UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2005
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act
Commission File Number: 021-64091
NEPTUNE INDUSTRIES, INC.
(Name of Small Business Issuer in its charter)
Florida 65-0838060
(State of Incorporation) (I.R.S. Employer I.D. Number)
2234 N. Federal Highway
Suite 372
Boca Raton, FL 33034
(Address of principal executive offices)
(561)-482-6408)
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: COMMON STOCK
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[x]Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
[ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court [ ]Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of equity, as
of September 30, 2005 was:
Common Shares 10,789,051 shares
Class A preferred Shares 1,500,000 shares
Class B Preferred Shares 3,500,000 shares
Transitional Small Business Disclosure Format (check one): Yes___; No_X_
FORM 10-QSB
NEPTUNE INDUSTRIES, INC.
PERIOD ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS
PART I
Item 1.
FINANCIAL STATEMENTS......................................... 3
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION............................................ 18
Item 3.
CONTROLS AND PROCEDURES...................................... 19
PART II
Item 1.
LEGAL PROCEEDINGS............................................ 19
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS................................... 19
Item 3.
DEFAULTS UPON SENIOR SECURITIES.............................. 19
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... 19
Item 5.
OTHER INFORMATION ........................................... 19
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K............................. 19
Signatures .................................................. 20
-2-
Part I.
Item 1. Financial Information.
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30
2005 2005
(audited)
--------------- ---------------
ASSETS
Current Assets
Cash $ 129,387 $ 144,004
Accounts Receivable 10,287 67,633
Inventory 479,391 407,834
Prepaid expenses 7,974 7,974
Loan Receivable - 5,000
Deposit on Equipment 12,340 9,840
Deferred Costs 10,210 10,210
Deferred tax asset less valuation
allowance of $492,525 and $492,525 - -
--------------- ---------------
Total Current Assets 649,589 652,495
Property and Equipment Net 496,042 561,323
Security Deposits 4,040 4,040
--------------- ---------------
Total Assets $ 1,149,671 $ 1,217,858
=============== ===============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
Liabilities
Current Liabilities
Accounts payable $ 132,655 $ 105,221
Accrued and Other Current Liabilities 168,125 111,434
Current Portion of Long-Term Debt-
Related Party 100,000 100,000
Current Portion of Long-Term Debt 6,197 6,976
Notes Payable 50,000 100,000
Notes Payable-Officers 70,000 70,000
Convertible Note-Related Party 125,000 55,000
------------- ---------------
Total Current Liabilities 651,977 548,631
Long-term Liabilities:
Long-Term Debt-Related Party 25,000 25,000
Long-Term Debt
Convertible Notes - -
Notes payable-Officers - -
------------- --------------
Total Long-Term Liabilities 25,000 25,000
------------- -------------
Total Liabilities $ 676,977 $ 573,631
F-1
COMMITMENTS AND CONTINGENCIES
(NOTES 2, 6, 10 AND 13)
Stockholders Equity (Deficiency in Assets)
Preferred Stock, $.001 par value,
5,000,0000 shares authorized,
5,000,000 shares issued and
outstanding 5,000 5,000
Common Stock, $.001 par value
15,833,333 shares authorized,
10,789,051 and 10,532,633 shares
issued and outstanding 10,789 10,533
Additional Paid-In Capital 4,177,113 4,115,367
Accumulated Deficit (3,720,208) (3,486,673)
-------------- --------------
Total Stockholders Equity
(Deficiency in Assets) 472,694 644,227
-------------- --------------
Total Liabilities and Stockholders Equity
(Deficiency in Assets) $ 1,149,671 $ 1,217,858
============== ==============
See accompanying notes.
F-2
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended
September 30, June 30,
2005 2005
-------------- -------------
Revenues:
Sales $ 96,143 $ 629,233
Cost of Sales 152,552 726,131
-------------- -------------
Gross Loss (54,409) (96,898)
-------------- -------------
Expenses:
Advertising and marketing 151 3,184
Automobile and truck expense 8,115 36,479
Depreciation 1,265 1,351
Insurance 6,556 14,118
Office 1,208 3,690
Officers salary, related taxes and benefits 114,573 401,010
Other operating expenses 9,774 18,023
Outside services 937 9,190
Professional fees 17,355 23,835
Public relations 6,850 -
Rent 1,025 5,071
Repairs 259 5,261
Utilities 1,835 9,265
-------------- --------------
Total expenses from operations 169,903 648,454
-------------- --------------
Loss before interest and income taxes $ (224,512) $ (745,352)
Interest Expense 9,023 73,927
-------------- --------------
Loss before income tax taxes (233,535) (819,279)
Provision for income taxes - -
-------------- --------------
Net loss $ (233,535) $ (819,279)
============== ==============
Net loss per share (basic and diluted) $ (0.02) $ (0.12)
============== =============
Weighted average number of common
shares outstanding (basic and diluted) 10,532,633 7,101,901
============== ==============
See accompanying notes
F-3
NEPTUNE INDUSTRIES INC.
AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
PERIODS ENDED June 30, 2005 AND SEPTEMBER 30, 2005
Total
Stockholders
Equity
Common Stock Preferred Stock Paid-In Accumulated (Deficiency)
Shares Amount Shares Amount Capital Deficit in Assets
---------- -------- ------- --------- --------- ------------ -----------
Balance, June 30,2003 4,771,960 $ 4,772 - $ - $ 1,870,908 $ (1,889,141) (13,461)
==============================================================================
Shares issued in
connection with
note payable 33,333 33 - - 5,967 - 6,000
Shares issued for cash 794,103 794 - - 379,206 - 380,000
Net loss for the
year ended - - - - - (778,253) 778,253)
------------------------------------------------------------------------------
Balance, June 30,2004 5,599,396 5,599 - - 2,256,081 (2,667,394)(405,714)
==============================================================================
Shares issued for
Cash 1,666,667 1,667 - - 748,333 - 750,000
Shares issued in
exchange for
services 85,756 86 - - 25,641 - 25,727
Shares issued for
interest expense 4,167 4 - - 1,246 - 1,250
Shares issued in
relation to
convertible notes 207,064 207 - - 128,293 - 128,500
Shares issued to
officers for accrued
compensation and
interest 2,500,000 2,500 5,000,000 5,000 956,243 - 963,743
Shares issued in
connection with
merger 469,583 470 - - (470) - -
Net loss for the
year ended - - - - - (819,279) 819,279)
------------------------------------------------------------------------------
Balance
June 30, 2005 10,532,633 $10,533 5,000,000 $5,000 $ 4,115,366 $ (3,486,673)$ 644,227
Shares issued in
connection with
notes payable 210,000 210 - - 48,590 - 48,800
Shares issued for
interest expense 26,406 26 - - 13,177 - 13,203
Shares issued as loan
incentive 20,000 20 - - (20) - -
Shares issued in
connection with
merger (rounding) 12 - - - - - -
Net loss for period
ended 9/30/2005 - - - - - (233,535)(233,535)
-------------------------------------------------------------------------------
Balance
September 30, 2005 10,789,051 $10,789 5,000,000 $5,000 $ 4,177,113 $ (3,720,208) 472,694
===============================================================================
See accompanying notes
F-4
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and nature of operations
Neptune Industries, Inc. (the Company) is a Florida corporation
which conducts business from its headquarters in Boca Raton, Florida. The
Company was incorporated on May 8, 1998 and in February 2004, changed its
name from Neptune Aquaculture, Inc. to Neptune Industries, Inc. Since that
time, the main activities of Company have been devoted to raising capital,
implementing its business plan, commencing operations through its subsidiary,
Blue Heron Aqua Farms, LLC, and developing, testing and patenting (pending)
S.A.F.E. (Solar-powered, Aquaculture, Finfish Environment) technology.
In June 2001, the Company acquired the operating rights to a 48 acre
established fish farm in Florida City, Florida to be operated as Blue Heron
Aqua Farms, LLC. The farm maintains a 47,000,000 gallon per day water usage
permit and a twenty year lease from South Florida Water Management District.
This site is intended to become the cornerstone of the South Florida
operations of the Company, with its extensive infrastructure and future
potential for hatchery facilities for fingerling production.
Merger with Move Films, Inc.
On June 9, 2005, the Company completed a statutory merger with Move Films,
Inc., a Texas corporation. Move Films, Inc. was a non-trading, fully reporting
public company. The surviving entity remained Neptune Industries, Inc. which
assumed the obligation as a full reporting company for SEC purposes as
successor to Move Films, Inc. This transaction has been accounted for as a
reverse merger.
For all periods prior to June 30, 2005, periodic reports filed with the SEC
were filed as Move Films, Inc., including the Form 10-QSB for the quarterly
period ended September 30, 2004. Since Move Films, Inc., was not an active
operating company and had no assets or income as of September 30, 2004,
comparison of the activity of the Company for the period September 30, 2005
with the reported activities of Move Films, Inc., its predecessor, for the
reporting period ended September 30, 2004, is not meaningful and is omitted.
Common shares of the Company, continue to be listed on the OTC Pink Sheets
under the trading symbol NPDI.
Basis of Presentation
The consolidated financial statements include the accounts of Neptune
Industries, Inc. and its wholly-owned subsidiaries, Aquaculture Specialties,
Inc. and Exotic Reef Technologies, Inc., and its majority owned subsidiary,
Blue Heron Aqua Farm, LLC (Blue Heron). All inter-company balances and
transactions have been eliminated at consolidation.
F-5
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Cash and Cash Equivalents
The company considers all highly liquid investments with a maturity date of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment consists of equipment, leasehold improvements, office
furniture and vehicles which are stated at cost. Depreciation is based on the
estimated useful lives of the assets, ranging from five years to fifteen
years, using the straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred. Major improvements are
capitalized. Gains and losses on disposition of property and equipment are
included in income as realized.
Revenue Recognition
Sales revenue is recognized upon the shipment of merchandise to customers
or the pick up of merchandise by the customer. Allowances for sales
returns are recorded as a component of net sales in the period the
allowances are reported.
Income Taxes
Income taxes are computed under the provisions of the Financial Accounting
Standards Board (FASB) Statement No. 109 (SFAS 109), Accounting for Income
Taxes. SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of the difference in events that have been recognized in the
Company financial statements compared to the tax returns.
Advertising and marketing costs
Advertising and marketing costs are expensed as incurred. Advertising and
marketing expense was $3,184 and $2,234 for the years ending June 30, 2005,
and 2004 respectively. There were no significant similar expenses for the
quarter ending September 30, 2005.
Fair Value of Financial Instruments
Financial instruments, including cash, receivables, accounts payable, and
notes payable are carried at amounts which reasonably approximate their fair
value due to the short-term nature of these amounts or due to variable rates
of interest which are consistent with market rates.
F-6
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Concentrations of Credit Risk and Economic Dependence
Financial instruments, which potentially subject the Company to a
concentration of credit risk, are cash and cash equivalents and accounts
receivable. The Company currently maintains its day-to-day operating cash
balances at a single financial institution. At times, cash balances may be in
excess of the FDIC insurance limits. At June 30, 2005, the Company had cash
on deposit exceeding the insured limit by approximately $24,143. The Company
operates domestically and internationally. Consequently, the ability of the
Company to collect the amounts due from customers may be affected by economic
fluctuations in each of the geographic locations of the customers.
Recently Issued Accounting Pronouncements
In January 2003, FASB issued Financial Interpretation No. 46 Consolidation of
Variable Interest Entities (FIN 46) (revised December 17, 2003). The
objective of FIN 46 is to improve financial reporting by companies involved
with variable interest entities. A variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of
the risk of loss from the variable interest entitys activities or entitled to
receive a majority of the entitys residual returns or both. FIN 46 also
requires disclosures about variable interest entities that the company is not
required to consolidate but in which it has a significant variable interest.
The consolidation requirements of FIN 46 is required in financial statements
of public entities that have interests in variable interest entities for
periods ending after December 15, 2003. The consolidation requirements for all
other types of entities is required in financial statements for periods ending
after March 15, 2004.
In April 2003, FASB issued Statements of Financial Accounting Standards No.
149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under FASB
Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is generally effective for contracts entered into or
modified after June 30, 2003.
In May 2003, FASB issued Statements of Financial Accounting Standards No. 150
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how
an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003.
F-7
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
In November 2004, the FASB issued Statement No. 151, Inventory Costs, (SFAS
151) to amend the guidance in Chapter 4, Inventory Pricing, of FASB
Accounting Research Bulletin (ARB) No. 43, Restatement and Revision of
Accounting Research Bulletins, which will become effective for the Company
in fiscal year 2006. Statement 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). The Statement requires that those items be recognized
as current-period charges. Additionally, Statement 151 requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. Management believes that the
adoption of SFAS 151 will not affect the financial position or results of
operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets, an amendment to Opinion No. 29, Accounting for Nonmonetary
Transactions. Statement No. 153 eliminates certain differences in the
Guidance in Opinion No. 29 as compared to the guidance contained in standards
issued by the International Accounting Standards Board. The amendment to
Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. Such an
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in periods beginning after
June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in periods beginning after December 16, 2004. Management
does not expect adoption of SFAS No. 153 to have any impact on the Companys
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based
Payments (SFAS No. 123R), which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of
Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the
approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. The new standard will be effective for
the Company in the first interim or annual reporting period beginning after
December 15, 2005. The Company expects the adoption of this standard will have
a material impact on its financial statements assuming employee stock options
are granted in the future.
The adoption of these new pronouncements is not expected to have a material
effect on the Companys financial position or results of operations, unless
otherwise stated above.
F-8
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share takes into
consideration shares of common stock outstanding (computed under basic loss
per share) and potentially dilutive shares of common stock. In periods where
losses are reported, the weighted average number of common shares outstanding
excludes common stock equivalents, because their inclusion would be anti-
dilutive.
Long-Lived and Disposal of Assets
The Company follows FASB Statement No. 144 (SFAS 144), Accounting for the
Impairment of Long-Lived Assets. SFAS 144 requires that long-lived assets
to be held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. When required, impairment losses on assets to be held and used
are recognized based on the fair value of the asset. Long-lived assets to be
disposed of, if any, are reported at the lower of carrying amount or fair
value less cost to sell.
Stock Compensation for Services Rendered
The Company has issued restricted shares of common stock to non-employees in
exchange for services rendered. Common stock issued to non-employees for
services received are based upon the fair value of the services or equity
instruments issued, whichever is more reliably determined.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market. The inventory consists of seafood, feed, chemicals, and overhead
costs, such as utilities. Overhead is allocated to inventory based on the
number of pounds of fish included in ending inventory.
Inventory June 30, 2005 consisted of the following:
June 30,
2005
(audited)
----------------
Seafood $ 114,307
Feed 127,002
Chemicals 76,283
Overhead 90,242
----------
$ 407,834
F-9
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts in
the financial statements. Actual results could differ from those estimates and
assumptions.
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The financial position and
operating results of the Company raise substantial doubt about its
ability to continue as a going concern, as reflected by the accumulated
deficit of $3,486,673 as of June 30, 2005 and recurring gross and net losses.
The ability of the Company to continue as a going concern is dependent upon
expanding operations, increasing sales and obtaining additional capital and
financing. Managements plan in this regard is to secure additional funds
through future equity financings. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of the end of fiscal years
June 30, 2005 and 2004:
2005 2004
------------- ------------
Vehicles $ 17,578 $ 17,578
Computer and office equipment 7,713 6,434
Equipment 628,018 517,316
Leasehold improvements 126,657 89,114
------------- ------------
779,966 706,415
Accumulated depreciation (218,643) ( 148,414)
------------- -------------
Property and equipment,
less accumulated depreciation $ 561,323 $ 558,001
============= =============
F-10
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 3 PROPERTY AND EQUIPMENT (Continued)
Total depreciation expense for the years ended June 30, 2005 and 2004,
amounted to $70,230 and $61,136, respectively. Of these amounts, $68,879
and $59,850 are included in cost of sales and $1,351 and $1,286 are
included in expenses for the years ended June 30, 2005 and 2004,
respectively.
NOTE 4. NOTE RECEIVABLE
The note receivable at June 30, 2005 consists of a 10% unsecured note
receivable due on demand. This note was repaid during the quarter ended
September 30, 2005.
NOTE 5. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other liabilities consisted of the following:
SEPTEMBER 30, JUNE 30,
2005 2005
------------ ------------
Accrued payroll - officers $ 113,837 72,912
Accrued interest - officers 19,836 17,088
Accrued interest - others 14,452 21,434
------------ ------------
$ 168,125$ 111,434
============ ============
NOTE 6. ACCRUED OFFICERS COMPENSATION AND INTEREST
Effective February 8, 2000, the Company entered into five-year employment
agreement (the Agreements) with two key members of management. The
Agreements provide for annual compensation of ninety-thousand dollars
($90,000) in year one; one-hundred-ten-thousand dollars ($110,000) in year
two; one-hundred-twenty-five thousand dollars ($125,000) in year three; one
hundred-fifty-thousand dollars ($150,000) in year four; and one-hundred
seventy-five thousand dollars ($175,000) in year five. These agreements have
been renewed automatically for an additional five year term.
The Agreements also state that the two key members of management shall be
entitled to and shall automatically receive a cost of living adjustment
calculated in proportion to the upward change in the consumer price index U.S.
Average All Items (1967=100), published by the U.S. Department of Labor.
The Company contracted Robert Hipple to become Chief Financial Officer
beginning in February 2005 at a monthly salary of $2,000. Additionally, Mr.
Hipple received 100,000 restricted shares of common stock for his
services at a value of $5,000.
F-11
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 6 ACCRUED OFFICERS COMPENSATION AND INTEREST (continued)
Pursuant to these employment agreements, the Company has accrued a total of
$72,912 and $679,350 through the years ended June 30, 2005 and 2004,
respectively. Cash compensation actually paid was $192,800 and $162,400 for
the years ended June 30, 2005 and 2004, respectively. During the year ended
June 30, 2005, the Board of Directors approved the issuance of convertible
preferred stock for payment of accrued compensation and interest (See Note 8
Related Party Transactions).
The Agreements also provide for accrued interest of ten percent (10%) per
annum until the employees salary, bonuses and benefits are paid in full.
Accrued interest on the above salaries and bonuses are $17,088 and $136,891 as
of June 30, 2005 and 2004, respectively. Additional salary and interest due
under these agreements were paid through the issuance of additional
convertible preferred stock. (See Note 8 Related Party Transactions)
NOTE 7. INCOME TAXES
Deferred income taxes and benefits for the fiscal years 2005 and 2004 are
provided for certain income and expenses, which are recognized in different
periods for tax and financial reporting purposes. The tax effects (computed at
15%) of these temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following for June 30, 2005 and June 30, 2004:
Current
June 30, 2005 Period
2005 Changes 2004
-------------- ------------ -------------
Deferred tax assets:
Accrued officers compensation $ 10,937 $ (90,966) $ 101,903
Accrued interest officers 2,563 (17,971) 20,534
Net operating loss carry forwards 507,382 233,062 274,320
----------- ------------- ------------
520,882 124,125 396,757
Deferred tax liabilities:
Book to tax depreciation (28,357) (1,354) (27,003)
------------ ------------- -------------
Net deferred tax asset 492,525 122,771 369,754
Valuation allowance (492,525) (122,771) (369,754)
------------ ------------- -------------
$ - $ - $ -
============ ============= =============
F-12
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 7 INCOME TAXES (Continued)
A reconciliation of income benefit provided at the federal statutory rate of
15% to income tax benefit follows:
2005 2004
----------- -----------
Income tax benefit computed at federal
statutory rate $ 122,892 $ 117,073
Accrued officers compensation (90,966) (26,842)
Accrued interest officers (17,970) (8,823)
Depreciation (1,354) 5,444
Net operating losses (12,602) (86,852)
----------- ------------
$ - $ -
=========== ============
The Company has accumulated net operating losses, which can be used to offset
future earnings. Accordingly, no provision for income taxes is recorded in the
financial statements. A deferred tax asset for the future benefits of net
operating losses and other differences is offset by a 100% valuation allowance
due to the uncertainty of the Companys ability to utilize the losses. These
net operating losses begin to expire in the year 2017.
NOTE 8. RELATED PARTY TRANSACTIONS
Conversion of Accrued Salaries and Interest - Officers
On March 30, 2005, the Board approved:
a) a Stock Option Incentive Plan for Executives and significant employees;
b) the acquisition of a fully reporting, non-trading public shell company,
Move Films, Inc. on a share for share basis, or 2,817,500 shares; and
c) a 2004 Officers Class A Preferred Stock Award for 1,500,000 shares to
be issued to:
(i) Chief Executive Officer and President, Ernest D.
Papadoyianis, 750,000 shares,
(ii) Chief Operating Officer, Sal Cherch, 750,000 shares,
for payment to Messrs. Papadoyianis and Cherch of accrued
compensation and interest in the amount of $408,121.
These shares were subsequently converted to common stock at a 10 for 1 ratio
for 2,500,000 shares (post-share reduction) on June 3, 2005. This
amount represented half of the accrued compensation and interest owed by the
Company as of June 30, 2004.
F-13
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 8 RELATED PARTY TRANSACTIONS (Continued)
On June 6, 2005, the Companys Board approved a 2005 Class A Preferred Stock
Award for a total of 1,500,000 shares. Messers. Papadoyianis and Cherch each
received 750,000 shares in exchange for the retirement of an additional
$408,120 of accrued compensation and interest owed to them by the Company.
These shares bear the same terms of a 10:1 conversion to common shares.
Additionally, the Board of Directors approved a 2005 Class B Preferred Stock
Award of 3,500,000 shares to Messrs Papadoyianis and Cherch for the retirement
of $177,444 in accrued compensation and interest. Class B Preferred shares
maintain a six for one (6:1) preferred voting right, and are convertible to
common stock at a six for one (6:1) ratio.
Convertible Notes
On December 15, 2003, the Company executed a $50,000 convertible promissory
note payable to a 5% partner of its majority-owned Blue Heron, due on January
1, 2005, with interest payable monthly at a rate of 10% per annum on the first
day of each month in the amount of $417. This note was converted on December
31, 2004, at a conversion price of one share for each $0.17 principal amount
of the Note (133,333 shares post share reduction). Interest paid on
convertible note for the years ended June 30, 2005 and 2004, was $2,500.
Beginning in February, 2002, the Company accumulated a series of five
convertible notes with one of its shareholders, totaling $95,000. In December
2003, the Company repaid $20,000, and another $20,000 was converted to common
stock in July 2004, leaving a balance of $55,000. One note for $20,000 is due
in December, 2005, a second note for $25,000, and a third note for $10,000
were extended to September 1, 2005. Accrued interest on these notes was $4,141
and is included in accrued interest. All notes bear interest at 10% per annum,
except the $10,000 note, which is at 15% per annum.
A second shareholder had two convertible notes totaling $40,000. In
September, 2004, the Company repaid $1,500 toward repayment of the loan,
reducing the Companys debt to $38,500. These notes were then both converted
in December 2004 for 256,666 shares of common stock.
In July, 2004, the Company executed a Convertible Note for $25,000 to a
shareholder of the Company. The note was due on July 28, 2005. Accrued
interest on this note is $2,917., and is included in accrued interest. Also
in July, the Company executed another Convertible Note for $20,000 to an
unrelated third party. The note was converted in October 2004 to 285,720
(47,620 post share reduction) shares of common stock.
A third shareholder holding a $20,000 convertible note, converted the note in
September, 2004 for 400,000 shares (66,667 post share reduction) of common
stock.
F-14
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 8 RELATED PARTY TRANSACTIONS 9Continued)
On June 21, 2005, the Company executed a $100,000 Subordinated Convertible
Bridge Note payable to an existing shareholder of the Company, due on October
21, 2005, with interest accrued at a rate of 10% per annum. This note included
50,000 warrants to purchase shares of common stock at an exercise price of
$0.50 per share for a period of five years from the date of the note.
Additionally, the holder has the right to convert the note to shares of common
stock under the same terms and conditions to be set forth in the Companys
planned Private Offering anticipated for September/October, 2005.
Notes Payable - Officers
During the fiscal year ended June 30, 2002, the Company entered into an
agreement to retire the outstanding preferred stock with Messrs Papadoyianis
and Cherch in exchange for $100,000. The Company has paid $30,000 and the
$70,000 was converted to a note payable accruing interest at a rate of 8%.
Accrued interest on this note was later converted to preferred stock.
Notes Payable
In May 2001, Blue Heron entered into a security agreement with South Florida
Aquaculture, Inc., a Florida corporation, which is a 5% owner of Blue Heron,
for the purchase of certain business assets in the amount of $200,222. A
payment was made at signing in the amount of $27,000, leaving a balance of
$173,222. At June 30, 2005 and 2004, notes payable consists of the
following:
June 30
2005 2004
--------- -----------
Note payable for business assets, payable
in total monthly installments of $4,282,
bearing interest at 8.5% and 10%, secured
by business assets, due June 2005 $ - $ 52,949
Less: current portion - (52,949)
---------- -----------
Long-term portion $ - $ -
========== ===========
NOTE 9. NOTES PAYABLE
Note payable to bank, due June 2007, payable in monthly installments to
consist of principal in the amount of $302, including interest at 7.54%,
secured by a vehicle. The principal balance on this note as of September 30,
2005 is $6,197.
F-15
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 9 NOTES PAYABLE (Continued)
In December 2003, the Company executed two promissory notes payable, each
For $50,000, to two unrelated third parties. Each note was due on
December 12, 2005 and includes interest payable at a rate of 10% per
annum. Upon signing of the notes, each lender received one hundred thousand
(100,000) restricted common shares of the Company. In August, 2005, the
$50,000 outstanding principal balance on one of these notes, plus accrued
interest of $8,333, was converted into 116,666 shares of common stock plus
a warrant to purchase 58,333 shares of common stock for three years at a
price of $0.50 per share.
In August, 2005, an outstanding loan in the amount of $55,000 owed to one
Of our shareholders, together with accrued interest of $4,870, was converted
into 119,740 shares of common stock, plus a warrant to purchase 59,870 shares
of common stock for three years at a price of $0.50 per share.
NOTE 10. COMMITMENTS
The Company previously entered into an employment agreement, with its
aquaculture facilities manager, through October 31, 2005, that provides for a
minimum annual salary of $35,000. In July 2005, the employment agreement has
been renewed, effective November 1, 2005, for another four years through
October 31, 2009, and provides for a minimum annual salary of $42,500.
In March 2005, the Company retained the services of David Weinstein, an
investment banking and financial consultant. The six month agreement for
services provides for payment of 150,000 shares (25,000 shares post-
reduction) of restricted common stock for a total value of $7,500.
Also in March 2005, the Company retained the services of The Eversull Group,
Inc. an investor relations company. The one year agreement beginning April 1,
2005, for services provides for payment of $2,000 per month, and 250,000 shares
(41,667 shares post-reduction) of restricted common stock, for a total value of
$12,500. The accrued amount of $12,000 as of September 30, 2005, is included
in accounts payable.
In May 2005, the Company retained the services of Equity Communications, LLC,
a financial public relations company. The one year agreement for services
provides for payment of $6,000 per month and 500,000 stock options to purchase
shares of common stock at $0.15 per share (83,334 stock options to purchase
shares at $0.90 per share, post-share reduction), and another 500,000 stock
options to purchase shares of common stock at $0.09 per share (83,334 stock
options to purchase shares at $0.54 per share, post-share reduction), for a
period of five years. The accrued amount of $12,000 as of June 30, 2005, was
included in accounts payable. In September, 2005, this agreement was
cancelled by mutual consent, as was all compensation due under the agreement
F-16
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 10 COMMITMENTS (Continued)
In July 2005 the Company retained the services of Douglas Toth, as a
financial and corporate advisor, for a six month period. The agreed
compensation for his services was $5,000 and 33,333 shares of restricted
common stock per month. This agreement was cancelled by the Company on
September 28, 2005, effective October 28, 2005. Accrued fees of $10,000
are included in accounts payable. No shares were issued to Mr. Toth under
the agreement.
Also in July 2005, the Company entered into a Letter of Intent with Westcap
Securities, Inc., a NASD licensed broker dealer, to be the Placement Agent on
a $2,500,000 private equity offering. The offering is contingent upon the
approval of the 211 application for listing on the OTC-Bulletin Board.
Westcap has agreed to use its best efforts to complete the offering in a
timely manner. As the Placement Agent, Westcap will receive a 10% commission
and a 3% non-accountable expense allowance. In addition, for each ten shares
sold in the offering. Westcap will receive one warrant exercisable at a price
equal to 120% of the Private Placement offering price per share for a period
of five years, with demand and piggyback registration rights.
NOTE 11. STOCKHOLDERS EQUITY
During the fiscal year ended June 30, 2004, the Company issued 2,264,618
shares of common stock as part of a Regulation D 506 Offering. The Company
raised a total of $285,000.
In May 2004, the Company began the first of a series of Regulation D 504
offerings to raise a total $1,000,000. In the first offering, the Company sold
2,500,000 shares of common stock for $95,000.
In March 2004, the Board of Directors approved a 3 for 1 forward stock split,
for shares held as of March 24, 2004, in anticipation of a Regulation D 504
offering. At the time there were 10,382,125 shares outstanding, which
increased to 31,146,375 shares of common stock. All share amounts, including
those reported in the statements of stockholders equity (deficiency in assets),
have been restated to give retroactive effect for this 3 for 1 forward stock
split.
In March 2004, the Board of Directors approved the increase of the Companys
authorized total shares from 40 million to 100 million shares. Additionally,
the Board approved a three for one (3:1) forward split of its issued and
outstanding common stock as of March 24, 2004. The Board approved a second
extension of the Companys 506 Private Offering for an additional 256,410
shares at $0.39 per share. The original date of the offering was September
2001 for 3,000,000 shares, and it was extended for the first time in February
2003 for an additional 641,026 shares. It was also resolved that the Company
undertake a 504 private offering in an amount not to exceed $1,000,000.
F-17
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 11 STOCKHOLDERS EQUITY (Continued)
In March 2005, the Board of Directors approved the merger with Move Films,
Inc., a non-trading, fully reporting Texas corporation in a one for one stock
exchange. Neptune issued 2,817,500 shares to the shareholders of Move Films
in this acquisition.
Also in March 2005, a Long-Term Incentive Plan for employees was approved by
the Board of Directors. Under the new plan, the Board of Directors may issue
stock awards, options, performance awards, etc. to the employees of the
Company under terms and conditions they deem appropriate.
On June 6, 2005, the Companys Board approved a one for six (1:6) stock
reduction of the Companys common stock, bringing the total issued and
outstanding shares to 10,532,633, and the total authorized common shares to
15,833,333 as of June 30, 2005. Retroactive effect has been given to current
year and prior year financial statements for the one for six stock reduction.
During the fiscal year ended June 30, 2005, the Company issued 1,666,667 shares
of common stock as part of a Regulation D 506 offering. The Company raised a
total of $750,000.
On June 6, 2005, the Board of Directors approved a 2005 Class A Preferred
Stock Award of 1,500,000 shares to Messrs Papadoyianis and Cherch (750,000
shares each) in exchange for the retirement of $408,121 in long-term
liabilities of the Company for accrued salaries and interest owed to them.
Pursuant to the certificate of designations establishing the Series A
preferred stock, each share of the 1,500,000 shares of currently issued and
outstanding Series A preferred stock may be converted into 1.6667 fully
paid and non-assessable shares of our common stock, or a total of 2,500,000
common shares. On all matters submitted to a vote of the holders of the
common stock, including the election of directors, a holder of shares
of the preferred stock is entitled to the number of votes on such matters
equal to the number of shares of the preferred stock into which the
preferred shares may then be converted. Therefore, the holders of the Class
A preferred shares have the power to vote 2,500,000 shares on a par with
the common stock.
Also on June 6, 2005 the Board of Directors approved a 2005 Class B
Preferred Stock Award of 3,500,000 shares to Messrs Papadoyianis and Cherch
(1,750,000 shares each) for the retirement of $175,444 in long-term
liabilities to the Company, representing accrued salaries and interest.
Pursuant to the certificate of designations establishing Series B preferred
stock, each share of the 3,500,000 shares of currently issued and
outstanding Series B preferred stock may be converted into 3,500,000
fully paid and non-assessable shares of our common stock. On all matters
submitted to a vote of the holders of the common stock, including the
election of directors, a holder of shares of the preferred stock is
entitled to the number of votes on such matters equal to the number of
shares of the preferred stock held by such holder. Therefore, the holders
of the Class B preferred shares will have the power to vote 3,500,000
shares on a par with the common stock. F-18
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FlNANCIAL STATEMENTS
FOR THE QUARTER ENDING SEPTEMBER 30, 2005
AND FOR THE YEAR ENDED JUNE 30, 2005
NOTE 11 STOCKHOLDERS EQUITY (Continued)
During the quarterly period ending September 30, 2005, the
Company issued a total of 256,418 common shares, increasing the
total number of common shares outstanding from 10,532,633 shares
outstanding at June 30, 2005 to 10,789,051 at September 30,
2005. Of these additional common shares, 236,406 shares were issued in
cancellation of promissory notes and accrued interest owed by
the Company, as follows:
Note Holder Principal Interest Shares Issued
Lynden Capital $ 55,000 $ 4,870 119,740
Jeff Raup $ 50,000 $ 8,333 116,666
The remaining shares were issued as partial consideration for additional
loans to the Company (20,000 shares) and as a rounding adjustment for
shares issued in the merger with Move Films, Inc. (12 shares).
NOTE 12. MAJOR CUSTOMERS
Revenues from two customers comprised approximately 69 percent of the
Company revenues during the period ended June 30, 2005, compared to the same
two customers comprising 56 percent for the prior period ending June 30, 2004.
NOTE 13 SUBSEQUENT EVENTS
On November 11, 2005, the previously filed Form 211 Application to trade our
common shares on the OTC Bulletin Board was approved by the NASD. Our common
shares were first quoted on the Bulletin Board on November 11, 2005 and
currently are quoted on both The Pink Sheets and the OTC Bulletin Board under
the symbol, NPDI.
F-19
Item 2. Management Discussion and Analysis or Plan of Operation.
Neptune Industries, Inc., (the Company) was incorporated in the State of
Florida on May 8, 1998. We operate on a June 30, 2005 fiscal year. Our
common shares are traded on the Pink Sheets and on the OTC Bulletin Board
under the symbol NPDI. Since our inception, we have been engaged in
aquaculture (fish farming) through our subsidiary, Blue Heron Aqua Farms,
LLC, in Florida City, Florida and in the development of new technologies for
aquaculture and related marine uses. On June 9, 2005, we merged with Move
Films, Inc., a Texas corporation, with the Company as the surviving entity.
As a result of that merger, we succeeded to the filing and reporting
obligations of Move Films, Inc. under Section 12(g) of the Securities Exchange
Act of 1934.
This quarterly report, and the financial statements included in this report,
Have been filed pursuant to an extension of the time to file because of the
effects of Hurricane Wilma on the operations of the Company. Both the Company
headquarters and its farming operation, as well as the offices of its outside
accountant, were without power and were closed for several weeks in late
October. As a result, this report and the financial statements included in this
report, whole believed to be accurate and complete by management, have not yet
been completely reviewed by our outside auditors. If, as a result of the
completion of that review, any changes or additions are required to this report
or the financial statements included in this report, we will file an amended
report containing such changes or additions.
Our mission is to become a leading supplier of sustainable seafood products
through the development of a vertically integrated production and distribution
enterprise, encompassing fish farms, processing facilities, wholesale
distribution, and value-added product lines. The catalyst to our business
model is the patent-pending S.A.F.E. (Solar-powered, Aquaculture, Finfish
Environment) technology. S.A.F.E. provides a highly efficient, environmentally
friendly solution to current seafood production requirements, while opening up
new areas of the world to commercial farming. The Company has already received
interest from around the world to license, purchase, and distribute the
technology. Licensing, sales and joint venture activities will further expedite
and enhance our business model. The final strategic phase of our mission
involves the utilization of its publicly traded vehicle to conduct a roll-up
of the highly fragmented aquaculture and distribution industries. The
acquisition of other seafood related businesses should allow us to expand,
diversify, and integrate our technology in the most efficient manner.
The founders of the Company, Messrs. Ernest D. Papadoyianis and X.T. (Sal)
Cherch began designing and testing what today is known as the S.A.F.E. System
more than 8 years ago. The S.A.F.E. system is designed to address and resolve
the concerns of environmentalists. Today, through a contractual arrangement,
Neptune has spent over 6 years and more than $3 million in completing the
development of the S.A.F.E. system, perfecting production methods,
performing market analyses, acquiring lease sites, and creating a
cornerstone production facility through its subsidiary, Blue Heron Aqua Farms,
LLC.
Blue Heron operates a forty-eight acre fish farm in Florida City, Florida that
incorporates a one-of-a-kind, flow-through environment which is virtually
extinct in the U.S. today. In October, 2004, we completed a state of the art
-4-
nursery expansion in order to increase production capacity of our sashimi
quality hybrid striped bass (branded as Everglades Striped Bass) by over
25 percent. The market for all seafood, particularly fresh farm-raised
product, has grown to tremendous proportions, warranting immediate and
extensive expansion of production and diversification to other popular
species. With only four acres of the forty eight acre site under production
at this time, we will be able to substantially increase production as
additional acreage is added to the production capability.
Currently, we distribute our products primarily through wholesale
distributors who pick up the fresh fish at our Florida City,
Florida fish farm and distribute the product nationwide. In
addition, some local Florida customers pick up the product
themselves at the farm site. We do not currently distribute any
product ourselves, although our business plan is to expand our
capabilities into processing, distribution and value added products.
Prior to the formation of Blue Heron, our founders continued their prior
efforts toward exploiting a unique and abundant resource in South Florida.
Massive, yet pristine quarry lakes spread throughout the state and provide an
ideal environment for fish production. Management focused its efforts on
further research and development of the various components of the S.A.F.E.
system technology, while fine tuning production methods for use in quarry lake
aqua farms. Among the many technological developments tested during this
period was a solar powered programmable, automated, feeding system which allows
controlled amounts of feed to be distributed at specific times of the day.
This insures a more rapid growth rate, with less waste than
other common productions methods in the industry. Through the
development and operation of three previous pilot farms, we
improved our technology, and production techniques to effectuate
the efficient and economical production of seafood in large,
open bodies of water. The applications now extend to an open
worldwide market. In addition, we successfully raised and
marketed three commercially viable species (hybrid striped bass,
redfish and tilapia). Our farm purchases fingerling fish, raises
the product to market size (1.25-2+ lbs), then harvests and
distributes it to wholesalers, processors, market chains, etc.
throughout the U.S., Canada, and the Caribbean. Management
believes that our unique, low- cost production strategy,
technology, and existing distribution allow us to bring our
products to market faster and cheaper than our competition.
DEVELOPMENT STRATEGY
With a strong distribution network for our fresh farm raised
seafood products throughout the United States, Canada and the
Caribbean, we are now focused on a three phase expansion program
at our Florida City site in order to meet market demand. In
addition, we have moved into the final stages of preparation for
the commercial production of the S.A.F.E. System. We also plan
to integrate our operations by locating and attempting to
acquire our own distribution network, as well as processing
capabilities and nursery operations to raise and control our own
fingerling production.
-5-
Farming Operations
We are poised to expand our facilities, diversify our
production, and vertically integrate our operations. We are
planning to increase capacity to produce over two million pounds
of hybrid striped bass, redfish, tilapia, Nile perch and other
species; operate the only hybrid striped bass nursery in South
Florida; and then utilize our effluent wastewater to produce a
diversity of hydroponic vegetables and herbs. The combination of
our commercial aquaculture expertise, management and technology,
teamed with the expansive forty eight acre fish farm facility,
have created one of the premier commercial aquaculture
operations on the East Coast and perhaps the U.S.
In addition to the Florida City site, we have identified and
have had preliminary discussions for lease options on a number
of prime quarry lake sites in South Florida. Historically,
management has focused its production and technology on
developing these vast man-made impoundments which are abundant
in South Florida and offer tremendous opportunity for
development. Quarry sites will be developed utilizing S.A.F.E.
System technology which was designed and engineered from years
of practical experience in commercial production in South
Florida quarries. Quarry lake development presents an ideal
opportunity to establish multiple farm locations with minimal
capital outlay for infrastructure and lease payments.
The Company has identified three phases for the expansion of its
Florida City, Florida site. Management proposes to utilize
approximately $600,000 of the proceeds of a planned private
offering of its common stock on physical improvements, equipment,
and working capital to expand the Blue Heron South Farm in the
first of the three phases of development.
Approximately two acres of the South Farm site of six acres, have
been designated for a Phase I expansion. Management intends to
utilize this area for hybrid striped bass grow-out production. The
successive addition of over thirty, above-ground circular tanks
should provide an additional 400,000 pounds per year of
production. Capital investment for this Phase I two acres parcel
development of the South Farm has been estimated at $600,000.
Following the completion of this expansion, management intends to
embark on the successive renovation of the remaining four acres of
the South Farm site (Phases II and III). The capital investment
for this expansion has been estimated at $1,000,000, and would
result in an additional 700,000 to 1,000,000 pounds of production
per year.
The Company intends to offer common shares and warrants to acquire
additional common shares under a private offering. Although not
finally fixed, the Company expects the offering to be for up to
$2.5 million in additional capital, on a unit basis, with
each unit consisting of one share of common stock and one-half
of a warrant to acquire an additional share of common stock for a
period of three years. Any offer or sale of a unit, if made, will be
-6-
made only pursuant to a private offering memorandum to be prepared by
the Company, and only to accredited investors. There can be no
assurance that such an offering will be made, or, if made, that such
an offering will be successful, or that the Company will be able to
raise the additional capital needed to continue and expand its
operations.
Technology
The S.A.F.E. System incorporates many features which make it
suitable for use in all parts of the world. The Company continues
to be deluged with inquiries.
The S.A.F.E. System is a floating, articulating, patent pending
containment system which utilizes alternative energy to power
many of its components. The system can be utilized as a stand
alone single tank (an Eco-Tank) in a variety of sizes or several
tanks can be interconnected into Eco-pods. In an Eco-pod
configuration, each tank is connected to another via an
underwater conveyance pipe. This allows the operator to move fish
from tank to tank with out removing them from the water, or
handling. Therefore, an Eco-pod system actually becomes a self
contained nursery and grow-out area. An automated solar powered
feeding system and a revolutionary waste collection system insure
rapid growth without contamination of surrounding waters. Since
each tank has solid sides, predators cannot get in, crops cannot
escape, and in the event of contamination of surrounding waters,
the crops can be isolated and protected.
Hurricane Recovery
On August 25, 2005, South Florida was struck by Hurricane Katrina
as a Category 1 storm. One month later on October 24th we were stuck
again by Hurricane Wilma as an upper level Category 2 storm with winds
exceeding 110 mph. We are extremely pleased with the overall resiliency
of our farm in surviving the severe winds and flooding from these
hurricanes. Our entire staff responded quickly and efficiently both in
their preparation for the storms, as well as to resuming operations
following the storms.
Hurricane Katrina glanced the farm with the outer bands which caused
a reasonable amount of damage to the shade house covering the farm.
While the remainder of the production area was not damaged, the storm
caused power outages and flooding, which resulted in the suspension of
feeding, harvesting and shipping of product.
Hurricane Wilma was a much larger and more powerful storm. The
farm was without power from October 24 through November 8, but
continued to operate using our standby generators and oxygen systems. The
inventory and primary production infrastructure sustained minimal damage
from the storms, while secondary structures, such as the shade enclosure
and on-site trailers, suffered to a greater degree.
The most compromising element was the loss of power for two weeks
which resulted in an enormous consumption of diesel fuel, equipment
-7-
maintenance, and reduced water flows to the farm. The temporary suspension
and reduction in feeding inevitably compromised growth rates which will
impact future harvesting schedules. Within 48 hours of the 100+ mph
winds, operations resumed. All of our emergency planning, the
installation of three sophisticated backup systems and having qualified
staff who live on-site proved extremely beneficial. The object of our
emergency planning has always been geared to minimize inventory loss,
as well as to quickly restore operations.
Other Areas of Development
Our future development plans expand far beyond our South
Florida production base. Management has identified several
acquisition candidates that would allow immediate production
benefit and secure the hybrid striped bass hatchery operations.
The Company also intends to diversify its operations to include
marine products such as baitfish for the multi-million dollar
sport fishing market; production of hydroponic herbs and
vegetables; wholesale distribution and live delivery (hybrid
striped bass and tilapia) to the Asian and Latin markets; value
added products; and franchise/joint venturing of its S.A.F.E.
System technology. Whether land or lake based operations, the
Company?s strategic South Florida location with its twelve month
growing season, tremendous local market, and a select niche
market for live products, provides a significant advantage over
competitors. A focus on products limited in the wild, or by
seasonality, further increases market value and demand.
In late July, 2005, we entered into an arrangement with The
Redland Company, Inc. of Homestead, Florida to utilize Redland?s
38 acre quarry lake site for testing of the S.A.F.E.? System
prototype. This site is close to our current Florida City
operations and provides an ideal environment for these final
tests. In addition to testing our own technology, we will also
be selecting and testing several other products which will be
used in conjunction with S.A.F.E.
Site preparation is fully underway with excavation, new electricity,
fencing, and storage units nearing completion. The new prototype
tank has been delivered, and will be assembled and launched as soon
as the security fencing has been completed. Hurricane Wilma on October
24, 2005 has caused significant delays in the availability of both
labor and materials for all contractor jobs.
Risk Factors.
Uncertainty of Product Development
The Company is in the development stage and has not realized any
material operating revenues. The Company's targeted products
are in various stages of analyses, development and testing.
Most of the products will require further development and
investment before they can be determined to be capable of being
successfully commercialized. During the development stage,
significant technical and practical obstacles may be identified
-8-
which may need to be overcome for commercial viability or prior
to obtaining necessary regulatory approvals. Furthermore, some
of the Company's proposed products which are successfully
developed might be subject to requisite regulatory approval
prior to their commercial sale, which may not be obtained. No
assurance can be given that the Company will succeed in the
development, governmental approval or marketing of any product.
The Company cannot achieve profitable operations unless its
products are successfully commercialized or licensed. The
Company does not expect to achieve significant revenues to
finance its research activities. The transition from test trials
to commercial production will involve distinct management and
technical challenges and will require additional personnel and
capital. There can be no assurance that these development
efforts will be successful or that any given product will be
effective, capable of being manufactured in commercial
quantities at an acceptable cost, approved by appropriate
regulatory authorities, successfully marketed or that capital
will be available when needed.
Uncertainty of Future Profitability
The Company has not been profitable since inception and there
can be no assurance that the Company will ever achieve
profitability. For the period from inception to March 31, 2005,
the Company incurred losses. The Company has generated certain
material operating revenues however expects operating losses to
increase over the near future. Thus, there can be no assurance
that the Company will be able to obtain outside financing for
its operations that will be sufficient to meet our
operating expenses. Our financial statements do not
include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
The Company's ability to achieve profitability will depend in
part on completing research and development on, and obtaining
regulatory approvals for, its proposed products and successfully
licensing or commercializing its products. Until completion of
the sale of the Common Shares, the Company had depended on
modest equity investments and spent minimal amounts on operating
expenses. As a result, the level of the Company's research and
development activities has been lower than such activities would
have been with greater financial resources. While the Company
believes it has nonetheless made significant progress in its
research and development, financial limitations on the Company's
activities may have a material adverse effect on the Company in
the future. No assurance can be given that the Company will be
able to complete sales of the Common Shares offered hereby, or
that the Company's product development efforts will be
completed, that required regulatory approvals will be obtained,
that any products will be manufactured or marketed successfully
or that profitability will be achieved.
-9-
Negative Gross Margins
The Company currently has negative gross margins on sales due in
part to a lack of sufficient infrastructure/production
facilities to house sufficient inventory to accommodate the
seven to ten month growth cycle for the inventory of fish on the
farm. Our current fish farming operations are relatively small
in scope, at approximately 230,000 lbs of production per year.
Our operations have experienced a higher relative cost
of sales due to our inability to purchase in larger quantities,
overall price increases for fingerling stock, and operational
size limitations. In order for these conditions to change, our
operations must capitalize on the inherent benefits of economies
of scale in significant cost items such as fingerlings, feed and
oxygen. Management has detailed expansion plans to add further
infrastructure to the existing forty-eight acre farm site to
expand our production significantly. This planned expansion
depends on our ability to raise additional capital for expansion
and working capital. The Company intends to undertake a private
offering of additional common shares during the quarterly period
ending December 31, 2005 for up to $2.5 million in additional
capital, but there can be no assurance that such an offering
will be made as planned or, if made, that we will be able to
raise the additional working capital needed for this expansion.
Inventory Fluctuations
Our hybrid striped bass is produced under the
continuous culture rather than the batch culture production
method. Continuous culture ensures that product becomes ready
for market each week, as opposed to an entire crop being
harvested at a single point in time. Accordingly, certain tanks
are emptied monthly, and subsequently re-stocked with
fingerlings (small, juvenile fish). Due to the very small size
of the fingerlings (60 to 300 fish to the pound), tanks can be
stocked with a significantly larger number of fish than can be
grown to maturity in a similar sized tank. As the juvenile fish
grow, they are dispersed to multiple tanks to grow to market
size. Therefore, at certain times during the year, the inventory
varies significantly depending upon the ratio of fingerlings to
mature fish in stock. We carry over seven months of inventory
due to the seven to ten month growth period for the fish stock
and our practice of introducing new fingerlings to the
production base at regular intervals, so that we are able to
produce mature fish for sale every week. This results in an
average inventory age of about six months.
No Market Research of Potential Demand for Products.
The Company has neither conducted nor have others made available
to it results of market research such that management might have
absolute assurance from which to estimate potential demand for
its products. There is no assurance that sufficient market
penetration can be achieved so that planned production is
absorbed by the market in the event such a demand can be
identified.
-10-
Future Capital Needs; Inability to Access Capital Markets
The Company will continue to expend substantial funds on
research and development and commercialization efforts for its
products. As of June 15, 2005, the Company did not have any
significant reserves of cash (See Financial Statements). The
Company will require additional funds for these purposes and
will seek funds through equity financing, debt financing,
collaborative arrangements with corporate partners or from other
sources. No assurance can be given that such additional funds
will be available to the Company on acceptable terms, or at all.
If adequate funds are not available from operations or
additional sources of financing, the Company's business will be
materially and adversely affected.
Material Commitments
Our material commitments are as follows:
Note payable to bank, due June 2007, payable in monthly installments of
$302, including interest at 7.54 percent, secured by a vehicle. The
principal balances on this note as of June 30, 2005 and 2004, were $6,976
and $9,968, respectively.
Three year lease contract for a 2004 GMC truck, payable in the amount of
$596 per month until March, 2007.
Three year lease contract for a 2004 GMC truck, payable in the amount of
$552 per month until March, 2007.
The Company has a supply contract with Air Gas South, Inc. for oxygen tank
rentals. The contract is for a five year period ending in March, 2007 and
provides for a monthly lease payment of $846.
In December 2003, the Company executed two promissory notes, each in the
principal amount of $50,000, to two unrelated third parties. Each note is
due on December 12, 2005 and includes interest payable at a rate of 10% per
annum. Upon signing of the notes, each lender received one hundred thousand
(100,000) restricted common shares of the Company. Accrued interest on
these notes was $15,000 as of June 30, 2005 and was included in accrued
interest. On August 24, 2005, one of these promissory notes, plus accrued
interest, was converted to 116,666 shares of common stock and a warrant to
purchase an additional 58,333 common shares at a purchase price of $0.75
per share for a period of three years
Beginning in February, 2002, the Company issued a series of five
convertible notes to one of its shareholders, totaling $95,000 in principal
amount. In December 2003, the Company repaid $20,000 of the principal
amount, and another $20,000 was converted to common stock in July 2004,
leaving a balance of $55,000 still due on the remaining notes. One note for
$20,000 is due in December, 2005, and second note for $25,000 and a third
note for $10,000, were extended to September 1, 2005. Accrued interest on
these notes was $4,141 at June 30, 2005 and was included in accrued
-11-
interest. All of the notes bear interest at 10 percent per annum, except
the $10,000 note, which is at 15 percent per annum. On August 23, 2005,
the balance due on these notes of $55,000 was converted into 119,740 shares
of common stock and a warrant to purchase an additional 59,870 common
shares at a purchase price of $0.75 per share for a period of three years
In July, 2004, the Company executed a Convertible Note for $25,000 to a
shareholder of the Company. The note is due on July 28, 2006. Accrued
interest on this note was $2,292 at June 30, 2005 and was included in
accrued interest.
On June 21, 2005, the Company executed a $100,000 Subordinated Convertible
Bridge Note payable to an existing shareholder of the Company, due on
October 21, 2005, with interest accruing at a rate of 10 percent per annum.
This note included 50,000 warrants to purchase shares of common stock at an
exercise price of $0.50 per share for a period of three years from the date
of the note. Additionally, the holder has the right to convert the note to
shares of common stock and warrants of the Company on the basis of $0.50
per unit, with each unit made up of one share of common stock and one-half
of a warrant to purchase a share of commons tock at $0.75 per share for a
period of three years. .
During the fiscal year ended June 30, 2002, the Company entered into an
agreement to retire the outstanding preferred stock held by our officers,
Messrs Papadoyianis and Cherch, in exchange for $100,000. The Company paid
$30,000 of this amount at that time and the remaining $70,000 was converted
to a note payable accruing interest at a rate of 8 percent per year.
Accrued interest on this note was later converted to preferred stock.
The Company previously entered into an employment agreement, with its
aquaculture facilities manager, through October 31, 2005, that provided for
a minimum annual salary of $35,000. In July 2005, the employment agreement
was renewed, effective November 1, 2005, for another four years through
October 31, 2009, and provides for a minimum annual salary of $42,000.
Also in March 2005, the Company retained the services of The Eversull
Group, Inc. an investor relations company. The one year agreement beginning
April 1, 2005, provides for payment of $2,000 per month, and 41,667 shares
of restricted common stock for a total agreed value of $12,500 for investor
relations services. The accrued monthly payment of $6,000 due as of June
30, 2005, was included in accounts payable.
In May 2005, the Company retained the services of Equity Communications,
LLC, a financial public relations company. The one year agreement for
services provided for payment of $6,000 per month and options to purchase
83,334 shares of common stock at $0.90 per share, and another 83,334 shares
of common stock at $0.54 per share, for a period of five years. The
accrued monthly amount of $12,000 due as of June 30, 2005, was included in
accounts payable. This agreement was terminated by mutual agreement of the
parties as of September 27, 2005, and all accrued compensation due in cash
or options was also canceled, with no further obligation by the Company.
The Company expects to pay for its material commitments listed from
revenues from its current operations as well as from additional capital
expected to be raised by the from a planned private offering of common
-12-
stock for up to $2.5 million in the final calendar quarter of 2005. There
can be no assurance that the Company will be able to raise the additional
capital as needed or to continue its current operations unless such
additional capital is secured by the Company.
The Company has identified three phases for the expansion of its Florida
City, Florida site. Management proposes to utilize approximately $600,000
of the proceeds of a planned private offering of its common stock on
physical improvements, equipment, and working capital to expand the Blue
Heron South Farm in the first of the three phases of development.
Approximately two acres of the South Farm site of six acres, have been
designated for a Phase I expansion. Management intends to utilize this
area for hybrid striped bass grow-out production. The successive addition
of over thirty, above-ground circular tanks should provide an additional
400,000 pounds per year of production. Capital investment for this Phase I
two acres parcel development of the South Farm has been estimated at
$600,000. Following the completion of this expansion, management intends to
embark on the successive renovation of the remaining four acres of the
South Farm site (Phases II and III). The capital investment for this
expansion has been estimated at $1,000,000, and would result in an
additional 700,000 to 1,000,000 pounds of production per year.
The Company intends to offer common shares and warrants to acquire
additional common shares under a private offering. Although not finally fixed,
the Company expects the offering to be for up to $2.5 million in additional
capital, in units, with each unit consisting of one share of common stock and
one-half of a warrant to acquire an additional share of common stock for a
period of three years. Any offer or sale of a unit, if made, will be made
only pursuant to a private offering memorandum to be prepared by the Company,
and only to accredited investors. There can be no assurance that such an
offering will be made, or, if made, that such an offering will be successful,
or that the Company will be able to raise the additional capital needed to
continue and expand its operations.
Dependence on Others; Limited Commercial Experience
The Company has not yet commercially introduced any new products. To be
successful, the Company's products must be produced in compliance with
regulatory requirements and at acceptable costs. At present, the Company has
limited commercial production operations. The Company will either need to
provide such operations internally or license or subcontract the production
and/ or distribution of its products in order to achieve acceptable production
and/or sales levels. To the extent that the Company determines not to, or is
unable to, enter into joint marketing, distribution or production arrangements
or to arrange third party distribution or production for its products,
significant additional capital expenditures, management resources and time
will be required to develop production capabilities, a sales force and a
distribution network. There can be no assurance that the Company will be able
to establish such capabilities, sales force or network or enter into such
joint marketing, distribution or production arrangements or be successful in
gaining market acceptance for its products. In addition, the introduction of
the Company's products in foreign markets normally requires obtaining foreign
regulatory approvals and particular marketing expertise. There can be no
assurance that the Company will be able to market its products successfully in
the U.S. or overseas.
-13
Rapid Technological Advancement; Competition
Aquaculture is a rapidly evolving field in which developments
are likely to continue at a rapid pace. Technological
competition from aqua-cultural companies and others diversifying
into the field is intense and expected to increase. Many of
these companies have significantly greater research and
development, marketing, financial and managerial resources than
the Company and, therefore, represent significant competition
for the Company. Moreover, competitors which are able to
complete trials, obtain required regulatory approvals and
commence commercial sales of their products before the Company
may enjoy a significant competitive advantage. There can be no
assurance that developments by others will not render the
Company's products or technologies noncompetitive or that the
Company will be able to keep pace with technological
developments.
Operating Hazards.
Our operations are subject to the hazards faced by any
food production company, most especially contamination from
outside sources. Also, outside agents introduced into its
products may cause personal injury to a consumer. Should the
Company sustain an uninsured loss or liability, its ability to
continue operations would in all likelihood be adversely
affected.
Uncertainty of Aquaculture Business.
The Aquaculture business is subject to many factors outside
managements control, which factors may have a proportionately
greater impact on small, less established firms such as the
Company. The Seafood and aquaculture industries are affected by
a multitude of factors, including changes in the general market
for such products, weather, disease and other natural phenomena,
as well as national and international economic conditions. The
competition among present suppliers is based on numerous
factors, including the type and quality of available product, as
well as other factors, including access to areas throughout the
world where fish and rock are available for commercial purposes.
Given the anticipated small size of the Company even after this
offering has closed and the proceeds have been applied as
planned, the business of the Company will remain fragile and
even more vulnerable to these factors than will businesses
generally.
Competition
The Company is an insignificant participant in the seafood
industry. Management believes it may successfully compete due
to its proprietary techniques and managements knowledge and
experience. However, the Company is at a significant competitive
disadvantage compared to its competitors which have successfully
commercialized and obtained nation-wide distribution. Such
-14-
national companies, as well as some other well-established local
brands, have significantly greater financial resources and
marketing strength than does the Company.
Dividends
Since its inception, the Company has not paid any cash dividends
on its Common Stock. The Company intends to retain future
earnings, if any, to provide funds for the operation of its
business and accordingly, does not anticipate paying any cash
dividends on its Common Stock in the future.
Conflicts of Interest
The Company relies on certain of its Directors and executive
officers who have experience that is germane to the evaluation
and development of our products and assisting the
Company in formulating its product research and development
strategy. Some of the members of the Board of Directors are
employed other than by the Company and may have commitments to
or consulting or advisory contracts with other entities that may
limit their availability to the Company.
Dependence on Key Management
The development of the Company's business and operations has
been and will be materially dependent upon the active
participation of Messrs. Papadoyianis and Cherch. The loss of
the services of either of these key personnel or other key
employees of the Company would have a material adverse effect on
the ability to attract and retain qualified employees,
particularly management employees.
Limited Assets of the Company.
The Company has limited tangible assets. Any business activity
that the Company undertakes will likely require substantial
capital. In addition, the Company may incur substantial costs
in connection with its search and negotiations for business
opportunities, which may further deplete the limited assets of
the Company.
Risks Involved in Sales to Developing or Unstable Businesses.
The Company may provide its products to new or developing
companies, which would increase its business risks. There are
substantial risks inherent in doing business with companies
which do not possess the financial soundness of more seasoned
companies. These companies have little or no assets and are
financially unstable. The abilities of these companies to pay
the Company fully for its products, and, therefore, the ability
of the Company to operate profitably, may therefore be deemed to
be of a high risk dependent upon numerous factors outside the
control of the Company.
-15-
Government Regulation.
As with most companies engaged in general business operations,
from time to time, and depending upon the success of its
proposed operations, the Company will be subject to a wide
variety of federal, state and local zoning and building codes,
statutes, rules and regulations, including: Anti-Trust Laws;
Labor Relations Laws; Federal and State Labor Laws; Federal
Trade Commission and State Trade Laws; Environmental Protection
Laws, the Americans With Disabilities Act, and the Occupational
& Safety Health Administration (OSHA) and other government
regulatory mandates.
Rule 144 Stock Sales.
All of the shares presently issued and outstanding, except for
those shares issued to seed capital investors are restricted
securities as defined by Rule 230.144 of the Act. Under the
recent amendments to Rule 144, such shares may be sold in public
transactions after a one year holding period, subject to certain
restrictions: I) on the manner of sale; II) the quantity allowed
to be sold in each 90 day period; iii) the availability of
'public' information; and iv) the filing of a Form 144 Notice
with the SEC. After a two year holding period, non-affiliates
may sell Shares under Rule 144(k) without regard to the stated
restrictions. The sale of any of such shares may have a negative
and detrimental effect upon the trading market (assuming such
exists) at the time of sale.
Penny Stock Regulations.
While there is no assurance that a public trading market will be
established and maintained, in the event that such does occur,
the Securities And Exchange Commission has established specific
regulations and rules for low priced securities classified as
penny stocks. Subject to certain exemptions, securities which
trade at less than $5.00 per share may be deemed penny stocks
and trading would be subject to regulations requiring the
broker/dealers to comply with specific disclosure and customer
qualification standards. Should the Company's shares trade at
less than $5.00 and therefore be regarded as a penny stock,
there may be significant negative and detrimental effects on the
trading market from broker compliance with such regulations and
rules.
PRIOR PERIOD COMPARISON
A comparison of the balance sheet and operating results of the Company for the
quarter ending September 30, 2005 with the quarter ending September 30,, 2004,
as required, is not meaningful since Move Films, Inc., the reporting
predecessor to the Company, was not actively operating and had no assets or
income for the quarterly period ended September 30, 2004. Nonetheless, the
following table reflects that comparison on a condensed basis:
-16-
BALANCE SHEET: September 30
2005 2004
(as Move Films)
(unaudited) unaudited
------------- --------------
ASSETS
Current Assets $ 649,589 $ -
Property and Equipment (net) 496,042 -
Security Deposits 4,040 -
--------- ----------
Total Assets $ 1,149,671 $ -
========= ==========
LIABILITIES
Current liabilities $ 651,977 $ 2,080
Long-term liabilities 25,000 -
--------- ----------
Total Liabilities $ 676,977 $ 2,080
STOCKHOLDERS EQUITY (DEFICIENCY
IN ASSETS)
Preferred Stock, 5 million
and 20 million authorized,
5 million and 0 issued $ 5,000 $ -
Common stock, 15,833,333
and 100 million authorized,
10,789,051 and 2,817,500
issued 10,789 219
Additional paid-in capital 4,177,113 3,653
Accumulated deficit (3,720,208) (6,015)
----------- ----------
Total Stockholders equity
(Deficiency in Assets) $ 472,694 $ (2,080)
----------- ----------
Total liabilities and stockholders
equity (deficiency in assets) $ 1,149,671 $ -
=========== ==========
STATEMENT OF OPERATIONS September 30
2005 2004
(as Move Films)
(unaudited) unaudited
------------- --------------
Revenues
Sales $ 96,143 $ -
Cost of Sales 152,552 -
--------- ----------
Gross profit (loss) (54,409) -
-17-
Expenses
Total expenses from operations 169,903 -
Interest expense 9,023 -
--------- ----------
Loss before income tax $(233,535) -
Provision for income tax - -
--------- ----------
Net loss $(233,535) -
FORWARD LOOKING STATEMENTS
In connection with, and because we desire to take advantage of,
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we caution readers regarding certain forward
looking statements in the previous discussion and elsewhere in
this report and in any other statement made by, or on behalf of
our Company, 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 behalf of, our Company. We disclaim
any obligation to update forward looking statements.
Item 3. Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer (the
Certifying Officers) are responsible for establishing and
maintaining disclosure controls and procedures and internal
controls and procedures for financial reporting for the Company.
The Certifying Officers have designed such disclosure controls
and procedures and internal controls and procedures for
financial reporting to ensure that material information is made
known to them, particularly during the period in which this
report was prepared. The Certifying Officers have evaluated the
effectiveness of our disclosure controls and procedures and
internal controls and procedures for financial reporting as of
June 30, 2005, and believe that our disclosure controls and
procedures and internal controls and procedures for financial
reporting are effective based on the required evaluation. There
have been no significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
-18-
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and
the Company is unaware of such proceedings contemplated against
it.
ITEM 2. CHANGES IN SECURITIES
During the quarterly period ending September 30, 2005, the
Company issued a total of 256,418 common shares, increasing the
total number of common shares outstanding from 10,532,633 shares
outstanding at June 30, 2005 to 10,789,051 at September 30,
2005. Of these additional common shares, 236,406 shares were issued in
cancellation of promissory notes and accrued interest owed by
the Company, as follows:
Note Holder Principal Interest Shares Issued
Lynden Capital $ 55,000 $ 4,870 119,740
Jeff Raup $ 50,000 $ 8,333 116,666
The remaining shares were issued as partial consideration for additional
loans to the Company (20,000 shares) and as a rounding adjustment for
shares issued in the merger with Move Films, Inc. (12 shares).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act
32.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act
(b) Reports on Form 8-K
No reports on Form 8-K were made during the
quarter ending September 30, 2005.
-19-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Neptune Industries, Inc. has
duly caused this quarterly report on Form 10-QSB to be signed
on its behalf by the undersigned, hereunto duly authorized.
Dated: November 21, 2005
NEPTUNE INDUSTRIES, INC.
By: /s/ Ernest Papadoyianis
- ------------------------------------
Ernest Papadoyianis
CEO, President and Director
-20-