Amendment #2 to form 10-KSB

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the preceding 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 ¨

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. ¨

Issuer’s revenues for the fiscal year ended September 30, 2004 were $4,464,954.

At November 30, 2004, 4,301,806 common shares (issuer’s only class of voting stock) were outstanding. The aggregate market value of the 2,706,306 common shares of the registrant held by nonaffiliates on that date (based upon the closing price on the Nasdaq system) was $2,435,675.

This Amendment No. 2 to the Dickie Walker Marine, Inc. Annual Report on Form 10-KSB for the year ended September 30, 2004, which was filed with the Securities and Exchange Commission on December 29, 2004, is being filed for the following reasons.

1. To reclassify in Item 7. Financial Statements, deferred financing costs recorded in conjunction with the Company’s 2004 private placement from a current asset to a long-term liability. On the balance sheets, the reclassification reduced the “Deferred financing costs” asset by $211,408 and reduced the “Notes payable to stockholders liability” by $211,408. The reclassification had no effect on net loss, net loss per share, or stockholders’ equity for any period presented.

2. To revise in Item 7. Financial Statements, certain non-cash items that were incorrectly included in the statements of cash flows. These include “Deferred financing costs” of ($157,518) in the operating activities section and “Warrants issued in connection with private placement” of $175,385 in the financing activities section, both of which have been deleted from the statement. In addition, in the financing activities section, “Issuance of common shares, net” was increased by $17,867 to $342,398, and “Deferred financing costs” of ($59,905) was netted against “Proceeds from notes payable to stockholders”. The revisions had no effect on net loss, net loss per share, or stockholders’ equity for any period presented.

3. To change Item 6. Management’s Discussion and Analysis or Plan of Operation: Liquidity and Capital Resources, to conform certain amounts presented therein to the amounts shown in the statements of cash flows, as discussed in number 2 above.

4. To identify in Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters, the name of the selling agent for the 2004 Private Placement and the person or class of persons to whom the 2004 Private Placement units were sold.

5. To clarify in Item 8A. Controls and Procedures, that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and that as of September 30, 2004, our disclosure controls and procedures were effective at a reasonable assurance level.

6. To correct in Item 10. Executive Compensation, Option Grants in Fiscal 2004, the number of shares granted to all employees as a group to exclude grants to directors of 45,000 shares and to accordingly correct the percentage of total options granted to employees for each of Montiel and Schmidt from 13.7% to 16.6%.

7. To correct in Item 10. Executive Compensation, Option Exercises and Holdings, the unexercisable number of securities underlying unexercised options as follows: Montiel – from 35,000 to 56,575 and Schmidt from 35,000 to 50,312.

8. To correct in Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters, footnote (1) the number of shares held by the Montiel Family Trust from 1,288,500 to 1,301,000.

Dickie Walker Marine, Inc., a Delaware corporation originally incorporated in California in October 2000, designs, sources and has manufactured, markets and distributes authentic lines of nautically inspired apparel, gifts and decorative items. Our products are designed to appeal to consumers who enjoy coastal living, boating, or being around the water. The Dickie Walker^™ brand consists of nautically inspired apparel and nautically inspired decorative and functional accessory items for the home, office and boat. Our unique apparel line features quality fabrics and comfortable silhouettes for the 30 to 60 year-old, upper middle- class consumer.

The Dickie Walker brand of apparel and accessories is distributed through specialty retailers and coastal stores. We opened a retail store in December 2002 in La Jolla, California. This store emphasizes coastal and marine inspired lifestyle merchandise.

Boating and water-related activities are very popular in the United States. Much of the U.S. population lives in close proximity to an ocean, lake, river or body of water capable of supporting recreational boating. According to the National Marine Manufacturer’s Association, nearly 72 million people participated in recreational boating during the year 2003. We believe that the U.S. population’s close proximity to water coupled with its interest in boating and the coastal environment lifestyle provides us with an opportunity to develop a successful nautical lifestyle brand.

We believe that there are no significant companies currently addressing this customer base by focusing on nautically-inspired apparel and accessories. While numerous companies provide apparel for resorts, coastal stores and marine supply stores, we believe they do not design their apparel and accessories to appeal to consumers who aspire to the coastal environment, boating, or the nautical lifestyle in the niche market we have identified.

We endeavor to create innovative designs that fit our customers’ needs. The Dickie Walker branded apparel line features comfort wear for men and women who enjoy the coastal lifestyle. Our apparel is made with quality fabrics and is designed with a full, active fit for comfort and movement. Nautical embellishments including embroidery and graphic designs play a key role in defining the line. We currently offer three lines of apparel – our captain’s collection, a luxury line of high quality, “less casual” attire; our boatyard line, consisting of soft, washed-down, casual clothing; and our low pressure line, a technical line of water-proof, wind-resistant apparel. We offer two seasonal collections of products each year – a spring collection and a fall collection.

The Dickie Walker line of gift and decorative items are nautically inspired pieces for the home, office or boat. Many are designed specifically to be “boat functional”, that is, for example, they are mildew proof, non-corrosive and are sized to fit a boat’s dimensions. Targeting the same consumer as our apparel line, these items appeal to middle-class and more affluent consumers in the 30 to 60 years-old range who enjoy and identify with the coastal lifestyle.

Our gift and decorative items consist of domestic soft goods, such as towels, linens, rugs, pillows, bags, placemats, napkins, potholder mitts, and aprons; cocktail coasters; storage containers; tote and duffel bags; blankets; candles; and stationery items, such as log books, photo albums, journals, guest books, and decorative

note pads. We design these accessories to incorporate elements of the sea to provide a nautical look and feel. Some of our accessories are designed specifically for use in vessel galleys and other interior applications.

We employ an experienced production management and sourcing team. We contract with domestic and overseas independent contractors to produce fabric and to cut and sew our apparel. International manufacturers and suppliers typically require a 50%-60% deposit prior to beginning work. We are generally required to place orders with international manufacturers three or four months before the proposed shipment date. We pay all our major vendors in U.S. dollars.

Use of offshore manufacturers enables us to secure better pricing on volume goods than that offered by many domestic manufacturers. Domestic manufacturing typically costs more than offshore manufacturing. We use domestic manufacturing for quick-turn items and specialty items not available from offshore suppliers. We estimate currently that offshore manufacturers supply approximately 54% of our products and 46% are supplied by domestic manufacturers. Our orders are placed and delivered through written orders with both our overseas and domestic suppliers.

Our primary goal is to focus on building the Dickie Walker lifestyle brand of apparel, gifts and accessories aimed at the boater or coastal enthusiast. We discontinued our private label business with West Marine in late fiscal 2004 and plan to launch our own mail order catalogs in the Spring of 2005. We intend to use an integrated marketing plan in distributing the Dickie Walker brand. This plan includes selling the Dickie Walker products to select wholesale accounts, through our own retail stores and through our catalogs and our web site, www.dickiewalker.com. We believe these distribution channels can complement and supplement each other in a brand enhancing manner.

Although we have done very little to promote our Internet web site to date, we have sold small quantities of our products through this channel. In 2005 we intend to accelerate the promotion of the site via advertising, the use of search engines and by attending consumer boat shows and using “email blasts” and banner ads. We are currently in the process of upgrading the web site to be more user-friendly and easy to shop. In 2005 we plan to introduce a mail order catalog titled “Dickie Walker Boat to Home.” The catalog will carry Dickie Walker apparel for men and woman and numerous decorative and functional items for boats. A major emphasis and challenge of the catalog will be to graphically and visually project an image that will be appealing to the boating consumer.

We intend to place our largest distribution and marketing investment, focus and emphasis on growing our catalog and related Internet business. Our efforts over the past three years have led us to conclude that this is the best opportunity and most cost-effective way to build a viable company. We believe that we can identify potential customers through the purchase of lists of names of boaters, yacht club members and coastal living enthusiasts. We also have a current house file of names we have accumulated who have previously purchased Dickie Walker product.

Our products are sold to specialty retailers, yacht clubs, resorts, upper end sporting goods stores and marina stores throughout the United States. In fiscal 2005 our goal is to target fewer wholesale accounts and to focus only to larger accounts that are capable of selling more products. Focus will be given to accounts that will carry a larger quantities and a wider variety of the Dickie Walker lines. Our focus will be on adding accounts that will feature a full merchandising display of Dickie Walker products. In fiscal 2005, we also plan to expand our wholesale

distribution through the opening of “associate stores,” which are areas within customer-owned stores that feature a wide array of our products, combined with our merchandising profiles, fixtures, and images. To this end, we use a network of independent sales representatives to market our products to these accounts, and we pay our independent sales representatives a commission on shipped and collected invoices after a sale. We currently have nine independent and one in-house sales representatives. Although our fiscal 2004 wholesale sales showed a 97% increase over fiscal 2003, we will place a lesser emphasis on growing our wholesale business in 2005, as this will allow us a more focused approach to the marketing and development of our catalog and Internet business.

We opened our first retail store in La Jolla, California in December 2002 as a brand building and profit initiative. Although we have explored numerous opportunities over the past two years, we have not found the right combination of location and financing to enable us to open another store. As the cost of opening a retail store is expensive, we will likely explore some form of partnership in order to do so. We will continue to review locations with retail space of approximately 1,800 square feet in West Coast tourist areas. The length of time it will take to open stores depends upon several factors, including how quickly we can identify and lease suitable retail space. We believe that a strong merchandising presentation of apparel and lifestyle items, store fixtures, and nautical point-of-sale decor and materials in a complete coastal living shopping environment will appeal to consumers as a unique destination store.

For the past three years, we have had an agreement with West Marine Products, Inc. to provide substantially all of the design, sourcing, manufacturing and distribution for West Marine’s private label apparel line, excluding shoes and foul weather gear. Sales to West Marine have accounted for the majority of our revenues to date and our relationship with them has enabled us to build an infrastructure on which to grow the Dickie Walker^™ brand. Because our current strategy is to focus our efforts and resources on developing the Dickie Walker^™ brand, we anticipate no significant future private label sales.

We believe that creating the appropriate brand image is essential for a company to be a market leader, and accordingly, we have devoted substantial time and effort in developing the Dickie Walker image. The details of our designs, the nautical embellishments on our products, the look and feel of our product packaging, and the uniqueness of our merchandising displays combine to form a unique and consistent image of the Dickie Walker brand in consumers’ minds. We believe that consumers will grow to expect quality and excellence from the Dickie Walker brand as an authentic source for nautical apparel, gifts and accessories.

Part of this image is the Dickie Walker yacht, a 63-foot Nova Scotia trawler. This 52 year-old classic wooden hulled motor yacht inspired the Dickie Walker brand. We believe its image appeals to those who enjoy the marine lifestyle because of the vessel’s looks, classic design, originality, woodwork and overall charm. We use the vessel’s image and name on our labels, catalogs, packaging, hang tags, posters, website and point of sale displays to create a foundation of authenticity and originality for the Dickie Walker brand. The Dickie Walker vessel is owned by Gerald W. Montiel, our President and Chief Executive Officer and we use its image and name and the boat itself under two agreements with Mr. Montiel. See “Certain Relationships and Related Transactions – License Agreement and Reimbursement Agreement.”

Dickie Walker’s philosophy is to have an integrated merchandising presentation, which communicates a strong visual impact and brand message. We are working to achieve this through the use of coordinated point-of-sale materials, packaging, marketing initiatives, and fixtures.

We believe that a distinctive merchandising program encompassing apparel, accessories, and lifestyle items will convince retail stores owners to carry the Dickie Walker brand. Embellished items, such as embroidery, prints and graphic designs, will build the image of an authentic marine-inspired brand. The images in the merchandising package are designed to convey the feeling and inspiration of coastal living, and many of these images will feature the Dickie Walker vessel.

Our management team has extensive experience with customer service, distribution, embroidery operations, finance and information technology. We employ our own warehouse staff to embroider and distribute our products from our Oceanside, California warehouse and headquarters. All of our products are distributed from this facility, which we expect will accommodate our needs for the next several years.

We have capital leases for four embroidery machines. We use these machines to embroider our own products and special orders for boaters, yacht clubs and resorts. Utilizing our own machines gives us a competitive advantage for providing custom embroidery services to our customers.

We compete generally for the disposable income of consumers, operate in the fragmented and highly competitive apparel industry, and compete against many companies with significantly more resources and well-established brand names. No single company, however, dominates the marketplace. Numerous apparel brands are sold in coastal stores, specialty retail stores, marine supply stores and resorts. Although some companies have marketed their apparel with a nautical theme, we believe the apparel is not designed specifically to appeal to boaters or those who enjoy the coastal lifestyle. We view our primary competitors as apparel companies that sell general outdoor wear and sportswear such as Tommy Bahama and Polo.

The gift and decorative items market is also highly competitive, with a significant number of both large and small participants. Our competitors in these markets distribute their products through independent gift retailers, department stores, mass merchandisers and catalogue retailers or through direct response marketing. We believe the principal elements of competition in the gift and decorative items market is product design and quality, brand name loyalty, merchandising and price.

Many of our imports are subject to existing or potential duties, tariffs or quotas that may limit the quantity of certain types of goods which may be imported into the United States, including constraints imposed by bilateral textile agreements between the United States and a number of foreign countries. These agreements impose quotas on the amounts and types of merchandise that may be imported into the United States from these countries. These agreements also allow signatories to adjust the quantity of imports for categories of merchandise that, under the terms of the agreements, are not now subject to the specific limits. Our imported products are subject to United States customs duties. The United States and the countries in which our products are manufactured may impose quotas, duties, tariffs or other restrictions that could adversely affect our business.

Our vendors and suppliers are subject to applicable laws and regulations, including labor laws and laws regulating the minimum age for workers. In the United States, our vendors and suppliers must comply with the federal Fair Labor Standards Act, which establishes the minimum age for workers, including those in the garment industry. If they do not comply, and we receive shipments from them, we can be deemed to be in violation of the Fair Labor Standards Act. Some states, such as California, also have their own child labor laws with which we must comply.

We have applied for federal trademark registration of our logo which consists of a drawing of the Dickie Walker vessel and the words “Dickie Walker Built 1951 Authentic Marine.” Two registrations have issued for this trademark and six applications are pending in the U.S. Patent and Trademark Office covering a variety of goods. We also have six applications pending in the U.S. Patent and Trademark Office for related trademarks. We anticipate receiving trademark registrations for apparel in Japan and the European Community in the near future. We own the domain name for our Internet website, www.dickiewalker.com. We also own the domain names boathome.com, harborandhome.com, dickiewalkermarine.com and boattohome.com, which are not active at this time. We have registered numerous copyrights on our designs with the U.S. Copyright Office and will likely register some proprietary designs in the future. We anticipate that we will continue to apply for copyright protection for our graphics on a seasonal basis as the related artwork is developed.

At September 30, 2004, we had 23 employees, 19 of whom were full-time. None of our employees are represented by a labor union or under collective bargaining agreements. We believe our relations with our employees to be good.

We currently lease a facility located in Oceanside, California, which consists of approximately 21,000 square feet of office and warehouse space at a monthly rent of $4,100 with annual escalation adjustments. The facility houses our administrative and design offices and also serves as our warehousing and distribution center. We lease the facility under a lease that expires on April 30, 2008 with an option to renew for five years. We also lease a retail store of approximately 2,000 square feet in La Jolla, California at a monthly rent of approximately $7,300 with annual escalation adjustments. The term of the lease is ten years with two five-year renewal options. Both properties are in good condition.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 2004.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

(a) Our common stock trades on The Nasdaq SmallCap Market under the symbol “DWMA.” The following table sets forth, for the periods indicated, the high and low bid prices per share of the common stock as reported on The Nasdaq SmallCap Market.

Our present policy is to retain earnings, if any, to finance future growth. Although we are not restricted from paying cash dividends, we have not paid cash dividends to date and do not anticipate doing so in the future. At November 30, 2004, there were approximately 135 stockholders of record and the closing price per share of our common stock was $0.90. We believe there are more beneficial owners of our common stock, the number of which is unknown.

The following table reflects information about our Equity Incentive Plan, which is our only equity compensation plan:

During the fourth quarter of fiscal 2004, we closed a private placement (“2004 Private Placement”) of 33 units, each unit costing $25,000 and consisting of 9,375 shares of the Company’s common stock, a $12,500 subordinated promissory note payable on June 30, 2007, with a stated interest rate of 8% per annum (“2004 Note”), and 5,000 30-month warrants to purchase common stock at $2.10 per share. The units were sold only to persons who qualified as Accredited Investors as defined in Regulation D, of the Securities Act of 1933, as amended, or to persons who, either alone or with their purchaser representative, had such knowledge and

experience in financial matters that they were capable of evaluating the merits and risks of an investment in the units. Gross cash proceeds totaled $825,000. A selling agent, Newbridge Securities Corporation, was utilized in the offering and was paid commission and expenses totaling approximately $93,500. The selling agent and certain brokers were issued warrants to purchase 46,406 shares of common stock, exercisable at $1.60 per share for thirty months. The offering was made pursuant to the exemption from registration provided by Section 4(2) and under Regulation D, of the Securities Act of 1933, as amended.

(b) Our initial public offering of common stock was effected through a Registration Statement on Form SB-2 (File No. 333-82532) that was declared effective by the Securities and Exchange Commission on May 15, 2002.

As of September 30, 2004 we had expended approximately $4,900,000 of the net offering proceeds for the following purposes: tenant improvements for our retail store and our headquarters facility - $680,000; purchase of furniture, fixtures, equipment and software - $211,000; increase in accounts receivable - $263,000; product development, including design expense - $694,000; marketing and promotional programs, sales staff and customer service - $1,648,000; and the balance for other working capital purposes.

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by or on our behalf. We disclaim any obligation to update forward-looking statements.

The following table sets forth, as a percentage of net sales, statements of operations data for the periods indicated.

Our sales for the year ended September 30, 2004 decreased by approximately 1% from the prior year. The decrease in fiscal 2004 sales was due to a reduction in sales to West Marine of approximately 17%. This was

offset by an increase in our wholesale business of approximately 97% and an increase in our retail and direct business of 34%. For the year ended September 30, 2004, approximately 68% of our sales were made to West Marine as compared to 82% in fiscal 2003. Our agreement with West Marine expires in December 2004, but we have elected to exit the private label business immediately and expect no significant future sales from West Marine.

Our gross profit as a percentage of sales was 25% for the year ended September 30, 2004, compared to 24% for the year ended September 30, 2003. The improvement is largely attributable to reduced standard costs, offset by a $135,000 increase in our inventory reserve.

Selling, general and administrative expenses were 52% of net sales for the year ended September 30, 2004, as compared to 60% for the prior fiscal year, and represent a decrease in absolute dollars of 15%. The absolute dollar decrease for the year ended September 30, 2004 was primarily due to staffing reductions and associated expenses.

We incurred interest expense for the year ended September 30, 2004 totaling approximately $89,000, a slight increase from $87,000 in the prior fiscal year. This expense represents interest on the 2001 and 2004 notes payable to stockholders, a capital lease obligation and the amortization of deferred financing costs.

Interest income of approximately $9,000 for the year ended September 30, 2004 was down from $37,500 in the prior fiscal year as a result of using our cash balances to fund our operations.

Other expense for the year ended September 30, 2004 was composed primarily of property and state franchise taxes.

As a result of the factors described above, we had a net loss of approximately $1,273,000, for the year ended September 30, 2004, as compared to a loss of approximately $1,689,000 for the year ended September 30, 2003.

Our sales for the year ended September 30, 2003 increased by approximately 55% over the prior year. The increase in fiscal 2003 sales was due to the increase in sales to West Marine, the opening of our first retail store, and the expansion of our wholesale business. For the year ended September 30, 2003, approximately 82% of our sales were made to West Marine as compared to 87% in fiscal 2002.

Our gross profit as a percentage of sales was 24% for the year ended September 30, 2003, compared to 20% for the year ended September 30, 2002. The improvement is largely attributable to the higher profit realized on the sale of Dickie Walker brand products.

Selling, general and administrative expenses were 60% of net sales for the year ended September 30, 2003, as compared to 59% for the prior fiscal year, and represent an increase in absolute dollars of 57%. The absolute dollar increase for the year ended September 30, 2003 was primarily due to an increase in payroll and payroll related expenses as the Company increased staff to meet increased sales and develop a sales, marketing and design infrastructure. Additionally, operating costs for our first retail store, expenses associated with operating as a publicly-traded company, trade show and catalog expenses and sales commissions contributed to the increase.

We incurred interest expense for the year ended September 30, 2003 totaling approximately $87,000, down from $93,000 in the prior fiscal year. This expense represents interest on notes due to stockholders, a capital lease obligation and the amortization of deferred financing costs.

Interest income of approximately $37,500 for the year ended September 30, 2003 was up from $32,500 in the prior fiscal year and resulted from the money market account interest earned on the funds raised in our initial public offering.

Other expense for the year ended September 30, 2003 was primarily property and state franchise taxes.

As a result of the factors described above, we had a net loss of approximately $1,689,000 for the year ended September 30, 2003, as compared to a loss of approximately $1,195,000 for the year ended September 30, 2002.

Since our inception, we have funded our operations and satisfied our capital expenditure requirements primarily with proceeds from sales of common stock to our founders, the private placement of our common stock and promissory notes in fiscal 2001 and fiscal 2004, and our initial public offering in fiscal 2002. In the quarter ended June 30, 2002, we completed our initial public offering and received approximately $5,287,000 in cash, net of underwriting discounts, commissions, and other related expenses. Proceeds from these financing sources since inception and through September 30, 2004 totaled approximately $8,600,000 and capital equipment lease financing totaled approximately $207,000.

Net cash used in operating activities was approximately $2,147,000 for the year ended September 30, 2004 and approximately $1,400,000 for the year ended September 30, 2003. Net cash used in operating activities for the year ended September 30, 2004, resulted primarily from the net loss for the period, net of depreciation, amortization and reserves, an increase in accounts receivable and inventories, and a decrease in advances from West Marine. Net cash used in operating activities for the year ended September 30, 2003, resulted primarily from the net loss for the period, net of depreciation and amortization and a net decrease in advances from West Marine.

Net cash used by investing activities totaled approximately $133,000 and $844,000 for the years ended September 30, 2004 and 2003, respectively. Fiscal 2004 equipment purchases were primarily for computers and fixtures for trade shows and display. We primarily used the invested cash in fiscal 2003 for leasehold improvements and purchases of fixed assets to support our increased sales activities, including the opening of our La Jolla retail store.

Financing activities for fiscal 2004 were composed primarily of two transactions.

During April 2001, we closed a private placement (“2001 Private Placement”) of 44 units, each unit consisting of 12,500 shares of the Company’s common stock and a $22,500 subordinated convertible four-year promissory note with a stated interest rate of 7% per annum (“2001 Note”). At the option of the holder, the 2001 Note is convertible into shares of the Company’s common stock at $3.60 per share, or 6,250 shares per unit. Certain directors and affiliates converted their 2001 Notes into common stock as of March 31, 2004. In March 2004, the Company extended an offer to non-affiliate holders of the 2001 Notes to convert the outstanding 2001 Notes at a price of $1.69 per share. The offer was effective as of April 1, 2004 through April 9, 2004. As a result of these transactions, $618,750 of 2001 Notes was converted into common stock.

anticipated. The timing and amount of our capital requirements will depend on a number of factors, including demand for our products, the need for merchandising and promotional programs and competitive pressures. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and our stockholders will experience additional dilution. Such additional securities may have rights, preferences, or privileges senior to those of our common stockholders. There can be no assurance that the additional financing will be available on terms favorable to us, if at all. If adequate funds are not available, or are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance products or otherwise respond to competitive pressures could be significantly limited, any of which could have a material adverse effect on our ability to continue as a going concern. Our business, financial condition and results of operations may be harmed by such limitations.

The following table summarizes contractual obligations and commitments at September 30, 2004.

The following is a summary description of the many risks we face in our business. You should carefully review these risks and the other information described in this report in evaluating our business.

We have had limited operations and a history of losses that make our future operating results difficult to predict.

Our business began in October 2000. We have a limited operating history and you have limited historical information about us on which to base your investment decision. We face the risks and uncertainties of other early-stage companies. We have had accumulated losses from operations since our inception and may incur future losses from operations. At September 30, 2004, the accumulated deficit was approximately $5,406,000. Our limited operating history and history of losses make future operating results difficult to predict.

At September 30, 2004, approximately $1,059,000 in cash and cash equivalents was available to fund operations. Our current business plan for fiscal 2005 reflects continued initiatives to increase revenue, reduce cost of goods sold as a percentage of revenue, and control selling, general and administrative costs. If we are unable to maintain revenue and cost targets within a reasonable range of our operating plan, we will need to raise additional funds through the public or private sale of our equity or debt securities or from other sources, in order to satisfy our projected cash needs at least through September 30, 2005. No assurance can be given that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. The timing and amount of our capital requirements will depend on a number of factors, including demand for our products, the need for merchandising and promotional programs and competitive pressures. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and our stockholders will experience additional dilution. Such additional securities may have rights, preferences, or privileges senior to those of our common stockholders. There can be no assurance that the additional financing will be available on terms favorable to us, if at all. If adequate funds

are not available, or are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance products or otherwise respond to competitive pressures could be significantly limited. Our business, financial condition and results of operations may be harmed by such limitations and we may be required to file for bankruptcy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Our decision to exit the West Marine private label business could decrease sales and impede our ability to achieve profitability.

We have an agreement with West Marine under which we will provide the private label apparel line for West Marine’s retail stores, catalogs, and Internet website. Sales to West Marine accounted for approximately 68%, 82% and 87% of our sales for the years ended September 30, 2004, 2003 and 2002, respectively. Our agreement with West Marine expires in December 2004, but we have elected to exit the private label business immediately and expect no significant future sales from West Marine. If we are unable to increase wholesale, catalog and retail sales of Dickie Walker^™ brand products to replace sales to West Marine, we may not be able to achieve profitability.

In the upcoming year we intend to place our largest distribution and marketing investment, focus and emphasis on growing our catalog and related Internet business. There are many risks associated with our entry into the catalog business including, but not limited to: developing and maintaining efficient and uninterrupted operation of order-taking and fulfillment operations and a related Internet website; hiring qualified employees, especially during peak seasons, to support direct-to-customer operations; managing the postage, paper, printing and other distribution costs of catalog mailings; selecting the appropriate merchandise assortment and creative presentation, as well as the size and timing of delivery of the catalog ; and obtaining and developing mailing lists targeted specifically to the Dickie Walker customer.

It is difficult to predict the rate at which consumers will purchase our products from our retailers, and if the rate is low, sales may be lower than anticipated.

We are unable currently to estimate the rate at which consumers will purchase our products from us or our retailers, which we refer to as the rate of sell-through. The rate of sell-through will depend on factors such as the placement of apparel and accessories in the stores, the types of customers who patronize the stores, the merchandising of our products, acceptance of our designs, and our ability to build customer loyalty to our brands. We have the ability to affect the merchandising and display of our products, but many of the other factors are not in our control. If there was a low rate of sell-through of our products, retailers may reduce reorders of apparel or accessories or could reduce purchase commitments for the next season’s collection. Either of these events could decrease our sales.

Our success will depend on our ability to design nautical apparel and accessories that are well received by consumers, and unanticipated shifts in consumer preferences could result in lower than anticipated sales or loss of customers.

Our success is dependent upon our ability to correctly anticipate fashion trends within our industry and to design apparel that appeals to consumers’ preferences in a timely manner. We depend upon our designers and others to develop designs and marketing strategies that distinguish our products favorably from the apparel and boating accessories of our competitors. While we believe that our designs and marketing strategy will be successful, we cannot assure you that we will generate sufficient sales to make us profitable. If we misjudge the market for our products or are unsuccessful in responding to changes in fashion trends or market demand, we could experience excess inventories and higher markdowns and inventory reserves, resulting in lower gross margins. Conversely, if we have insufficient inventory, we may miss market opportunities. Any of these events could result in lower than anticipated sales and loss of customers.

A downturn in economic conditions could adversely affect our sales because our products are purchased using discretionary income.

The apparel industry historically has been subject to substantial cyclical variations. Apparel manufacturers rely on the expenditure of discretionary income for sales of their products. Accordingly, any downturn, whether real or perceived, in the general economy or uncertainties regarding future economic prospects that affect consumer-spending habits could decrease our sales. During the past several years, various retailers have experienced financial difficulties. Financial problems experienced by our retailers could have a direct and adverse impact on sales of our products.

Because we rely on Gerald W. Montiel’s experience and relationships in the apparel industry, the loss of Mr. Montiel could materially harm our business and operating results.

We believe the apparel industry experience of Gerald W. Montiel, our Chief Executive Officer, is important to our future success. We entered into an employment agreement with Mr. Montiel in February 2002 for a three-year period. We do not carry key man insurance on Mr. Montiel. The loss of the services of Mr. Montiel could force us to operate without a chief executive officer with experience in the apparel industry if we are unable to find a suitable replacement.

If our contractors fail to meet our pricing, product quality and timeliness requirements, sales may be lower than anticipated.

Our products are manufactured by outside contractors to our specifications by both domestic and international manufacturers with whom we have no long-term contractual arrangements. The inability of a manufacturer to manufacture and ship our products in a timely manner could result in us missing certain retailing seasons and opportunities with respect to one or more of our products. The inability of a manufacturer to perform according to our specifications and specified quality standards, or a change in manufacturer in mid-production of a product line, could decrease our sales.

Competition in the nautical apparel and accessories market is intense and if we fail to compete effectively, we may not be successful in increasing sales or in achieving profitability.

The apparel and gift industries are highly competitive. Many of our competitors have far greater financial and other resources than we do, and have established reputations. There can be no assurance that our apparel, gifts and decorative items will successfully compete with those of our competitors. Competitive factors in our business include quality, marketing strategy, price, design, and customer service. If we do not compete effectively on the basis of these factors, we may experience lower than anticipated sales.

Sales of nautical apparel and marine-themed accessories are seasonal and, in certain quarters, our operating results may fall below market analysts’ and investors’ expectations, which could lower the price of our common stock.

We anticipate that we will experience seasonal fluctuation in our sales and income and that a substantial portion of our sales will occur in the second and third quarters of our fiscal year. It is in these quarters that our largest shipments take place. Sales in the first and fourth quarters will be lower as a result of seasonal fluctuations. As a result, our operating results may fall below market analysts’ and investors’ expectations in some quarters, which could lower the market price of our common stock.

Changes in import restrictions may increase our costs and may restrict our ability to import certain products.

Our import of nautical apparel and accessories are subject to constraints imposed by bilateral textile agreements between the United States and some of the countries in which we source our products, such as

Thailand and China. These agreements impose quotas on the amount and type of goods that can be imported into the United States from these countries. These agreements also allow the United States to impose import limitations on categories of merchandise that are not subject to specified limits.

Our nautical apparel and accessories are also subject both to customs inspections, which could result in delays in delivery of our products, and to U.S. customs duties. The United States and the countries in which our products are manufactured may, from time to time, impose or increase quotas, duties, tariffs or other restrictions, or adversely adjust prevailing quota, duty or tariff levels. Changes in customs duties or a decrease in quotas could increase our costs and reduce our gross margins thereby decreasing our profitability.

We operate a retail store in La Jolla, California. In the upcoming year we may explore opportunities for lease space to open retail stores in other locations. There are many risks associated with opening additional retail stores including: our ability to find suitable locations for our stores on reasonable rental terms; potential premises liability; the risks associated with long-term leases; the leasehold improvement cost required to create the nautical image of the Dickie Walker brand; our ability to manage our relationships with specialty retailers who currently sell our products; our ability to select and sell nautically-inspired merchandise which complements the Dickie Walker brand; and competition from other retailers.

If we do open additional retail stores, we will need to augment our management team in order to open and manage the retail stores. We will also need to increase our number of employees, which will result in an increased burden on our human resources function and increased exposure to employment-related legal liabilities. Our inability to implement successfully our retail strategy could harm our financial condition and operating results.

Stockholders of Dickie Walker who are directors and executive officers own approximately 37% of our shares and may exercise significant influence over our direction and policies.

As a result of this stock ownership, management has sufficient voting power to significantly influence our direction and policies, the election of directors, the outcome of any other matter submitted to a vote of stockholders, and a change in control.

If we do not continue to meet the listing criteria of The Nasdaq SmallCap Market, our shares may be delisted which may cause the shares to be more difficult to sell.

Our shares are currently listed on The Nasdaq SmallCap Market. On February 18, 2004, we received a notification from Nasdaq stating that as of December 31, 2003, we were not in compliance with Nasdaq Marketplace Rule 4310(c)(2)(B) which requires a company to have a minimum of $2,500,000 in stockholders’ equity or $35,000,000 market value of listed securities or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years. We converted our 7% Subordinated Convertible Promissory Notes (the “Notes”) into common stock in order to help satisfy the stockholders’ equity requirement for continued listing. We regained compliance with Nasdaq’s stockholders’ equity listing requirements at March 31, 2004, and have remained in compliance since then.

If we should again fail to continue to meet one or more of the listing standards, our shares would be subject to delisting. If this should occur, trading of the shares would be conducted in the over-the-counter market on the Electronic Bulletin Board, a National Association of Securities Dealers, Inc. (“NASD”) sponsored interdealer quotation system. As a result, investors may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the shares. In addition, if the shares cease to be listed on The Nasdaq SmallCap Market and we fail to meet certain other criteria, trading of the shares would be subject to Securities and Exchange Commission rules regulating broker-dealer practices in connection with transactions in “penny stock.” If the

shares became subject to the penny stock rules, many brokers may be unwilling to engage in transactions in the shares because of the disclosure requirements under Section 15(g) of the Exchange Act which require that in order for a broker dealer to approve a customer’s account for transactions in penny stocks, a broker or dealer must determine that transactions in penny stocks are suitable for the customer, and deliver a written statement of the basis for their determination to the customer, who must sign the written statement.

We do not pay dividends on our common stock and investors will have to rely on increases in its share price to obtain a return on their investment.

Since our inception we have not paid any dividends and we do not anticipate paying any dividends in the foreseeable future. We expect that future earnings, if any, will be used for working capital and to finance growth. Because we will not pay dividends on our common stock in the foreseeable future, investors must rely on stock appreciation for any return on their investment in our common stock.

We could use the issuance of additional shares of our authorized stock to deter a change in control even if a change in control would be beneficial to our stockholders.

Shares of our common stock and preferred stock that have not yet been issued or reserved for specific purposes may be issued without any action or approval of our stockholders, unless such approval is required by the rules of the SEC or Nasdaq. Issuance of shares of preferred stock may discourage, delay or prevent a change in control even if a change in control would be beneficial to our stockholders.

Prior to our initial public offering in May 2002, there was no public market for our common stock.

Prior to our initial public offering in May 2002, there was no public market for our common stock and there can be no assurance that a public trading market for our common stock will develop, or if developed, will be sustained. Our common stock is traded on The Nasdaq SmallCap Market, but there can be no assurance that a regular trading market will develop for the common stock.

Future sales of our common stock by our stockholders may depress our stock price.

We currently have 4,301,806 shares of common stock outstanding. Of such shares, we believe that approximately 1,900,000 shares are freely tradable without restriction or further registration under the Securities Act. All of the remaining outstanding shares are “restricted securities,” as that term is defined under Rule 144 promulgated under the Securities Act of 1933, as amended, and may only be sold pursuant to a registration statement under the Securities Act or an applicable exemption from the registration requirements of the Securities Act, including Rule 144 there under.

Our financial statements, together with accompanying notes and the report of Ernst & Young LLP, our independent registered public accounting firm, are set forth on the pages indicated below.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have established and currently maintain disclosure controls and other procedures designed to provide reasonable assurance that material information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission, and that such information is recorded, processed, summarized and reported to our principal officers, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that any control or procedure, no matter how well designed and functioning, can provide only reasonable, but not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Additionally, the design of any system of controls is partially based upon certain assumptions of the likelihood of future events, and there can be no assurance that any design will achieve its stated goals under all potential future conditions. Over time, controls may become inadequate because of changing conditions, or the degree of compliance with policies and procedures may deteriorate. Consequently, because of the inherent limitations of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of the end of the period covered by this Annual Report on Form 10-KSB/A, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness and the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2004. In addition, no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting has occurred during fiscal year 2004.

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act

The following individuals were directors and executive officers as of December 31, 2004.

GERALD W. MONTIEL, Chairman of the Board, Chief Executive Officer, President, Chief Marketing Officer

Gerald W. Montiel is our founder and has served as our Chairman of the Board and Chief Executive Officer since our inception in October 2000, and our Chief Financial Officer since our inception until February 2002. Mr. Montiel has served as our Chief Marketing Officer since February 2002. He was appointed President in November 2003. In 1987, Mr. Montiel co-founded Ashworth, Inc., the largest branded golf apparel company in the United States, and served as its President and Chief Executive Officer from its inception until 1995, and as Chairman of the Board from its inception until his retirement from Ashworth in 1998. Ashworth was recognized in 1994 and 1995 as one of America’s 100 fastest-growing companies by Fortune magazine. In 1973, Mr. Montiel founded World of Arts and Crafts Stores, a 14-store retail chain that merged with Michael’s Arts and Crafts Stores in 1984. Mr. Montiel served on Michael’s Board of Directors from 1984 to 1985. Mr. Montiel graduated from Colorado State University with a Bachelor of Arts with an emphasis in Marketing. He was recognized as its Honored Alumni of the Year in 1994. Eric M. Montiel, our Vice President of Sales, is Mr. Montiel’s son.

Norman Lefkovits, Jr. was appointed as a director in May 2001. Mr. Lefkovits has over 30 years of experience in the apparel industry. Mr. Lefkovits was a licensee for No Fear, an apparel company, from 1991 to 1999. He was a licensee for Jimmy Z T-shirt from 1985 to 1990. Mr. Lefkovits earned a Bachelor of Arts degree in Marketing from the University of Alabama.

James R. Smith was elected as a director in May 2001. Since 1981, Mr. Smith has been the Chairman and Chief Executive Officer of Smith Investments, Inc. His experience includes the acquisition and management of real estate income properties consisting of management of over 450 apartment units with an ownership interest in over 280 units and several commercial buildings, as well as undeveloped real estate. Mr. Smith earned a Bachelor of Science degree in Business Administration, a Masters of Economics, and an MBA from Colorado State University. Mr. Smith currently serves on the Advisory Board of the Business School at Colorado State University.

W. Brent Robinson was elected as a director in February 2002. Mr. Robinson has over 30 years of experience in the retail industry, specializing in retail store chain development, operations and management.

Since 1999, Mr. Robinson has been Chairman and Chief Executive Officer of Virtual Habitat, Incorporated which designs, sells, installs and maintains entertainment systems for residential and commercial use. From 1993 to 1999, he was President and Chief Executive Officer of The Store Group, a retail advisory group for retailers, wholesalers, manufacturers and catalog companies. From 1990 to 1992, Mr. Robinson was a vice president of Blockbuster Video. Mr. Robinson was Vice President of The Limited, Inc. and of Abercrombie & Fitch from 1989 to 1990. Mr. Robinson was a regional manager for the Lerners Shops from 1987 to 1989, and a regional manager for The Limited Stores from 1985 to 1987.

Todd W. Schmidt was appointed Chief Financial Officer in July 2003. From May 2002 until that time he acted as a financial consultant to us. Mr. Schmidt has nearly 30 years experience as a chief financial officer of four companies. From 1996 to 2002 he was Vice President Finance of ENCAD, Inc., a publicly-traded inkjet printer company. From 1990 to 1995 he served as Vice President Finance and Administration for Biosym Technologies, Inc., a computer-aided molecular modeling software company. He has also served as Vice President Finance and Administration at Immunetech Pharmaceuticals, Inc. from 1983 to 1990 and IVAC Corporation from 1976 to 1981. He is a certified public accountant and earned a Bachelor of Science in Industrial Engineering and an MBA, both from Northwestern University.

Eric M. Montiel was appointed National Sales Manager in April 2002 and Vice President of Sales in November 2002. Mr. Montiel has over ten years experience in the apparel industry. From 1998 until April 2002 he was a manufacturer’s representative for a number of apparel companies. Prior to that, he was a manager of a retail division for Ashworth, Inc. Mr. Montiel earned a Bachelor of Arts in Communications from the University of Colorado. He is the son of Gerald W. Montiel, our founder, Chairman of the Board, President and Chief Executive Officer.

The Board has an audit committee consisting of Messrs. Robinson, Lefkovits and Smith. The Board of Directors has determined that each of the members of the Audit Committee is independent as defined by the listing standards of the NASD, Section 301 of the Sarbanes-Oxley Act of 2002, and Rule 10A-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The Board of Directors also has determined that each of the members of the Audit Committee is able to read and understand financial statements, and that Mr. Smith, who is the Chairman, has financial management experience and is an audit committee financial expert, as defined by the rules of the Securities and Exchange Commission (the “SEC”). In reaching such determinations, the Board of Directors considered the financial, accounting, business and occupational experience of each Audit Committee member.

Section 16(a) of the Securities Act of 1934 requires our directors and executive officers and persons who beneficially own more than 10% of the company’s stock to file reports of ownership and subsequent changes with the Securities and Exchange Commission. Based only on a review of copies of such reports and written representations delivered to the Company by such persons, the Company believes that Eric Montiel filed one late report comprised of one stock option grant transaction and that Todd Schmidt filed one late report comprised of one stock option grant transaction.

Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a code of ethics that applies to all employees and directors of the company. A copy of the code of ethics can be obtained without charge by written request to Investor Relations, Dickie Walker Marine, Inc., 1405 South Coast Highway, Oceanside, California, 92054.

The following table sets forth the compensation paid by us to our Chief Executive Officer and other executive officers for the years ended September 30, 2004, 2003 and 2002.

The following table sets forth information concerning stock option grants during fiscal 2004 to our named executive officers. All options granted in fiscal 2004 were issued under the 2002 Equity Incentive Plan. In general, the options vest and become exercisable over a four-year period, with 25% vesting on after one year and the remainder vesting monthly in equal increments over the following three years. The options have a term of ten years, subject to earlier termination under certain circumstances related to termination of employment.

In general, under our Equity Incentive Plan the exercise price of the options may be paid:

The Compensation Committee may grant stock appreciation rights in tandem with option grants under the 2002 Equity Incentive Plan. No stock appreciation rights were granted to any of the named executive officers during fiscal 2004.

The following table sets forth certain information with respect to the number and value of unexercised stock options held by our named executive officers as of September 30, 2004. No stock options or stock appreciation rights were exercised by the officers during fiscal 2004.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

While we do not pay cash compensation to our directors, they are reimbursed for expenses they incur in attending meetings of the Board or Committees of the Board. In June 2004, Mr. Lefkovits was granted an option to purchase 15,000 shares at $1.68 per share and Mr. Smith was granted an option to purchase 30,000 shares at $1.68 per share. Of these options, 25% will vest one year from the date of grant and the remainder vest monthly in equal monthly increments over the following three years.

Under an employment agreement dated February 1, 2002, Gerald W. Montiel serves as our Chairman of the Board, Chief Executive Officer and Chief Marketing Officer. Under the agreement, Mr. Montiel earns a minimum base salary of $100,000 per year, beginning October 1, 2002. He may be awarded bonuses at the discretion of the Board of Directors. He is entitled to the employee benefits we offer to all of our employees. If Mr. Montiel’s employment is terminated for any reason other than (i) by Mr. Montiel’s voluntary resignation, (ii) by his death, disability or normal retirement or (iii) by us for cause, Mr. Montiel will be entitled to severance compensation equal to one year’s salary. During the three-year term of this agreement Mr. Montiel agreed to protect our confidential information, to refrain from competing with us, and to assign to us all rights in intellectual property developed by him during the term of his employment.

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information as of December 31, 2004 relating to the beneficial ownership of common stock by (i) each stockholder known to own beneficially more than five percent of the outstanding shares of our common stock, (ii) each director, (iii) each named executive officer, and (iv) all our current executive officers and directors as a group. This table is based upon information supplied by our directors and our named executive officers, principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission, (“SEC”). Unless otherwise indicated, the individual stockholders named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Applicable ownership is based on 4,301,806 shares of common stock outstanding on December 31, 2004, and calculated pursuant to SEC Rule 13d-3(d)(1), which includes the number of shares acquirable within 60 days.

The description that follows is an overview of the material provisions of the Equity Incentive Plan (the “Plan”). Under the Plan, we may grant to our designated employees, officers, directors, advisors and independent contractors incentive stock options, nonqualified stock options, restricted stock and stock appreciation rights. By encouraging stock ownership, we seek to motivate Plan participants by allowing them an opportunity to benefit from any increased value of our company which their effort, initiative, and skill help produce.

Up to 750,000 shares of common stock are authorized for issuance under the terms of the plan. No more than 250,000 shares may be granted to any individual in any three-year period. If options granted under the Plan expire or are terminated for any reason without being exercised, or shares of restricted stock are forfeited, the shares of common stock underlying such grant will again be available for purposes of the Plan. If approved by the shareholders at the 2004 Annual Meeting, the number of shares authorized for issuance under the Plan will be increased to 750,000 shares.

The Compensation Committee determines which individuals will receive grants, the type, size and terms of the grants, the time when the grants are made and the duration of any applicable exercise or restriction period, including the criteria for vesting and the acceleration of vesting, and the total number of shares of common stock available for grants.

Grants may be made to employees, officers, directors, advisors and independent contractors of the Company and its subsidiaries, including any non-employee member of the board of directors.

Incentive stock options may be granted only to officers and directors who are employees. Nonqualified stock options may be granted to employees, officers, directors, advisors and independent contractors. The exercise price of an option will be determined by the Compensation Committee and may be equal to, greater than, or less than the fair market value but in no event less than 50% of the fair market value of a share of common stock at the time of grant; provided that:

Although not a provision of the Plan, the Compensation Committee will not grant stock options to officers, directors, employees, promoters, 5% stockholders or affiliates with an exercise price of less than 85% of the fair market value of the stock.

The Compensation Committee determines the term of each option, which may not exceed ten years from the date of grant, except that the term of an incentive stock option granted to an employee who owns more than 10% of the common stock may not exceed five years from the date of grant. The Compensation Committee may accelerate the exercisability of any or all outstanding options at any time for any reason.

The Compensation Committee determines the number of shares of restricted stock granted to a participant and may subject any grant to performance requirements, vesting provisions, transfer restrictions and other restrictions and conditions as the Compensation Committee may determine in its sole discretion. The restrictions shall remain in force during a restricted period set by the Compensation Committee.

The Compensation Committee may grant a participant the right to receive, in cash or stock, the amount of any appreciation in the value of our stock over the exercise price of the stock appreciation right, which is set by the committee at the time of grant. The Compensation Committee has the same discretion to determine the terms of stock appreciation rights, including exercise price and vesting schedule that it has in the case of nonqualified stock options.

If a participant leaves our employment, other than because of retirement, death or disability, the participant will forfeit any stock options or stock appreciation rights that are not yet vested, and any restricted stock for which the restrictions are still applicable, unless the participant remains as a non-employee director, advisor or independent contractor.

The Compensation Committee may amend or terminate the Plan at any time, except that it may not make any amendment that requires stockholder approval as provided in Rule 16b-3 of the Exchange Act or Section 162(m) of the Internal Revenue Code without stockholder approval. The Plan will terminate on the day immediately preceding the tenth anniversary of its effective date, unless terminated earlier by the Compensation Committee.

Stock incentive awards under the Plan are discretionary, so no future awards are determinable at this time.

We have been granted the exclusive and unlimited right to use the name, image and likeness of the Dickie Walker vessel in connection with the sale of our products and for our business generally. This right was granted under a license agreement between Gerald W. Montiel and us. The agreement was effective as of February 1, 2002 and has a 99-year term. Under the agreement, we have a right of first refusal to purchase the Dickie Walker vessel at fair market value. We also have the exclusive right to establish and protect trademarks that use the vessel’s name, image, structure or likeness. The agreement is binding on all subsequent owners of the vessel. We may terminate the agreement upon notice to Mr. Montiel, but he may terminate the agreement only in the event of a material breach by us. This agreement was approved by a majority of our disinterested directors who had access, at our expense, to our legal counsel or independent legal counsel.

Mr. Montiel also has agreed to make the vessel available to us for corporate events, photo shoots and promotions pursuant to an agreement between Mr. Montiel, dated February 1, 2002 and us. Under the agreement

we reimburse Mr. Montiel for expenses incurred in connection with our use of the vessel, including cost of crew, fuel, docking fees and maintenance. We are entitled to use the vessel a minimum of 60 days per year. The agreement has a 99-year term but may be terminated by us on 30 days’ notice. This agreement was approved by a majority of our disinterested directors. For the years ended September 30, 2004 and 2003, the Company paid approximately $45,000 and 36,000, respectively, in connection with this arrangement.

On July 30, 2004, we filed a report on Form 8-K relating to a private placement financing for Dickie Walker Marine, Inc., as presented in a press release of July 30, 2004.

On August 5, 2004, we filed a report on Form 8-K relating to financial information for Dickie Walker Marine, Inc. for the quarter ended June 30, 2004, as presented in a press release of August 5, 2004.

On September 3, 2004, we filed a report on Form 8-K relating to the resignation of a director and a private placement financing for Dickie Walker Marine, Inc., as presented in a press release of August 30, 2004.

The aggregate fees billed for professional services rendered by Ernst & Young LLP for the audit of our annual financial statements for fiscal 2004 and fiscal 2003 and the review of our financial statements included in our Forms 10-QSB for those years were $71,778 and $70,319, respectively.

Audit related fees include billings for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements, and are not reported as Audit Fees. The aggregate fees billed for audit related services during fiscal 2004 and fiscal 2003 were $3,000 and $0, respectively. These services consisted of assistance and consultation in the preparation and filing of Form S-8.

The aggregate fees billed for tax services, including tax planning and preparation during fiscal 2004 and fiscal 2003 were $0 and $250, respectively.

The Company did not engage Ernst & Young LLP on any other matters not otherwise included in the above categories in either fiscal 2004 or 2003.

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services include audit and audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

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, in Oceanside, State of California, on June 30, 2005.


DICKIE WALKER MARINE, INC.

By		/s/ Gerald W. Montiel
		Gerald W. Montiel, President

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

We have audited the accompanying balance sheets of Dickie Walker Marine, Inc. as of September 30, 2004 and 2003, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dickie Walker Marine, Inc. at September 30, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2004, in conformity with U. S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring operating losses and has an accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Dickie Walker Marine, Inc. (the “Company”) was originally incorporated in California in October 2000 under the name Montiel Marketing Group, Inc. The Company changed its name in February 2001 to Dickie Walker Marine, Inc. and reincorporated in the State of Delaware in February 2002. The Company designs, markets and distributes nautically inspired apparel, accessories and decorative items and operates in two segments – wholesale and retail. As net sales, net loss and total assets of the Company’s retail segment are each less than ten percent of the Company’s total, segment disclosures have not been made.

Since inception, and through September 30, 2004, the Company has incurred losses of $5,405,817. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business.

Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. Management’s current business plan for fiscal 2005 reflects continued initiatives to increase revenue, reduce cost of goods sold as a percentage of revenue, and control selling, general and administrative costs. If the Company is unable to maintain revenue and cost targets within a reasonable range of its operating plan, the Company will need to raise additional funds through the public or private sale of its equity or debt securities or from other sources, in order to satisfy its projected cash needs at least through September 30, 2005. However, there can be no assurance that additional financing will be available, and if available, will be on terms acceptable to the Company. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

During the quarter ended March 31, 2005, management became aware of certain errors in its financial statement classification for debt. The Company has reclassified deferred financing costs recorded in conjunction with the Company’s 2004 private placement from a current asset to a long-term liability. On the balance sheets, the reclassification reduced the “Deferred financing costs” asset by $211,408 and reduced the “Notes payable to stockholders liability” by $211,408. In addition, the Company revised the statements of cash flows to exclude non-cash items that were included therein. These include “Deferred financing costs” of ($157,518) in the operating activities section and “Warrants issued in connection with private placement” of $175,385 in the financing activities section, both of which have been deleted from the statement. In addition, in the financing activities section, “Issuance of common shares, net” was increased by $17,867 to $342,398, and “Deferred financing costs” of ($59,905) was netted against “Proceeds from notes payable to stockholders”. The reclassification on the balance sheets or changes to the statements of cash flow had no effect on net loss, net loss per share, or stockholders’ equity for any period presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the

financial statements and the accompanying notes, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue is recognized when title and risk of loss transfers to the customer. Generally, the Company’s shipping terms are FOB shipping point. Provisions are made for estimated product returns and sales allowances.

The Company evaluates the collectibility of its trade receivables based on a combination of factors. The Company regularly analyzes its significant customer accounts, and, when the Company becomes aware of a specific customer’s inability to meet its financial obligations to it, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company records a specific reserve for bad debt to reduce the related receivable to the amount reasonably believed to be collectible. The Company also records reserves for bad debt for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, the Company’s estimates of the recoverability of receivables could be further adjusted or the related receivables could be written-off to the allowance as uncollectible.

Advertising costs are included in selling, general and administrative expenses and are expensed as incurred. Advertising expenses for the years ended September 30, 2004, 2003 and 2002 totaled approximately $59,900, $91,600, and $7,700 respectively.

Shipping and handling expenses are included in selling, general and administrative expenses. Shipping and handling expenses for the years ended September 30, 2004, 2003 and 2002 totaled approximately $67,700, $68,000, and $41,600 respectively.

Cash equivalents consist of money market demand deposit accounts with maturities of less than ninety days when acquired.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable. The Company performs credit evaluations of new customers and does not require collateral. Accounts receivable are generally due in 30 days. For the years ended September 30, 2004, 2003 and 2002, sales to West Marine Products, Inc. (“West Marine”) accounted for approximately 68%, 82% and 87%, respectively, of net sales, 15% of accounts receivable at September 30, 2004, and less than 2% of accounts receivable at September 30, 2003 and 2002.

The Company currently purchases the majority of its components from a few suppliers. Although there are a limited number of manufacturers for such components, management believes that other suppliers could provide merchandise on similar terms if needed without adversely impacting operating results.

In January 2003, the Company amended its Strategic Alliance Agreement with West Marine to transfer title of inventory for which West Marine made advance payments to the Company. Prior to January 2003, title passed upon the payment to and shipment of inventory by the Company to West Marine retail stores. The amendment transfers title, but not risk of loss, upon payment for the inventory by West Marine. In addition, the Company entered into a three-way agreement with West Marine and a bank wherein the bank is granted a first priority perfected security interest in the West Marine inventory subject to the Company’s claim for unpaid charges. The Company continued to defer recognition of revenue until risk of loss had passed to West Marine upon shipment to a West Marine retail store or warehouse. Therefore, advance payments less related cost of sales are classified as deferred revenue at September 30, 2003. At September 30, 2004, the Company had no deferred revenue or West Marine inventory.

Property and equipment is stated at cost and depreciated over estimated useful lives of two to five years using the straight-line method. Leasehold improvements are amortized using the straight-line method over the shorter of the term of the lease or the estimated useful life of the improvement. Expenditures for maintenance and repairs are charged to expense as incurred.

Intangible assets, consisting primarily of license and trademark costs, are being amortized on the straight-line method over ten years and are included in other assets. Accumulated amortization at September 30, 2004 and 2003 totaled $11,594 and $6,655, respectively.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. While the Company’s current and historical cash flow losses are indicators of impairment, the Company believes the future cash flows to be received from the long-lived assets will exceed the assets’ carrying value, and, accordingly, the Company has not recognized any impairment losses through September 30, 2004.

Costs incurred to obtain financing are capitalized and are amortized to interest expense using the straight-line method over the life of the related debt. Accumulated amortization at September 30, 2004 and 2003 totaled $36,040 and $21,447, respectively.

The Company provides for income taxes utilizing the liability method. Under the liability method, current income tax expense or benefit represents income taxes expected to be payable or refundable for the current period. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax and financial reporting bases of assets and liabilities and for the expected future tax benefit to be derived

from tax credit and loss carry-forwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized in future tax returns. Tax rate changes are reflected in income in the period such changes are enacted.

The Company calculates basic loss per share by dividing net loss by the weighted-average common shares outstanding during the period. Diluted loss per share reflects the potential dilution to basic loss per share that could occur upon the conversion or exercise of dilutive securities, options, warrants or other similar items, to common shares using the treasury stock method based upon the weighted-average fair value of the Company’s common shares during the period. As the Company has incurred losses for the years ended September 30, 2004, 2003 and 2002, the Company has excluded the effects of the common shares issuable upon the exercise of warrants, the conversion of the notes to stockholders, and the exercise of stock options since their effect is anti-dilutive.

SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use of the fair value based method of accounting for stock-based compensation arrangements, under which expense is recognized over the vesting period and is determined based on the fair value of all stock-based awards on the date of grant. SFAS No. 123 also allows companies to apply the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and provide pro forma net income and pro forma income per share disclosures for employee stock option grants. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

Pro forma information regarding net loss is required by SFAS No. 123 and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the dates of grant using the Black-Scholes option pricing model using the following assumptions:

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to employee stock-based compensation.

Stock-based awards issued to non-employees are accounted for using a fair value method and are remeasured to fair value at each period end until the earlier of the date that a commitment for performance by the counterparty to earn the award is reached or the service is complete.

Financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, are carried at cost, which management believes approximates fair value because of the short-term maturity of these instruments. None of the Company’s debt instruments that are outstanding at September 30, 2004, have readily ascertainable market values; however, the carrying values are considered to approximate their fair values. Interest on the notes payable to stockholders issued in connection with the 2001 Private Placement and the 2004 Private Placement (Note 4) was based on borrowing rates below rates available to the Company at that time. In order to reflect the carrying amount for these borrowings at estimated fair value in accordance with APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants and APB No. 11, Interest on Receivables and Payable, management allocated a portion of the proceeds associated with the 2001 Notes to equity and recorded a corresponding debt discount on the notes totaling $317,017. As of September 30, 2001, the entire $317,017 had been amortized into interest expense. In addition, with respect to the 2004 Notes, management allocated the cost of the 2004 Warrants to equity and recorded a corresponding debt discount. When combined with 50% of the offering and Placement Warrant costs, a total of $217,423 of debt discount was recorded that will be amortized over the term of the 2004 Notes. As of September 30, 2004, $6,015 had been amortized into interest expense.

SFAS No. 130, Reporting Comprehensive Income, established standards for reporting and display of comprehensive income and its components. Net loss was the same as comprehensive loss all periods presented.

In March 2004, the FASB issued an exposure draft of a new standard entitled Share Based Payment, which would amend SFAS No. 123, Accounting for Stock Based Compensation, and SFAS No. 95, Statement of Cash Flows. Among other items, the new standard would require the Company to expense stock options in the financial statements. The new standard, as proposed, would be effective for periods beginning after June 15, 2005. Throughout most of 2004, the FASB has deliberated on different aspects of a new standard, and expects to issue a final standard in late 2004. Although the Company has not yet completed an analysis to quantify the exact impact the new standard will have on its future financial performance, the disclosures in Note 2 provide detail as to the Company’s financial performance as if the Company had applied the fair value based method and recognition provisions of SFAS No. 123 for stock-based employee compensation.

The board of directors, without further action by the stockholders, is authorized to issue up to 2,000,000 shares of preferred stock in one or more series and to determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights and any other preferences. Any issuance of these shares of preferred stock must be approved by a majority of the independent directors.

During April 2001, the Company closed a private placement (“2001 Private Placement”) of 44 units, each unit consisting of 12,500 shares of the Company’s common stock and a $22,500 subordinated convertible four-year promissory note with a stated interest rate of 7% per annum (“2001 Notes”). At the option of the holder, the 2001 Note is convertible into shares of the Company’s common stock at $3.60 per share, or 6,250 shares per unit. The conversion price is subject to adjustment upon the occurrence of certain events, as defined. The 2001 Notes are subordinated to certain senior debt of the Company, as defined, up to an aggregate of $25,000,000. Interest is payable semi-annually on February and August of each year. The 2001 Notes are redeemable by the Company upon 30 days written notice at a 20% premium over the conversion price during the first year of the note, at a 15% premium over the conversion price during the second year of the note, and at a 10% premium over the conversion price during the third year of the 2001 Note.

Interest on the 2001 Notes was based on borrowing rates below rates that were available to the Company. In order to reflect the carrying amount for these borrowings at estimated fair value in accordance with APB Opinion

No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants and APB No. 11, Interest on Receivables and Payables, management allocated a portion of the proceeds associated with the 2001 Notes to equity and recorded a corresponding debt discount on the 2001 Notes totaling $317,017 based on an estimated fair value rate of 15% per annum. As of September 30, 2001, the entire $317,017 had been amortized into interest expense.

In connection with the 2001 Notes issued in the 2001 Private Placement, in March 2004, certain directors and affiliates converted their notes totaling $202,500, into 56,250 shares of common stock. During April 2004, holders of an aggregate of $416,250 of notes converted their notes plus accrued interest into 256,182 shares of common stock at a reduced conversion price of $1.69 per share. Because the conversion price of $1.69 per share was below the closing price of the shares of the Company’s common stock, the Company recorded the difference as interest expense in the year ended September 30, 2004.

In connection with the 2001 Private Placement, the Company issued a warrant (“2001 Warrant”) to purchase 8,438 shares of the Company’s common stock at $2.40 per share. The warrant was valued at approximately $6,075, which is included in deferred financing and equity issuance costs. The fair value of the warrant was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions; expected volatility of .50; risk free interest rate of 4.0%; an expected warrant life of two years; and no annual dividends. The warrant is exercisable immediately and expires on April 10, 2005. Through September 30, 2004, no shares had been issued under the warrant.

In the year ended September 30 2002, the Company completed its initial public offering. Including the underwriters’ exercise in full of their over-allotment option, the Company issued 1,380,000 shares of its common stock at a price of $5.00 per share. The Company received approximately $5,287,000 in proceeds, net of underwriting discounts, commissions and offering expenses.

In connection with the initial public offering, the Company issued warrants (“Offering Warrants”) to purchase 120,000 shares of the Company’s common stock to the lead underwriter. The Offering Warrants are exercisable for a period of four years, commencing on May 15, 2003, at an exercise price of $7.50 per share subject to certain adjustments. The Offering Warrants contain anti-dilution provisions in the event of any recapitalization, split-up of shares or certain stock dividends. Through September 30, 2004, no shares had been issued under the Offering Warrants.

During July and August 2004, the Company closed a private placement (“2004 Private Placement”) of 33 units, each unit consisting of 9,375 shares of the Company’s common stock, a $12,500 subordinated promissory note payable on June 30, 2007, with a stated interest rate of 8% per annum (“2004 Note”), and 5,000 warrants (“2004 Warrants”). Interest on the 2004 Note is payable semi-annually in December and June of each year. The 2004 Warrants are exercisable for a period of thirty months, commencing immediately, at an exercise price of $2.10 per share subject to certain adjustments. The warrants contain anti-dilution provisions in the event of any recapitalization, split-up of shares or certain stock dividends. The 2004 Warrants were valued at approximately $139,700, all of which was recorded as debt discount. The fair value of the 2004 Warrants were estimated at the date of grant using the Black-Scholes valuation model with the following assumptions; expected volatility of 0.92; risk free interest rate of 3.0%; an expected warrant life of 30 months; and 0% dividend yield. Through September 30, 2004, no shares had been issued under the warrants. The Company received approximately $737,000 in proceeds, net of underwriting discounts, commissions and offering expenses.

In connection with the 2004 Private Placement, the Company issued warrants (“Placement Warrants”) to purchase 46,406 shares of the Company’s common stock to the placement agent and brokers who sold a minimum of $50,000 in the offering. The Placement Warrants are exercisable for a period of thirty months, commencing immediately, at an exercise price of $1.60 per share subject to certain adjustments. The Placement Warrants contain anti-dilution provisions in the event of any recapitalization, split-up of shares or certain stock dividends. The Placement Warrants were valued at approximately $35,733, of which 50% is included as equity issuance costs and 50% as deferred financing costs. The fair value of the Placement Warrants were estimated at

the date of grant using the Black-Scholes valuation model with the following assumptions; expected volatility of 0.92; risk free interest rate of 3.0%; an expected warrant life of 30 months; and 0% dividend yield. Through September 30, 2004, no shares had been issued under the warrants.

As a result of the 2004 Private Placement, a total of $217,423 of deferred financing costs was recorded that will be amortized over the term of the 2004 Notes. As of September 30, 2004, $6,015 had been amortized into interest expense.

In January 2002, the Company adopted an Equity Incentive Plan (the “Plan”), which provides for the grant of up to 500,000 options. The Plan was amended in March 2004 to increase the shares available for grant to 750,000 shares. Under the Plan, the Company may grant incentive stock options, nonqualified stock options, restricted stock and stock appreciation rights to employees, officers, directors, advisors and independent contractors. The exercise price of each option shall be determined by Board of Directors, however, the exercise price of incentive stock options shall not be less than the fair market value of the shares on the date of grant, or 110% in the case of incentive stock options granted to an individual with ownership in excess of certain limits. For nonqualified stock options, the exercise price may not be less than 50% of the fair market value on the date of grant. The Company’s Board of Directors determine the vesting and other provisions of option and rights granted under the Plan and the options are exercisable for periods ranging from five to ten years from the date of grant. Generally, options vest at twenty-five percent one year from the date of grant and 1/36 per month thereafter. This Plan replaces the plan adopted in January 2001, which was canceled.

The weighted average fair value of options granted during the years ended September 30, 2004 and 2003, was $1.34 and $1.96, respectively. At September 30, 2004, 116,200 options were vested. Options granted during the year ended September 30, 2004 and 2003 were at prices ranging from $1.43 to $2.50 per share and $2.50 to $2.60 per share, respectively. The remaining average contractual life of outstanding options outstanding at September 30, 2004, is 9.0 years.

The Company leased office and warehouse facilities under a month-to-month operating lease until December 2001. In December 2001, the Company entered into an operating lease agreement at a monthly rent of $3,135 for warehouse and administrative facilities. The lease expired in April 2003 and was renewed for a five-year term with one five-year renewal option. The annual rent is approximately $49,000 with annual increases equal to the Consumer Price Index increase.

During September 2002, the Company entered into an operating lease agreement for a retail store facility for a term of ten years with two five-year renewal options. The annual rent is approximately $84,000 with annual increases of the greater of two percent or the Consumer Price Index increase.

Total rent expense for the years ended September 30, 2004, 2003, and 2002 was $156,252, $153,765, and $41,348, respectively.

Included in property and equipment at September 30, 2004 and 2003 is equipment totaling $206,671 recorded under a capital lease and accumulated depreciation of $148,114 and $106,780, respectively. Amortization expense associated with these assets is included in depreciation expense. The Company’s Chairman and Chief Executive Officer personally guarantees this lease.

Future minimum lease payments required under capital and operating leases with noncancelable terms in excess of one year at September 30, 2004 are as follows:

Significant components of the Company’s net deferred tax assets are as follows.

A valuation allowance of $2,024,000 and $1,567,000 at September 30, 2004 and 2003, respectively, has been established to offset the net deferred tax asset, as realization of such assets is uncertain. At September 30, 2004, the Company had federal and California net operating loss carryforwards of approximately $4,529,000 and $4,472,000, respectively that will begin to expire in 2021 and 2011, respectively, unless previously utilized. The Company’s effective tax rate benefit approximates the federal and California statutory rates as there are no material permanent differences. The tax benefit is offset by an increase in the valuation allowance.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of these net operating loss carryforwards may be limited due to cumulative changes in the Company’s ownership of more than 50%.

In exchange for the use for promotional purposes of the Dickie Walker, a 52-year-old wooden hulled vessel owned by Company’s Chairman and Chief Executive Officer, the Company reimburses certain costs, including crew, fuel and maintenance. For the years ended September 30, 2004, 2003, and 2002, the Company paid approximately $45,000, $36,000 and $24,400, respectively, in connection with this arrangement.

During the year ended September 30, 2002, the Company purchased products totaling approximately $43,000 from a business owned by a family member of the Company’s Chairman and Chief Executive Officer.

In January 2002, the Chief Executive Officer loaned the Company a total of $95,000 for working capital evidenced by two unsecured promissory notes in the amounts of $50,000 and $45,000, both of which were repaid in March 2002. The notes accrued interest at 10% per annum.

The following tables set forth summary quarterly financial information for years ended September 30, 2004 and 2003:


	High		Low
For the year ended September 30, 2003
First Quarter	$	3.58	$	1.00
Second Quarter	$	2.20	$	0.96
Third Quarter	$	2.25	$	1.04
Fourth Quarter	$	3.26	$	1.68

For the year ended September 30, 2004
First Quarter	$	2.88	$	1.80
Second Quarter	$	2.77	$	1.65
Third Quarter	$	1.93	$	1.00
Fourth Quarter	$	2.20	$	1.20


	Number of Securities to be Issued Upon Exercise of Outstanding Options (a)	Weighted-average Exercise Price of Outstanding Options (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plan approved by security holders	438,000	$	2.40	312,000
Equity compensation plans not approved by security holders	–		–	–

Total	438,000	$	2.40	312,000


	Payments due per period
	Total Committed		Less than 1 year		1-3 years		4-5 years		Over 5 years
Operating leases	$	942,000	$	139,000	$	413,000	$	195,000	$	195,000
Notes payable		693,750		281,250		412,500		–		–

Total	$	1,635,750	$	420,250	$	825,500	$	195,000	$	195,000


Financial Statements.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2
Balance Sheets		F-3
Statements of Operations		F-4
Statements of Stockholders’ Equity		F-5
Statements of Cash Flows		F-6
Notes to Financial Statements		F-7


		Annual Compensation							Long-Term Compensation
Name and Principal Position	Year	Salary ($)		Bonus ($)		Other Annual Compen- sation ($) Other			Awards Securities Underlying Options (#)⁽¹⁾
Gerald W. Montiel Chief Executive Officer, Current President, Chief Marketing Officer	2004 2003 2002	$ $ $	91,000 100,000 –	$ $ $	– – –	$	1,200	⁽²⁾

Julia B. Knudsen⁽⁶⁾ Former President, Chief Operating Officer, Chief Financial Officer	2004 2003 2002	$ $ $	60,667 103,000 96,000	$ $ $	– – 2,000	$ $ $	700 4,200 3,150	⁽²⁾ ⁽²⁾ ⁽²⁾	50,000

Sandra L. Evans⁽⁷⁾ Former Vice President of Distribution, Secretary	2004 2003 2002	$ $ $	53,333 79,475 74,350	$	2,000	$ $ $	1,750 4,200 3,150	⁽²⁾ ⁽²⁾ ⁽²⁾	10,000 35,000

Eric M. Montiel⁽³⁾ Vice President of Sales, Current Secretary	2004 2003 2002	$ $ $	93,333 78,473 27,906	$ $	– –	$ $	4,200 16,709	⁽²⁾ ⁽⁵⁾	35,000 35,000

Todd W. Schmidt⁽⁴⁾ Current Chief Financial Officer	2004 2003 2002	$ $	97,667 15,700	$	–	$ $ $	4,200 67,367 33,333	⁽²⁾ ⁽⁴⁾ ⁽⁴⁾	35,000 35,000


PART I.		1

Item 1.	Description of Business	1
Item 2.	Description of Properties	5
Item 3.	Legal Proceedings	5
Item 4.	Submission of Matters to a Vote of Security Holders	5

PART II.		6

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	6
Item 6.	Management’s Discussion and Analysis or Plan of Operation	7
Item 7.	Financial Statements	14
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	15
Item 8A.	Controls and Procedures	15
Item 8B.	Other information	15

PART III.		16

Item 9.	Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act	16
Item 10.	Executive Compensation	18
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	21
Item 12.	Certain Relationships and Related Transactions	23
Item 13.	Exhibits	24
Item 14.	Principal Accountant Fees and Services	26

SIGNATURES		27

INDEX TO FINANCIAL STATEMENTS		F-1

CERTIFICATION


	Years ended September 30,
	2004		2003		2002
Net sales	100	%	100	%	100	%
Cost of sales	75		76		80

Gross profit	25		24		20
Selling, general and administrative expenses	52		60		59

Loss from operations	(27	)	(36	)	(39	)

Other income (expense) - net	(2	)	(2	)	(2	)

Net loss	(29	)%	(38	)%	(41	)%


	Individual Grants
Name	Number of Securities Underlying Options Granted (#)	% of Total Options Granted to Employees in Fiscal Year⁽³⁾		Exercise Price ($/Share)		Expiration Date
Eric M. Montiel⁽¹⁾	35,000	16.6	%	$	1.78	08/01/2014
Todd W. Schmidt⁽²⁾	35,000	16.6	%	$	1.78	08/01/2014


Name and Address of Beneficial Owner	Owned at December 31, 2004		Percent of Class
Gerald W. Montiel 1405 South Coast Highway Oceanside, CA 92054	1,309,000	⁽¹⁾	30.4	%

Norman Lefkovits, Jr. 41700 Pacific Coast Highway Malibu, CA 90265	197,944	⁽²⁾	4.6	%

James R. Smith 1333 East County Road 58 Ft. Collins, CO 80524	111,931	⁽³⁾	2.6	%

W. Brent Robinson 3734 Promontory Street San Diego, CA 92109	22,469	⁽⁴⁾	0.5	%

Eric M. Montiel 1405 South Coast Highway Oceanside, CA 92054	17,144	⁽⁵⁾	0.4	%

Todd W. Schmidt 1405 South Coast Highway Oceanside, CA 92054	22,604	⁽⁶⁾	0.5	%

All executive officers and directors as a group (six persons)	1,681,091		38.3	%


Exhibit No.		Description
2.1		Form of Agreement and Plan of Merger between Dickie Walker Marine, Inc., a California corporation and Dickie Walker Marine, Inc., a Delaware corporation, filed as Exhibit 2.1 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

3.1a		Articles of Incorporation for Montiel Marketing Group, Inc. as filed with the California Secretary of State on October 10, 2000, filed as Exhibit 3.1a to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

3.1b		Certificate of Amendment to the Articles of Incorporation as filed with the California Secretary of State on February 16, 2001, filed as Exhibit 3.1b to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

3.1c		Certificate of Incorporation for Dickie Walker Marine, Inc. as filed with the Delaware Secretary of State on February 4, 2002, filed as Exhibit 3.1v to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

3.2a		Bylaws of the California corporation as adopted by its Board of Directors on October 10, 2000, filed as Exhibit 3.2a to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

3.2b		Form of Bylaws of the Delaware corporation to be adopted by its Board of Directors, filed as Exhibit 3.2b to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

4.1		Specimen stock certificate representing shares of common stock of the registrant, filed as Exhibit 4.1 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

4.2		Form of Representative’s Warrant, filed as Exhibit 4.2 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

4.3		Placement Agent’s Warrant, filed as Exhibit 4.3 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

4.4		Form of Investor Note from 2001 Private Placement, filed as Exhibit 4.4 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

4.5		Selling Agent Agreement dated July 13, 2004

4.6		Form of Investor Promissory Note from 2004 Private Placement

4.7		Form of Investor Warrant from 2004 Private Placement

4.8		Placement Agent’s Warrant


Exhibit No.		Description

10.1		$50,000 Promissory Note in favor of Gerald W. Montiel dated January 15, 2002, filed as Exhibit 10.1 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.2		$45,000 Promissory Note in favor of Gerald W. Montiel dated January 31, 2002, filed as Exhibit 10.2 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.3		Form of Reimbursement Agreement between Gerald W. Montiel and the company dated February 1, 2002, filed as Exhibit 10.3 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.4		License Agreement between Gerald W. Montiel and the company dated February 1, 2001, filed as Exhibit 10.4 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.5		Strategic Alliance Agreement with West Marine Products, Inc. dated October 19, 2001 [Confidential Treatment Granted], filed as Exhibit 10.5 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.6		Facility Lease Agreement with WHMF dated February 1, 2002 for the facility located at 1414 South Tremont Street, Oceanside, California, filed as Exhibit 10.6 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.7		2002 Equity Incentive Plan, filed as Exhibit 10.7 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.8		Form of Lock-Up Agreement among the officers, directors and stockholders and the representative, filed as Exhibit 10.8 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.9		Form of Employment Agreement with Gerald W. Montiel dated February 1, 2002, filed as Exhibit 10.9 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.10		Equipment Lease Agreement with Emtex Leasing Corporation dated April 4, 2001, filed as Exhibit 10.10 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.11		Form of Stockholder Rights Agreement, filed as Exhibit 10.11 to the Registrant’s SB-2 Registration Statement filed February 11, 2002 and incorporated herein by reference.

10.12		Form of Retail Store Lease, filed as Exhibit 10.12 to Registrant’s Form 10-KSB filed December 20, 2002 and incorporated herein by reference.

10.13		Revision dated January 27, 2003 to Facility Lease Agreement with WHMF originally dated February 1, 2002, filed as Exhibit 10.13 to Registrant’s Form 10-QSB filed May 6, 2003 and incorporated herein by reference.

10.14		Amendment to Strategic Alliance Agreement with West Marine, Inc. dated January 13, 2003, filed as Exhibit 10.14 to Registrant’s Form 10-QSB filed May 6, 2003 and incorporated herein by reference.

10.15		Warehouse Agreement with Wells Fargo Bank dated January 13, 2003, filed as Exhibit 10.15 to Registrant’s Form 10-QSB filed May 6, 2003 and incorporated herein by reference.

10.16		Separation Agreement and Complete Release dated October 20, 2003 between Dickie Walker Marine, Inc. and Julia B. Knudsen, filed as Exhibit 10.16 to Registrant’s Form 8-K filed October 21, 2003 and incorporated herein by reference.


Exhibit No.		Description

10.17		Code of Ethics filed as Exhibit 10.17 to Registrant’s Form 10-KSB filed December 17, 2003 and incorporated herein by reference.

10.18		Financial and Code of Ethics Complaint Procedures Policy filed as Exhibit 10.18 to Registrant’s Form 10-KSB filed December 17, 2003 and incorporated herein by reference.

10.19		Amendment to Strategic Alliance Agreement with West Marine, Inc. dated December 6, 2003 filed as Exhibit 10.19 to Registrant’s Form 10-KSB filed December 17, 2003 and incorporated herein by reference.

23.1		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

31.1		Section 302 Certification of Chief Executive Officer

31.2		Section 302 Certification of Chief Financial Officer

32.1		Section 906 Certification of Chief Executive Officer

32.2		Section 906 Certification of Chief Financial Officer



/s/ Gerald W. Montiel		Date: June 30, 2005
Gerald W. Montiel
Director, Chief Executive Officer, President,
Chief Marketing Officer, and
Chairman of the Board

/s/ Todd W. Schmidt		Date: June 30, 2005
Todd W. Schmidt
Chief Financial Officer and
Principal Accountant

/s/ Norman Lefkovits, Jr		Date: June 30, 2005
Norman Lefkovits, Jr., Director

/s/ James R. Smith		Date: June 30, 2005
James R. Smith, Director

/s/ W. Brent Robinson		Date: June 30, 2005
W. Brent Robinson, Director


Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2

Balance Sheets		F-3

Statements of Operations		F-4

Statements of Stockholders’ Equity		F-5

Statements of Cash Flows		F-6

Notes to Financial Statements		F-7


	September 30,
	2004			2003
ASSETS
Current Assets:
Cash and cash equivalents	$	1,059,275		$	2,687,901
Accounts receivable, net		265,609			129,720
Inventories, net		1,242,156			797,135
Prepaid expenses and other current assets		181,548			158,016

Total current assets		2,748,588			3,772,772
Property and equipment, net		833,596			1,000,554
Deferred financing costs, net		4,289			12,868
Other assets		80,270			62,504

Total Assets	$	3,666,743		$	4,848,698

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	299,800		$	273,916
Deferred revenue		–			594,290
Accrued interest on notes payable to stockholders		7,567			10,500
Accrued expenses		60,014			91,262
Current portion of capital lease obligation		48,756			43,579
Notes payable to stockholders		281,250			–

Total current liabilities		697,387			1,013,547
Notes payable to stockholders, net of debt discount		201,092			900,000
Capital lease obligation, less current portion		21,988			70,744
Commitments and contingencies
Stockholders’ Equity:
Preferred stock - $.001 par value: 2,000,000 shares authorized, no shares issued and outstanding		–			–
Common stock - $.001 par value: 50,000,000 shares authorized: 4,301,806 and 3,680,000 shares issued and outstanding at September 30, 2004 and 2003, respectively		4,301			3,680
Warrants		181,460			6,075
Additional paid-in capital		7,966,332			6,987,550
Accumulated deficit		(5,405,817	)		(4,132,898	)

Total Stockholders’ Equity		2,746,276			2,864,407

Total Liabilities and Stockholders’ Equity	$	3,666,743		$	4,848,698


	Common Stock			Warrants		Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount		Warrants		Additional Paid-In Capital		Accumulated Deficit			Total Stockholders’ Equity
Balance at September 30, 2001	2,300,000	$	2,300	$	6,075	$	1,665,886	$	(1,249,174	)	$	425,087
Issuance of common stock, net of offering expenses of $1,613,000	1,380,000		1,380		–		5,285,664		–			5,287,044
Net loss and comprehensive loss	–		–		–		–		(1,195,205	)		(1,195,205	)

Balance at September 30, 2002	3,680,000		3,680		6,075		6,951,550		(2,444,379	)		4,516,926
Issuance of options to non-employees	–		–		–		36,000		–			36,000
Net loss and comprehensive loss	–		–		–		–		(1,688,519	)		(1,688,519	)

Balance at September 30, 2003	3,680,000		3,680		6,075		6,987,550		(4,132,898	)		2,864,407
Issuance of common stock, net of offering expenses of $87,969	309,374		309		175,385		324,222		–			499,916
Issuance of common stock upon the conversion of notes payable	312,432		312				641,160					641,472
Issuance of options to non-employees	–		–		–		13,400		–			13,400
Net loss and comprehensive loss	–		–		–		–		(1,272,919	)		(1,272,919	)

Balance at September 30, 2004	4,301,806	$	4,301	$	181,460	$	7,966,332	$	(5,405,817	)	$	2,746,276


	September 30, 2004			September 30, 2003
Accounts receivable:
Accounts receivable	$	295,609		$	164,720
Less allowance for doubtful accounts and sales returns		(30,000	)		(35,000	)

	$	265,609		$	129,720

Inventories:
Raw materials	$	61,035		$	57,971
Work in process		20,763			47,797
Finished goods		1,395,358			791,367

		1,477,156			897,135
Less inventory reserves		(235,000	)		(100,000	)

	$	1,242,156		$	797,135

Property and equipment:
Machinery and equipment	$	418,135		$	397,791
Furniture and fixtures		218,992			148,884
Leasehold improvements		686,694			686,694
Capitalized software		363,815			344,130

		1,687,636			1,577,499
Less accumulated depreciation and amortization		(854,040	)		(576,945	)

	$	833,596		$	1,000,554


	Number of shares		Weighted average exercise price
Balance at September 30, 2002	170,000		$	5.00
Granted	181,500			2.54
Cancelled	(20,000	)		4.40

Balance at September 30, 2003	331,500		$	3.71
Granted	256,000			1.83
Cancelled	(149,500	)		4.27

Balance at September 30, 2004	438,000		$	2.40


	September 30, 2004	September 30, 2003
Conversion of warrants	339,844	128,438
Conversion of principal portion of Notes Payable to Stockholders	78,125	250,000
Shares authorized for issuance under the Equity Incentive Plan	312,000	168,500
Stock options issued and outstanding	438,000	331,500

	1,167,969	878,438


Year ended September 30:	Capital		Operating
2005	$	54,264	$	138,876
2006		22,612		142,071
2007		–		145,338
2008		–		125,713
2009		–		96,448
Thereafter		–		294,073

		76,876	$	942,519

Less amount representing interest		6,132

Present value of net minimum lease payments		70,744
Less current portion		48,756

Noncurrent portion	$	21,988


	Quarter Ended
	September 30, 2004			June 30, 2004		March 31, 2004		December 31, 2003
Net sales	$	538,858		$	1,575,119	$	1,657,546	$	693,431
Gross profit (loss)		(72,626	)		544,157		619,229		42,298
Net income (loss)		(698,932	)		2,279		44,113		(620,379	)
Net income (loss) per common share
Basic and diluted	$	(0.17	)	$	0.00	$	0.01	$	(0.17	)
Weighted average shares		4,174,021			3,967,095		3,680,618		3,680,000


	Quarter Ended
	September 30, 2003			June 30, 2003			March 31, 2003			December 31, 2002
Net sales	$	693,381		$	1,360,581		$	1,821,719		$	626,124
Gross profit		22,523			388,672			602,027			81,347
Net loss		(806,015	)		(229,185	)		(133,308	)		(520,011	)
Net loss per common share
Basic and diluted	$	(0.22	)	$	(0.06	)	$	(0.04	)	$	(0.14	)
Weighted average share		3,680,000			3,680,000			3,680,000			3,680,000