UNITED STATES
` SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under
THE SECURITIES ACT OF 1933
NEPTUNE INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Florida 200 65-0838060
- ----------------------- ---------------------- ------------
(State or other jurisdiction (Primary Standard Classi- (IRS Employer
of incorporation) fication Code Number) I.D. Number)
21218 St. Andrews Boulevard
Suite 645
Boca Raton, Florida 33433
(561) 482-6408
(Address and telephone number of principal executive offices)
21218 St. Andrews Boulevard
Suite 645
Boca Raton, Florida 33433
(561) 482-6408
(Address of principal place of business)
21218 St. Andrews Boulevard
Suite 645
Boca Raton, Florida 33433
(561) 482-6408
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
Robert Hipple
409 Brevard Avenue
Suite 7
Cocoa, Florida
(321-433-1136)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
- ---------- ---------- ----------- ---------- ------------
Common stock (2)(3) 9,444,666 $0.30 $2,833,400 $ 86.99
Common stock (2)(4) 2,833,400 $0.50 $1,416,700 $ 43.49
Common stock (2)(5) 5,059,304 $0.50 $2,529,652 $ 77.66
--------- ---------- -------
Totals 17,337,370 $6,779,752 $198.58
(1) Offering price computed in accordance with Rule 457(c).
(2) Shares of common stock offered by selling shareholders.
(3) Shares of common stock issuable on conversion of debentures.
(4) Shares of common stock issuable on exercise of warrants.
(5) Shares of common stock issuable in payment of interest in kind.
Pursuant to Rule 416, this Registration Statement includes such
indeterminate number of additional securities as may be required for issuance
upon the exercise of the options or warrants as a result of any stock
dividends, stock splits or similar transactions.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of l933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PROSPECTUS
NEPTUNE INDUSTRIES, INC.
Common Stock
By means of this prospectus, certain shareholders of Neptune
Industries, Inc. ("Neptune") are offering to sell shares of Neptune's common
stock, which shares may be issued upon the conversion of notes sold by
Neptune, shares of common stock issuable upon the exercise of Neptune's
warrants, and shares of common stock issued or to be issued as payment in
kind for interest accruing on the convertible notes. The actual number of
shares issuable upon the conversion of the notes or upon the exercise of the
warrants may increase as the result of future sales of Neptune's common stock
at prices below either the note conversion price or warrant exercise price,
as the case may be. See "Description of Securities" for information
concerning the terms of the notes and the warrants. The selling shareholders
may be considered "underwriters" as that term is defined in the Securities
Act of 1933.
The number of shares to be offered by the selling shareholders is summarized
in the table below:
Description: Note Warrant Interest
Conversions Exercise Paid in Kind Total
Common stock 9,444,666 2,833,400 5,059,304 17,337,370
By means of this prospectus, Neptune may also issue shares of its
common stock to the holders of outstanding notes as payment of interest or
principal. The actual number of shares which may be issued as payment of
interest or principal will depend upon the amount Neptune elects to pay with
shares of its Common stock and the future market price of Neptune's common
stock.
Neptune will not receive any proceeds from the sale of the common stock
by the selling stockholders. Neptune will receive proceeds from any exercise
of warrants. Neptune will pay for the expenses of this offering.
The common stock of Neptune is traded on the OTC Bulletin Board under
the symbol "NPDI". On December 13, 2007 the closing price of Neptune's common
stock was $0.45.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. FOR
A DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
The date of this prospectus is December 13 , 2007
Table of Contents
PROSPECTUS 1
PROSPECTUS SUMMARY 1
Company Overview. 1
The Offering 4
RISK FACTORS 4
Risks related to Neptune 4
Going Concern 7
Risks related to the offering 7
FORWARD LOOKING STATEMENTS 8
USE OF PROCEEDS 9
DETERMINATION OF OFFERING PRICE 9
DILUTION 9
Comparative Share Data 9
SELLING SECURITY HOLDERS 11
PLAN OF DISTRIBUTION. 14
Payment of Interest With Shares of Common Stock 15
LEGAL PROCEEDINGS 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMNT 21
DESCRIPTION OF SECURITIES 22
Common stock 22
Preferred stock 22
Debentures 22
Notes and Warrants Held by Private Investors 23
Transfer Agent 24
INTEREST OF NAMED EXPERTS AND COUNSEL 24
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION 24
DESCRIPTION OF BUSINESS 24
MANAGEMENT'S DISCUSSION AND ANALYSIS 24
AND PLAN OF OPERATION 24
Business 24
Recent Accounting Pronouncements 31
Critical Accounting Policies 31
DESCRIPTION OF PROPERTY 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 32
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 33
EXECUTIVE COMPENSATION 34
Executive Compensation 34
FINANCIAL STATEMENTS 36
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 36
ON ACCCOUNTING AND FINANCIAL DISCLOSURE 36
AVAILABLE INFORMATION 37
Audited Financial Statements F-1
Interim Financial Statements (unaudited). G-1
PROSPECTUS SUMMARY
This summary provides a brief overview of the key aspects of our company and
the offering. However, it is a summary and may not contain all of the
information that is important to you. For a more complete understanding of
this offering, we encourage you to read this entire prospectus, including our
financial statements and the notes to those statements.
Company Overview.
Neptune Industries, Inc. is a public Florida corporation (OTC.BB-NPDI). The
Company?s mission is to be a leading supplier of disruptive technology and
sustainable products for the $265 billion seafood industry, through the
development of a vertically integrated business model. Neptune Industries is
bringing together companies under its leadership to pioneer technologies,
eco-friendly production, food science research, nutritional advancements and
more in the global seafood industry. Neptune?s business model of integration
and consolidation is a unique strategy in the aquaculture and seafood
industries, but which has been successfully employed in other agri-
businesses.
By providing technology to an industry, quality products to end users,
adding value, and creating an international distribution network, Neptune is
a
true example of diversity.
The Company?s mission involves the utilization of its publicly traded
vehicle to conduct a roll-up of the highly fragmented aquaculture and
seafood distribution industries in the United States. The acquisition of
other seafood related businesses will allow the Company to expand, diversify,
and integrate its technology in the most efficient capacity. The catalyst
to the Company?s business model is leading-edge technologies which
include the patent-pending Aqua-Sphere? and Aqua-Cell? seafood production
(closed containment) system; the patent pending Ento-Protein? sustainable
dietary protein ingredients, and numerous proprietary products and processes
that will go to patent in the near future.
Since its incorporation in 1998, Neptune has funded the development of a
diversity of R&D, production and bio-technology subsidiaries which continue
to expand its reputation as an industry leader in quality seafood and product
innovation. Through its subsidiaries, Neptune has focused its efforts on
creating efficient technologies and exploiting an abundance of under-
utilized water resources in Florida as well as the U.S. for production of
low cost, high quality seafood. Neptune has challenged the seafood and
aquaculture industries to produce sustainable, all-natural products that do
not impact the environment. With sales of organic produce and foods rising
by over 20% annually, the Company anticipates an enormous market for
organic seafood and integrated hydroponic produce, once U.S. certification
standards for seafood are approved. Neptune?s fish farming subsidiaries are
poised to rapidly transition to organic production once the certification
process is available.
Blue Heron Aqua Farms, LLC ? Neptune?s fish farming subsidiary.
Blue Heron operates a 48 acre fish farm in Florida City, FL that
incorporates a state-of-the-art, eco-friendly environment which is
unprecedented in the U.S. today. This eco-friendly system addresses the
issues currently hindering many other farms, and has played a major role
in the decision of many executive chefs to serve Everglades Striped Bass?
as a sustainable seafood product. The farm?s Everglades Striped Bass? has
become the industry benchmark, upon which all other hybrid striped bass
are measured. In spite of a difficult economic downturn, the demand for
the Company?s product has continued to grow. 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
its site under production at this time, the Company has the capability of
producing close to two million pounds of fish annually from this site
alone once it is fully developed. Plans are underway for a Phase 1
expansion to double current production, as well as to incorporate
aquaponics into the production plan to eliminate waste, and generate
secondary crops of organic herbs and produce. The four acre North Farm
site currently produces ?all-natural? hybrid striped bass, and
anticipates a transition to organic once certification is available. As
all other production parameters are in place, the only remaining change
will involve the use of organic feed. The Company has been contacted by
several large organic grocery chains to carry its product once certified.
Blue Heron operates the fish farm under a management agreement with South
Florida Aquaculture, Inc., which holds the lease on the 48 acre site
owned by the South Florida Water Management District with a remaining
term of eight years. The management agreement also has eleven years
remaining. James M. Harvey, a Director of Neptune, is President and
majority shareholder of South Florida Aquaculture, Inc.
The Company is poised to expand its facilities, diversify its production,
and vertically integrate its operations. Blue Heron expects to produce
close to two million pounds of hybrid striped bass, tilapia, Nile perch
and other species; operate the only hybrid striped bass nursery in South
Florida; and utilize its effluent wastewater to produce a diversity of
hydroponic vegetables and herbs. The combination of Neptune?s commercial
aquaculture expertise, management and technology, teamed with the
expansive 48 acre fish farm facility, has created one of the premier
commercial operations on the East Coast and perhaps the entire U.S.
In addition to the Florida City site, the Company has secured its first
forty acre lake site and has initiated discussions for several other
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
Aqua-Sphere? 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.
Aqua Biologics, Inc. A Technology Development and Utilization subsidiary
Aqua Biologics, Inc. (ABI), was established as a wholly owned subsidiary of
Neptune to focus the Company?s efforts toward developing activities in the
Bio-technology, Food Science, and Alternative Energy sectors. ABI?s mission
is to be a global leader in innovative solution-based technologies, and the
go-to Company, to provide such solutions to industry bottlenecks. ABI covets
relationships with other technology companies to develop and modify their
products for integration into the Seafood and Aquaculture industries. These
products, as well as future developments, will also be aimed at helping the
environment and providing sustainable solutions for seafood and nutritional
products around the world.
The patent pending Aqua-Sphere? System is a floating, articulating,
containment system which utilizes alternative energy to power many of its
components. The system can be utilized as a stand-alone single tank
(an Aqua-Cell?) in a variety of sizes or several tanks can be interconnected
into the Aqua-Sphere?. In an Aqua-Sphere? configuration, each Aqua-Cell? tank
is connected to another via an underwater conveyance pipe. This allows the
operator to move fish from tank to tank without removing them from the
water, or handling. Therefore, an Aqua-Sphere? 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 protected.
The Aqua-Sphere? System incorporates numerous features which make it ideal
for
use throughout the world in tropical and coldwater applications, in fresh or
salt water. Aqua-Sphere? technology is superior to conventional net pens and
cages, and provides a safer, more reliable, cost-efficient alternative. The
Company has received inquiries from around the world for distributorships and
joint venture opportunities, following its press release and article in Fish
Farming International newspaper in 2006. It is anticipated that this
technology will have a major impact on world seafood production through its
ability to operate in areas that are, to date, not feasible.
ABI is in the process of developing a revolutionary dietary nutritional
product for animal, and in the future, human diets. The key to the rapid
and successful expansion of global seafood production is through the
sustainable commercial production of a high quality dietary protein. This
would eliminate the industry?s dependence upon wild fishmeal as a dietary
protein. ABI has a patent-pending on its Ento-Protein? process of producing
and harvesting high-grade protein meal from insects for the replacement of
fish meal in fish, livestock, and in the future, human diets. Through a
cooperative research effort with Mississippi State University, ABI is in the
process of selecting and testing various insect species for Ento-Protein?s?
commercial production. MSU was the pioneer in insect rearing methodology over
30 years ago, and remains one of the few Entomology programs worldwide to
specialize in insect rearing. Research efforts began in April, 2007 with the
first of three R & D stages, which are anticipated to be completed by the end
of 2007. The first two stages have been completed successfully and Stage 3
is now underway.
Neptune Industries? main office address is 21218 St. Andrews Boulevard,
Suite 645, Boca Raton, FL 33432. Its telephone number is 561-482-6408.
Neptune's website address is www.NeptuneIndustries.net.
The Offering
By means of this prospectus certain shareholders and note holders of
Neptune are offering to sell shares of Neptune's common stock, which shares
have been or may be issued upon the conversion of debentures sold by Neptune
as well as shares of common stock issuable upon the exercise of warrants. The
actual number of shares issuable upon the conversion of the debentures or
upon the exercise of the warrants may increase as the result of future sales
of Neptune's common stock at prices below either the debenture conversion
price or warrant exercise price, as the case may be. See, "Description of
Securities" for information concerning the terms of the debentures and the
warrants. The selling shareholders may be considered "underwriters" as that
term is defined in the Securities Act of 1933.
By means of this prospectus Neptune may also issue shares of its common
stock to the holders of the debentures as payment of interest.
As of December 1, 2007, Neptune had 22,532,723 outstanding shares of
common stock. The number of outstanding shares does not give effect to shares
which may be issued upon the conversion of the debentures held by the selling
shareholders, as payment of interest on the debentures, upon the
exercise of warrants or upon the exercise of other outstanding warrants or
options. See "Comparative Share Data".
RISK FACTORS
The securities being offered hereby are highly speculative and
prospective investors should consider, among others, the following factors
related to the business, operations and financial position of Neptune. If any
of the risks discussed below materialize, Neptune's common stock could
decline in value or become worthless.
Risks related to Neptune
Since Neptune has limited operations, a history of losses and may never
Be profitable, the shares offered by this prospectus may never have any
value. Neptune has never earned a profit. As of September 30, 2007 Neptune's
accumulated deficit was $(7,572,261). Neptune expects to incur additional
losses for an indefinite period. As of the date of this prospectus, no
assurance can be given that Neptune will ever earn a profit.
If Neptune is unable to raise additional capital, Neptune may be unable to
continue operating. To raise additional capital Neptune will most likely sell
shares of its common stock or securities convertible into common stock. The
issuance of additional shares will have a dilutive impact on other
stockholders and could have a negative effect on the market price of
Neptune's common stock.
By means of this prospectus a number of Neptune shareholders are
offering to sell shares of Neptune's common stock. Neptune will not receive
any proceeds from the sale of the shares offered by the selling shareholders.
THE COMPANY HAS LIMITED RESOURCES AND NO PRESENT SOURCE OF REVENUES
The Company has limited resources and has incurred operating losses to date.
Neptune has incurred operating losses of $(7,572,261) through September 30,
2007. Moreover, there can be no assurance that Neptune will ever operate on a
profitable basis.
THE COMPANY MAY NEED ADDITIONAL FINANCING IN ORDER TO EXECUTE ITS BUSINESS
PLAN
The Company has had no profits to date and will be entirely
dependent upon its limited available financial resources. The Company
cannot ascertain with any degree of certainty the capital requirements for
the execution of its business plan. In the event that the Company's limited
financial resources prove to be insufficient to implement the Company's
business plan, the Company will be required to seek additional financing.
ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO THE COMPANY IF NEEDED
There can be no assurance that additional financing, if needed, will be
available on acceptable terms, or at all. To the extent that additional
financing proves to be unavailable when needed, the Company would, in all
likelihood, be compelled to abandon plans for expansion or acquisitions.
The failure by the Company to secure additional financing, if needed, could
also have a material adverse effect on the continued development or growth
of the Company. The Company has no arrangements with any bank or
financial institution to secure additional financing and there can be no
assurance that any such arrangement, if required or otherwise sought, would
be available on terms deemed to be commercially acceptable and in the best
interests of the Company.
THE COMPANY MAY NOT BE ABLE TO BORROW FUNDS IF NEEDED
There currently are no limitations on the Company's ability to borrow funds
to increase the amount of capital available to the Company to undertake its
business plan. Moreover, the limited resources of the Company and lack of
operating profits will make it difficult to borrow funds. The amount and
nature of any borrowings by the Company will depend on numerous
considerations, including the Company's capital requirements, the Company's
perceived ability to meet debt service on any such borrowings and the then
prevailing conditions in the financial markets, as well as general economic
conditions. There can be no assurance that debt financing, if required or
sought, would be available on terms deemed to be commercially acceptable by
and in the best interests of the Company. Additionally, to the
extent that debt financing ultimately proves to be available, any
borrowings may subject the Company to various risks traditionally
associated with indebtedness, including the risks of interest rate
fluctuations and insufficiency of cash flow to pay principal and interest.
THE COMPANY DEPENDS UPON ITS EXECUTIVE OFFICERS AND DIRECTORS
The ability of the Company to successfully effect its business plan
will be dependent upon the efforts of its executive officers and directors,
as well as its ability to attract additional directors and executive
officers.
Effective February 8, 2000, the Company entered into five-year employment
Agreements (the Agreements) with two key members of management, Ernest
Papadoyianis, President and CEO, and Xavier T. Cherch, Chief Operating
Officer. 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
$426,872 through the quarter ended September 30, 2007. Cash compensation
actually paid was $54,900 for the quarter ended September 30, 2007.
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 received 100,000 (pre 1 for 6 reverse split) restricted shares of common
stock for prior services due of $5,000. A new agreement was entered into with
CF Consulting LLC effective September 30, 2006, under which CF Consulting
provided 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 tradability of the shares and
other factors. A total of $85,500 has been accrued as due under the
agreements with CF Consulting, LLC as of September 30, 2007. Our Chief
Financial Officer, Robert Hipple, is also a managing director of CF
Consulting.
The Company has not obtained any "key man" life insurance on the life of
any officer.
THERE EXIST RISKS TO STOCKHOLDERS RELATING TO DILUTION: AUTHORIZATION OF
ADDITIONAL SECURITIES AND REDUCTION OF PERCENTAGE SHARE OWNERSHIP
To the extent that additional shares of Common Stock are issued, the
Company's stockholders would experience dilution of their respective
ownership interests in the Company. Additionally, if the Company issues a
substantial number of shares of Common Stock in connection with or
following an acquisition, a change in control of the Company may
occur which may affect, among other things, the Company's ability to
utilize net operating loss carry forwards, if any. Furthermore, the
issuance of a substantial number of shares of Common Stock may adversely
affect prevailing market prices, if any, for the Common Stock and could
impair the Company's ability to raise additional capital through the sale
of its equity securities.
THE COMPANY EXPECTS TO PAY NO CASH DIVIDENDS
The Company does not expect to pay dividends in the foreseeable future.
The payment of dividends will be contingent upon the Company's revenues and
earnings, if any, capital requirements, and general financial condition.
The payment of any dividends will be within the discretion of the Company's
then Board of Directors. The Company presently intends to retain all
earnings, if any, for use in the Company's business operations and
accordingly, the Board does not anticipate declaring any dividends in the
foreseeable future.
THE COMPANY IS AUTHORIZED TO ISSUE PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance
of 5,000,000 shares of preferred stock (the "Preferred Stock"), with such
designations, powers, preferences, rights, qualifications, limitations and
restrictions of such series as the Board of Directors, subject to the laws
of the State of Florida, may determine from time to time. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of Common Stock. In addition, the Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. As of the date of this filing,
the Company has no outstanding shares of Preferred Stock.
Going Concern
In their audit report on the June 30, 2007 financial statements,
Neptune's auditors expressed substantial doubt as to the Company's ability to
continue as a going concern.
Other risk factors
The directors of Neptune approve their own compensation since decisions
regarding compensation to be paid to the officers and directors of Neptune
are made by the directors by resolutions adopted by unanimous written consent
or by majority vote. Neptune does not have any policy which limits the amount
of compensation paid to its officers.
Risks related to the offering
Shares issuable upon the conversion of the notes held by the selling
shareholders, the payment of interest or principal on the notes, upon the
exercise of the warrants, or upon the exercise of other outstanding options
and warrants, may substantially increase the number of shares available for
sale in the public market and may depress the price of Neptune's stock.
Neptune had outstanding convertible notes, options and warrants which
as of November 25, 2007 allow the holders to acquire a substantial number of
additional shares of its common stock. Until the options and warrants expire,
or the convertible notes are paid, the holders will have an opportunity to
profit from any increase in the market price of Neptune's common stock
without assuming the risks of ownership. Holders of convertible notes,
options and warrants may convert or exercise these securities at a time when
Neptune could obtain additional capital on terms more favorable than those
provided by the notes, options or warrants. The conversion of the notes or
the exercise of the options and warrants will dilute the voting interest of
the owners of presently outstanding shares by adding a substantial number of
additional shares of Neptune's common stock.
Neptune has filed, or plans to file, registration statements with the
Securities and Exchange Commission so that substantially all of the shares of
common stock which are issuable upon the exercise of outstanding options and
warrants, or upon the conversion of notes, may be sold in the public market.
The sale of common stock issued or issuable upon the exercise or conversion
of the securities described above, or the perception that such sales could
occur, may adversely affect the market price of Neptune's common stock.
The issuance or even the potential issuance of shares upon exercise of
the options or warrants will have a dilutive impact on other stockholders and
could have a negative effect on the market price of Neptune's common stock.
Since the market price for Neptune's common stock is volatile, investors in
this offering may not be able to sell any of Neptune's shares at a profit.
The market price of Neptune's common stock, as well as the securities
of other similar companies, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in Neptune's operating results,
announcements of technological innovations or new products by Neptune or its
competitors, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of products developed or
produced by Neptune or other aqua-culture companies, and general market
conditions may have a significant effect on the future market price of
Neptune's common stock.
There is, at present, only a limited market for Neptune's common stock and
there is no assurance that this market will continue. Trades of Neptune's
common stock are subject to Rule 15g-9 of the Securities and Exchange
Commission, which rule imposes certain requirements on broker/dealers who
sell securities subject to the rule to persons other than established
customers and accredited investors. For transactions covered by the rule,
brokers/dealers must make a special suitability determination for purchasers
of the securities and receive the purchaser's written agreement to the
transaction prior to sale. The Securities and Exchange Commission also has
rules that regulate broker/dealer practices in connection with transactions
in "penny stocks". Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current
price and volume information with respect to transactions in that security is
provided by the exchange or system). The penny stock rules require a
broker/dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared
by the Commission that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker/dealer also must
provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker/dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker/dealer and salesperson compensation information, must be given to
the customer orally or in writing prior to effecting the transaction and must
be given to the customer in writing before or with the customer's
confirmation. These disclosure requirements have the effect of reducing the
level of trading activity in the secondary market for Neptune's common stock.
As a result of the foregoing, investors may find it difficult to sell their
shares.
FORWARD LOOKING STATEMENTS
This prospectus contains various forward-looking statements that are
Based on beliefs as well as assumptions made by and information currently
available to Neptune. When used in this prospectus, the words "believe",
"expect", "anticipate", "estimate" and similar expressions are intended to
Identify forward-looking statements. These statements may include statements
Regarding seeking business opportunities, payment of operating expenses, and
the like, and are subject to certain risks, uncertainties and assumptions
which could cause actual results to differ materially from projections or
estimates. Factors which could cause actual results to differ materially are
discussed at length under the heading "Risk Factors". Should one or more of
the enumerated risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. Investors should not place undue
reliance on forward-looking statements, all of which speak only as of the
date made.
USE OF PROCEEDS
Neptune will not receive any proceeds from the sale of the shares by
the selling shareholders. However, Neptune may receive proceeds from the
exercise of warrants. Neptune expects to use substantially all the net
proceeds for general and administrative expenses, research and expansion.
DETERMINATION OF OFFERING PRICE
The offering price for the conversion of debentures to common stock and
the exercise of warrants issued in connection with the debentures were set at
$0.30 per share and $0.50 per share, respectively, at the time the debentures
were issued, based upon the average trading price of Neptune?s common stock
at the time of the offering. The offering price for any shares issued in
payment of interest accruing on the debentures is set at the average closing
bid price of the shares for the twenty trading days before the payment date
of the quarterly interest payment.
DILUTION
Neptune is a fully reporting company under Section 12(g) of the
Securities and Exchange Act of 1934, and is current on its required filings
with the SEC, through the quarter ended September 30, 2007.
Comparative Share Data
Number of Note
Shares Reference
Common shares outstanding as of December 1, 2007: 22,532,723
Shares to be sold in this Offering:
Shares issued on conversion of debentures 973,333 A
Shares issuable upon conversion of debentures 8,471,333 A
Shares issuable upon exercise of warrants 2,833,400 A
Shares issued as payment of interest on
debentures 1,3342304 A
Shares issuable as payment of interest on the
debentures 3,725,000 A
-----------
Total 17,337,370
Note: The shares already issued on conversion of debentures (973,333 shares)
and the shares issued as payment of interest (1,247,704 shares) are included
in the total shares outstanding as of December 1, 2007.
Other Shares Which May Be Issued:
The following table lists additional shares of Neptune's common stock
which may be issued as of November 25, 2007 as the result of the exercise of
other outstanding options or warrants issued by Neptune:
Number of Note
Shares Reference
Shares issuable upon exercise of warrants
granted to Dawson James Securities, Inc. 2,893,866 B
Shares issuable upon exercise of Non-Qualified
Stock Options granted to officers, directors,
employees and consultants. 1,360,000 C
Shares issuable upon exercise of warrants
granted to Neptune's officers, directors,
employees, financial consultants and private
investors 107,388 D
Shares issuable upon conversion of notes 1,075,715 E
Shares issuable upon exercise of warrants issued to
note holders 906,166 E
A. Commencing on May 10, 2006 and ending on May 15, 2007, Neptune sold
convertible debentures, plus warrants, to private investors for $2,713,000.
The debentures are due and payable two years from the date of issue. At the
holder's option the debentures are convertible into shares of Neptune's
common stock at a conversion price of $0.30. As of November 30, 2007, a
total of 973,333 shares of common stock had already been issued in conversion
of $ 292,000 in principal on the debentures, and an additional 8,751,333 in
common stock is issuable if the full remaining principal balance of the
debentures is converted into common stock.
The warrants allow the holders to purchase up to 2,713,000 shares of
Neptune's common stock at a price of $0.50 per share at any time prior to
five years from the date the warrant was issued. In the event the closing
price of Neptune's common stock is $1.25 for ten consecutive trading days,
Neptune may then call the warrants for a warrant call price of $0.30 per
share, unless the warrants are first exercised. The warrants also have a
cashless exercise feature, under which a holder may elect to take common
shares, without payment of the warrant price, based on the then fair market
value of the warrants. This number of common shares which may be obtained on
a cashless exercise is equal to the number of warrant shares multiplied by
the current warrant value, all divided by the fair market value of the
Neptune common shares. The fair market value of the common shares is equal to
the prior ten day trading bid average price, and the value of the warrant is
determined by subtracting the warrant exercise price of $0.50 from the fair
market value of the Neptune common shares. For example, a warrant for 10,000
common shares could be exercised to obtain 6,000 common shares without
payment of the warrant price if the fair market value of Neptune common stock
is $1.25 for ten consecutive days. No valuation of the warrants for expense
purposes or discount on the debenture bonds was calculated at the time the
warrants were issued with the debentures because the warrant exercise price
was
substantially in excess of the current trading price of the shares, and
the warrants were determined to have minimal or no independent present value.
The actual number of shares issuable upon the conversion of the
debentures or upon the exercise of the warrants may increase as the result of
future sales of Neptune's common stock at prices below either the note
conversion price or warrant exercise price, as the case may be.
At Neptune's election, and under certain conditions, Neptune may use
shares of its common stock to make interest payments on the debentures. The
number of shares which may be used to pay interest accrued on the debentures
is based upon the average closing bid price of the common shares for the
twenty trading days prior to the payment date of the interest each quarter.
As of November 30, 2007, Neptune had actually issued a total of 1,247,704
common shares in payment of interest accrued on the debentures through
September 30, 2007 and prior quarters. The actual number of shares issuable
as payment of interest or principal may increase if the price of Neptune's
common stock is below the then applicable conversion price of the debentures.
The number of shares included in the Table as shares issuable for payment of
interest in kind is only an estimate of the number of shares which may be
used for this purpose. The actual number of shares used for this purpose may
be more or less than this number.
The actual number of shares which will ultimately be issued upon the
payment or conversion of the debentures and the exercise of the warrants (if
any) will vary depending upon a number of factors, including the price at
which Neptune sells any additional shares of its common stock prior to the
date the notes are paid or converted or the date the warrants are exercised
or expire. See "Description of Securities" for more detailed information
concerning the notes and warrants.
B. Pursuant to the terms of a consulting agreement with Dawson James
Securities, Inc., for its services in connection with the sale of debentures
and warrants sold to the selling shareholders, Neptune issued to Dawson James
warrants to purchase 1,808,666 shares of Neptune's common stock at a warrant
exercise price of $0.30 and 1,085,200 shares of Neptune's common stock at a
warrant exercise price of $0.50. The warrants expire on May 1, 2009. Dawson
James subsequently transferred a portion of these warrants to seven employees
of Dawson James.
C. Options are exercisable at a price of $0.3133 per share and expire ten
years from the date of issue, on June 30, 2016. The options were granted
under the Company?s Non-Qualified Stock Option Plan.
D. Warrants in this category were not granted pursuant to Neptune's
Non-Qualified Stock Option Plan. The warrants are exercisable at a price of
$0.30 per share and expire between January 2009 and April 2009.
E. During 2005 and 2006, Neptune sold convertible notes in the principal
amount of $520,643 to six private investors. The notes bear interest at 10%
per year and are due and payable on or before two years from the respective
dates of the notes. Each note may, at the option of the holder, be converted
at any time into shares of Neptune's common stock. The number of shares to
be issued upon the conversion of any note is equal in number to the amount
determined by dividing the principal amount to be converted by the Conversion
Price. The Conversion Price was separately negotiated for each note and is
either $0.30 or $0.50 per share. As of November 30, 2007 three notes in the
principal amount of $206,250 had been converted into 745,473 shares of
Neptune's common stock. If all remaining notes were converted, Neptune
would be obligated to issue an additional 575,210 shares of common stock. The
note holders also received warrants to collectively purchase 906,166 shares
of Neptune's common stock at prices between $0.30 and $0.508 per share. The
warrants expire at various dates between June 12, 2008 and October 1, 2009.
SELLING SECURITY HOLDERS
The names and relevant share information for the Selling Shareholders
are:
Shares Which
Shares Which
Shares Which
Shares Which
Shares Which
Total
Have Been
May be
May Be
Have Been
May Be
Shares
Issued on
Issued on
Acquired on
Issued in
Issued in
After
Debenture Holder:
Conversion of
Conversion of
Exercise of
Payment of
Payment of
Offering (4)
Debentures (1)
Debentures
Warrants (2)
Interest
Interest (3)
Joseph Amellio
106,667
32,000
12,881
151,547
Joseph Amellio
133,333
40,000
4,925
178,258
Joseph & Darrin Amellio
33,333
10,000
1,231
44,565
Carlos Arce
100,000
30,000
14,942
144,942
Carlo Arce
66,667
20,000
4,147
90,813
Anthony Athanas
500,000
150,000
40,818
219,950
910,769
Jose & Gloria Bejarano
66,667
20,000
4,471
91,137
Gary Blum
83,333
25,000
6,803
36,658
151,795
Allen Bradeen
50,000
15,000
4,593
21,995
91,588
Glenn & Lori Brown
166,667
50,000
50,648
73,317
340,632
Chris Carter
103,333
31,000
17,097
45,456
196,887
Gabriel & Pilar Chaves
166,667
50,000
24,337
241,004
Gabriel & Pilar Chaves
33,333
10,000
2,073
45,407
John Christensen
333,333
100,000
101,297
146,634
681,264
Patricia Cohen
33,333
10,000
5,948
49,281
Mitchell Domin
100,000
30,000
8,164
43,990
182,154
Luis Elizondo
100,000
30,000
11,816
43,990
185,806
Frank J. Garafalo
166,667
50,000
13,606
73,317
303,590
German Gonzalez
33,333
10,000
2,073
45,407
Armen Hovnavian
1,666,667
500,000
136,061
733,168
3,035,896
Jose & Ivon Jarel
100,000
30,000
16,546
43,990
190,536
Brian John
166,667
50,000
13,606
73,317
303,590
Fred Kennedy
33,333
10,000
6,012
49,346
Kent Kingman
66,667
20,000
11,030
29,327
127,024
Kent Kingman
66,667
20,000
5,442
29,327
121,436
Charles F. Landahl
400,000
120,000
36,741
175,960
732,702
Larry O. & Dorothy I. Lee
333,333
100,000
39,386
146,634
619,353
Larry O. Lee
166,667
50,000
14,196
73,317
304,179
George MacLauchlan
50,000
15,000
4,082
21,995
91,077
Peter Matz
100,000
30,000
9,185
43,990
183,175
Brian & Susan McNamara
100,000
30,000
8,164
43,990
182,154
Oretun Company
666,667
200,000
54,424
293,267
1,214,358
Oldemar Pages
50,000
15,000
7,690
72,690
Oldemar Pages
16,667
5,000
1,166
22,833
Tom Pernice, Jr.
333,333
100,000
27,212
146,634
607,179
Lawrence A. Quilliam
33,333
10,000
6,660
49,993
Lawrence A. Quilliam
33,333
10,000
2,721
46,055
Geoffrey Read
583,333
175,000
47,621
256,609
1,062,563
Carlos & Doris Rossi
33,333
10,000
2,641
45,974
Sandor Capital Master Fund,
L.P.
833,333
250,000
253,242
366,584
1,703,160
Stepping Stones Partners
401,333
120,400
86,600
175,000
783,333
T2, Ltd
500,000
150,000
45,927
219,950
915,877
Windcrest Fund
333,333
100,000
166,078
146,634
746,045
973,333
8,471,333
2,833,400
1,334,304
3,725,000
17,337,370
(1) As of November 25, 2007, a total of $292,000 in principal of the
debentures has been converted
into 973,333 shares of common stock.
(2) In the event the closing price of Neptune's common stock is $1.25 for
ten consecutive trading
days, Neptune may then call the warrants for a warrant call price of $0.30
per share. The warrants also
have a cashless exercise feature, under which a holder may elect to take
common shares, without payment of
the warrant price, based on the then fair market value of the warrants. This
number of common shares which
may be obtained on a cashless exercise is equal to the number of warrant
shares multiplied by the current
warrant value, all divided by the fair market value of the Neptune common
shares. The fair market value of
the common shares is equal to the prior ten day trading bid average price,
and the value of the warrant is
determined by subtracting the warrant exercise price of $0.50 from the fair
market value of the
Neptune common shares. For example, a warrant for 10,000 common shares could
be exercised to obtain
6,000 common shares without payment of the warrant price if the fair market
value of Neptune common
stock is $1.25 for ten consecutive days. The Table assumes full cash
exercise.
(3) At Neptune's election, and under the conditions described in the
section of the prospectus
Captioned "Description of Securities", Neptune may use shares of its common
stock to make interest
payments on the notes. The actual number of shares which may be issued as
payment of interest
cannot be predicted at this time and will depend upon a variety of factors,
including the dates,
if any, any of the notes are converted, the principal amounts of notes which
are converted and
Neptune's decision, or ability, to pay interest or principal with shares of
its common stock.
(4) Ownership after offering assumes full conversion of debentures,
exercise of warrants and
payment of all estimated interest in common shares.
PLAN OF DISTRIBUTION.
The selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. The selling stockholders may use
any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which
the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by
the broker-dealer for its account;
o an exchange distribution in accordance with the rules of
the applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in the securities of Neptune or
derivatives of its securities and may sell or deliver shares in connection
with these trades.
The selling stockholders may sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-
dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Any profits on the resale of shares of common stock by
a broker-dealer acting as principal might be deemed to be underwriting
discounts or commissions under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of
shares will be borne by a selling stockholder. The selling stockholders may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares if liabilities are imposed on
that person under the Securities Act.
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus after Neptune has filed an amendment
to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933 amending the list of selling stockholders to include
the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the shares of common stock from time to time
under this prospectus after Neptune has filed an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933 amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares of common stock purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
Neptune is required to pay all fees and expenses incident to the
registration of the shares of common stock. Neptune has agreed to indemnify
the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
The selling stockholders have advised Neptune that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares of common
stock, nor is there an underwriter or coordinating broker acting in
connection with a proposed sale of shares of common stock by any selling
stockholder. If Neptune is notified by any selling stockholder that any
material arrangement has been entered into with a broker-dealer for the sale
of shares of common stock, if required, Neptune will file a supplement to
this prospectus. If the selling stockholders use this prospectus for any sale
of the shares of common stock, they will be subject to the prospectus
delivery requirements of the Securities Act.
Payment of Interest With Shares of Common Stock
By means of this prospectus Neptune may also issue shares of its common
stock to the holders of the notes as payment of interest and principal. See
"Description of Securities - Debentures" for more information concerning the
conditions involving the issuance of these shares.
The selling shareholders and any broker/dealers who act in connection
with the sale of the shares may be deemed to be "underwriters" within the
meaning of ss.2(11) of the Securities Acts of 1933, and any commissions
received by them and any profit on any resale of the shares as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act.
Neptune has advised the selling shareholders that they and any
securities broker/dealers or others who may be deemed to be statutory
underwriters will be subject to the prospectus delivery requirements under
the Securities Act of 1933. Neptune has also advised each selling shareholder
that in the event of a "distribution" of the shares owned by the selling
shareholder, the selling shareholder, any "affiliated purchasers", and any
broker/dealer or other person who participates in the distribution may be
subject to Rule 102 under the Securities Exchange Act of 1934 ("1934 Act")
until their participation in that distribution is completed. Rule 102 makes
it unlawful for any person who is participating in a distribution to bid for
or purchase stock of the same class as is the subject of the distribution. A
"distribution" is defined in Rule 102 as an offering of securities "that is
distinguished from ordinary trading transactions by the magnitude of the
offering and the presence of special selling efforts and selling methods".
Neptune has also advised the selling shareholders that Rule 101 under the
1934 Act prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of the common stock in
connection with this offering.
LEGAL PROCEEDINGS
Neptune is not involved in any pending or threatened legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Management During Fiscal Year Ended June 30, 2007:
Names Title or Position Ages
Ernest D. Papadoyianis President, CEO and Chairman 48
X.T. ?Sal? Cherch COO/ Secretary/Treasurer and Director 73
Robert Hipple Chief Financial Officer and General Counsel 62
ERNEST D. PAPADOYIANIS, CEO, PRESIDENT and CHAIRMAN
Mr. Papadoyianis, age 48, has been an active figure in
seafood/aquaculture for over twenty-two years. He has successfully
implemented his production strategies in a diversity of aquaculture
businesses throughout the world. He is the founder of Exotic Reef
Technologies, Inc., and Marcon Development Corporation, and co-founder
of Taurus Investments, Ltd. And Aquaculture Specialties, Inc. Mr.
Papadoyianis was a former Director in S.M.A.R.T., Inc. and The Watermark
Corporation. He is also a member of the Board of Directors of the Striped
Bass Growers Association, where he represents that sector of the
industry.
He has formulated business plans and management strategies for a
number of prior and on-going businesses. His reputation as a top producer
of quality products is well substantiated in both the aquaculture and
seafood industries. He has appeared in, and has been interviewed for,
numerous industry publications including Fish Farming News, Fish Farming
International and the South Florida Business Journal. In May, 2005, he
appeared on the CNBC World Business Review with General Alexander Haig to
discuss environmentally friendly aquaculture technology.
Over the last 15 years, Mr. Papadoyianis has engaged in the
Development and capitalization of emerging businesses. He had structured
management teams and directed activities for new product development, design
and engineering of new technology applications, website and CD marketing
and promotional development, and international sales.
Mr. Papadoyianis has a Masters Degree in Biology from
Northeastern University. During this time, he was an integral part of a U.S.
Government funded research team which involved the New England Aquarium,
and explored the affects of drilling muds on benthic marine life. Shortly
after the completion of this study, he was invited to join a U.S. Government
funded research team from Harvard University. The team was formed to conduct
an oceanographic and ecological impact study on a U.S. Nuclear Defense
testing island in the South Pacific.
Mr. Papadoyianis has served as a production supervisor for a number
Of aquaculture businesses including S.P. Engineering, Quality Pet Supply,
O?Beirne Wholesale, and Aqualife Research Corporation. In this capacity, he
has initiated hatchery protocol for the breeding, production and sale of
over 60 species of freshwater and marine fish and shrimp. Included in
these are certain food species including rainbow trout, coho salmon,
tilapia, freshwater prawns, and bluegills. He also developed his own
hatchery business in 1987 under Quality Pet Supply, where he supplied the
bio-assay market with marine fish and shrimp for environmental testing.
Throughout his career, Mr. Papadoyianis has succeeded in
overcoming production problems at a diversity of aquaculture operations. His
experience and technological know-how has led to production increases of 100
to 400% at all of his engagements, where dramatic improvements were
realized in survival, growth, coloration, and elimination of disease. His
experience with many fish and shrimp species has allowed him to become a
pioneer in the culture of a number of new species on the commercial level
as well. At the executive level, Mr. Papadoyianis has developed and
written fish farming protocols for the commercial production of marine
tropical fish and livestock.
Mr. Papadoyianis has consulted on a variety of existing and
Potential farming businesses throughout the Caribbean, North America, and
Europe.
XAVIER T. SAL CHERCH, CHIEF OPERATING OFFICER
Mr. Cherch, age 73, has over 50 years of business experience in
developing, initiating, and operating companies in a broad range of
industries. Over the last eight years, he has devoted himself exclusively to
the aquaculture industry. He is the co-founder of Taurus Investments, Ltd.
and Aquaculture Specialties, Inc. He has served in an executive capacity for
a number of privately held and public companies including Ford Motor Company.
Mr. Cherch is the President and founder of Landa Financial Group,
Inc. This investment and holding company has interests in the electronic
security and access control industry including Low Voltage Systems, Inc.,
Holiday Springs Alarms, and Security Consultants. He is the founder of
Quest International, Inc. and Meter Maid, Inc., and is the former owner of
Corporate Consultants, Inc.
Mr. Cherch has been responsible for the formation and funding of
several private companies, which he brought to the public as IPOs. He founded
and was CEO of National Early Warning Systems, Inc. (N.E.W.S.), OTC,
National Electronics and Design, Inc., OTC, and served as an executive
officer of Lancer Industries, Inc., AMEX. Mr. Cherch was instrumental in the
design and patenting of several products for Lancer Industries and its
subsidiary Universal Fiberglass Industries, Inc. These products were the
basis upon which both companies built manufacturing and distribution networks
in the United States and Europe. In addition, Mr. Cherch owns or has patents
pending on several other products.
Mr. Cherch attended Seton Hall University and Montclair State
Teachers College.
ROBERT HIPPLE, CHIEF FINANCIAL OFFICER
Robert Hipple, age 62, is an attorney, law professor and
senior executive with 35 years experience as president and chief executive
officer, chief financial officer and general counsel, as well as a director,
for several public (NYSE, AMEX and NASDAQ) companies. He also has extensive
experience with public mergers, acquisitions and capital raising, along with
personal relations with investment banks, broker/dealers, and market makers,
and has taught both taxation and/or federal securities law at Georgetown
University Law School, Emory University Law School, the University of San
Diego School of Law and Florida A&M University College of Law. Mr. Hipple
also has been President of iTrustFinancial, Inc., a Florida based business
consulting company since June 2003, has been a Visiting Professor of Law at
Florida A&M University College of Law, was President and CEO of International
Trust & Financial Systems, Inc., a publicly traded financial services company
in 2002 and 2003 and was Senior Vice President and General Counsel of Enesco,
Inc., then a New York Stock Exchange listed company from August 1999 to April
2001.
Mr. Hipple received a B.A. degree in Economics and Finance from
Wesleyan University, a J.D. and LLM degrees from Georgetown University Law
Center, and completed the MBA program in finance at Emory University School
of Business.
Mr. Hipple serves as Chief Financial Officer pursuant to a
consulting agreement with CF Consulting, LLC, of which he also serves as
Managing Director, but he is not an elected officer or director of the
Company.
DIRECTORS DURING FISCAL YEAR ENDED JUNE 30, 2007.
In addition to Mr. Papadoyianis and Mr. Cherch, our directors during
the fiscal year ended June 30, 2007 and currently are:
WILLIAM H. RYAN, DIRECTOR
Mr. Ryan, age 49, is the Chief Executive Officer of Ryan Golf and
Bryant Midwest and President of Ryan Incorporated Southern and Ryan Sales and
Service, which are family owned and operated businesses that specializes in
residential, commercial and industrial site development and construction
work, golf course construction and quarry operations. The Ryan companies are
generally ranked in the top 100 U.S. specialty contractors. Mr. Ryan has BS
degree from Boston College and an MBA from the University of Miami. He has
also been Chairman of the Florida Chapter of the Young Presidents
Organization and is a member of the Chief Executives Organization and a
certified General Contractor in the State of Florida. Mr. Ryan?s Company,
Bridgeview Estates Development Company, was a joint venture partner with
Neptune Industries under Aquaculture Specialties, Inc.(Aquaculture
Specialties, Inc. recently completed a name
change to Aqua Biologics, Inc.), for almost 3 years from 1998 to 2001. The
joint venture designed and operated a 32 pen floating quarry lake farm where
the company successfully raised hybrid striped bass, koi, tilapia, and
channel catfish.
DON C. TEWKSBURY, DIRECTOR
Mr. Tewksbury, age 57, is the founder and President of New England Pet
Centers whose subsidiaries are Debby?s Petland, a twelve store chain of full
line pet stores, and Quality Pet Supply. Quality Pet Supply is a full-line
pet and pet supply distributor representing over 100 manufacturers of pet
supplies and a complete freshwater and saltwater fish, small animal, bird,
and reptile holding and distribution center. In the winter of 1994, Mr.
Tewksbury opened The Pet Club, a 36,000 square foot super store/cash and
carry wholesale pet center in Massachusetts which focuses on tropical fish
and supplies. This wholesale and Retail enterprise is one of the largest in
the Northeast in both size and sales volume.
Mr. Tewksbury is a national pet industry leader and has represented
the retail industry on the Board of Directors of the Pet Industry Joint
Advisory Council (PIJAC) which is a federation of leading pet industry
retailers, distributors, livestock breeders and importers, manufacturers and
associations. He is the state coordinator of PIJAC for Massachusetts and New
Hampshire. In 1975, he was selected as the industry representative to
participate in drafting the original pet store licensing legislation and
represents the Massachusetts pet industry today on a task force updating
current pet store regulations.
JAMES M. HARVEY, DIRECTOR
Mr. Harvey, age 62, is the Chairman and CEO of South Florida
Aquaculture
Inc. where he has been an active figure in the State of Florida aquaculture
and water resource policy. Mr. Harvey is a consultant for Florida Government
Strategies, a consulting practice centered on natural resource management,
energy land use, and water supply planning in South Florida. Clients include
numerous groups interested in environmental water needs of Everglades and
Florida Bay, as well as an important Indian tribe, educational and health
care clients. Throughout his career in South Florida, Mr. Harvey has lobbied
hundreds of bills through the Florida Legislature.
Prior to joining Florida Government Strategies in 1992, Mr. Harvey was
the
Planning Department Director for the South Florida Water Management District,
where he was responsible for the development of local government programs to
solve joint water management and land use problems through cooperative
partnerships. He designed and implemented an interdisciplinary planning
department to better plan for South Florida?s water future and worked closely
with the District Governing Board as a senior manager. He was responsible for
the daily operations of the plans to improve Biscayne Bay, Indian River
Lagoon, and Lake Okeechobee. Mr. Harvey served as Executive Director in 1999
and assisted Governor Jeb Bush implement the Everglades Restoration Program
and directed the Agency?s 1800 employees and 900 million dollar budget.
From 1983 to 1985, Mr. Harvey served as Deputy Executive Director for
the
Southwest Florida Water Management District where he directed planning,
administration, and management of all facets of the District?s planning,
financial budgetary, public information, land acquisition, and field
operations. He managed a 16 county, 300 employee agency requiring a $30
million annual budget.
Mr. Harvey is, and has been, an advisor to or officer of, numerous
government and environmental organizations including: Chairman, Vice Chairman
and Secretary of the Florida Conservation Association; Advisor to the
Governors
Commission for a Sustainable South Florida; Member of the Planning and
Resource Management Committee for the Florida Keys; Member of the Save the
Manatee Committee; and the Florida Aquaculture Review Council, and The
Habitat Advisory Council of the US Department of Commerce South Atlantic
Fishery Management Council. Mr. Harvey has a B.A. in Political Science from
Delta State University, and an M.S. in Urban Planning form Florida State
University.
ADDITIONAL DIRECTORS
Since the end of the June 30, 2007 fiscal year, Neptune has added two
additional directors. At a Special Meeting of the Board of Directors of the
Company held on October 3, 2007, the Company increased the size of its Board
of Directors from five to seven. On October 10, 2007, Mr. Eric Yager was
extended an offer to join the Board to fill one of the newly created
vacancies, and accepted the invitation on that date. A second invitation was
extended to Mr. Frank J. Garofalo, who also accepted the invitation.
Mr. Jager is Executive Vice President of Bartlett and Company, Kansas
City, Missouri, Mr. Jager has managed investment portfolios for Bartlett and
Company since 1983 in his capacity as President of Windcrest Investment
Management, a Division of Bartlett & Company. Prior to 1983, Mr. Jager was
the Senior Vice President, Investment Analyst and Director of Research at
Eppler, Guerin & Turner in Dallas, Texas. As a member of the Executive
Committee, he was involved in top management of the regional investment
banking firm in Dallas as well as Director of the Company's overall
investment functions.
Mr. Jager is a director of the Nygaard Corporation and Scout Mutual Funds,
which include the Bond Fund, Money Market Fund, Regional Fund, Stock Fund,
Tax-Free Money Market Fund and World Wide Fund. He is a graduate of Harvard
University in Cambridge, Massachusetts and received his MBA degree from
Southern Methodist University in Dallas, Texas.
Frank J. Garofalo is the founder and Managing Partner of Garofalo &
Associates, LLC, a management consulting and financial advisory firm working
on "special assignment" primarily for electronics, software and technology
companies ranging from $10 million to over $10 billion in size. Prior to
establishing his own firm, Mr. Garofalo was a Managing Director in Corporate
Finance at PaineWebber (now UBS) focused on technology investment banking.
His career in professional services spans 30 years and over that time his
assignments have included dozens of business development, corporate
development and corporate finance projects including establishing strategic
alliances with equity positions, private placements of equity financing,
mergers, acquisitions and divestitures.
Mr. Garofalo is an expert in strategic, competitive, and market analysis with
an emphasis on positioning for maximum equity valuation. Mr. Garofalo earned
a Bachelor of Science degree in Electrical Engineering from the Massachusetts
Institute of Technology, a Master of Science degree in Electrical Engineering
from the University of Michigan, and a Master of Business Administration from
Harvard University.
Mr. Garofalo has served on a number of boards and currently is a Director of
J.M. Lafferty Associates, Inc. in Chicago, a stock and portfolio research
firm; and is a Director of Dynagraf, Inc. one of the top graphics
communications companies in New England.
Board Committees
We do not currently maintain committees of the Board of Directors, including
an independent audit committee of the Board of Directors. We also have not
currently identified a financial expert on the Board of Directors.
Code of Ethics
The Company has not yet adopted a Code of Ethics but anticipates doing so
following the election of the new Board of Directors at the Annual Meeting of
the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMNT
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of November 25,2007, based on information
available to us, by (i) each person who is known by us to own more than 5%
of the outstanding Common Stock based upon reports filed by such persons with
the Securities and Exchange Commission; (ii) each of our Company?s directors;
(iii) each of the Named Executive Officers; and (iv) all officers and
directors of our Company as a group.
Name Shares of Percentage<F1>
Common Stock
----------------- ----------------
Ernest D. Papadoyianis (O,D)<F2> 5,939,060 27.79%
Xavier T. Cherch (O,D)<F2> 5,914,377 27.67%
Robert Hipple <F2><F3> 2,179 -
Gregory A. Lewbart (D)<F2><F4> 12,500 .06%
Don C. Tewksbury (D)<F2> 12,500 .06%
James Harvey (D)<F2> 12,500 .06%
William Ryan (D)<F2> - -
Eric Yager (D)<F2> - -
Frank Garafalo (D)<F2> - -
--------------- ----------------
All officers and directors,
as a group 11,893,116 55.64%
<F1> Based upon 21,372,865 shares outstanding at November 30, 2007.
<F2> the addresses for all officers and directors is care of the Company at
21218 St. Andrews Blvd., Suite 645, Boca Raton, FL 33433.
<F3> Mr. Hipple serves as contract CFO and General Counsel of the Company,
but is not an elected officer or a director of the Company. He serves
under a Consulting Agreement between the Company and CF Consulting,
LLC, which he also serves as Managing Director, but is not a member.
Mr. Hipple owns 2,179 common shares of the Company directly. Mr.
Hipple?s wife owns 16,834 Common shares purchased in the open market,
CF Consulting, LLC owns 447,958 shares and iTrustFinancial, Inc. owns
16,667 shares, as to all of which Mr. Hipple disclaims beneficial
interest. Mr. Hipple?s wife is the owner of all of the outstanding
shares of iTrustFinancial, Inc. and is the majority (99 percent) member
of CF Consulting, LLC.
<F4> Mr. Lewbart resigned as a director of the Company for personal reasons
in May, 2007, but remains a member of the Company?s Advisory Panel
DESCRIPTION OF SECURITIES
Common stock
Neptune is authorized to issue 100,000,000 shares of common stock. As
of November 25, 2007 Neptune had 21,372,865 outstanding shares of common
stock. Holders of common stock are each entitled to cast one vote for each
share held of record on all matters presented to shareholders. Cumulative
voting is not allowed; hence, the holders of a majority of the outstanding
common stock can elect all directors.
Holders of common stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available and, in
the event of liquidation, to share pro rata in any distribution of the assets
of Neptune after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will
ever be paid.
Holders of common stock do not have preemptive rights to subscribe to
additional shares of common stock. There are no conversion, redemption,
sinking fund or similar provisions regarding the common stock.
Preferred stock
Neptune is authorized to issue 5,000,000 shares of pre3ferred stock,
with designations and classes as determined by the Board of Directors. As of
the date of this Prospectus, no preferred shares are issued and outstanding.
Debentures
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
million. Dawson James Securities received 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 received
warrants to acquire common shares on each closing of the sale of the Units
in the offering equal to twenty percent (20%) of the Units sold in the
Offering. These warrants are 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 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.
Neptune has filed a registration statement, of which this prospectus is
a part, with the Securities and Exchange Commission in order that the shares
of common stock issuable upon the conversion of the notes or the exercise of
the warrants may be resold in the public market.
The registration statement, of which this Prospectus is a part, seeks
to register common shares issuable on conversion of the debentures, common
shares issuable on exercise of the warrants, and common shares issued as
payment in kind of interest.
If the registration statement, of which this prospectus is a part,
ceases to be effective for any reason or the registration statement is
unavailable to the note holders and the lapse or unavailability continues for
a period of ten or more consecutive trading days, or fifteen trading days
which need not be consecutive, in any twelve month period, then in addition
to any other rights the note holders may have, Neptune will pay to each note
holder an amount equal to 1.5% of the outstanding principal of the notes for
each month that the registration statement cannot be used, unless the common
shares may otherwise be traded freely under Rule 144..
A total of $2,713,000 was received as a result of this offering,
resulting in net proceeds to the Company of $2,360,310, after placement fees
of $271,300 and expenses allowances of 81,390, which was paid to Dawson James
Securities.
Notes and Warrants Held by Private Investors
See "Comparative Share Data" for information concerning the terms of
Notes and warrants held by private investors.
Transfer Agent
Interwest Transfer Company, Inc.
1981 East Murray/Holladay Road, Suite 100
Salt Lake City, UT 84117
INTEREST OF NAMED EXPERTS AND COUNSEL
a. Experts. No experts, including the Company?s independent auditors,
have
been hired on a contingent basis, and will not receive a direct or
indirect interest in the Company, and was not a promoter, underwriter,
voting trustee, director, officer or employee of the Company.
b. Counsel. Robert Hipple, who has participated in the preparation of the
registration statement of which this Prospectus is a part, was not
hired on a contingent basis, will not receive a direct or indirect
interest in the Company, and is not a promoter, underwriter, voting
trustee, director, officer or employee of the Company. Mr. Hipple
serves the Company in the function of Chief Financial Officer as a
designate of CF Consulting, LLC, pursuant to a consulting agreement
between the Company and CF Consulting, LLC.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
The current By-Laws and other governing documents of Neptune do not
contain
an indemnification of the officers and directors of the Company against
misconduct or negligence; however, the Company does maintain directors? and
officers? insurance coverage.
Insofar as indemnification for liabilities arising under the Securities
Act
of 1933 (the ?Act?) may be permitted to directors, officers and controlling
persons of a small business issuer, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
DESCRIPTION OF BUSINESS
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
Business
We were 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. 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.
Our mission is to be 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 Aqua-Sphere technology which 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 Xavier T.
(Sal) Cherch began designing and testing what today is known as the Aqua-
Sphere System over 9 years ago. The Aqua-Sphere System is designed to address
and resolve the concerns of environmentalists. Today, through a contractual
arrangement, Neptune itself has spent over 7 years and more than three
million dollars in completing the development of the Aqua-Sphere 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) 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, the Company completed a state of the art nursery
expansion in order to increase production capacity of its sashimi quality
hybrid striped bass (branded as Everglades Striped Bass)by over 25%. 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 48 acre site under production at this time, the Company has the
capability of producing close to two million pounds of fish per year from
this site alone when the site is fully developed.
Management focused its efforts on further research and development of the
various components of the Aqua-Sphere 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 fed at specific times of the day. This insures a more rapid growth
rate, with less waste. Through the development and operation of three
previous pilot farms, Neptune improved its 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
farms purchase fingerling fish, raise the product to market size(1.25 to 2+
pounds), and then harvest and distribute 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 through independent wholesalers and
distributors allow us to bring our products to market faster and cheaper than
the 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 Aqua-Sphere System with the
establishment of the test facility at a quarry lake in Florida City, Florida
by Aqua Biologics.
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 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 the Aqua-Sphere 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.
Technology
The Aqua-Sphere System incorporates many features which make it suitable for
all parts of the world. The Company continues to be deluged with inquiries.
The Aqua-Sphere 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 Aqua-
Cell) in a variety of sizes or several Aqua-Cells can be interconnected into
pods to create the Aqua-Sphere. In a pod configuration, each Aqua-Cell is
connected to another via an underwater conveyance pipe. This allows the
operator to move fish from Aqua-Cell to Aqua-Cell without removing them from
the water, or handling. Therefore, an Aqua-Sphere 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 Aqua-Cell 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.
We have already entered into an arrangement with The Redland Company,
Inc. of Homestead, Florida to utilize a 38 acre quarry lake site for testing
of the Aqua-Sphere prototype. This site is close to our current 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 it. Site operations are
fully underway with the new prototype tank delivered, assembled and launched.
Tests of the prototype are well underway, as are the related production of
methane from fish waste and production of herbs and vegetables with the fish
waste by-products.
On September 27, 2006, the Company filed a Provisional Process Patent on the
Production and Processing of Select Insects into Protein Meal for Fish and
Animal Diets. This patent and research was born out of the tremendous need
for replacement of fish meal in fish and other livestock diets worldwide.
Fish meal has gone up in price considerably over the last year and the wild
species targeted for fish meal production are growing scarcer over time. In
January, 2007, CEO, Ernest Papadoyianis, and COO, Sal Cherch, were invited to
Mississippi State University to meet with members of its Entomology
Department to discuss research activities for the Company. Mississippi State
is a world leader in insect rearing methodology and has been instrumental in
developing facilities, diets, and rearing methods for facilities worldwide.
The Company completed the first phase of its research with very promising
results. The initial nutritional profiles of the selected insect species
closely matched those of fishmeal, with certain elements exceeding those of
fishmeal. The second phase of research with actual feeding trials of the
experimental Ento-Protein? diet on hybrid striped bass in order to assess
acceptability, and flesh flavor, has been completed successfully. The third
phase of testing, now underway, will measure growth rates as well as flavor
of the resulting harvested fish.
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 a diversification of our product line.
The Company also intends to diversify its operations to include marine
products such as baitfish for the multi-million dollar sport fishing market;
integrated hydroponic production of 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
Aqua-Sphere? 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.
The Company also has identified and has begun acquisition discussions with a
number of acquisition candidates which will allow the Company to expand its
business plan to develop an operating model which utilizes waste and by-
products from one operation as fuel or feed for other parts of the business
model, with the goal of minimizing or eliminating all adverse environmental
impacts from the Company?s operations. These targets include hatchery
operations, processing and distribution operations, larger aqua-farms, and
operations in other natural and organic food products. The goal of the
Company is to grow to become a manufacturer and distributor of organic and
natural seafood and other food and nutritional products using processes that
eliminate or at least minimize any adverse effect on the environment by
controlling waste and discharge from its operations.
TWELVE MONTHS ENDED JUNE 30, 2007 COMPARED TO THE TWELVE MONTHS ENDED
JUNE 30, 2006.
REVENUE
Revenue for the 12 months ended June 30, 2007 was $851,141, compared to
$527,155 for the 12 months ended June 30, 2006. Revenue decreased in 2006
due to the impact of two Category 1 hurricanes which struck in September
and October of 2005 at the Blue Heron Farm.
COST OF SALES
Cost of sales was $1,025,089 for the year ended June 30, 2007, as
compared to $788,765 for the twelve months ended June 30,2006. Cost of sales
increased primarily due to increases in gross sales.
Inventory Fluctuations
The Company?s 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.
Inventory Adjustment
Inventory is stated at the lower of cost (first-in, first-out method) or
market. The inventory consists of raw materials, such as salt, oxygen and
feed, and work in process, represented by the pounds of fish growing in
the separate tanks and raceways on the farm property.
During all prior periods ending June 30, 2007, the Company measured its
inventories and cost of sales based upon a pre-determined average cost per
pound applied to the total pounds of fish at the end of each accounting
period. The Company then added in certain additional costs for raw materials
and overhead to arrive at the ending inventory figures and to determine cost
of sales. Management is now of the opinion that this method has overstated
inventory and costs of sales substantially over the past five years, and has
not accurately reflected the true operating costs of the business of Blue
Heron.
Effective July 1, 2007, the beginning of the current fiscal year, the Company
has changed its method of accounting for its inventory, by adopting a process
inventory system. Under this system, all direct costs of production and the
cost of raw materials used each month are allocated to the separate raceways
and tanks on the farms in proportion to the number of pounds in each against
the total pounds of fish on the farm at the end of each month. This results
in a direct cost allocation to each tank and raceway each month, based on the
total actual costs for the month. As fish are harvested, the costs allocated
to each tank or raceway from which fish are harvested are then charged to
cost of sales, on a proportionate basis.
Inventory as reported on the June 30, 2007 audited financial statements
was $420,926, exclusive of raw materials, and there were 135,931 pounds of
growing fish on hand, resulting in a cost per pound of approximately $3.10,
an amount substantially in excess of the average selling price of $2.85 per
pound. This higher cost is a direct result of the several years of double
counting of certain costs in measuring inventory under the previous system.
Actual costs for the inventory in the opinion of management is approximately
$2.20 per pound, based on actual costs incurred as well as general cost
information available for other producers. Accordingly, management has
determined that July 1, 2007 inventory should be reduced to $222,523 a
reduction of $222,460. This reduction in value has been charged directly to
the accumulated deficit of the Company, because the Company is unable to
determine the period-specific effects of the accounting change, for lack of
information measuring the requisite amounts in prior periods. This reporting
is in conformity with FASB 154, Accounting Change and Error Corrections,
Interpretation No. 1.
Inventory at July 1, 2007 consisted of the following, as a result of this
write down:
Work in process $ 198,466
Raw materials 24,057
Total $ 222,523
Inventory at September 30, 2007 consisted of the following:
Work in process $ 384,197
Raw materials 43,285
Total $ 427,482
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses (G&A) were $1,636,646 for the twelve
months ended June 30, 2007,compared to $697,032 for the twelve months ended
June 30, 2006 an increase of $939,614 or approximately 135 percent. However,
this increase included one-time expenses related to the successful offering
of the convertible debentures, including offering expenses of $287,778,
placement fees of $280,000 paid to Dawson James Securities in common stock,
$60,000 in consulting fees to Dawson James for a one year consulting
agreement which ended May 31, 2007, and $180,000 in increased public
relations fees, paid in common stock, related to the offering. In addition, a
share based compensation expense of $194,293 was incurred during the year
ended June 30, 2007 for stock options issued to officers, directors and key
employees. If these items, totaling $1,002,071, are removed, the resulting
G&A expenses of $634,575 are less than those of the two prior periods.
The primary components of G&A during the twelve months ended June 30, 2007
after removing the items noted above, were officer?s salaries ($353,799),
outside services ($143,395) and other operating expenses ($46,818), including
utilities, postage, travel and similar items. Outside services included
consulting expenses of $78,000 for the services of CF Consulting, LLC as
contract CFO and General Counsel.
We expect G&A expenses to remain substantially the same in the coming
twelve months, after eliminating the one-time items. We intend to focus on
operating efficiencies, increasing revenues, and ensuring profitability
during this period.
NET LOSS
Our net loss before taxes for the twelve months ending June 30, 2007
was ($2,156,740) as compared to ($1,044,421) for the twelve months ended June
30, 2006, an increase of $1,112,319 or approximately 106.5 percent. Nearly
all of this increase is attributable to the one-time expense related to the
debenture offering.
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 300,000 lbs of production per
year. The Company?s 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.
LIQUIDITY AND CAPITAL RESOURCES
During the twelve-month period ended June 30, 2007, operating expenses
were $1,636,646 as compared to $697,032 for the same period in 2006. The
increase in operating expenses is mainly a result of the one-time costs
associated with the debenture offering. We intend to continue to find ways to
expand our business through new product development and introduction,
increase capacity and possibly through completing planned acquisitions.
We believe that revenues and earnings will increase as we grow. We anticipate
that we will incur smaller losses in the near future if we are able to expand
our business and the marketing of our products and services now under
development. Our operating losses as shown may be perceived as alarming and
possibly indicate a downward spiral leading to the demise of the company;
however, from a management point of view, there is a positive side to the
operating losses. Although our net loss increased by 101 percent in 2007,
that increase was primarily attributable to increased expenses as a result of
the successful debenture offering, which raised a total of $2.7 million in
funds for the Company. Without this expenditure in 2007, we would have had a
smaller loss in 2007 than in 2006. In addition, our net operating loss will
allow us to accumulate cash without paying taxes in the foreseeable future as
we become profitable.
During the twelve months ended June 30, 2007 we generated a net loss of
($2,156,740). During the twelve months ended June 30, 2007, we used cash in
operating activities of ($978,874), cash used in investing activities was
($22,836), and cash provided by financing activities was $2,205,362.
In March, 2007 we closed the convertible debenture offering, which was over-
subscribed at a total of $2,713,000. After commissions and expenses, the
Company netted $2,300,310. Offering expenses included a one year consulting
contract with Dawson James for $5000/month through May, 2007. Management
intends to use the funding to expand its fish farming operations; advance its
Aqua-Sphere? system technology and Ento-Protein? research; and provide
working
capital.
OFF-BALANCE SHEET ARRANGEMENTS.
We currently do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 1 to the financial statements which are included as part of
this
prospectus.
Critical Accounting Policies
Neptune's significant accounting policies are more fully described in
Note 2 to the Financial Statements included as a part of this prospectus.
However, certain accounting policies are particularly important to the
portrayal of financial position and results of operations and require the
application of significant judgments by management. As a result, the
consolidated financial statements are subject to an inherent degree of
uncertainty. In applying those policies, management uses its judgment to
determine the appropriate assumptions to be used in the determination of
certain estimates. These estimates are based on Neptune's historical
experience, terms of existing contracts, observance of trends in the
industry and information available from outside sources, as appropriate.
Neptune's significant accounting policies include:
Revenue Recognition. Neptune recognizes revenue in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 104 ("SAB
104"), "Revenue Recognition in Financial Statements." Revenue is recognized
only when the price is fixed or determinable, persuasive evidence of an
arrangement exists, the service is performed, and collectibility is
reasonably
assured. Neptune's revenue through its Blue Heron subsidiary is recognized
when the farm raised fish are shipped to customers or are picked up at the
Blue Heron farm by or for customers.
Long-lived Assets. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", the carrying value of
intangible
assets and other long-lived assets is reviewed on a regular basis for the
existence of facts or circumstances that may suggest impairment. Neptune
recognizes an impairment when the sum of the expected undiscounted future
cash
flows is less than the carrying amount of the asset. Impairment losses, if
any,
are measured as the excess of the carrying amount of the asset over its
estimated fair value.
Stock Options - Prior to January 1, 2006, the Company accounted for
stock-based awards under the recognition and measurement provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" using the intrinsic value method of accounting.
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123R "Share Based Payments" ("SFAS 123R"), using the
modified prospective transition method. Under that transition method,
compensation cost is recognized for all share-based payments granted prior
to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS 123, and
compensation cost for all share-based payments granted subsequent to January
1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R.
All transactions in which goods or services are the consideration
received
for the issuance of equity instruments are accounted for based on the fair
value of the consideration received or the fair value of the equity
instrument
issued, whichever is more reliably measurable. Equity instruments issued to
employees and the cost of the services received as consideration are
measured and recognized based on the fair value of the equity instruments
issued.
DESCRIPTION OF PROPERTY
We currently do not maintain separate offices, and our current address is
only a mail box address used for that purpose. Our officers currently work
from home offices in order to conserve capital and do not charge us for such
use.
Our subsidiary, Blue Heron, operates a fish farm under a management agreement
with South Florida Aquaculture, Inc., which holds a lease on a forty eight
acre parcel of land owned by the South Florida Water Management District with
a remaining term of nine years. The management agreement also has nine years
remaining. Our Director, James M. Harvey, is President and majority
shareholder of South Florida Aquaculture, Inc. Aqua Biologics leases part of
a quarry lake in Florida City, Florida for operation of the Aqua-Sphere test
facility, on a two year lease arrangement.
Our subsidiary Aqua Biologics, Inc. operates a test facility for the Aqua-
Sphere System at a quarry lake in Florida City, Florida on a two year lease
at a monthly rent of $ 1,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James Harvey, one of our Directors, is also President and majority
shareholder of South Florida Aquaculture, Inc., which holds the leasehold
interest on the forty-eight acre tract of land, owned by the South Florida
Water Management District, on which our subsidiary, Blue Heron, operates the
farm, under a management agreement with South Florida Aquaculture, Inc. The
term of the management agreement is the same as the remaining lease term. The
Company also owns a minority interest in South Florida Aquaculture, Inc.,
which is held for the Company in the name of our President, Ernest
Papadoyianis, because the latter is a Subchapter S corporation for federal
income tax purposes. Blue Heron, the Company?s operating subsidiary, has
entered into an agreement to acquire a majority interest (89 percent) in
South Florida Aquaculture, Inc. from Mr. Harvey and another unrelated
shareholder in exchange for a total of 105,000 shares of Neptune common
stock. The transaction is subject to due diligence results to Neptune?s
satisfaction, and the approval of the change of control of South Florida
Aquaculture, Inc. by the owner of the farm property, the South Florida Water
Management District, a Florida government agency, as required by the lease.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 30, 2007, our common shares traded under the symbol NPDI on the
OTC Bulletin and on The Pink Sheets. Activity in our common stock is
reflected in the following table:
FISCAL YEAR 2007 HIGH LOW
First Quarter $ 0.40 $ 0.21
Second Quarter 0.39 0.15
Third Quarter 0.43 0.13
Fourth Quarter 0.64 0.35
FISCAL YEAR 2006 HIGH LOW
First Quarter $ 0.70 $ 0.29
Second Quarter 0.48 0.15
Third Quarter 0.48 0.16
Fourth Quarter 0.45 0.22
These quotations reflect inter-dealer prices, without mark-up, mark-down or
commission, as reported through CBS MarketWatch.com and may not represent
actual transactions.
As of November 30, 2007, we had 21,372,865 shares of our common stock
outstanding. This includes 6 million shares of common stock issued on the
conversion of 5 million shares of Class A Convertible Preferred Stock which
had been outstanding. Our shares of common stock are held by approximately
163 stockholders of record. The number of record holders was determined from
the records of our transfer agent and does not include beneficial owners of
common stock whose shares are held in the names of various security brokers,
dealers, and registered clearing agencies. A recent NOBO list indicated an
additional 1,051 beneficial shareholders in addition to those listed by the
transfer agent.
Holders of common stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available and, in
the event of liquidation, to share pro rata in any distribution of Neptune's
assets after payment of liabilities. The Board of Directors is not obligated
to declare a dividend. Neptune has not paid any dividends on its common stock
and Neptune does not have any current plans to pay any common stock
dividends.
EXECUTIVE COMPENSATION
Executive Compensation
During the fiscal year ended June 30, 2007, Mr. Cherch and Mr. Papadoyianis
were entitled to compensation in the amount of $180,000 each under the
employment agreements signed by each of them with the Company effective
February 1, 2000, for five year terms, which agreements have been renewed
automatically for an additional five year term. A portion of the salaries
due
have been accrued during the fiscal year ended June 30, 2007 for future
payment and the accrued portion is included in Accrued and Other Current
Liabilities on our financial statements. The Company also has entered into a
consulting agreement with CF Consulting, LLC to provide services as Chief
Financial Officer for the Company, at a current monthly amount of $6,000,
plus 250,000 shares of our restricted common stock, effective March 31, 2006.
A total of $82,500 has been accrued as of June 30, 2007 under this consulting
and a similar, prior consulting arrangement
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
In fiscal years ended June 30, 2007 and 2006, respectively, two of our
officers were entitled to compensation in excess of $100,000, as reflected
in
the table below. There were no stock options, warrants or similar grants to
any
officer or director, made during the fiscal year ended June 30, 2007, except
for the following stock options granted effective July 1, 2006, or for the
period up to the date of this Prospectus:
To each independent (non-management) director:
5,000 shares for each full year of service at the end of each fiscal
year (June 30), as follows:
James M. Harvey 17,500 shares
Don Tewksbury 40,000 shares
Gregory A. Lewbart 40,000 shares
To the following officers and employees:
Ernest Papadoyianis 500,000 shares
Xavier T. Cherch 500,000 shares
Robert Hipple (to CF Consulting) 250,000 shares
Michael Joubert 15,000 shares
-----------
1,362,500 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 the grant of the option. The
options became effective at July 1, 2006, at which time, the trading price of
the common shares was $0.30.
The Company applied the reporting requirements of SFAS No. 123, Accounting
for Stock-Based Compensation using the Black-Scholes Model for valuing stock
options. We applied a stock price of $0.30 per share, the market price on
the
date the options became effective, an option strike price of $0.3133 per
share,
a 10 year maturity for the options, a risk free interest rate of 5 percent,
and
a volatility factor of 20 percent. This resulted in a valuation for each
option
at $0.1426 per share, or a total value of $194,292.50 for the 1,362,500
options
granted.
The following table provides certain summary information concerning
the compensation earned by the named executive officers (determined as of the
end of the last fiscal year) for services rendered in all capacities
to the Company and its subsidiaries:
ANNUAL COMPENSATION LONG TERM
COMPENSATION
------------------------ -------------------
- ------------
- -
AWARDS
PAYOUTS
---------------------
- ---------
RESTRICTED
SECURITIES
OTHER ANNUAL STOCK UNDERLYING
LTIP
ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S)
OPTIONS/SARS
PAYOUTS COMP.
PRINCIPAL POSITION YEAR<F1>($)<F2> ($) ($) ($) (#)
($)
($)
Ernest Papadoyianis 2005 180,250 0 0 0 0
0 0
2006 180,250 0 0 0 0
0 0
2007 180,250 23,824 0 0 500,000
0 0
X.T. ?Sal? Cherch 2005 180,250 0 0 0 0
0 0
2006 180,250 0 0 0 0
0 0
2007 180,250 23,824 0 0 500,000
0 0
Robert Hipple <F3> 2005 10,000 0 8,000 0 0
0 0
2006 34,000 0 15.000 0 0
0 0
2007 66,000 0 0 0 250,000
0 0
<F1> Refers to fiscal years ending June 30.
<F2> The amounts referred to as salary reflect salaries accrued for each
named officer and do not necessarily reflect amounts actually paid
during the fiscal year.
<F3> The amounts listed reflect amounts paid or due to CF Consulting, LLC
for its contracted services, through which Mr. Hipple acts as CFO and
General Counsel. CF Consulting also was issued 16,667 shares of
restricted common stock in 2005 as part of this compensation, valued
at $8,000, and 250,000 shares of restricted common stock in 2006 as
part of this compensation, valued at $15,000, and received an option
grant of 250,000 shares in 2007.
Neptune does not have an audit committee or a compensation committee.
The directors of Neptune approve their own compensation since decisions
regarding compensation to be paid to the officers and directors of Neptune
are made by the directors by resolutions adopted by unanimous written
consent. Neptune does not have any policy which prohibits or limits the power
of directors to approve their own compensation.
FINANCIAL STATEMENTS
The consolidated audited financial statements of Neptune Industries,
Inc. for the fiscal years ended June 30, 2006 and 2007, and the interim
financial statements for the quarter ended September 30, 2007, which were
reviewed by our independent accountants, are included at the end of this
Prospectus.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS
ON ACCCOUNTING AND FINANCIAL DISCLOSURE
On December 29, 2006, the Registrant was advised by letter dated December 19,
2006 that its former certifying accountants, Dohan & Company, CPAs of Miami,
Florida, that it would not continue its engagement as the Registrant?s
certifying accountant following the completion of the audit of the Company?s
financial statements for the fiscal year ended June 30, 2006. In accordance
with Item 304(a)(1) of Regulation S-B of the SEC, the Company is providing
the following information:
1. The former accountant, Dohan & Company, CPAs, resigned the engagement
by letter dated December 19, 2006, received on December 29, 2006.
2. The former principal accountant?s reports on the financial statements
of the Company for the last two fiscal years ending June 30, 2006 and June
30,
2005, did not contain an adverse opinion or disclaimer of opinion, and were
not modified as to uncertainty, audit scope, or accounting principles.
3. The decision to change accountants was not recommended or approved by
the Board of Directors of the Company or an audit or similar committee of the
Board of directors.
4. There were no disagreements with the former accountants, whether or
not
resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved
to the former accountant?s satisfaction, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report, and no such disagreements have ever been communicated to the Company.
On February 1, 2007, the Registrant engaged Berman, Hopkins, Wright & LaHam,
CPAs and Associates, LLP, of Winter Park and Viera, Florida, as its
certifying accountants to review its interim financial statements for the
fiscal year 2007 and to audit its financial statements for the fiscal year
ended June 30, 2007. The appointment of Berman, Hopkins, Wright & LaHam was
reported as required on a Form 8-K report filed by the Company with the SEC
on February 5, 2007. Berman, Hopkins, Wright & LaHam is a registered
accounting firm with the Public Company Accounting Oversight Board. The new
certifying accountant?s reviewed the financial statements and Forms 10-QSB of
the Company for the fiscal quarters ended September 30, 2006 and December 31,
2006.
The Registrant?s former certifying accountants, Dohan & Company, CPAs,
completed the audit of the Registrant?s financial statements for the fiscal
year ended June 30, 2006, and the audit report of the former accountants for
that period did not contain an adverse opinion or disclaimer of opinion,
and was not modified as to uncertainty, audit scope, or accounting
principles. The former auditor did not review the Form 10-QSB and Form 10-
QSB/A filed by the Registrant for the quarterly period ended September 30,
2006 as filed with the SEC. Registrant?s new independent auditors, Berman,
Hopkins, Wright & LaHam, reviewed the Form 10-QSB/A for the quarter ended
September 30, 2006, filed by the Company and approved that form as filed,
and also reviewed and approved the Forms 10-QSB for the second and third
quarters ended December 31, 2006 and March 31, 2007.
The resignation of Dohan & Company as our certifying accountants was
reported in the Form 10-QSB/A for the quarter ended September 30, 2006, filed
with the SEC on January 5, 2007, and again on Form 8-K filed with the SEC on
February 6, 2007. The latter also reported on the engagement of Berman,
Hopkins, Wright & LaHam, CPAs and Associates, as our new certifying auditor.
AVAILABLE INFORMATION
Neptune is subject to the informational requirements of the Securities
Exchange Act of l934 and in accordance therewith is required to file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Copies of any such reports, proxy statements
and
other information filed by Neptune can be inspected at the public reference
facility maintained by the Securities and Exchange Commission at 100 F Street
NE, Washington, D.C., 20549 Copies of such material can be obtained at
prescribed rates. Certain information concerning Neptune is also available at
the Internet Web Site maintained by the Securities and Exchange Commission at
www.sec.gov. Neptune has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 (together with all amendments and
exhibits)under the Securities Act of 1933, as amended (the "Act"), with
respect to the securities offered by this prospectus. This prospectus does
not
contain all of the information set forth in the Registration Statement,
certain
parts of which are omitted in accordance with the rules and regulations of
the
Securities and Exchange Commission. For further information, reference is
made
to the Registration Statement.
Audited Financial Statements
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007 and 2006
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
C O N T E N T S
_______
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
FINANCIAL STATEMENTS
Audited Consolidated Balance Sheet F-4
Audited Consolidated Statements of Operations F-6
Audited Consolidated Statements of Cash Flows F-7
Audited Consolidated Statements of Stockholders?
Equity (Deficiency in Assets) F-7
Notes to Audited Consolidated Financial Statements F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Neptune Industries Inc.
We have audited the accompanying consolidated balance sheet of Neptune
Industries, Inc. and Subsidiaries (the Company) as of June 30, 2007, and
the related consolidated statements of operations, stockholders? equity
(deficiency in assets) and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company?s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
The consolidated financial statements of Neptune Industries, Inc. and
Subsidiaries as of June 30, 2006 were audited by other auditors whose report
dated October 13, 2006 included an explanatory paragraph describing
conditions that raised substantial doubt about the Company?s ability to
continue as a going concern.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company?s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Neptune
Industries, Inc. and Subsidiaries as of June 30, 2007, and the results of
their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has a deficiency in assets which
raise substantial doubt about its ability to continue as a going concern.
Management?s plans in regard to these matters are also described in Note 2
to the consolidated financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Berman Hopkins Wright & Laham, CPAs and Associates, LLP
October 15, 2007
Winter Park, Florida
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of Neptune
Industries, Inc. and Subsidiaries (the Company) as of June 30, 2006 and the
related consolidated statements of operations, cash flows and stockholders?
equity (deficiency in assets) for the year then ended. These consolidated
financial statements are the responsibility of the Company?s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatements. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Neptune Industries, Inc. for the year ended June 30, 2006 in
conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring
losses from operations and recurring deficiencies in working capital that
raise substantial doubt about its ability to continue as a going concern.
Management?s plans in regard to these matters are also described in Note
2 to the consolidated financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Dohan and Company CPAs, P.A.
Miami, Florida
October 13, 2006
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 2007
ASSETS
Current Assets
Cash $ 1,480,590
Accounts Receivable 70,183
Inventory 444,982
Prepaid expenses 3,218
Deposits 38,197
Deferred Costs 44,483
---------------
Total Current Assets 2,081,653
Property and Equipment Net 387,045
---------------
Total Assets $ 2,468,698
===============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
Liabilities
Current Liabilities
Accounts payable $ 90,347
Accrued and Other Current Liabilities 599,331
Current Portion of Long-Term Debt 338
Notes Payable 285,000
Notes Payable-Officers 107,388
---------------
Total Current Liabilities 1,082,404
Long-term Liabilities:
Convertible notes 229,213
Long-Term Debentures 2,713,000
Stock based compensation 194,293
---------------
Total Long-Term Liabilities 3 136,506
---------------
Total Liabilities $ 4,218,910
---------------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 7 AND 8)
Stockholders? Equity (Deficiency in Assets)
Preferred Stock, $.001 par value,
5,000,0000 shares authorized, 0 and
5,000,000 shares issued and outstanding -
Common Stock, $.001 par value
100,000,000 shares authorized,
19,966,199 and 11,349,269 shares
issued and outstanding 19,966
Additional Paid-In Capital 5,183,450
Accumulated Deficit (6,953,628)
--------------
Total Stockholders? Equity
(Deficiency in Assets) (1,750,212)
--------------
Total Liabilities and Stockholders? Equity
(Deficiency in Assets) $ 2,468,698
==============
See accompanying notes.
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30,
2007 2006
------------- --------------
Revenues:
Sales $ 851,141 $ 527,155
Cost of Sales 1,025,089 788,765
------------ ------------
Gross Loss (173,948) (261,610)
------------ ------------
Expenses:
Advertising and marketing - 1,506
Automobile and truck 21,199 36,325
Depreciation 713 3,771
Insurance 33,991 43,433
Office 6,185 5,954
Officers salary, related
taxes and benefits 354,308 332,301
Other operating expenses 334,622 110,712
Outside services 539,952 102,920
Professional fees 26,118 30,945
Public relations 114,823 15,737
Rent - 4,950
Repairs - 259
Stock based compensation 194,293 -
Utilities 10,442 8,219
----------- ------------
Total expenses 1,636,646 697,032
----------- ------------
Loss before interest and
income taxes $ (1,810,594) $ (958,642)
Interest Expense (434,380) (85,779)
Other income 88,234 -
----------- -----------
Loss before income taxes (2,156,740) (1,044,421)
Provision for income taxes - -
----------- -----------
Net loss $ (2,156,740) $ (1,044,421)
=========== ===========
Net loss per share (basic
and diluted) $ (0.17) $ (0.10)
=========== ===========
Weighted average number of common
shares outstanding (basic
and diluted) 12,499,548 10,888,529
=========== ===========
See accompanying notes
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
June 30,
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,156,740) $ (1,044,421)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 68,160 70,231
Common stock issued for interest 305,642 -
Common stock exchanged for services 447,526 -
Stock based compensation 194,293 -
(Increase) decrease in assets:
Accounts receivable (1,763) (787)
Inventory 53,506 (90,654)
Prepaid expenses (2,113) 6,869
Deposits on equipment (21,817) (2,500)
Deferred costs (15,904) (18,369)
Increase (decrease) in liabilities:
Accounts payable (47,976) 33,923
Accrued and other current liabilities 198,312 279,585
----------- ----------
Net cash used by operating activities (978,874) (766,123)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Notes receivable - 5,000
Acquisition of property and equipment (21,836) (14,577)
---------- ----------
Net cash provided (used) by investing activities (21,836 (9,577)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock - 319,350
Proceeds from convertible notes 229,213 110,949
Payments on convertible notes (252,500)
(25,000)
Proceeds from long-term debt-related party 17,500 89,888
Proceeds from debentures 2,213,000 500,000
Payments on long-term debt-related party -
(70,000)
Payments on long-term debt (1,851)
(4,787)
Increase in member equity -
(12,766)
---------- ---------
- -
Net Cash provided by financing activities 2,205,362 907,634
---------- ---------
- -
Net Increase (Decrease) in
cash and equivalents 1,204,652 131,934
Cash and equivalents-beginning 275,938 144,004
---------- ---------
- -
Cash and equivalents-ending $ 1,480,590 $ 275,938
==========
==========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 40,600 $ 85,779
Income taxes $ - $ -
See accompanying notes
NEPTUNE INDUSTRIES INC.
AND SUBSIDIARIES
AUDITED STATEMENTS OF STOCKHOLDERS?EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED June 30, 2007 AND 2006
Total
Stockholders?
Equity
Common Stock Preferred Stock Paid-In
Accumulated
(Deficiency
Shares Amount Shares Amount Capital
Deficit in
Assets)
---------- -------- ------- --------- --------- -------
- ----- -----
- ------
Balance 6/30/2005 10,532,633 $10,533 5,000,000 $5,000 $ 4,115,367
$(3,486,673)$644,227
Adjust for subsidiary
investment loss - - - - 117,965
(265,794)(147,829)
Shares issued for
conversion of
debt 236,406 236 - - 157,967
- -
158,203
Shares issued for
services 400,000 400 - - 42,600
- -
43,000
Shares issued as
Incentive 180,000 180 - - -
- -
180
Shares issued for
rounding on reverse 230 - - - -
- -
Net loss for the
year ended - - - - -
(1,044,421)(1,044,421)
-------------------------------------------------------
- --------------
- --------
Balance 6/30/2006 11,349,269 $11,349 5,000,000 $5,000 $ 4,433,899
$(4,796,888)$
(346,640)
Shares issued on
conversion of
preferred 6,000 000 6,000(5,000,000) (5,000) (1,000)
- -
- -
Shares issued to
pay interest 870,680 871 - - 304,771
- -
305,642
Shares issued for
services (net) 1,600,000 1,600 - - 445,780
- -
447,380
Shares issued as
Incentive 146,250 146 - - -
- -
146
Net loss for the
year ended - - - - -
(2,156,740)(2,156,740)
=============================================================================
=
Balance 6/30/2007 19,966,199 19,966 - - $ 5,183,450
(6,953,628)(1,750,212)
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
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
Company?s main activities have been devoted to raising capital; implementing
its business plan; commencing operations through its subsidiary, Blue Heron
Aqua Farms, LLC; developing, testing and patenting (pending) the Aqua-Sphere
and Aqua-Cell (formerly known as S.A.F.E. ) technologies; and completing the
food science bio-technology research to discover a suitable protein
substitute
for fish meal in animal diets.
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,
with 8 years remaining. This site has become the cornerstone of the Company?s
South Florida operations 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. Common shares of the Company, are listed on
the
OTC Bulletin Board and continue to be listed on the OTC Pink Sheets under the
trading symbol NPDI. This transaction was accounted for as a reverse merger.
Basis of Presentation
The consolidated financial statements include the accounts of Neptune
Industries, Inc. and its wholly-owned subsidiaries, Aqua Biologics, Inc.
(corporate name changed from Aquaculture Specialties, Inc. in June, 2006)
and its majority owned subsidiary, Blue Heron Aqua Farm, LLC (Blue Heron).
All inter-company balances and transactions have been eliminated at
consolidation.
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.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
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 when a customer picks up product at the Company?s facilities.
Allowances for sales returns are recorded as a component of net sales in the
period the allowances are recognized.
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?s financial statements compared to the tax returns.
Advertising and marketing costs
Advertising and marketing costs are expensed as incurred. Advertising and
marketing expense was $0 and $3,184 for the years ending June 30, 2007,
and 2006 respectively.
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 June 30, 2007, the Company had cash
on
deposit exceeding the insured limit; however, the Company maintains its
deposits at Bank of America, a major financial institution, and considers the
risk of loss to be minimal, as a result. The Company operates domestically
and
internationally. Consequently, the ability of the Company to collect the
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
amounts due from customers may be affected by economic fluctuations in each
of
the Company?s customers? geographic locations.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109. FIN 48 prescribes a
comprehensive financial statement model of how a company should recognize,
measure, present, and disclose uncertain tax positions that the company has
taken or expects to take in its income tax returns. FIN 48 requires that
only income tax benefits that meet the more likely than not recognition
threshold be recognized or continue to be recognized on the effective date.
Initial de-recognition of amounts would be reported as a cumulative effect of
a change in accounting principle. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The adoption of FIN 48 did not have a
material impact on the financial statements of the Company.
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements,
which establishes a framework for reporting fair value and expands
disclosure about fair value measurements. FAS 157 is effective for the
2008 fiscal year of the Company. The Company is currently evaluating the
impact of this standard on its financial statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, Including an Amendment of
FASB Statement 115. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. FAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company
is currently evaluating the impact of adopting FAS 159 on its financial
statements.
In June 2007, the FASB approved the issuance of Emerging Issues Task
Force Issue No. 06-11 ?Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards?. EITF 06-11 requires that tax benefits from
dividends paid on unvested restricted shares be charged directly to
stockholders? equity instead of benefiting income tax expense. This EITF is
effective for financial statements issued for fiscal years beginning after
September 15, 2007. The Company is currently evaluating the impact of EITF
06-11 but does not expect that it will have a material effect on our
financial statements.
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-
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006 (AUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
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 at June 30,
2007 and 2006 consisted of the following:
2007 2006
Seafood $ 119,690 $ 108,446
Feed 107,182 154,344
Chemicals 92,042 98,711
Overhead 126,068 136,987
----------- -----------
$ 444,982 $ 498,488
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.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006 (AUDITED)
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming
that the Company will continue as a going concern. The Company?s financial
position and operating results raise substantial doubt about the Company?s
ability to continue as a going concern, as reflected by the accumulated
deficit of $6,953,628 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. Management?s
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:
2007 2006
------------- -----------
Vehicles $ 17,578 $ 17,578
Computer and office equipment 7,713 7,713
Equipment 629,518 629,518
Leasehold improvements 139,734 139,734
------------- ------------
816,414 794,543
Accumulated depreciation (429,369) (361,174)
------------- -------------
Property and equipment, net $ 387,045 $ 433,369
============= =============
Total depreciation expense for the years ended June 30, 2007 and 2006,
amounted to $66,972 and $70,230, respectively. Of these amounts, $66,259
and $68,879 are included in cost of sales and $713 and $1,351 are
included in expenses for the years ended June 30, 2007 and 2006,
respectively.
NOTE 4. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other liabilities consisted of the following:
2007 2006
------------ ------------
Accrued payroll - officers $ 487,950 $ 312,947
Accrued interest - officers 83,468 28,592
Accrued interest - others 28,014 59,480
------------ ------------
$ 599,932 $ 401,019
============ ============
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006 (AUDITED)
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. In April,
2007, the Board of Directors approved new employment agreements for 5 years
and approved the modification of Paragraph ?a? of Schedule ?A? whereby Mr.
Cherch and Mr. Papadoyianis would be entitled to an annual bonus of $25,000
each providing that annual gross revenues of the Company exceed $810,000.
When annual revenues exceed $810,000 by more than 10%, then each shall be
entitled to receive 120% of the $25,000 bonus for that year. In the event
the annual gross revenues are 10% less than $810,000 the bonus shall be
reduced by 20%. Furthermore, if the gross revenues are 20% less than the
$810,000 then the bonus shall be reduced by 40%. There would be no bonus
paid if the gross revenue is more than 20% below the $810,000 figure. The
Agreements also provide 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
$354,399 and $271,447 through the years ended June 30, 2007and 2006,
respectively. Cash compensation actually paid was $223,804 and $88,553 for
the years ended June 30, 2007 and 2006, respectively. The Agreements also
provide for accrued interest of ten percent (10%) per annum until the
employee?s 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 received 100,000 (pre 1 for 6 reverse split) restricted shares of common
stock for prior services due of $5,000. A new agreement was 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, ending September 31, 2007. CF Consulting also received
250,000 shares of stock, valued at $15,000 based on the lack of tradability
of the shares and other factors.
A total of $82,500 has been accrued as due under the agreements with CF
Consulting, LLC as of June 30, 2007. Our Chief Financial Officer, Robert
Hipple, is also a managing director of CF Consulting.
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.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 6. RELATED PARTY TRANSACTIONS (Continued)
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 were 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
were in the amount of $44,944 each, include repayment of principal of
$35,000 and accrued interest of $9,944 each, and are included in Notes
Payable
Officers.
NOTE 7. NOTES PAYABLE
On June 21, 2005, the Company executed a $100,000 Subordinated Convertible
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 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
October 21, 2005, this note was extended for an additional five months until
March 31, 2006 with interest accrued at a rate of 10% per annum. This
extension
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
extension. On October 1, 2006, the principal and accrued interest on this
note
were paid by the issuance of a new note in the principal amount of $120,400,
with terms identical to the terms of the then pending convertible debenture
issue.
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.
On November 14, 2005, the Company executed a $25,000 Subordinated Convertible
Bridge Note payable to the same 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
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 7. NOTES PAYABLE (Continued)
been declared in default. On January 4, 2006, the Company executed a $35,000
Subordinated Convertible Bridge Note payable to the same shareholder due
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
$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. On October 1, 2006, these three notes were re-paid by the issue
of a new promissory note in the total principal amount, plus accrued
interest,
of $108,813.
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 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. This note was paid in full on March 28, 2007.
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
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. This note was re-paid by the issue
of
a new promissory note in the principal amount of $56,250, which included
accrued interest, and is due October 1, 2007 at 15 percent annual interest
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.
This note is currently due.
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,
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 7. NOTES PAYABLE (Continued)
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. This note has been paid by the execution of a
new
promissory note at 15 percent annual interest, due January 18, 2008. On
February 26, 2006, the Company executed a $50,000 Subordinated Convertible
Bridge Note payable to the same 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.
This note has been paid by the execution of a new promissory note at 15
percent annual interest, due January 18, 2008.
On April 5, 2006, the Company executed a $10,000 Subordinated Convertible
Note
payable to our to our COO, Sal Cherch, and due on the first monies received
from
the proceeds of the current 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.
On April 20, 2006, the Company executed a $7,500 Subordinated Convertible
Note
payable to our COO, Sal Cherch, with interest accrued at a rate of 15% per
annum. The note includes 7,500 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
aquaculture facilities manager, Michael Joubert, 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. At that time, Mr. Joubert was also promoted to Vice President of
Operations.
In January, 2006, the Company entered into a financial public relations
agreement with H.L. Lanzet, Inc. to provide services to the Company for a
period of six months. In March 2006, the Company advised Lanzet that it was
not satisfied with the services provided and that the Company was terminating
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 8. COMITTMENTS (Continued)
the agreement. On August 29, 2006, the Company and Lanzet entered into an
agreement to resolve any claimed compensation due under the agreement by
issuing warrants to purchase 300,000 shares of the Company?s common stock for
a period of three years from August 29, 2006 at a warrant exercise price of
$0.60 per share. The warrants also carry a piggy-back registration
provision,
in the event that the Company undertakes a registration of its common shares.
On March 31, 2006, the Company entered into a new consulting agreement with
CF
Consulting, Inc. for contractual Chief Financial Officer and corporate
counsel
services at a monthly remuneration of $5,000 for the first six months, $5,500
for the next six months, and $6,000 for the final six months of the term,
ending in October 907, plus 250,000 restricted common shares, valued at
$15,000.
On March 1, 2007 the Company retained the services of American Capital
Ventures, Inc., an investor relations company. The one year agreement
beginning March 1, 2007, provided for payment of $2,500 per month, and
1,000,000 shares of restricted common stock to be distributed in traunches
of 250,000 shares upon signing, 250,000 shares after 3 months, and the
balance
of 500,000 shares after six months. As the result of the reorganization of
that firm, in which the representative for Neptune formed a new company,
Chelsea Holdings, Inc., the Company signed an agreement transferring the
balance of the compensation under the original agreement to Chelsea
Holdings, Inc. in June, 2007, with the consent of American Capital Ventures.
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. In June 2007, the Series A Preferred shares were
converted into 2.5 million shares of 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
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 9. STOCKHOLDERS' EQUITY (continued)
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. In June 2007, the Series B Preferred shares were converted into
3.5 million shares of common stock.
During the fiscal year ending June 30, 2007, the Company issued a total
of 8,616,930 common shares, increasing the total number of common shares
outstanding from 11,349,051 at June 30, 2006 to 19,966,199 common shares at
June 30, 2007. Of these additional common shares, 146,250 shares were issued
as incentives for entering short-term notes, 870,680 shares were issued in
payment of accrued interest in the amount of $327,720, 1,600,000 shares were
issued for services valued at $460,000, and 6,000,000 common shares were
issued on conversion of 5,000,000 shares of outstanding preferred stock.
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,
effective
July 1, 2006, 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 (to 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 78 percent of revenues
during the period ended June 30, 2007, compared to the same two customers
comprising 86 percent for the prior period ending June 30, 2006.
NOTE 11. PRIVATE OFFERING
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
million. Dawson James Securities will receive a fee equal to ten percent of
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDING JUNE 30, 2007 AND 2006
(AUDITED)
NOTE 11. PRIVATE OFFERING (continued)
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 are 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 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.
A total of $2,713,000 was received as a result of this offering, resulting in
net proceeds to the Company of $2,360,310, after placement fees of $271,300
and expenses allowances of 81,390, which was paid to Dawson James Securities.
Dawson James also earned a total of $60,000, at the rate of $5,000 per month,
under a 12 month consulting agreement which ended May 31, 2007. A total of
$15,000 was paid on this consulting agreement through June 30, 2007, and the
balance is included in accrued liabilities.
Interim Financial Statements (unaudited).
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2007
(unaudited)
---------------
ASSETS
Current Assets
Cash and equivalents $ 1,220,976
Accounts receivable, less allowance for
doubtful accounts of $ 0 48,123
Inventory 427,482
Prepaid expenses 6,275
Deposit on equipment 15,000
Deferred costs 54,044
Security deposits 17,444
-------------
Total Current Assets 1,789,344
Property and equipment, net of
accumulated depreciation of $434,394 374,272
-------------
Total Assets $ 2,163,616
=============
LIABILITIES AND DEFICIENCY IN ASSETS
Liabilities
Current Liabilities
Accounts payable $ 129,907
Accrued and other current liabilities 823,660
Convertible notes payable 285,000
Notes payable-officers 107,388
------------
Total Current Liabilities 1,345,955
Long-term liabilities
Convertible notes 229,213
Convertible debentures 2,441,000
Deferred compensation-stock options 194,293
------------
Total Long-Term Liabilities 2,864,506
------------
Total Liabilities 4,210,461
============
COMMITMENTS AND CONTINGENCIES -
Stockholders' Equity (Deficiency in assets)
Preferred stock, $.001 par value,
5,000,0000 shares authorized, none issued
Common Stock, $.001 par value 100,000,000 shares
authorized, 21,372,865 shares issued and outstanding 21,373
Additional paid-In capital 5,504,043
Accumulated deficit (7,572,261)
------------
Total Deficiency in assets (2,046,845)
------------
Total Liabilities and Deficiency in assets $ 2,163,616
============
See accompanying notes.
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months
ended
September 30,
2007 2006
----------- ----------
- --
Revenues:
Sales $ 111,193 $ 255,877
Cost of sales 111,189 332,400
---------- ---------
- -
Gross loss 4
(76,523)
---------- ---------
- -
Expenses:
Advertising and marketing 1,090 -
Automobile and truck expense 5,047 6,154
Depreciation 101 357
Insurance 7,169 7,811
Office 792 824
Officers salary, related taxes and benefits 93,339 79,844
Other operating expenses 18,860 6,403
Outside services 22,455 34,909
Professional fees 8,669 5,695
Public relations 57,152 10,873
Stock-based compensation - 194,292
Utilities 2,258 2,113
--------- -------
- --
Total expenses from operations 216,932 349,275
--------- -------
- --
Loss before interest, other income,
expenses and income taxes (216,928)
(425,798)
Other income 14,414 1,785
Interest expense (201,299)
(59,185)
--------- -------
- --
Loss before income tax (403,813)
(483,198)
Provision for income taxes - -
--------- -------
- --
Net loss $ (403,813) $
(483,198)
=========
=========
Net loss per share(basic and diluted) $ (0.020) $
(0.043)
=========
=========
Weighted average number of
common shares outstanding
(basic and diluted) 20,595,329
11,349,269
==========
==========
See accompanying notes.
NEPTUNE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months
ended
September 30,
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (403,813) $ (483,198)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 20,476 17,227
Deferred compensation-stock options - 194,292
Issue of common stock for services 50,000 -
Inventory revaluation (222,523) -
(Increase) decrease in assets:
Accounts receivable 22,060 (1,538)
Deferred costs (9,561) (1,624)
Inventory 17,500 63,670
Deposits 5,753 (2,500)
Prepaid expenses (3,057) 553
Increase (decrease) in liabilities:
Accounts payable 39,560 (42,610)
Accrued and other current liabilities 223,991 121,527
Payroll liabilities - 12,058
----------- ----------
Net cash used by operating activities (259,614) (122,141)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Pay-off of notes - 9,770
---------- ----------
Net cash provided by financing activities - 9,770
---------- ----------
Net decrease in cash and equivalents (259,614) (112,371)
Cash and equivalents-beginning 1,480,590 275,938
---------- ----------
Cash and equivalents-ending $1,220,976 $ 163,567
============ ==========
SUPPLEMENTAL DISCLOSURES
Cash paid during quarter for:
Interest $ 4,492 $ 59,185
Income taxes $ - $ -
========== ==========
See accompanying notes.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(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 then, 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;
developing, testing and patenting (pending) the Aqua-Sphere and Aqua-Cell
(formerly known as S.A.F.E. ) technologies; and completing the food science
bio-technology research to discover a suitable protein substitute for fish
meal
in animal diets, known as Ento-Protein.
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,
with a remaining term of 8 years.
..
This site has become the cornerstone of the South Florida operations of the
Company with its extensive infrastructure and future potential for hatchery
facilities for fingerling production.
Common shares of the Company are listed on the OTC Bulletin Board and
continue
to be listed on the OTC Pink Sheets under the trading symbol NPDI.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Neptune
Industries, Inc. and its wholly-owned subsidiaries, Aqua Biologics, Inc.
(corporate name changed from Aquaculture Specialties, Inc. in June, 2006) and
Exotic Reef Technologies, Inc., and its majority owned (99+%) subsidiary,
Blue Heron Aqua Farm, LLC (Blue Heron). All inter-company balances and
transactions have been eliminated at consolidation.
The accompanying consolidated financial statements are un-audited and have
been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the
instructions
to Form 10-QSB. Accordingly, certain information and footnote disclosures
normally included in audited financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of the results that may be expected
for
a full year. These interim consolidated financial statements should be read
in
conjunction with the audited consolidated financial statements that were
included in the Form 10-KSB filed by the Company for the year ended June 30,
2007 with the Securities and Exchange Commission.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
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.
Allowances for sales returns are recorded as a component of net sales in the
period the allowances are recognized.
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
financial statements of the Company compared to the tax returns.
As of September 30, 2007, the Company has approximately $7 million of net
operating loss carry-forwards available to affect taxable income and has
established a valuation allowance equal to the tax benefit of the net
operating loss carry-forwards as realization of the asset is not assured.
The net operating loss carry-forwards may be limited under the change of
Control provisions of the Internal Revenue Code, Section 382.
Advertising and marketing costs
Advertising and marketing costs are expensed as incurred.
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.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFCANT 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. The Company has not experienced any losses on such
accounts
and does not believe it is exposed to any significant risk on cash and
equivalents. The Company operates both domestically and internationally.
Consequently, the ability of the Company to collect the amounts due from
customers may be affected by economic fluctuations in each geographic
location
of the customers of the Company.
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 account
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 raw materials, such as salt, oxygen and
feed, and work in process, represented by the pounds of fish growing in
the separate tanks and raceways on the farm property.
During all prior periods ending June 30, 2007, the Company measured its
inventories and cost of sales based upon a pre-determined average cost per
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
pound applied to the total pounds of fish at the end of each accounting
period. The Company then added in certain additional costs for raw materials
and overhead to arrive at the ending inventory figures and to determine cost
of sales. Management is now of the opinion that this method has overstated
inventory and costs of sales substantially over the past five years, and has
not accurately reflected the true operating costs of the business of Blue
Heron.
Effective July 1, 2007, the beginning of the current fiscal year, the Company
has changed its method of accounting for its inventory, by adopting a process
Inventory system. Under this system, all direct costs of production and the
cost of raw materials used each month are allocated to the separate raceways
and tanks on the farms in proportion to the number of pounds in each against
the total pounds of fish on the farm at the end of each month. This results
in a direct cost allocation to each tank and raceway each month, based on the
total actual costs for the month. As fish are
harvested, the costs allocated to each tank or raceway from which fish are
harvested are then charged to cost of sales, on a proportionate basis.
Inventory as reported on the June 30, 2007 audited financial statements
was $420,926, exclusive of raw materials, and there were 135,931 pounds of
growing fish on hand, resulting in a cost per pound of approximately $3.10,
an
amount substantially in excess of the average selling price of $2.85 per
pound.
This higher cost is a direct result of the several years of double counting
of
certain costs in measuring inventory under the previous system. Actual costs
for the inventory in the opinion of management is approximately $2.20 per
pound, based on actual costs incurred as well as general cost information
available for other producers. Accordingly, management has determined that
July
1, 2007 inventory should be reduced to $222,523 a reduction of $222,460. This
reduction in value has been charged directly to the accumulated deficit of
the
Company, because the Company is unable to determine the period-specific
effects
of the accounting change, for lack of information measuring the requisite
amounts in prior periods. This reporting is in conformity with FASB 154,
Accounting Change and Error Corrections, Interpretation No. 1.
Inventory at July 1, 2007 consisted of the following, as a result of this
write down:
Work in process $ 198,466
Raw materials 24,057
Total $ 222,523
Inventory at September 30, 2007 consisted of the following:
Work in process $ 384,197
Raw materials 43,285
Total $ 427,482
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
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. For the Company, the accounting estimates requiring the most
difficult and sensitive judgments of management including inventory
valuation,
recognition and measurement of income tax assets and liabilities, and
accounting for stock=based compensation.
Recent Accounting Pronouncement
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109. FIN 48 prescribes a
comprehensive financial statement model of how a company should recognize,
measure, present, and disclose uncertain tax positions that the company has
taken or expects to take in its income tax returns. FIN 48 requires that only
income tax benefits that meet the more likely than not recognition
threshold be recognized or continue to be recognized on the effective date.
Initial de-recognition of amounts would be reported as a cumulative effect
of a change in accounting principle. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The adoption of FIN 48 did not have a
material impact on the financial statements of the Company.
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements,
which establishes a framework for reporting fair value and expands disclosure
about fair value measurements. FAS 157 is effective for the 2008 fiscal year
of the Company. The Company is currently evaluating the impact of this
standard on its financial statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement 115. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. FAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of adopting FAS 159 on its financial
statements.
In June 2007, the FASB approved the issuance of Emerging Issues Task Force
Issue No. 06-11 ?Accounting for Income Tax Benefits of Dividends on Share-
Based
Payment Awards?. EITF 06-11 requires that tax benefits from dividends paid on
unvested restricted shares be charged directly to stockholders? equity
instead
of benefiting income tax expense. This EITF is effective for financial
statements issued for fiscal years beginning after September 15, 2007. The
Company is currently evaluating the impact of EITF 06-11 but does not expect
that it will have a material effect on our financial statements.
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Reclassifications.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming
that the Company will continue as a going concern. The Company?s financial
position and operating results raise substantial doubt about the Company?s
ability to continue as a going concern, as reflected by the accumulated
deficit of $7,572,261 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. Management?s
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. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other liabilities consisted of the following at September 30,
2007:
Accrued payroll - officers $ 426,872
Accrued interest - officers 102,158
Accrued interest - others 206,130
Accrued consulting 85,500
Accrued-other 3,000
------------
$ 823,660
============
NOTE 4 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
$426,872 through the quarter ended September 30, 2007. Cash compensation
actually paid was $54,900 for the quarter ended September 30, 2007.
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 received 100,000 (pre 1 for 6 reverse split) restricted shares of common
stock for prior services due of $5,000. A new agreement was entered into with
NEPTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2007
(Unaudited)
NOTE 4 ACCRUED OFFICERS COMPENSATION AND INTEREST (continued)
CF Consulting LLC effective September 30, 2006, under which CF Consulting
provided 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 tradability of the shares and other factors.
A total of $85,500 has been accrued as due under the agreements with CF
Consulting, LLC as of September 30, 2007. Our Chief Financial Officer,
Robert Hipple, is also a managing director of CF Consulting.
NOTE 5. 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 Messrs. Papadoyianis and Cherch through the issuance of new
notes, which were 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 included repayment of principal of
$35,000 and accrued interest of $9,944 each. A total of $11,779 interest
has been accrued on each of these notes as of September 30, 2007 and is
included in accrued current liabilities.
NOTE 6. NOTES PAYABLE
In August and September, 2007, the holders of convertible debentures with a
total face value of $272,000, exercised their right of conversion into common
stock of the Company. As a result, 906,666 shares of common stock were
issued.
NOTE 7. STOCKHOLDERS' EQUITY
A total of 1,406,666 common shares of the Company were issued during the
quarter ended September 30, 2007. This total included the 906,666 common
shares issued in conversion of convertible debentures and 500,000 shares
issued for investor relations services, issued at the discounted market
price.
A total of $50,000 in expense has been charged in the quarter as a result of
the shares for investor relations services.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The By-Laws of the Company do not currently provide for the
indemnification of officers and directors from any act or undertaking
relating
to the Company; however, the Company maintains directors and officers
insurance
against any negligence or other error, including alleged securities law
violations.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the offering and registration of the common
shares underlying the debentures, warrants and interest paid in kind with
common shares, will be borne entirely by the Company, for the Selling
Shareholders.
There are no underwriting fees or commissions associated with this
offering. Each Selling Shareholder will be responsible for any transfer
agent
fees required to re-issue common stock certificates to remove any legend or
restriction on the common shares. Other costs or expenses of the offering
are
estimated as follows:
Registration and filing fees $ 3,000.00
Accounting fees 2,500.00
Postage, copying, printing and delivery 500.00
--------
6,000.00
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended June 30, 2007, the Company issued securities as
follows:
Common shares outstanding at June 30, 2006: 11,349,269
Common shares issued as payment of interest 870,680
Common shares issued for consulting services 1,600,000
Common shares issued as incentive for debt renewals 146,250
Common shares issued on conversion of preferred 6,000,000
------------
Total common shares outstanding at June 30, 2007: 19,966,199
Common shares were issued for consulting services as follows:
Date Name Value Common shares
1/9/2007 Dawson James Securities $ 200,000 1,000,000
3/6/2007 American Capital Ventures 90,000 250,000
3/29/2007 Dawson James Securities 80,000 200,000
5/21/2007 American Capital Ventures 90,000 250,000
Less shares cancelled:
6/8/2007 Jana Corporation (10,000) (100,000)
---------- -----------
Totals $ 450,000 1,600,000
Common shares were issued as incentive for debt renewals as follows:
Date Name Number of shares
5/21/2007 R. Palmiotto 86,250
6/8/2007 J. Arnett 60,000
----------
Totals 146,250
Common shares were issued as payment of interest as follows:
Accrued Interest Shares
Convertible debenture holders $ 305,642 801,873
Stepping Stones Partners 21,628 68,807
--------- ----------
Totals $ 327,270 870,680
As a result of these changes, a total of 21,372,865 common shares were
outstanding at the end of the quarter ended September 30, 2007.
A total of 1,406,666 common shares of the Company were issued during the
quarter ended September 30, 2007. This total included 906,666 common
shares issued in conversion of convertible debentures and 500,000 shares
issued for investor relations services, issued at the discounted market
price. A total of $50,000 in expense has been charged in the quarter as a
result of the shares issued for investor relations services. An additional
66,667 common shares were issued in November, 2007 in conversion of
debentures.
All of the shares were issued in private transactions in reliance on
Section 4(2) of the Securities Act of 1933, and all of the certificates
representing the shares bear legends restricting any transfer of the shares
unless subsequently registered by the holder, or pursuant to an exemption
from such registration.
EXHIBITS
The following Exhibits are filed with this Registration Statement:
Exhibit
Number Exhibit Name
- ------- ------------
3.1 Articles of Incorporation (Incorporated by reference to prior filings)
3.2 Bylaws (Incorporated by reference to prior filings)
4.1 Convertible Debenture
4.2 Common Stock Purchase Warrant
10.1 Stock Exchange Agreement Between Blue Heron Aqua Farms, LLC
and South Florida Aquaculture, Inc.
18 Letter on change in accounting principles
21 Subsidiaries of Neptune
23.1 Consent of Accountants
31 Certifications
32 Certifications
UNDERTAKINGS
The Company will:
(1) File, during any period in which offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section l0(a)(3) of the
Securities Act:
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
and
(iii) Include any additional or changed material information on
The plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of l933 (the "Act") may be permitted to directors, officers and
controlling persons of the Small Business Issuer pursuant to the foregoing
provisions or otherwise, the Small Business Issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Small Business Issuer of expenses incurred or paid by
a director, officer or controlling person of the Small Business Issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being
registered, the Small Business Issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court
of appropriate jurisdiction the question of whether such indemnification by
it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of l933,
The registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
in the City of Boca Raton, Florida.
NEPTUNE INDUSTRIES, INC.
Date: December 13, 2007 By: /s/ Ernest D. Papadoyianis
-------------------------------
Ernest D. Papadoyianis, President
and Chief Executive Officer
Date: December 13, 2007 By: /s/ Robert Hipple
-------------------------------
Robert Hipple
Principal Financial and Accounting
Officer
In accordance with the requirements of the Securities Act of l933,
this registration statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature Title Date
/s/ Ernest D. Papadoyianis Director December 13, 2007
- -------------------------
Ernest D. Papadoyianis
/s/ Xavier T. Cherch Director December 13, 2007
- --------------------------
Xavier T. Cherch
/s/ James Harvey Director December 13, 2007
- -------------------------
James Harvey
/s/ Frank Garafalo Director December 13, 2007
- -------------------------
Frank Garafalo
/s/ William Ryan Director December 13, 2007
- -------------------------
William Ryan
/s/ Eric Jager Director December 13, 2007
- -------------------------
Eric Jager
/s/ Don C. Tewksbury Director December 13, 2007
- -------------------------
Don C. Tewksbury
ii
7
13
F-1
G-1
41