U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
Commission file no. 000-31521
Mariculture Systems, Inc.
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(Name of small business issuer in its charter)
Florida 65-0677315
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 968
Lake Stevens, Washington 98258
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (425) 397-0409
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
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Indicate by Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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As of September 30, 2000, there are 10,574,147 shares of voting stock
of the registrant issued and outstanding.
<PAGE>
PART I
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
PAGE
CONDENSED FINANCIAL STATEMENTS
Balance sheet F-1
Statement of operations F-2
Statement of cash flows F-3
Notes to financial statements F-4
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<TABLE>
<CAPTION>
MARICULTURE SYSTEMS INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(unaudited)
<S> <C> <C>
SEPTEMBER DECEMBER
30, 2000 31, 1999
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CASH $ 5,800 $ 2,373
TEST FACILITY, net 55,429 55,429
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Total assets $ 61,229 $ 57,802
====================== ====================
CURRENT LIABILITIES
Notes payable related party $ 92,364 $ 78,765
Notes payable other 14,017 14,017
Accounts payable related party 19,662 18,016
Trade accounts payable 167,082 154,857
Unissued shares payable 17,500 26,200
Accrued interest 58,000 47,000
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Total current liabilities 368,625 338,855
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STOCKHOLDERS' DEFICIT
Common stock, par value $.001; 20,000,000 shares authorized; 10,564,147 and
10,284,817 issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 10,565 10,285
Additional paid in capital 796,200 725,849
Deficit accumulated during the development stage (1,114,161) (1,017,187)
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Total stockholders' deficit (307,396) (281,053)
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Total liabilities and stockholders' deficit $ 61,229 $ 57,802
====================== ====================
</TABLE>
See accompanying notes
F-1
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<TABLE>
<CAPTION>
MARICULTURE SYSTEMS INC.
(A Development Stage Company)
CONDENSED STATEMENT OF OPERATIONS
(unaudited)
<S> <C> <C> <C> <C> <C>
FOR THE
PERIOD FROM
INCEPTION
THREE MONTHS NINE MONTHS (AUGUST 25, 1994) to
ENDED SEPTEMBER ENDED SEPTEMBER SEPTEMBER 30,
30, 30,
2000 1999 2000 1999 2000
OPERATING EXPENSES
General and administrative
expenses $ 11,117 $ 4,086 $ 71,619 $ 7,457 $ 412,570
Research and experimentation
expenses 2,420 496 14,355 3,531 643,644
Total operating expenses 13,537 4,582 85,974 10,988 1,056,214
NET LOSS FROM
OPERATIONS (13,537) (4,582) (85,974) (10,988) (1,056,214)
INTEREST INCOME 7,191
INTEREST EXPENSE (5,000) (3,000) (11,000) (9,000) (65,138)
NET LOSS $(18,537) $ (7,582) $ (96,974) $(19,988) $ (1,114,161)
</TABLE>
See accompanying notes
F-2
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<TABLE>
<CAPTION>
MARICULTURE SYSTEMS INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(unaudited)
<S> <C> <C> <C>
NINE MONTHS FOR THE PERIOD
ENDED FROM INCEPTION
SEPTEMBER 30, (AUGUST 25, 1994) to
2000 1999 SEPTEMBER 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers, subcontractors and employees $ (10,172) $ (7,233) $ (272,902)
Interest received 7,191
Interest paid (7,138)
Net cash from operating activities (10,172) (7,233) (272,849)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of equipment 500 500
Purchase of test facility (497,821)
Net cash from operating activities 500 (497,321)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 13,599 6,750 106,381
Proceeds from sale of common stock 2,000 652,089
Cash received for unissued shares 17,500
Net cash from financing activities 13,599 8,750 775,970
NET CHANGE IN CASH 3,427 2,017 5,800
CASH, beginning of period 2,373 150
CASH, end of year $ 5,800 $ 2,167 $ 5,800
RECONCILIATION OF NET LOSS TO NET
CASH FROM OPERATING ACTIVITIES
Net loss $ (96,974) $ (19,988) $ (1,114,161)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and write-down of test
facility to net salvage value 441,892
Services received in exchange for common stock 61,931 154,676
Changes in operating assets and liabilities
Trade accounts payable 13,871 3,755 186,744
Accrued interest 11,000 9,000 58,000
NET CASH FROM OPERATING ACTIVITIES $ (10,172) $ (7,233) $ (272,849)
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES
Common stock issued for services $ 61,931 $ - $ 154,676
</TABLE>
F-3
<PAGE>
MARICULTURE SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
Mariculture Systems, Inc. (the Company) is a development stage company which has
undertaken the development, manufacturing and marketing of products for the
aquaculture industry. The products are primarily new technology in fish farming
through the use of a rigid wall fish rearing system. The Company developed and
constructed a test facility in June 1996. Fish were installed by a third party
in October 1996, with harvest of the crop accomplished in August 1997. The test
facility performed effectively. The Company has elected to expense all costs
associated with the development, engineering, startup and operations that have
been incurred. The condensed financial statements and notes are representations
of the Company's management, who is responsible for their integrity and
objectivity.
Note 1 - Basis of Presentation
The interim unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
consisting only of normal recurring accruals necessary for a fair
presentation of the financial condition and the results of operations
for the interim periods included herein have been made. Operating
results for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be anticipated for the year
ending December 31, 2000. For additional information, refer to the
audited financial statements and notes thereto for the year ended
December 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, as of the date of the balance sheet, and revenues and
expenses for the period. Actual results could differ from estimated
amounts.
Note 2 - Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 137 entitled Accounting
for Derivative Instruments and Hedging Activities -Deferral of the
Effective Date of SFAS Statement No. 133. The statement amends SFAS No.
133 to defer its effective date to all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company currently has no
activity in derivative instruments and hedging activities, and does not
expect the adoption of this statement will have a material effect on
its financial condition or results of operation.
F-4
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MARICULTURE SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
Note 3 - Going Concern
As shown in the accompanying balance sheet, the Company has accumulated
a deficit of $1,114,161 and $1,017,187 during the development stage
through September 30, 2000 and December 31, 1999, respectively, and, as
of those dates, the Company's current liabilities exceed its current
assets by $362,825 and $336,482, respectively. Those factors, as well
as the uncertain conditions that the Company faces regarding its
ability to transition from a development stage company to an operating
entity, raises substantial doubt about the Company's ability to
continue as a going concern. Management of the Company is in the
process of obtaining additional equity through the issuance of stock.
Without a sufficient source of revenue and capital funding, the Company
will not be able to continue as a going concern. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
General
In August 2000, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of ten thousand six hundred dollars ($10,600) at an
interest rate of twelve percent (12%) per annum. The Note was in exchange for
monies lent by Ms. Meilahn to the Company for working capital. The Note is
payable on demand. Pursuant to the promissory note, the final disbursement from
Elaine Meilahn to the Company was made in August 2000 in the amount of five
thousand dollars ($5,000). For such offering, the Company relied upon Section
4(2) of the Securities Act of 1933, as amended (the "Act"), Rule 506 of
Regulation D promulgated thereunder ("Rule 506") and Section 460-44A-506 of the
Washington Code.
The facts relied upon to make the Washington Exemption include the
following: (i) the Company filed a completed SEC Form D with the Washington
Department of Financial Institutions, Securities Division; (ii) the Form was
filed not later than 15 days after the first sale; and (iii) the Company
executed a Form U-2 consent to service of process, and (iv) the Company paid an
appropriate filing fee of $300.00 to the Washington State Treasurer.
In September 2000, the Company entered into an Employment Agreement with
Richard J. Luce ("Luce"), to employ Luce as Vice President of Sales and
Marketing. The term of the agreement is for a period of four (4) years and is
automatically renewable for one (1) year. Mr. Luce's annual base salary is
ninety three thousand five hundred dollars ($93,500.00) for the first year, one
hundred thousand forty five dollars ($100,045) for the second year, one hundred
seven thousand forty eight dollars ($107,048) for the third year, and one
hundred fourteen thousand five hundred forty one dollars ($114,541) for the
fourth year. However no salary will be accrued during the first four (4) months
of employment. Luce will also receive commission payments of one half percent
(0.5%) based on gross sales of the Company products and an additional one half
percent (0.5%) for all direct sales by Luce. Luce is also granted the right to
purchase up to one hundred thousand (100,000) shares of the Company's restricted
Common Stock at a price of four dollars ($4.00) per share. Twenty-five percent
(25%) of the options shall become vested on January 1, 2001, and the remaining
seventy-five percent (75%) of the options shall become vested at the equal rate
of twenty-five percent (25%) upon each successive one (1) year anniversary date
of employment. All vested options shall expire with three (3) years from the
date of vesting. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 551.23 (11) of the Wisconsin Code.
The facts upon which the Company relied in Wisconsin are as follows: (1)
(a) no person made more than ten (10) sales of securities of the same issuer
during any period of twelve (12) consecutive months within Wisconsin; (b) the
seller reasonably believed that all buyers were purchasing for investment; (c)
there was no filing requirement; and (d) no commission or remuneration was paid
in connection with a sale.
Discussion and Analysis
The Company, Mariculture Systems, Inc. is a Florida corporation which
conducts business from its headquarters in Lake Stevens, Washington. The Company
was incorporated in
<PAGE>
the State of Florida on July 8, 1996. On August 22, 1996, the Company entered
into a Share Exchange Agreement whereby the Company issued and exchanged
8,800,000 shares of its Common Stock for one hundred percent (100%) of the
issued and outstanding stock of Mariculture Systems, Inc., a Washington
corporation ("MSIW") (the "Share Exchange"). As a result of that transaction,
MSIW became a wholly owned subsidiary of the Company. The Washington corporation
was administratively dissolved on September 19, 1997.
The Company is principally involved in the aquaculture industry, including
developing, manufacturing, and marketing proprietary systems that allow
commercial fish farmers to increase productivity and profits while reducing
risks to their crop and limiting environmental impact. Current activities
include the search for potential customers of the Company's proprietary product.
The Company is in the development stage. It is acquiring the necessary
operating assets and it is beginning its proposed business. While the Company is
developing tools necessary to enter the acquaculture industry, there is no
assurance that any benefit will result from such activities. The Company will
receive limited operating revenues and will continue to incur expenses during
its development, possibly in excess of revenue.
The ability of the Company to continue as a going concern is dependent upon
increasing sales and obtaining additional capital and financing. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. The Company is currently seeking
financing to allow it to begin its planned operations.
Results of Operations -For the Three Months Ending September 30, 2000
and September 30, 1999
Financial Condition, Capital Resources and Liquidity
For the 3rd quarter ended September 30, 1999 and 2000 the Company recorded
no revenues. For the third quarter ended September 30, 1999 and 2000 the Company
had general and administrative expenses of $4,086 and $11,117. This increase of
$7,031 was due to a substantial increase in selling efforts.
For the 3rd quarter ended September 30, 1999 and 2000, the Company had
research and experimentation expenses of $496 and $2,420, respectively. The
increase of $1,924 is due primarily to expenses associated with the disposal of
the pilot site, including moorage fees for the barge.
For the 3rd quarter ended September 30, 1999 and 2000, the Company had
total operating expenses of $4,582 and $13,537. The increase is primarily due to
an increase in selling efforts
Net Losses
For the 3rd quarter ended September 30, 1999, 2000, the Company reported a
net loss from operations of $4,582 and $13,537 respectively.
<PAGE>
The ability of the Company to continue as a going concern is dependent upon
increasing sales and obtaining additional capital and financing. The Company is
currently seeking financing to allow it to begin its planned operations.
Employees
At September 30, 2000, the Company employed four (4) persons. None of these
employees are represented by a labor union for purposes of collective
bargaining. The Company considers its relations with its employees to be
excellent. The Company plans to employ additional personnel as needed upon
product rollout to accommodate fulfillment needs.
Research and Development Plans
The Company believes that research and development is an important factor
in its future growth. The aquaculture industry is closely linked to
technological advances, which produce new ways of producing product for its use
by the public. Therefore, the Company must continually invest in the latest
technology to appeal to the public and to effectively compete with other
companies in the industry. No assurance can be made that the Company will have
sufficient funds to purchase technological advances as they become available.
Additionally, due to the rapid advance rate at which technology advances, the
Company's equipment and inventory may be outdated quickly, preventing or
impeding the Company from realizing its full potential profits.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), expansion
and growth of the Company's business and operations, and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results or developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
general economic market and business conditions; the business opportunities (or
lack thereof) that may be presented to and pursued by the Company; changes in
laws or regulation; and other factors, most of which are beyond the control of
the Company.
Consequently, all of the forward-looking statements made in this Form
10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
<PAGE>
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending September 30, 2000,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
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<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:
<S> <C> <C>
Exhibit No. Description
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Item 1. Index to Exhibits
3.(i).1 [1] Articles of Incorporation of Mariculture Systems, Inc. filed July 8, 1996.
3.(ii).1 [1] Bylaws of Mariculture Systems, Inc.
4.1 [1] Promissory Note in the amount of $18,000 bearing 10% interest in favor of
William Evans dated April 1996.
4.2 [1] Form of Private Placement Offering of 1,200,000 common shares at $0.01 per
share.
4.3 [1] Promissory Note in the amount of $10,000 bearing 10% interest in favor of
William Evans dated January 1997.
<PAGE>
4.4 [1] Promissory Note in the amount of $22,000 bearing 10% interest in favor of
William Evans dated April 1997.
4.5 [1] Form of Private Placement Offering of 985,000 common shares at $1.00 per
share.
4.6 [1] Promissory Note in the amount of $14,400 bearing 12% interest in favor of Elaine
Meilahn dated March 2000.
4.7 [1] Promissory Note in the amount of $21,970 bearing 12% interest in favor of David
Meilahn dated March 2000.
4.8 [1] Promissory Note in the amount of $10,600 bearing 12% interest in favor of Elaine
Meilahn dated August 2000.
10.1 [1] Share Exchange Agreement dated August 1996.
10.2 [1] Agreement with Corporate Imaging dated July 1997.
10.3 [1] Agreement with Stephen Jaeb dated August 1997.
10.4 [1] Agreement with Reinforced Tank Products, Inc. dated April 1998.
10.5 [1] License Agreement with David Meilahn dated December 1998.
10.6 [1] Agreement with Sanford Tager dated September 1999.
10.7 [1] Employment Agreement with Rich Luce dated September 2000.
27.1 * Financial Data Schedule.
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[1] Incorporated herein by reference to the Company's Registration Statement on Form 10-
SB.
* Filed herewith.
</TABLE>
Item 2. Description of Exhibits
The documents required to be filed as Exhibits Number 2 and 6 and in Part
III of Form 1-A filed as part of this Registration Statement on Form 10-SB are
listed in Item 1 of this Part III above. No documents are required to be filed
as Exhibit Numbers 3 , 5 or 7 in Part III of Form 1- A and the reference to such
Exhibit Numbers is therefore omitted. The following additional exhibits are
filed hereto:
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Mariculture Systems, Inc.
(Registrant)
Date: November 7, 2000 By: /s/ David Meilahn
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David Meilahn
President, Secretary,
Treasurer and Chairman
By: /s/ Richard Luce
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Richard Luce
Vice President, Sales &
Marketing
By: /s/ Robert Janeczko
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Robert Janeczko
Director
By: /s/ Don Jonas
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Don Jonas
Director