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, 2001
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
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
-- ---
As of September 30, 2001, there were 11,640,958 shares of voting stock of
the registrant issued and outstanding.
PART I
Item 1. Financial Statements
Mariculture Systems, Inc.
(A development stage company)
BALANCE SHEETS
ASSETS
December 31, 2000 September 30, 2001
(unaudited)
CURRENT ASSETS
Cash 7,232 $ 801
Trade Accounts Receivable 570 570
Prepaid Expenses - 1,000
------------ ------------
Total current assets 7,802 2,371
PROPERTY AND EQUIPMENT 55,429 55,429
INTELLECTUAL PROPERTY - 30,000
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63,231 $ 87,800
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable 10,000 10,000
Notes payable to related parties 97,296 107,296
Accounts payable 276,010 298,984
Payables to related parties - 30,000
Accrued liabilities 115,576 174,268
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Total current liabilities 498,882 620,548
COMMITMENTS - -
STOCKHOLDERS' DEFICIT
Preferred stock - -
Common stock 10,314 11,391
Subscribed stock - -
Additional paid - in capital 746,451 822,185
Accumulated development stage deficit (1,192,416) (1,366,324)
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(435,651) (532,748)
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$ 63,231 $ 87,800
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The accompanying notes are an integral part of these statements.
F-1
Mariculture Systems, Inc.
(A development stage company)
STATEMENTS OF OPERATIONS (unaudited)
Cumulative
results of
operations
since inception
(August 25,
1994)
Three months ended September 30, Nine months ended September 30,
2000 2001 2000 2001
----- ----- -----
Operating Expenses
General and Administrative 6,887 53,759 86,871 171,254 670,634
Research and development - - - - 629,289
--------------- ----------------- -------------- --------------- -------------
Total Operating Expenses 6,887 53,759 86,871 171,254 1,299,923
Net loss from operations (6,887) (53,759) (86,871) (171,254) (1,299,923)
OTHER INCOME (EXPENSES)
Interest expenses (5,000) (4,332) (11,000) (18,264) (89,211)
Other income 9 - 9 15,610 22,810
--------------- ----------------- --------------- -------------- -------------
(4,991) (4,332) (10,991) (2,654) (66,401)
Net loss (11,878) (58,091) (97,862) (173,908) (1,366,324)
LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.01) $ (0.02) (0.15)
--------------- ----------------- --------------- -------------- -------------
The accompanying notes are an integral part of these statements.
F-2
Mariculture Systems, Inc.
(A development stage company)
STATEMENT OF STOCKHOLDERS'
DEFICIT From July 1, 2001 through
September 30, 2001 (unaudited)
Common Stock Stock Subscribed Paid-in Retained
------------
Shares Amount Shares Amount Capital Earnings Total
------
Balance at July 1, 2001 10,605,614 $10,355 1,035,344 $ 36,344 $ 786,877 $ (1,192,416) $ (358,840)
------------ ---------- ----------- ---------- ---------- ------------- ------------
Issuance of shares in July 2001 originally
subscribed to in April and May 2001 400 0 (400) (400) 400 - -
Issuance of shares in July 2001 originally
subscribed to in June 2001 8,675 10 (8,675) (8,675) 8,665 - -
Issuance of shares in August 2001 originally
subscribed to in April, May and June 2001 26,269 26 (26,269) (26,269) 26,243 - -
Issuance of shares in connection with June
2001 patent acquisition 1,000,000 1,000 (1,000,000) (1,000) - - -
Net loss for nine months ended 9/30/01 (173,908) (173,908)
------------ ---------- ----------- --------- ----------- ------------- ------------
Balance as of September 30, 2001 11,640,958 $11,391 - $ - $ 822,185 $ (1,366,324) $ (532,748)
------------ ---------- ----------- --------- ----------- ------------- ------------
The accompanying notes are an integral part of these statements.
F-3
Mariculture Systems, Inc.
(A development stage company)
STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30, Cumulative results of
operations since inception
(August 25, 1994)
2000 2001
----- ----
Increase (decrease) in Cash
Cash flows from operating activities
Net loss (97,862) (173,908) $ (1,366,324)
Adjustments to reconcile net loss to net cash used
in operating activities
Issuance of common stock for services 8,700 32,067 145,442
Issuance of common stock in lieu of expense reimbursement 11,930 34,744 34,744
Depreciation and write down of test facility - - 441,892
Changes in net assets and liabilities
Trade accounts receivable - - (570)
Payables to shareholders (845) - (8,700)
Accounts payable and accrued liabilities 63 091 81,666 451,736
--------------- --------------- ---------------
Net cash used in operating activities (14,986) (25,431) (301,780)
Cash flows from investing activities - - (497,321)
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Net cash used in investing activities - - (497,321)
Cash flows from financing activities
Proceeds from notes payable 17,617 10,000 121,313
Proceeds from sale of common stock - 9,000 652,389
Proceeds from unissued shares - - 26,200
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Net cash provided by financing activities 17 617 19,000 799,902
--------------- --------------- ---------------
Net increase (decrease) in cash 2,631 (6,431) 801
Cash at the beginning of period 2,373 7,232 -
Cash at the end of period $ 5,004 801 38,501
--------------- --------------- ---------------
Non cash financing activities $ - (31,000) 37,700
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The accompanying notes are an integral part of these statements.
F-4
NOTE 1. FINANCIAL STATEMENTS
The unaudited condensed financial statements of MariCulture Systems (the
Company) have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 20001. The
accompanying unaudited condensed financial statements and related notes should
be read in conjunction with audited financial statements filed on April 13,
2001.
NOTE 2. NET (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share are based on the weighted average number of
shares outstanding during each quarter. The weighted average shares for
computing the Company's basic (loss) earning per share were 10,564,147 and
11,640,958 for the three months ended September 30, 2000 and 2001 and 10,410,421
and 11,026,971 for the nine months ended September 30, 2000 and 2001 and
8,942,829 from inception through September 30, 2001. As of September 30, 2001
and 2000, the Company had 25,000 and 25,000 shares of potential issuable common
stock .
Because of the net loss for the three months ended September 30, 2001 and 2000,
and from inception through September 30, 2001, shares of potentially issuable
common stock were not included in the calculation of diluted earnings per share
as their inclusion would be anti-dilutive.
NOTE 3. OTHER EVENTS
The Company concluded the assignment to Mariculture Systems, Inc. of the
"Aquaculture System" patent #5,762,024, owned by David Meilahn for which, during
the prior quarter, the Company approved the outright purchase for a payment of
1,000,000 shares of Common Stock and $30,000.
On August 20, 2001, the Company executed a note payable to the spouse of the
Company's president in the amount of $2,500. The note is payable on demand and
bears an interest rate of 12% per annum.
On September 14, 2001, the Company executed a note payable to the spouse of the
Company's president in the amount of $2,500. The note is payable on demand and
bears an interest rate of 12% per annum.
On October 1, 2001, the Company executed a note payable to the spouse of the
Company's president in the amount of $4,000. The note is payable on demand and
bears an interest rate of 12% per annum.
In June 2001, the Company wrote off $13,895 in old accounts payable. The write
offs were included in Other expenses in the Statement of Operations for the nine
months ended September 30, 2001.
F-5
Item 2. Management's Discussion and Analysis of Results of Operations.
General
The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and Rule 506 of Regulation D promulgated thereunder ("Rule
506") for several transactions regarding the issuance of its unregistered
securities. In each instance, such reliance was based upon the fact that (i) the
issuance of the shares did not involve a public offering, (ii) there were no
more than thirty-five (35) investors (excluding "accredited investors"), (iii)
each investor who was not an accredited investor either alone or with his
purchaser representative(s) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
prospective investment, or the issuer reasonably believes immediately prior to
making any sale that such purchaser comes within this description, (iv) the
offers and sales were made in compliance with Rules 501 and 502, (v) the
securities were subject to Rule 144 limitation on resale and (vi) each of the
parties is a sophisticated purchaser and had full access to the information on
the Company necessary to make an informed investment decision by virtue of the
due diligence conducted by the purchaser or available to the purchaser prior to
the transaction (the "506 Exemption").
The Company relied upon Section 460-44A-506 of the Washington Code for
several transactions. The facts relied upon to make the Washington Exemption
applicable 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. (the "Washington Exemption").
In August 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of two thousand five hundred dollars ($2,500) 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. For such offering, the Company relied upon the 506 Exemption
and the Washington Exemption.
In September 2001, the Company executed a promissory note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) 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. For such offering, the Company relied upon the 506 Exemption
and the Washington Exemption.
In October 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand dollars ($4,000) 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. For
such offering, the Company relied upon the 506 Exemption and the Washington
Exemption.
In October 2001, the Company sold a total of 6,000 shares of its restricted
common stock to two (2) investors for a total of $6,000. For such offering, the
Company relied upon the 506 Exemption and Section 551.23(19) of the Wisconsin
Code.
The facts upon which the Company relied in Wisconsin are as follows: (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 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, 2001 and
September 30, 2000
Financial Condition, Capital Resources and Liquidity
For the 3rd quarter ended September 30, 2001 and 2000 the Company recorded
no revenues. For the three months ended September 30, 2001 and 2000 the Company
had general and administrative expenses of $53,759 and $6,887. This increase of
$46,872 was due primarily to accruals for salary for Richard Luce and expenses
associated with travel related to sales.
For the three months ended September 30, 2001 and 200, the Company had
research and development expenses of $0 and $0 respectively.
For the three months ended September 30, 2001 and 2000, the Company had
total operating expenses of $53,759 and $6,887.
Net Losses
For the 3rd quarter ended September 30, 2001 and 2000, the Company reported
a net loss from operations of $53,759 and $6,887 respectively.
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 August 7, 2001, the Company employed five (5) persons, two (2) full
time, two (2) part time and one (1) consultant. Only one (1) of the employees is
paid by the Company. 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.
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 June 30, 2001, covered by
this report to a vote of the Company's shareholders, through the solicitation of
proxies or otherwise.
Item 5. Other Information
None.
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:
Exhibit No. Description
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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.
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] Replaced by Exhibit 4.11.
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.
4.9 [2] Promissory Note in the amount of $5,000 bearing 12% interest in favor of Elaine
Meilahn dated December 1, 2000.
4.10 [4] Promissory Note in the amount of $5,000 bearing 12% interest in favor of Elaine
Meilahn dated February 8, 2001.
4.11 [4] Promissory Note in the amount of $12,400.97 bearing 12% interest in favor of Elaine
Meilahn dated April 3, 2001.
4.12 [5] Promissory Note in the amount of $2,500.00 bearing 12% interest in favor of Elaine
Meilahn dated August 22, 2001.
4.13 [5] Promissory Note in the amount of $2,500.00 bearing 12% interest in favor of Elaine
Meilahn dated September 14, 2001.
4.14 [5] Promissory Note in the amount of $4,000.00 bearing 12% interest in favor of Elaine
Meilahn dated October 1, 2001.
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] Void.
10.6 [1] Agreement with Sanford Tager dated September 1999.
10.7 [1] Employment Agreement with Rich Luce dated September 2000.
10.8 [2] Consulting Agreement with Websters' Inc. Dated December 1, 2000.
16.1 [3] Letter on change of certifying accountant pursuant to Regulation SK, Section
304(a)(3)2.
16.2 [3] Letter from Moss Adams LLP.
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[1] Incorporated herein by reference to the Company's Registration Statement on
Form 10SB filed September 13, 2000.
[2] Incorporated herein by reference to the Company's first amended
Registration Statement on Form 10SB filed December 21, 2000.
[3] Incorporated herein by reference to the Company's Current Report on Form
8-K filed on February 26, 2001.
[4] Incorporated herein by reference to the Company's Annual Report on Form
10KSB for the period ended December 31, 2000 filed on April 13, 2001.
[5] Incorporated herein by reference to the Company's third amended
Registration Statement on Form 10SB filed on November 13, 2001.
(* Filed herewith)
(b) A report on Form 8-K was filed on February 26, 2001 disclosing a change
in the Registrant's Certifying Accountant.
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:
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 12, 2001 By: /s/ David Meilahn
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David Meilahn
President, Treasurer and Chairman
By: /s/ Richard Luce
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Richard Luce
Secretary & Vice President of Sales & Marketing
By: /s/ Robert Janeczko
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Robert Janeczko
Director
By: /s/ Don Jonas
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Don Jonas
Director