UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2006
[ ] 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)
21218 St. Andrews Boulevard
Suite 645
Boca Raton, FL 33433
(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 CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of equity,
as of May 10, 2006 was:
Common Shares 11,249,051 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 MARCH 31, 2006
TABLE OF CONTENTS
PART I
Item 1.
FINANCIAL INFORMATION....................................................F-1
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................. 4
Item 3.
CONTROLS AND PROCEDURES.................................................. 15
PART II
Item 1.
LEGAL PROCEEDINGS........................................................ 15
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.............. 15
Item 3.
DEFAULTS UPON SENIOR SECURITIES.......................................... 15
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................... 15
Item 5.
OTHER INFORMATION ....................................................... 15
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K......................................... 15
Signatures .............................................................. 16
-2-
Part I.
Item 1. FINANCIAL INFORMATION.
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2006
(unaudited)
---------------
ASSETS
Current Assets
Cash $ 18,111
Accounts Receivable 65,573
Inventory 410,889
Prepaid expenses 6,052
Deposit on Equipment 13,880
Deferred Costs 10,210
Deferred tax asset of $612,413, less
valuation allowance of $612,413 -
-------------
Total Current Assets 524,715
Property and Equipment, net of depreciation of $343,360 451,182
Security Deposits 2,500
-------------
Total Assets $ 978,397
=============
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities
Current Liabilities
Accounts payable $ 207,030
Accrued and Other Current Liabilities 304,598
Current Portion of Long-Term Debt 4,589
Notes payable-Officers 89,888
Convertible Notes-Related Party 520,000
------------
Total Current Liabilities 1,126,105
Total Long-Term Liabilities -
-----------
Total Liabilities 1,126.105
COMMITMENTS AND CONTINGENCIES
(NOTES 2, 6, AND 8)
F-1
Stockholders' Equity
Preferred Stock, $.001 par value,
5,000,0000 shares authorized
1,500,000 Class A convertible preferred
shares issued and outstanding 1,500
3,500,000 Class B Convertible preferred
shares issued and outstanding 3,500
Common Stock, $.001 par value 95,000,000 shares
authorized, 11,249,051 shares issued and outstanding 11,249
Additional Paid-In Capital 4,261,033
Accumulated Deficit (4,424,990)
------------
Total Stockholders' Equity (147,708)
------------
Total Liabilities and Stockholders' Equity $ 978,397
============
See accompanying notes.
F-2
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months For the nine months
ended March 31 ended March 31
2006 2005 2006 2005
----------- ---------- --------- ----------
Revenues:
Sales $ 124,918 $ 169,885 $ 295,732 $ 425,542
Cost of Sales 275,677 187,463 639,707 325,830
---------- -------- --------- ---------
Gross profit (loss) (150,959) (17,578) (343,975) 99,711
---------- -------- --------- ---------
Expenses:
Advertising and marketing 30 926 (30) 1,421
Automobile and truck expense 9,081 9,601 26,027 26,791
Consulting 32,100 - - -
Depreciation 943 - 3,472 -
Insurance 13,192 10,184 34,564 29,043
Office 1,811 1,186 4,244 6,053
Officers salary, related
taxes and benefits 80,525 39,501 240,830 144,704
Other operating expenses 20,572 29,187 81,310 46,133
Outside services 1,722 2,416 3,332 9,252
Professional fees 523 8,493 28,059 21,907
Public relations - 35,970 14,702 72,225
Rent 413 764 1,949 1,784
Repairs 393 - 652 542
Utilities 2,029 2,339 6,439 6,523
--------- -------- -------- ---------
Total expenses from operations 163,335 140,567 445,551 366,378
--------- -------- -------- ---------
Income (loss) before interest
Other income, and income taxes $ (314,295) $(158,145) $(789,527) (266,666)
Interest Expense (24,536) (1,969) (48,224) (16,692)
Other income - - 4,834 525
--------- -------- -------- ---------
Profit (loss) before income tax (338,831) (160,114) (832,917) (282,833)
Provision for income taxes - - - -
--------- --------- -------- ---------
Net income (loss) $ (338,831) $(160,114) $(832,917) (282,833)
========= ========= ======== =========
Net income (loss) per share
(basic and diluted) $ (0.03) $ (0.02) (0.08) $ (0.04)
========= ========= ======== =========
Weighted average number of
Common shares outstanding
(basic and diluted) 10,532,633 6,485,938 10,355,261 6,321,455
========== ========== ========== ==========
See accompanying notes.
F-3
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
March 31,
2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (892,923) $ (282,833)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 53,162 17,558
(Increase) decrease in assets:
Accounts receivable 2,060 (48,090)
Inventory (3,055) (320,332)
Prepaid expense 1,922 -
Increase (decrease) in liabilities:
Accounts payable 102,630 (35,116)
Accrued and other current liabilities 193,164 -
----------- ----------
Net cash used by operating activities (543,040) (668,813)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Notes receivable 5,000 (5,000)
Acquisition of property and equipment (14,577) (80,839)
Current portion-Long term debt (1,575) 43,500
Note payable-current 79,888 -
Convertible notes-related 205,000
Note payable (25,000)
Deposits (2,500) (4,287)
----------- ----------
Net cash provided (used) by investing activities 246,236 (46,626)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 715 972
Additional paid in capital 145,667 768,944
Retained earnings 38,847 27,298
---------- ----------
Net Cash provided by financing activities 185,229 797,214
---------- ----------
Net Increase (Decrease) in
cash and equivalents (111,575) 81,775
Cash and equivalents-beginning 129,686 37,958
---------- ----------
Cash and equivalents-ending $ 18,111 $ 119,733
========== ==========
See accompanying notes
F-4
SUPPLEMENTAL DISCLOSURES
Cash paid during the quarter for:
Interest $ 24,536 $ 1,969
Income taxes $ - $ -
========== ==========
See accompanying notes.
F-5
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
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 the 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.
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 was accounted for as a
reverse merger. or 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 March 31, 2005. Since Move Films, Inc., was not
an active operating company and had no assets or income as of March 31, 2005,
comparison of the activity of the Company for the period March 31, 2006 with
the reported activities of Move Films, Inc., its predecessor, for the
reporting period ended March 31, 2005, is not meaningful and is omitted.
The comparative information provided in this report for the period ended
March 31, 2005, is for Neptune Industries, Inc. for that period, prior to the
merger with Move Films, Inc.
Common shares of the Company, continue to be dually listed on the OTC
Bulletin Board and on The 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). The Company?s original interest in
Blue Heron was 90 percent, with 5 percent held by South Florida Aquaculture,
Inc. (in which the Company has a 22 percent interest) and the other 5 percent
held by an unrelated party. Sine the acquisition of the 90 percent interest,
the Company has contributed more the $15 million in additional capital to
Blue Heron, while neither of the minority members has made any contributions,
reducing the minority interests in a nominal level. As a result, all inter-
company balances and transactions have been eliminated at consolidation and
no provision has been made for the minority interests. Neither Aquaculture
Specialties, Inc. nor Exotic Reef Technologies, Inc. are actively operating.
F-6
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
Interim Financial Statements
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation (consisting of
normal recurring accruals) have been included. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Operating results reported
for the nine months ended March 31, 2006 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2006. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 2005.
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
claimed.
Income Taxes
Income taxes are computed under the provisions of the Financial Accounting
F-7
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
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.
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.
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 March 31, 2006, the Company did
not have cash on deposit exceeding the insured limit. 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.
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.
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 on March
31, 2006(unaudited):
Seafood $ 300,691
Feed 11,969
Chemicals & Supplies 6,638
Overhead 91,592
----------
$ 410,889
F-8
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 2. GOING CONCERN
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.
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 $4,424,990 as of March 31, 2006, 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. It is not
anticipated that the Company will be able to achieve break even operations
during the fiscal year ended June 30, 2006. 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:
March 31,
2006 2005
------------- ------------
Vehicles $ 17,578 $ 17,890
Computer and office equipment 7,712 6,434
Equipment 629,518 624,412
Leasehold improvements 139,734 138,507
------------- ------------
794,542 787,253
Accumulated depreciation (343,360) (148,413)
------------- -------------
Property and equipment,
less accumulated depreciation $ 451,182 $ 638,840
============= =============
Total depreciation expense for the quarters ended March 31, 2006 and 2005,
amounted to $17,803 and $17,558, respectively. Of these amounts, $16,860 and
$17,220 are included in cost of sales and $ 943 and $338 are included in
expenses for the quarters ended March 31, 2006 and 2005, respectively.
F-9
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 4. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other liabilities consisted of the following:
March 31,
2006 2005
------------ ------------
Accrued payroll - officers $ 259,322 $ 679,350
Accrued interest - officers 17,486 97,647
Accrued interest - others 27,790 44,244
------------ ------------
$ 304,598 $ 821,241
============ ============
NOTE 5. ACCRUED OFFICERS COMPENSATION AND INTEREST
Effective February 8, 2000, the Company entered into five-year employment
Agreements (the Agreements) with two key members of management. These
agreements have been renewed automatically for additional five year terms.
The Agreements also state that the two key members of management are entitled
to and 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.
Pursuant to these employment agreements, the Company accrued a total of
$223,122 and $679,350 through the quarters ended March 31, 2006 and 2005,
respectively. Cash compensation actually paid was $93,186 and $45,201 for the
quarters ended March 31, 2006 and 2005, 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 The
Agreements also provide for accrued interest of ten percent (10%) per annum
until the employees salary, bonuses and benefits are paid in full.
The Company contracted with CF Consulting LLC to provide Chief Financial
Officer services beginning in February 2005 at a monthly fee of $2,000 for an
initial six month period and thereafter at $2,500 per month. CF Consulting
also is entitled to receive 100,000 restricted shares of common stock for
prior services due of $5,000. A new agreement has been entered into with CF
Consulting LLC effective March 31, 2006, under which CF Consulting will
provide CFO and General Counsel services to the Company in return for monthly
compensation of $5,500 for six months commencing April 1, 2006, $6,000 for
the next six months and $6,500 for the next six months of the 18 month term
of the agreement. CF Consulting also received 250,000 shares of stock, valued
at $15,000 based on the lack of tradeability of the shares and other factors.
The Company also is responsible for the estimated income taxes due on the
shares, and has accrued a total of $4,200 for that liability during the
quarter ended March 31, 2006, which has been included in Accrued Payroll-
Officers. The Company?s Chief Financial Officer, Robert Hipple, is also a
managing director of CF Consulting.
F-10
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 6. RELATED PARTY TRANSACTIONS
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 paid $30,000 and the
remaining $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.
On February 7, 2006, the Board of Directors resolved to repay the notes
outstanding to Messers. Papadoyianis and Cherch through the issuance of new
notes, which sere made retroactive to January 1, 2006, bear interest at the
rate of 15% per annum, and include one warrant for every dollar outstanding,
or 70,000 total warrants. Each warrant to purchase one share of common stock
is at a price of $0.30 per share for a period of three years. The new notes
are in the amount of $44,944 each, and include repayment of principal of
$35,000 and accrued interest of $9.944 each.
NOTE 7. NOTES PAYABLE
On September 12, 2005, the Company executed a $40,000 Subordinated
Convertible Bridge Note payable to an existing shareholder in the Company,
due on January 12, 2006, with interest accrued at a rate of 10% per annum.
This note included 20,000 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. The principal and interest may be converted to units at any time
during the note, at a price of $0.50 per unit, each unit consisting of one
share of common stock and half warrant. Each full warrant is redeemable for
one share of common stock at a price of $0.75 for a period of three years.
Extension, conversion or repayment of this note is currently under
negotiation and the note, while past maturity, has not been declared in
default. The Company has been waiting for the results of its currently
pending offering of convertible debenture note commenced in April 2006 to
complete these negotiations.
On September 23, 2005, the Company executed a $10,000 Subordinated
Convertible Bridge Note payable to an existing shareholder in the Company,
due on December 23, 2005, with interest accrued at a rate of 10% per annum.
This note has subsequently been extended until it can be repaid, and
repayment is expected to be made from the proceeds of the pending offering of
convertible debenture notes commenced in April 2006. This note included 5,000
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. The principal
and interest may be converted to units at any time during the note, at a
price of $0.50 per unit, each unit consisting of one share of common stock
and a half warrant. Each full warrant is redeemable for one share of common
stock at a price of $0.75 for a period of three years.
On September 23, 2005, the Company executed a $50,000 Subordinated
Convertible Bridge Note payable to an existing shareholder in the Company,
due on March 23, 2006, with interest accrued at a rate of 10% per annum. This
F-11
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 7 NOTES PAYABLE (continued)
note included 25,000 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. As further incentive for entering the note, the lender received
20,000 shares of restricted common stock. The principal and interest may be
converted to units at any time during the note, at a price of $0.50 per unit,
each unit consisting of one share of common stock and a half warrant. Each
full warrant is redeemable for one share of common stock at a price of $0.75
for a period of three years. Extension, conversion or repayment of this note
is currently under negotiation and the note, while past maturity, has not
been declared in default. The Company has been waiting for the results of
its currently pending offering of convertible debenture note commenced in
April 2006 to complete these negotiations.
On September 30, 2005, the Company executed a $25,000 Subordinated
Convertible Bridge Note payable to an existing shareholder in the Company,
due on January 30, 2006, with interest accrued at a rate of 10% per annum.
This note included 12,500 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. The principal and interest may be converted to units at any time
during the note, at a price of $0.50 per unit, each unit consisting of one
share of common stock and a half warrant. Each full warrant is redeemable for
one share of common stock at a price of $0.75 for a period of three years.
Extension, conversion or repayment of this note is currently under
negotiation and the note, while past maturity, has not been declared in
default. The Company has been waiting for the results of its currently
pending offering of convertible debenture note commenced in April 2006 to
complete these negotiations.
On November 14, 2005, the Company executed a $25,000 Subordinated Convertible
Bridge Note payable to an existing shareholder in the Company, due on March
12, 2006, with interest accrued at a rate of 10% per annum. This note
included 12,500 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. As further incentive for entering the note, the lender received 25,000
shares of restricted common stock. The principal and interest may be
converted to units at any time during the note, at a price of $0.50 per unit,
each unit consisting of one share of common stock and a half warrant. Each
full warrant is redeemable for one share of common stock at a price of $0.75
for a period of three years. Extension, conversion or repayment of this note
is currently under negotiation and the note, while past maturity, has not
been declared in default. The Company has been waiting for the results of
its currently pending offering of convertible debenture note commenced in
April 2006 to complete these negotiations.
On January 4, 2006, the Company executed a $35,000 Subordinated Convertible
Bridge Note payable to an existing shareholder in the Company, due on April
4, 2006, with interest accrued at a rate of 10% per annum. This note included
17,500 warrants to purchase shares of Common stock at an exercise price of
F-12
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 7 NOTES PAYABLE (continued)
$0.30 per share for a period of three years from the date of the note. As
further incentive for entering the note, the lender received 35,000 shares of
restricted common stock. The principal and interest may be converted to units
at any time during the note, at a price of $0.50 per unit, each unit
consisting of one share of common stock and a half warrant. Each full warrant
is redeemable for one share of common stock at a price of $0.75 for a period
of three years. Extension, conversion or repayment of this note is currently
under negotiation and the note, while past maturity, has not been declared in
default. The Company has been waiting for the results of its currently
pending offering of convertible debenture note commenced in April 2006 to
complete these negotiations.
On January 18, 2006, the Company executed a $100,000 Subordinated Convertible
Bridge Note payable to an existing shareholder in the Company, due on July
18, 2006, with interest accrued at a rate of 15% per annum. This note
included 100,000 warrants to purchase shares of Common stock at an exercise
price of $0.30 per share for a period of three years from the date of the
note. As further incentive for entering the note, the lender received 100,000
shares of restricted common stock. The principal and interest may be
converted to units at any time during the note, at a price of $0.50 per unit,
each unit consisting of one share of common stock and a half warrant. Each
full warrant is redeemable for one share of common stock at a price of $0.75
for a period of three years.
On February 26, 2006, the Company executed a $50,000 Subordinated Convertible
Bridge Note payable to an existing shareholder in the Company, due on August
26, 2006, with interest accrued at a rate of 15% per annum. This note
included 50,000 warrants to purchase shares of Common stock at an exercise
price of $0.30 per share for a period of three years from the date of the
note. The principal and interest may be converted to units at any time during
the note, at a price of $0.50 per unit, each unit consisting of one share of
common stock and a half warrant. Each full warrant is redeemable for one
share of common stock at a price of $0.75 for a period of three years of
common stock is at a price of $0.75 per share for a period of three years.
On April 5, 2006, the Company executed $10,000 Subordinated Convertible Notes
payable to our to our COO, Sal Cherch, and due on the first monies received
from the proceeds of this Offering, with interest accrued at a rate of 15%
per annum. The note includes 10,000 warrants. Each warrant is redeemable for
one share of common stock at a price of $0.30 share for a period of three
years. The principal and interest may be converted to units at any time
during the note, at a price of $0.50 per unit, each unit consisting of one
share of common stock and a half warrant. Each full warrant is redeemable for
one share of common stock at a price of $0.75 for a period of three years.
NOTE 8. COMMITMENTS
The Company previously entered into an employment agreement, with its
F-13
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 8 COMMITMENTS (continued)
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 $42,500.
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. This
agreement was extended on December 22, 2005 for an additional six months for
payment of 50,000 shares of restricted common stock, but has been cancelled
effective March 31, 2006, as a result of the Company?s retention of Dawson
James Securities to assist in the raising of capital for the Company. Mr.
Weinstein is employed by Dawson James.
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. This agreement has been terminated, but an accrued amount
of $18,000 as of December 31, 2005, is included in accounts payable.
NOTE 9. STOCKHOLDERS' EQUITY
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
F-14
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 9. STOCKHOLDERS' EQUITY (continued)
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.
During the quarterly period ending March 31, 2006, the Company issued a total
of 385,000 common shares, increasing the total number of common shares
outstanding from 10,864,051 at December 31, 2005 to 11,249,051 at March 31,
2006. Of these additional common shares, 135,000 shares were issued as
incentive for entering short-term notes at a total issue value of $8,100,
which will be amortized over the term of the extended notes, commencing April
1, 2006. The remaining 250,000 shares were issued to CF Consulting, LLC, in
connection with the renewal of its consulting contract described in Note 5.
Stock Options.
On March 31, 2006, the Board of Directors approved the grant of non-qualified
stock options under the Neptune Industries, Inc. 2004 Long-Term Incentive Plan
for officers, directors, employees of the Company and its subsidiary, as
follows:
To each independent (non-management) director: 5,000 shares for each
full year of service at the end of each fiscal year (June 30).
To the following officers and employees:
Ernest Papadoyianis 500,000 shares
Xavier T. Cherch 500,000 shares
Robert Hipple (through CF Consulting) 250,000 shares
Michael Joubert 15,000 shares
All of the stock options are for a period of ten years and carry an exercise
price of $0.3133 per share, based on the average closing price of the Company
common stock for the 20 trading days prior to March 31, 2006.
NOTE 10. MAJOR CUSTOMERS
Revenues from two customers comprised approximately 84 percent of revenues
during the period ended March 31, 2006, compared to the same two customers
comprising 68 percent for the prior period ending March 31, 2005.
NOTE 11. SUBSEQUENT EVENTS
On April 18, 2006, the Company engaged Dawson James Securities, Inc. of Boca
Raton, Florida, to assist in the private placement of up to 2,000 units, made
up of a convertible debenture and a common stock warrant, for a total of $2
F-15
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 11. SUBSEQUENT EVENTS (Continued)
million. Dawson James Securities will receive a fee equal to ten percent of
the amount raised in the offering and an unaccountable expense allowance of
three percent of the amount raised. In addition, Dawson James will receive
warrants to acquire common shares on each closing of the sale of the Unites
in the offering equal to twenty percent (20%) of the Units sold in the
Offering. These warrants will be exercisable at any time during the five (5)
years from the date of the closing at an exercise price equal to $.50 per
share for the warrants based on the original sale of unit, and $.30 per share
for the warrants based on conversion of the Debentures to common stock.
Each of the Units to be offered (individually a ?Unit?, and collectively the
?Units?) consists of (i) a $1,000.00 Convertible Debenture (the ?Debenture?)
with a 24% coupon, payable in kind with common stock, and (ii) one thousand
redeemable common stock purchase warrants ("Warrant"). Each Warrant entitles
the holder to purchase one share of Common Stock at an exercise price of
$0.50 per share over a term of five years from the initial closing date of
the Offering. The Warrants are redeemable by the Company upon 30 days written
notice at a purchase price of $0.01 per Warrant, subject to our common stock
having a closing bid price of at least $1.25 per share for a period of ten
(10) consecutive trading days. The term of each Debenture is for 24 months
from the date of issue. During the term, holders of the Debenture may convert
their note to common stock at a price of $0.30 per share. The 24% PIK (Paid
in Kind) Coupon is to be paid out on a quarterly basis in cash or stock, at
the Company?s election. If the Company elects to pay in common stock, the
market price valuation will be established by the average closing bid price
of the common stock for the last twenty (20) trading days of the calendar
quarter for which the interest due is being paid in common stock (the
?Average Closing Price?). The right of the Company to make any interest
payment in shares of common stock on a particular date is subject to the
satisfaction (or waiver by the Holder) of the following additional conditions
on such date: (1) there is then an effective registration statement covering
the common shares to be issued on such date, for which no stop order is in
effect; (2) no defined event of default exists on such date; (3) the Average
Closing Price is equal to or greater than $.15 per share (as appropriately
adjusted for any stock split, stock dividend or other similar corporate
action); and (4) the Company has sufficient authorized but un-issued shares
of common stock to provide for the issuance of the interest shares to the
Holders of the Debentures.
The offering is being made only to accredited investors and each investor
will receive a Registration Rights Agreement at closing under which the
Company undertakes to file a registration statement for the conversion shares
and the shares underlying the Warrants within 60 days, and to maintain the
effectiveness of that registration statement thereafter. Any offer or sale
of a Unit, if made, will be made only pursuant to the private offering
memorandum prepared by the Company, and only to accredited investors. There
can be no assurance that the offering will be successful, or that the Company
will be able to raise the additional capital needed to continue and expand
its operations.
F-16
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDING MARCH 31, 2006 AND 2005 (Unaudited)
NOTE 11. SUBSEQUENT EVENTS (Continued)
Under the terms of the offering, proceeds of the sale of the debenture notes
will be deposited in an escrow account at Sterling Bank, Inc. in Lantana,
Florida under an escrow agreement which provides for the first release of
funds when the offering minimum of $500,000 for 50 units of the offering have
been subscribed, with subsequent releases on a weekly basis. On May 10,
2006, the initial release of funds was made under the terms of the escrow
agreement and the Company has received $435,000 in proceeds from the
offering, net of commissions and expenses.
F-17
Item 2. Management Discussion and Analysis or Plan of Operation.
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.
Neptune Industries, Inc., (the Company) was incorporated in the State of
Florida on May 8, 1998. We operate on a June 30 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.
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 our 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 our 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 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.
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 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 during the next 12 months. 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 acre
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.
In April 2006, the Company retained Dawson James Securities and began an
offer of $2 million in convertible debentures and warrants to acquire
additional common shares under a private offering. See, Part II, Item 5.
Other Information. Any offer or sale of a unit, if made, will be made only
pursuant to the private offering memorandum prepared by the Company, and only
to accredited investors. There can be no assurance that the 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.
Other Areas of Development
Our 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 our S.A.F.E.
System technology. Whether land or lake based operations, the Company
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 Redlands 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, caused significant
delays in the availability of both labor and materials for all contractor
jobs and we have been unable to progress with this project as a result.
Comparison of Operating Results
Gross revenues for the quarter and nine months ended March 31, 2006 were
$124,918 and $295,732, respectively, compared to $169,885 and $425,542
respectively for the quarter and nine months ended March 31, 2005, reductions
largely the result of the loss of sales due to Hurricane Wilma. The total
loss from operations for the quarter and nine months ended March 31, 2006 was
$(338,837) and $ (832,917), respectively compared to losses of $(160,114) and
$(283,358) for the quarter and nine months ended March 31, 2005,
respectively. This current year to date loss was largely attributable to the
reduction in sales revenue as a result of hurricanes in 2005. Operating
expenses were $163,335 and $140,567 for the quarters ended March 31, 2006 and
2005, respectively, and $445,551 and $366,378 for the nine months ended March
31, 2006 and 2005, respectively. Cost of sales for the quarter ended March
31, 2006 was $275,677, compared to $187,433 for the same period in 2005. The
total increase in cost of sales and operating expenses for the quarter ended
March 31, 2006 over the comparable prior quarter was due primarily to an
increase in payroll costs, increased inventory costs and utilities, and to
increased costs for investor relations and for professional fees due to our
status as a reporting public company as of June 30, 2005. The increases for
the nine month periods ended March 31, 2006 over 2005 were attributable to
comparable items.
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 March 31, 2006, 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.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarterly period ending March 31, 2006, the Company issued
a total of 385,000 common shares, increasing the total number of common
shares outstanding from 10,864,051 at December 31, 2005 to 11,249,051 at
March 31, 2006. Of these additional common shares, 135,000 shares were
issued as incentive for entering short-term notes, and 250,000 shares were
issued to CF Consulting, LLC, in connection with the renewal of its
consulting contract.
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
On May 10, 2006, the Company received the initial proceeds of the private
offering of convertible debenture notes for up to $2 million, commenced in
April 2006, with the assistance of Dawson James Securities, Inc. The net
proceeds to the Company was $435,000, after commissions and expenses. See,
Note 11 to Financial Statements.
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 March 31, 2006.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
Dated: May 12, 2006
NEPTUNE INDUSTRIES, INC.
By: /s/ Ernest Papadoyianis
- ------------------------------------
Ernest Papadoyianis
CEO and President