. On an
ongoing  basis,  we  evaluate  estimates,  including  those  related to returns,
discounts,   bad  debts,   inventories,   intangible   assets,   income   taxes,
contingencies  and litigations.  We base our estimates on historical  experience
and on  various  assumptions  that  are  believed  to be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.


                                       25



         REVENUE

         Revenue is  recognized  when  merchandise  has been  shipped  against a
customer's  written  purchase order,  the risk of ownership has passed,  selling
price has been fixed and determined  and  collectibility  is reasonably  assured
either through payment received,  or fulfillment of all the terms and conditions
of the particular purchase order.  Revenue is recorded net of estimated returns,
charge  backs and  markdowns  based on  management's  estimates  and  historical
experience.

         ACCOUNTS RECEIVABLE

         Trade  accounts  receivable  are  recorded  at invoiced  amounts,  less
amounts accrued for returns,  discounts and allowances. An allowance is provided
for specific  customer  accounts  where  collection is doubtful and for inherent
risk in our  ability  to  ultimately  collect  those  receivables.  There  is no
off-balance sheet credit exposure related to customer receivables.

         INVENTORIES

         Inventories  are  stated  at the  lower  of  cost  or  market.  Cost is
determined on the first-in, first-out ("FIFO") method.

         INCOME TAXES

         We  account  for  income  taxes  in  accordance   with  SFAS  No.  109,
"Accounting  for Income Taxes" Under SFAS No. 109,  income taxes are  recognized
for the amount of taxes payable or refundable  for the current year and deferred
tax  liabilities  and assets are recognized for the future tax  consequences  of
transactions  that have  been  recognized  in our  financial  statements  or tax
returns. A valuation  allowance is provided when it is more likely than not that
some portion or all of the deferred tax asset will not be realized.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

         In May 2005, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No. 154,  "Accounting Changes and Error Corrections" ("SFAS No. 154"). SFAS
No. 154 is a replacement  of APB Opinion No. 20,  "Accounting  Changes" and SFAS
No. 3,  "Reporting  Accounting  Changes in Interim  Financial  Statements  - (an
Amendment of APB Opinion No. 28)" and provides  guidance on the  accounting  for
and  reporting  of  accounting  changes  and  error  corrections.  SFAS No.  154
establishes  retrospective  application  as the required  method for reporting a
change in accounting  principle,  and provides guidance for determining  whether
retrospective  application of a change in accounting  principle is impracticable
and for  reporting a change when  retrospective  application  is  impracticable.
Retrospective application is the application of a different accounting principle
to a prior accounting period as if that principle had always been used or as the
adjustment of previously issued financial  statements to reflect a change in the
reporting entity. SFAS No. 154 also addresses the reporting of the correction of
an error by  restating  previously  issued  financial  statements.  The  Company
adopted the provisions of SFAS No. 154 effective January 1, 2006.

         On September 22, 2005, the Securities and Exchange  Commission  ("SEC")
issued  rules to delay by one-year  the  required  reporting  by  management  on
internal controls over financial reporting for  non-accelerated  filers. The new
SEC rule extends the compliance date for such registrants to fiscal years ending
on or after July 15, 2007.  Accordingly,  the Company qualifies for the deferral
until its year ending  December  31, 2007 to comply  with the  internal  control
reporting requirements.


                                       26



RISK FACTORS

         YOU SHOULD CAREFULLY  CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS DESCRIPTION BEFORE PURCHASING SHARES OF OUR COMMON
STOCK OR OTHER  SECURITIES.  INVESTING IN BLUE HOLDINGS' COMMON STOCK INVOLVES A
HIGH DEGREE OF RISK.  THE RISKS AND  UNCERTAINTIES  DESCRIBED  BELOW ARE NOT THE
ONLY ONES FACING US.  ADDITIONAL RISKS AND  UNCERTAINTIES  THAT WE ARE NOT AWARE
OF, OR THAT WE CURRENTLY DEEM IMMATERIAL, ALSO MAY BECOME IMPORTANT FACTORS THAT
AFFECT US. IF ANY OF THE  FOLLOWING  EVENTS OR  OUTCOMES  ACTUALLY  OCCURS,  OUR
BUSINESS,  OPERATING  RESULTS AND FINANCIAL  CONDITION WOULD LIKELY SUFFER. AS A
RESULT,  THE TRADING PRICE OF OUR COMMON STOCK COULD  DECLINE,  AND YOU MAY LOSE
ALL OR PART OF THE MONEY YOU PAID TO PURCHASE OUR COMMON STOCK.

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY,  MAKING IT DIFFICULT TO EVALUATE WHETHER WE
WILL OPERATE PROFITABLY.

         Antik and Taverniti were formed in September  2004 to design,  develop,
manufacture,  market,  distribute and sell high end fashion  jeans,  apparel and
accessories. As a result, we do not have a meaningful historical record of sales
and revenues nor an  established  business  track record.  While our  management
believes  that we have an  opportunity  to be successful in the high end fashion
jean  market,  there  can  be  no  assurance  that  we  will  be  successful  in
accomplishing our business initiatives,  or that we will achieve any significant
level of  revenues,  or continue to recognize  net income,  from the sale of our
products.

         Unanticipated problems,  expenses and delays are frequently encountered
in increasing  production and sales and  developing new products,  especially in
the current  stage of our  business.  Our  ability to  continue to  successfully
develop,  produce and sell our  products and to generate  significant  operating
revenues will depend on our ability to, among other matters:

         -        successfully market, distribute and sell our products or enter
                  into  agreements with third parties to perform these functions
                  on our behalf; and

         -        obtain the financing required to implement our business plan.

         Given our limited operating history,  our license agreements with Yanuk
Jeans,  LLC, our  acquisition  of  Taverniti,  and our lack of  long-term  sales
history and other sources of revenue,  there can be no assurance that we will be
able to achieve any of our goals and develop a sufficiently  large customer base
to be profitable.

WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE.

         We may not be able to fund our  future  growth or react to  competitive
pressures if we lack sufficient funds.  Currently,  management  believes we have
sufficient  cash on hand and cash available  through our factor to fund existing
operations for the foreseeable  future.  However,  in the future, we may need to
raise  additional  funds  through  equity or debt  financings  or  collaborative
relationships,  including  in the event that we lose our  relationship  with our
factor.  This additional  funding may not be available or, if available,  it may
not be available on commercially  reasonable terms. In addition,  any additional
funding may result in significant dilution to existing shareholders. If adequate
funds are not available on commercially  acceptable terms, we may be required to
curtail our operations or obtain funds through  collaborative  partners that may
require us to release material rights to our products.


                                       27



FAILURE TO MANAGE OUR GROWTH AND EXPANSION COULD IMPAIR OUR BUSINESS.

         Management  believes that we are poised for significant growth in 2006.
However,  no assurance can be given that we will be successful in maintaining or
increasing  our sales in the  future.  Any future  growth in sales will  require
additional working capital and may place a significant strain on our management,
management  information  systems,  inventory  management,  sourcing  capability,
distribution facilities and receivables management.  Any disruption in our 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 our distribution facilities.

         Additionally, we intend from time to time to open and/or license retail
stores focusing on the ANTIK DENIM, YANUK,  TAVERNITI SO JEANS and other brands,
and to acquire and/or license other businesses and brands, as applicable,  as we
deem appropriate.  If we are unable to adequately manage our retail  operations,
or to properly integrate any business or brands we acquire and/or license,  this
could adversely affect our results of operation and financial condition.

WE CURRENTLY OWN OR LICENSE,  AND OPERATE, A LIMITED NUMBER OF PRINCIPAL BRANDS.
IF WE  ARE  UNSUCCESSFUL  IN  MARKETING  AND  DISTRIBUTING  THOSE  BRANDS  OR IN
EXECUTING  OUR  OTHER  STRATEGIES,  OUR  RESULTS  OF  OPERATIONS  AND  FINANCIAL
CONDITION WILL BE ADVERSELY AFFECTED.

         While our goal is to employ a multi-brand strategy that will ultimately
diversify  the  fashion and other risks  associated  with  reliance on a limited
product  line,  we  currently  operate,  directly  and through our  wholly-owned
subsidiaries Antik and Taverniti,  a limited number of principal brands, most of
which  are  being  operated  pursuant  to very  recent  license  or  acquisition
agreements.  If we are unable to successfully  market and distribute our branded
products,  or if the recent popularity of premium denim brands decreases,  or if
we are unable to execute on our  multi-brand  strategy to acquire and/or license
additional companies and/or brands, as applicable,  identified by our management
from time to time,  our results of operations  and financial  condition  will be
adversely affected.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

         Management  expects that we will experience  substantial  variations in
our net sales and operating results from quarter to quarter. We believe that the
factors which influence this variability of quarterly results include:

         -        the timing of our 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 we participate;

         -        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.


                                       28



         As a result of fluctuations in our revenue and operating  expenses that
may occur, management believes that period-to-period  comparisons of our results
of  operations  are  not a good  indication  of our  future  performance.  It is
possible that in some future quarter or quarters,  our operating results will be
below the  expectations of securities  analysts or investors.  In that case, our
common stock price could fluctuate significantly or decline.

THE FINANCIAL CONDITION OF OUR CUSTOMERS COULD AFFECT OUR RESULTS OF OPERATIONS.

         Certain retailers, including some of our 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 we will remain a preferred vendor for our existing customers. A decrease in
business from or loss of a major customer  could have a material  adverse effect
on our results of  operations.  There can be no  assurance  that our 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, we 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.

OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.

         A portion of our import  operations  are subject to tariffs  imposed on
imported  products and quotas  imposed by trade  agreements.  In  addition,  the
countries  in which our  products  are  imported  may from  time to time  impose
additional new duties, tariffs or other restrictions on their respective imports
or adversely modify existing restrictions. Adverse changes in these import costs
and  restrictions,  or our suppliers'  failure to comply with customs or similar
laws,  could harm our business.  We cannot  assure that future trade  agreements
will not provide our  competitors  with an  advantage  over us, or increase  our
costs,  either  of which  could  have an  adverse  effect  on our  business  and
financial condition.

         Our 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 our  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 our
business,  such as  limiting  the  countries  from  which  we can  purchase  raw
materials and setting  duties or  restrictions  on products that may be imported
into the United States from a particular country.

         Our  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 us to locate  alternative ports or warehousing  providers to avoid
disruption to our customers.  These  alternatives  may not be available on short
notice or could  result in higher  transit  costs,  which  could have an adverse
impact on our business and financial condition.

OUR  DEPENDENCE  ON  INDEPENDENT  MANUFACTURERS  AND  SUPPLIERS OF RAW MATERIALS
REDUCES OUR ABILITY TO CONTROL THE MANUFACTURING  PROCESS,  WHICH COULD HARM OUR
SALES, REPUTATION AND OVERALL PROFITABILITY.

         We depend 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  shortages,  continuing  cost pressure and increased  demands for
product  innovation and  speed-to-market.  This  dependence  could subject us to
difficulty in obtaining  timely delivery of products of acceptable  quality.  In
addition, a contractor's failure to ship products to us in a timely manner or to
meet the required  quality  standards  could cause us to miss the delivery  date
requirements of our customers.  The failure to make timely  deliveries may cause
our  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 our sales,
reputation and overall profitability.


                                       29



         We do  not  have  long-term  contracts  with  any  of  our  independent
contractors  and any of  these  contractors  may  unilaterally  terminate  their
relationship with us at any time. While management believes that there exists an
adequate  supply of contractors  to provide  products and services to us, to the
extent we are not able to  secure or  maintain  relationships  with  independent
contractors  that are able to fulfill our  requirements,  our business  would be
harmed.

         We  have  initiated  standards  for  our  suppliers,  and  monitor  our
independent  contractors'  compliance with applicable  labor laws, but we do not
control our  contractors  or their labor  practices.  The  violation of federal,
state or foreign labor laws by one of our  contractors  could result in us being
subject to fines and our goods that are  manufactured  in violation of such laws
being seized or their sale in interstate commerce being prohibited.  To date, we
have not been subject to any sanctions  that,  individually or in the aggregate,
have had a material adverse effect on our business,  and we are not aware of any
facts on which any such  sanctions  could be based.  There can be no  assurance,
however,  that in the future we will not be subject to  sanctions as a result of
violations of applicable labor laws by our  contractors,  or that such sanctions
will  not  have a  material  adverse  effect  on our  business  and  results  of
operations.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

         The loss of or inability to enforce our  trademarks or any of our other
proprietary  or licensed  designs,  patents,  know-how and trade  secrets  could
adversely  affect our  business.  If any third party copies or  otherwise  gains
access to our  trademarks  or other  proprietary  rights,  or  develops  similar
products independently,  it may be costly to enforce our rights and we 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.

         We  may  need  to  bring  legal   claims  to  enforce  or  protect  our
intellectual   property   rights.   Any   litigation,   whether   successful  or
unsuccessful,  could result in substantial costs and diversions of resources. In
addition,  notwithstanding  the  rights  we  have  secured  in our  intellectual
property,  third  parties  may bring  claims  against us  alleging  that we have
infringed  on  their  intellectual  property  rights  or that  our  intellectual
property  rights are not valid.  Any claims  against us, with or without  merit,
could be time  consuming  and costly to defend or litigate and  therefore  could
have an adverse affect on our business.

OUR  BUSINESS IS GROWING  MORE  INTERNATIONAL  AND CAN BE  DISRUPTED  BY FACTORS
BEYOND OUR CONTROL.

         We  have  been  reducing  our  reliance  on  domestic  contractors  and
expanding our use of offshore manufacturers as a cost-effective means to produce
our products.  During the three and six months ended June 30, 2006, we sourced a
significant majority of our finished products from suppliers located outside the
United States and we also continued to increase our purchase of fabrics  outside
the United States. In addition,  we have been increasing our international sales
of product primarily through our licensees and distributors.

         As a result of our  increasing  international  operations,  we face the
possibility  of greater losses from a number of risks inherent in doing business
in  international  markets  and from a number of  factors  which are  beyond our
control.  Such factors that could harm our results of  operations  and financial
condition include, among other things:


                                       30



         o        Political  instability  or acts of  terrorism,  which  disrupt
                  trade with the countries in which our  contractors,  suppliers
                  or customers are located;

         o        Local  business  practices  that do not  conform  to  legal or
                  ethical guidelines;

         o        Adoption of  additional  or revised  quotas,  restrictions  or
                  regulations relating to imports or exports;

         o        Additional or increased  customs  duties,  tariffs,  taxes and
                  other charges on imports;

         o        Significant  fluctuations  in the value of the dollar  against
                  foreign currencies;

         o        Increased  difficulty in protecting our intellectual  property
                  rights in foreign jurisdictions;

         o        Social,  legal or economic  instability in the foreign markets
                  in which we do business,  which could influence our ability to
                  sell our products in these international markets; and

         o        Restrictions  on the  transfer  of funds  between  the  United
                  States and foreign jurisdictions.

THE LOSS OF PAUL GUEZ OR OUR LEAD DESIGNERS  WOULD HAVE AN ADVERSE EFFECT ON OUR
FUTURE  DEVELOPMENT  AND COULD  SIGNIFICANTLY  IMPAIR OUR ABILITY TO ACHIEVE OUR
BUSINESS OBJECTIVES.

         Our success is largely  dependent  upon the  expertise and knowledge of
our Chairman,  Chief  Executive  Officer and President,  Paul Guez, and our lead
designers,  and our ability to continue to hire and retain other key  personnel.
The loss of Mr. Guez, or any of our other key  personnel,  could have a material
adverse effect on our business, development,  financial condition, and operating
results. We do not maintain "key person" life insurance on any of our management
or key personnel, including Mr. Guez.

RISKS RELATED TO OUR INDUSTRY

OUR 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 our consumers.
Our 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 we compete,  could reduce
our sales and adversely affect our business and financial condition.

OUR BUSINESS IS HIGHLY COMPETITIVE AND DEPENDS ON CONSUMER SPENDING PATTERNS.

         The  apparel  industry  is highly  competitive.  We face 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 our  products  and  achieving  customer
                  perception of value; and

         -        the need to provide strong and effective marketing support.

WE MUST SUCCESSFULLY  GAUGE FASHION TRENDS AND CHANGING CONSUMER  PREFERENCES TO
SUCCEED.

         Our success is largely  dependent upon our ability to gauge the fashion
tastes of our 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 we misjudge  the market for our  merchandise,  our sales may be adversely
affected.  Our ability to anticipate and effectively respond to changing fashion
trends depends in part on our ability to attract and retain key personnel in our
design,  merchandising  and marketing staff.  Competition for these personnel is
intense,  and we  cannot be sure that we will be able to  attract  and  retain a
sufficient number of qualified personnel in future periods.


                                       31



OUR BUSINESS MAY BE SUBJECT TO SEASONAL TRENDS.

         In the experience of our 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 we operate;
         -        holiday seasons;
         -        consumer demand;
         -        climate;
         -        economic conditions; and
         -        numerous other factors beyond our control.

OTHER RISKS RELATED TO US

OUR SALE OF SECURITIES IN ANY EQUITY OR DEBT FINANCING  COULD RESULT IN DILUTION
TO OUR SHAREHOLDERS AND HAVE A MATERIAL ADVERSE EFFECT ON OUR EARNINGS.

         Any sale of shares by us in future private placement or other offerings
could result in dilution to our existing  shareholders as a direct result of our
issuance of additional  shares of our capital stock.  In addition,  our business
strategy  may  include   expansion   through  internal   growth,   by  acquiring
complementary  businesses,  by acquiring or licensing  additional  brands, or by
establishing strategic  relationships with targeted customers and suppliers.  In
order to do so, or to fund our other activities,  we may issue additional equity
securities  that could dilute our  shareholders'  stock  ownership.  We may also
assume additional debt and incur impairment losses related to goodwill and other
tangible assets if we acquire another company and this could  negatively  impact
our results of operations.

INSIDERS OWN A SIGNIFICANT  PORTION OF OUR COMMON  STOCK,  WHICH COULD LIMIT OUR
SHAREHOLDERS' ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS.

         As of August 1, 2006, our Chief  Executive  Officer,  Paul Guez,  Chief
Financial Officer,  Patrick Chow, Gregory Abbou, President of Taverniti So Jeans
LLC and two  members of our design  team,  Messrs.  Naouri and  Caugant,  former
members  of Antik,  owned  approximately  80% of the  outstanding  shares of our
common  stock.   Paul  and  Elizabeth   Guez,  Mr.  Guez's  wife,   alone  owned
approximately  72% of the  outstanding  shares of our common  stock at August 1,
2006. Accordingly,  our executive officers and key personnel have the ability to
affect  the  outcome  of, or exert  considerable  influence  over,  all  matters
requiring shareholder approval,  including the election and removal of directors
and any change in control.  This  concentration of ownership of our common stock
could have the effect of  delaying  or  preventing  a change of control of us or
otherwise  discouraging  or preventing a potential  acquirer from  attempting to
obtain control of us. This, in turn,  could have a negative effect on the market
price of our common stock. It could also prevent our shareholders from realizing
a premium over the market prices for their shares of common stock.

OUR STOCK PRICE HAS BEEN VOLATILE.

         Our common stock is quoted on the Over-The-Counter  Bulletin Board, and
there can be substantial volatility in the market price of our common stock. The
market  price of our common  stock has been,  and is likely to  continue  to be,
subject  to  significant  fluctuations  due to a variety of  factors,  including
quarterly variations in operating results, operating results which vary from the
expectations  of  securities  analysts  and  investors,   changes  in  financial
estimates,  changes in market valuations of competitors,  announcements by us or
our competitors of a material nature,  loss of one or more customers,  additions
or  departures of key  personnel,  future sales of common stock and stock market
price and volume  fluctuations.  In  addition,  general  political  and economic
conditions such as a recession,  or interest rate or currency rate  fluctuations
may adversely affect the market price of our common stock.


                                       32



         In addition,  the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price of our common stock.
Often, price fluctuations are unrelated to operating performance of the specific
companies whose stock is affected.  In the past, following periods of volatility
in the market price of a company's stock, securities class action litigation has
occurred  against  the  issuing  company.  If we were  subject  to this  type of
litigation in the future,  we could incur  substantial  costs and a diversion of
our  management's  attention and resources,  each of which could have a material
adverse effect on our revenue and earnings.  Any adverse  determination  in this
type of litigation could also subject us to significant liabilities.

ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS.

         Some investors  favor  companies that pay  dividends,  particularly  in
general  downturns  in the stock  market.  We have not declared or paid any cash
dividends on our common stock. We currently intend to retain any future earnings
for funding growth, and we do not currently  anticipate paying cash dividends on
our common stock in the  foreseeable  future.  Because we may not pay dividends,
your return on an investment in our common stock likely  depends on your selling
such stock at a profit.

OFF-BALANCE SHEET ARRANGEMENTS

         Financial  instruments that potentially subject us to off-balance sheet
risk  consist of  factored  accounts  receivable.  We sell  certain of our trade
accounts  receivable to a factor and are  contingently  liable to the factor for
merchandise  disputes and other customer claims. The total amount of receivables
purchased by the factor (including receivables in transit) on a without recourse
basis  approximated  $3,073,753 as of June 30, 2006 before reserves.  The factor
had made advances to us of $2,179,944  against these  receivables.  Although the
arrangement with our factor is important to our liquidity and capital resources,
management  believes that cash flow from  operations,  and our ability to obtain
other debt or equity financing,  permits us to adequately support and manage our
ongoing operations.

ITEM 3.  CONTROLS AND PROCEDURES

         As of June 30, 2006,  the end of the period  covered by this  Quarterly
Report on Form 10-QSB,  we conducted an evaluation,  under the  supervision  and
with the  participation  of our Chief  Executive  Officer  and  Chief  Financial
Officer,  of our  disclosure  controls  and  procedures  (as  defined  in  Rules
13a-15(e) and 15d-15(e) under the Exchange Act). Based on this  evaluation,  our
Chief Executive  Officer and Chief Financial  Officer  concluded that as of June
30, 2006, our disclosure controls and procedures were effective.

         During the quarter  ended June 30,  2006,  there were no changes in the
internal  control over financial  reporting (as defined in Rule 13a-15(f)  under
the Exchange Act) that have  materially  affected,  or are reasonably  likely to
materially affect, our internal control over financial reporting.


                                       33



                                     PART II

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         We held our Annual  Meeting of  Shareholders  on May 22,  2006.  At the
Annual Meeting,  there were 26,057,200  shares of Common Stock entitled to vote,
and  21,350,961  (81.9%) were  represented at the meeting in person or by proxy.
Immediately  prior to and following the Annual  Meeting,  the Board of Directors
was comprised of Gary Freeman,  Marshall  Geller,  Paul Guez,  Kevin Keating and
Robert Lynn.

         The following  summarizes  vote results for those matters  submitted to
our shareholders for action at the Annual Meeting:

         1.       Proposal to elect Messrs.  Freeman,  Geller, Guez, Keating and
Lynn to serve as our directors  for the ensuing year and until their  successors
have been elected and qualified.

              DIRECTOR                    FOR                  WITHHELD

         Gary Freeman                 21,350,961                   0

         Marshall Geller              21,350,961                   0

         Paul Guez                    21,350,961                   0

         Kevin Keating                21,350,961                   0

         Robert Lynn                  21,350,961                   0

         2.       Proposal to ratify the  selection of Weinberg & Company,  P.A.
as our  independent  public  accountants for the fiscal year ending December 31,
2006.

     FOR          AGAINST               ABSTAIN               BROKER NON-VOTES

  21,350,961         0                     0                          0

ITEM 6.  EXHIBITS

         See attached Exhibit Index.


                                       34



                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                      BLUE HOLDINGS, INC.



Date: August 14, 2006               By:  /S/ PATRICK CHOW
                                           -------------------------------------
                                           Patrick Chow
                                           Chief Financial Officer and Secretary


                                       35



                                  EXHIBIT INDEX

EXHIBIT
NUMBER         DESCRIPTION OF EXHIBIT
-------        -----------------------------------------------------------------

10.1           Sublease  dated April 27, 2006  between Blue  Holdings,  Inc. and
               Azteca Production  International,  Inc. Incorporated by reference
               to  Exhibit  10.1  to the  Current  Report  on Form  8-K  (File #
               000-33297)  filed with the Securities and Exchange  Commission on
               May 3, 2006.

10.2           Agreement  and Plan of Merger  dated  June 19,  2006,  among Blue
               Holdings, Inc., LR Acquisition  Corporation,  Long Rap, Inc., the
               stockholders   of  Long  Rap,   Inc.   and   Charles   Rendelman.
               Incorporated  by reference to Exhibit 10.1 to the Current  Report
               on Form 8-K (File #  000-33297)  filed  with the  Securities  and
               Exchange Commission on June 23, 2006.

31.1           Certification   of  Principal   Executive   Officer  pursuant  to
               Securities  Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2           Certification   of  Principal   Financial   Officer  pursuant  to
               Securities  Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1           Certification  of  Principal  Executive  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

32.2           Certification  of Chief Financial  Officer  pursuant to 18 U.S.C.
               Section  1350,  as  adopted   pursuant  to  Section  906  of  the
               Sarbanes-Oxley Act of 2002.


                                       36