U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
Commission file no. 000-31521
Mariculture Systems, Inc.
--------------------------------------------
(Name of small business issuer in its charter)
Florida 65-0677315
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 West Dayton Street, Suite 102
Edmonds, WA 98020
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (425) 778-5975
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
- ----------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
-----------------------------------
(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
Indicate by Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 2002, there were 12,659,185 shares of voting stock of
the registrant issued and outstanding.
PART I
Item 1. Financial Statements
Mariculture Systems, Inc.
(a development stage company)
BALANCE SHEETS
ASSETS
September 30, December 31,
2002 2001
(unaudited)
------------- -- --------------
CURRENT ASSETS
Cash $ 406 $ 5,908
Prepaid expense 25,000 -
------------- --------------
Total current assets 25,406 5,908
TEST FACILITY EQUIPMENT, at salvage value 46,950 46,950
PATENTS, net of accumulated amortization of $2,667 and $1,167 27,333 28,833
------------- --------------
Total assets $ 99,689 $ 81,691
============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable - related party $ 122,296 $ 111,296
Notes payable - other 10,000 10,000
Convertible debt, net of unamortized discount 57,104 -
Accounts payable - trade 342,584 313,200
Accounts payable - related party 44,513 37,793
Payable to stockholders 17,500 17,500
Accrued liabilities 120,292 132,741
Accrued interest 111,220 88,627
------------- --------------
Total current liabilities 825,509 711,157
COMMITMENTS - - - -
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.001; 1,000,000 shares
authorized; no shares issued or outstanding - - - -
Common stock, par value $.001; 20,000,000 shares authorized 12,308 11,396
Common stock subscribed 1,200 94,800
Additional paid-in capital 1,173,631 832,429
Accumulated development stage deficit (1,912,959) (1,568,091)
------------- --------------
Total stockholders' deficit (725,820) (629,466)
------------- --------------
Total liabilities and stockholders' deficit $ 99,689 $ 81,691
============= ==============
The accompanying notes are an integral part of these statements
F-1
Mariculture Systems, Inc.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
Cumulative results
Three Months Ended Nine months ended of operations
September 30, September 30, since inception
2002 2001 2002 2001 (August 25, 1994)
-------------- ------------- ------------- -------------- ------------------
OPERATING EXPENSES
General and administrative $ 133,648 $ 53,759 $ 324,208 $ 171,254 $ 1,176,275
Research and development - - - - 629,289
-------------- ------------- ------------- -------------- ------------------
Total operating expenses 133,648 53,759 324,208 171,254 1,805,564
-------------- ------------- ------------- -------------- ------------------
NET LOSS FROM OPERATIONS (133,648) (53,759) (324,208) (171,254) (1,805,564)
OTHER INCOME (EXPENSE), net 9,976 9,977 15,610 (91,094)
INTEREST EXPENSE (8,231) (4,332) (30,637) (18,264) (16,301)
-------------- ------------- ------------- -------------- ------------------
NET LOSS (131,903) (58,091) (344,868) (173,908) (1,912,959)
============== ============= ============= ============== ==================
LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.01) $ - $ (0.03) $ (0.02) $ (0.21)
============== ============= ============= ============== ==================
The accompanying notes are an integral part of these statements
F-2
Mariculture Systems, Inc.
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Since inception through September 30, 2002
(unaudited)
Accumulated
Additional development
Common stock Subscribed stock paid-in stage
Shares Amount Shares Amount Capital Deficit Total
------------ ----------- ---------- ------------ ---------- ----------- ----------
Sale of common stock in 1995 1,640,000 $ 1,640 $431,321 $432,961
Issuance of common stock to founders in 1995 8,213,080 8,212 (8,212)
Sale of common stock in 1996 130,000 130 32,370 32,500
Issuance of common stock to founders in 1996 1,200,000 1,200 (1,200)
Issuance of common stock for services in 1996 10,766 11 3,074 3,085
Share exchange agreement of MSIW in August (10,075,354) (10,075) 10,075
Share exchange agreement of MSIW in August 8,800,000 8,800 (8,800)
Sale of common stock in 1997 186,978 187 145,741 145,928
Issuance of common stock for services in 1997 126,747 127 68,933 69,060
Issuance of common stock for services in 1998 20,600 21 20,579 20,600
Sale of common stock in 1999 32,000 32 31,968 32,000
Net loss since inception through
December 31, 1999 - - - - ($1,017,187)(1,017,187)
------------ ----------- ---------- ------------ ---------- ----------- ----------
Balance at December 31, 1999 10,284,817 10,285 725,849 (1,017,187) (281,053)
Issuance of 17,400 common stock shares for
services on January 10, 2000 17,400 17 8,683 8,700
Issuance of 11,930 common stock shares for
services on February 29, 2000 11,930 12 11,918 11,930
Issuance of shares into escrow on March 21,
2000 250,000
Net loss for the year ended December 31, 2000 (175,229) (175,229)
------------ ----------- ---------- ------------ ---------- ----------- ----------
Balance at December 31, 2000 10,564,147 10,314 - - 746,450 (1,192,416) (435,652)
The accompanying notes are an integral part of these statements
F-3
Mariculture Systems, Inc.
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Since inception through September 30, 2002
(unaudited)
(cont.)
Accumulated
Additional development
Common stock Subscribed stock paid-in stage
Shares Amount Shares Amount Capital Deficit Total
------------ ------- --------- --------- ---------- ----------- ---------
Issuance of 32,467 common stock shares for
services on January 2, 2001 31,467 31 31,436 31,467
Issuance of 300 common stock shares for
services on February 8, 2001 300 300 300
Issuance of 300 common stock shares for
services in May 2001 300 300 300
Sale of 2,000 common stock shares on March 19, 2001 2,000 2 1,998 2,000
Sale of 7,000 common stock shares on March 27, 2001 7,000 7 6,993 7,000
Issuance of shares in June 2001 in lieu of expense
reimbursement and related accrued interest 34,744 36 34,708 34,744
Issuance of shares in June in connection with
acquisition of patent 1,000,000 1,000 (1,000)
Issuance of shares in Movember in connection
with a sale 6,000 6 5,994 6,000
Common stock granted for services in December 2001 94,800 $94,800 94,800
Allocation of debenture proceeds to be beneficial
conversion feature 5,250 5,250
Net loss for the year ended December 31, 2001 (375,675) (375,675)
---------- --------- --------- --------- ---------- ----------- ---------
Balance at December 31, 2001 11,645,958 11,396 94,800 94,800 832,429 (1,568,091) (629,466)
The accompanying notes are an integral part of these statements
F-4
Mariculture Systems, Inc.
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
Since inception through September 30, 2002
(unaudited)
(cont.)
Accumulated
Additional development
Common stock Subscribed stock paid-in stage
Shares Amount Shares Amount Capital Deficit Total
----------- --------- --------- ---------- ---------- ----------- -----------
Issuance of common shares of stock subscribed 94,800 94 (94,800) (94,800) 94,706
in 2001 -
Issuance of stock shares for consulting services 19,570 20 19,550 19,570
on February 22, 2002 at $1 per share -
Common stock granted for Board member services 400 400 400
in March 2002 at $1 per share
Issuance of stock for financing costs at $0.24 per 25,000 25 6,107 1,344 5,975 7,344
share in May and June 2002 -
Issuance of shares for consulting services at $0.30
per share in May 2002 250,000 250 74,750 75,000
Issuance of shares for consulting services at $0.30
per share in June 2002 60,000 18,000 18,000
Issuance of shares in lieu of rent payments at $0.28
per share in June 2002 4,000 1,100 1,100
Common stock granted for Board member services 400 400 400
in June 2002
Issuance of common shares of stock subscribed 70,107 70 (70,107) (20,444) 20,374 -
in June 2002
Issuance of shares in lieu of rent payments at $0.28
per share in July 2002 24,000 24 6,576 6,600
Issuance of shares for employee services ar $0.08 per 418,750 419 33,081 33,500
share in August 2002
Issuance of shares for financing costs at $0.07 10,000 10 690 700
per share in May and June 2002
Common stock granted for Board Member services 400 400 400
in September 2002 at $1 per share
Allocation of debenture proceeds to beneficial 85,500 85,500
conversion features -
Net loss nine months ended September 30, 2002 (344,868) (344,868)
---------- ---------- ---------- --------- ---------- ------------ -----------
Balance at September 30,2002 12,558,185 $12,308 1,200 $1,200 $1,173,631 ($1,912,959) ($725,820)
========== ========== ========== ========= ========== ============ ===========
The accompanying notes are an integral part of these statements
F-5
Mariculture Systems, Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
Cumulative cash
Nine months ended flow results
September 30, 2002 since inception
2002 2001 (August 25, 1994)
----------------- --------------- -----------------
Increase (decrease) in Cash
Cash flows from operating activities
Net loss $ (344,868) $ (173,908) ($1,912,959)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for employee and 129,970 32,067 338,445
consulting services
Issuance of common stock in lieu of
expense reimbursement 34,744 34,744
Issuance of common stock for financing costs 8,044 8,044
Depreciation and write down of test facility 450,371
Amortization 58,604 59,771
Write off of old accounts payable (9,977) (9,977)
Changes in assets and liabilities:
Payables to shareholders (8,700)
Accounts payable and accrued liabilities 116,225 81,666 686,336
----------------- --------------- -----------------
Net cash used in operating activities
(42,002) (25,431) (353,925)
Cash flows from investing activities:
Purchase of test facility components (497,321)
----------------- --------------- -----------------
Net cash used in investing activities - - (497,321)
Cash flows from financing activities:
Proceeds from notes payable and convertible debt 36,500 10,000 167,063
Proceeds from sale of common stock 9,000 658,389
Proceeds from unissued shares 26,200
----------------- --------------- -----------------
Net cash provided by financing activities
36,500 19,000 851,652
Net increase (decrease) in cash (5,502) (6,431) 406
Cash at beginning of period 5,908 7,232 -
----------------- --------------- -----------------
Cash at end of period 406 801 406
================= =============== =================
Non cash disclosures:
Unissued shares payable exchanged for common stock 38,700
================= =============== =================
Common shares issued for future services 25,000 25,000
================= =============== =================
Acquisition of patent in exchange for liability 30,000
================= =============== =================
Common shares issued to satisfy liabilities 33,500 31,467
================= =============== =================
Accrued liabilities converted into debt 60,000 60,000
================= =============== =================
Allocation of proceeds of convertible debt to
beneficial conversion teature 85,500 90,750
================= =============== =================
The accompanying notes are an integral part of these statements
F-6
Mariculture Systems Inc
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2002
(unaudited)
NOTE 1. FINANCIAL STATEMENTS
The unaudited financial statements of Mariculture Systems, Inc. (the Company)
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire fiscal year ending December 31, 2002. The
accompanying unaudited condensed financial statements and related notes should
be read in conjunction with audited financial statements filed on April 8, 2002
as part of Form 10KSB and Form 10QSB filed on August 13, 2002.
NOTE 2. NET LOSS PER SHARE
Loss per share is based on the weighted average number of shares outstanding
during each quarter. The weighted average shares for computing the Company's
loss per share were 12,246,582 and 11,640,958 for the three months ended
September 30, 2002 and 2001, and 11,905,661 and 11,026,971 for the nine months
ended September 30, 2002 and 2001, respectively, and 9,239,551 from inception
through September 30, 2002. As of September 30, 2002 and 2001, the Company had
20,844 and 25,000 of potentially issuable common stock.
Because of the net loss for the three and nine months ended September 30, 2002
and 2001, and from inception through September 30, 2002, common stock equivalent
shares were not included in the calculation of diluted loss per share as their
inclusion would be antidilutive.
NOTE 3. OTHER EVENTS
In January 2002, the Company executed seven convertible notes totaling $25,500.
The notes mature one year from issuance and bear an interest rate of 10% per
annum. Principal and interest may be converted to common stock at a rate of
$0.50 per share.
On February 23, 2002, the Company's employee agreed to convert $60,000 in wage
due him from the Company into a convertible promissory note. The note matures
one year from issuance and bears interest at 10% per annum. Principal and
interest may be converted to common stock at $0.50 per share.
The Company recognized $85,500 as beneficial conversion feature due to the
notes' effective conversion rates being below the underlying stock's fair value.
The resulting debt discount will be amortized using the effective interest rate
over one year. For the nine months ended September 30, 2002, $57,104 in
amortization was recorded. As of September 30, 2002 the balance of convertible
debentures net of unamortized discount was $57,104.
F-7
NOTE 3. (Continued)
On February 22, 2002, the Company issued 19,570 shares of common stock in
exchange for consulting services. In accordance with terms of the consulting
agreement, the amount of shares issued was determined as 0.16% of the total
shares outstanding on January 7, 2002.
The Company has received cash loans from, and executed notes payable to the
spouse of the Company's president, that are payable on demand and bear interest
at 10% per annum, as follows:
April 13, 2002 $7,000
May 21, 2002 $2,000
July 29, 2002 $1,000
August 22, 2002 $1,000
The Company is currently in default (due to non-payment) on notes payable with a
principal balance of $121,296.
In May 2002, the Company issued 250,000 shares of its common stock in lieu of
payment for future marketing services to be performed in 2002. At that time the
Company also authorized to be granted 60,000 shares of its common stock for
payment of future marketing services, and in September 2002, issued 60,000
shares of its common stock for marketing services performed during the three
months ended September 2002.
In June 2002, the Company authorized 28,000 shares of its common stock to be
issued in lieu of rent payments. 4,000 shares were issued in June 2002, and
24,000 shares were issued in July 2002.
On September 5, 2002, the Company's employee agreed to convert $33,500 of wages
due into common stock at the prevailing price of $0.08 per share. The employee
was issued 418,750 shares of restricted stock.
NOTE 4. MANAGEMENT PLANS
The Company is pursuing several potential projects to build fish farms utilizing
the Company's proprietary technology. The Company has received a letter of
intent for installation of a fish farm in British Columbia, Canada, contingent
on appropriate financing and receipt of the permit from the Provincial
Government expected in early December 2002. Other projects are pending
The Company is working on various financing opportunities from bank loans to a
bond offering. No firm commitments have been obtained and there can be no
assurance that such funds will be raised.
The rate at which the Company expends its resources is variable, may be
accelerated, and will depend on many factors. The Company will need to raise
substantial additional capital to fund its operations and may seek such
additional funding through public or private equity or debt financing. There can
be no assurance that such additional funding will be available on acceptable
terms, if at all. The Company's continued existence as a going concern is
ultimately dependent upon its ability to secure additional funding for
completing and marketing its technology and the success of its future
operations.
F-8
Item 2. Management's Discussion and Analysis of Results of Operations.
General
The Company relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and Rule 506 of Regulation D promulgated thereunder ("Rule
506") for several transactions regarding the issuance of its unregistered
securities. In each instance, such reliance was based upon the fact that (i) the
issuance of the shares did not involve a public offering, (ii) there were no
more than thirty-five (35) investors (excluding "accredited investors"), (iii)
each investor who was not an accredited investor either alone or with his
purchaser representative(s) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
prospective investment, or the issuer reasonably believes immediately prior to
making any sale that such purchaser comes within this description, (iv) the
offers and sales were made in compliance with Rules 501 and 502, (v) the
securities were subject to Rule 144 limitations on resale and (vi) each of the
parties was a sophisticated purchaser and had full access to the information on
the Company necessary to make an informed investment decision by virtue of the
due diligence conducted by the purchaser or available to the purchaser prior to
the transaction (the "506 Exemption").
The Company relied upon WAC 460-44A-506 of the Washington Code for several
transactions regarding the issuance of its unregistered securities in
Washington. In each instance, such reliance was based upon the fact that: (i)
the Company filed a completed SEC Form D with the Washington Department of
Financial Institutions, Securities Division; (ii) the Form was filed not later
than fifteen (15) days after the first sale; and (iii) the Company executed a
Form U-2 consent to service of process, and (iv) the Company paid an appropriate
filing fee of $300.00 to the Washington State Treasurer (the "Washington
Exemption").
In July 2002, the Company issued 66,107 shares of the Company's restricted
common stock to one person for services rendered to the Company and 28,000
shares of the restricted common stock of the Company to one person for rental of
office space for a period of between three and four months. For such offering,
the Company relied upon the 506 Exemption, Section 59.035(12) of the Oregon Code
and the Washington Exemption.
The Company relied upon Section 59.035 of the Oregon Code for the issuance
of shares of its common stock. In each instance, such reliance was based upon
the fact that: (i) the transactions resulted in not more than ten purchasers in
Oregon during any twelve consecutive months; (ii) no commission or other
remuneration was paid or given directly or indirectly in connection with the
offer or sale of the securities; (iii) no public advertising or general
solicitation was used in connection with any transaction and (iv) at the time of
any transaction under this exemption the Company did not have under the Oregon
Securities Law an application for registration or an effective registration of
securities which were a part of the same offering.
11
Both in July and in August 2002, Elaine Meilahn, the wife of the Company's
current President, Treasurer and Chairman loaned the Company $1,000. The loans
bear interest at a rate of ten percent per annum and are payable on demand. For
such offering, the Company relied upon the 506 Exemption and the Washington
Exemption.
In August 2002, the Company issued a total of 110,000 shares of its
restricted common stock to two (2) persons for services rendered to the Company.
For such issuance, the Company relied upon the 506 Exemption and the Washington
Exemption.
In August 2002, Richard Luce, the Company's current Vice-President of Sales
and Marketing and Secretary, elected to convert $33,500 in back salary from 2001
to 418,750 shares of the Company's restricted common stock. For such issuance,
the Company relied upon the 506 Exemption and the Washington Exemption.
Discussion and Analysis
The Company, Mariculture Systems, Inc. is a Florida corporation which
conducts business from its headquarters in Lake Stevens, Washington. The Company
was incorporated in the State of Florida on July 8, 1996. On August 22, 1996,
the Company entered into a share exchange agreement whereby the Company issued
and exchanged 8,800,000 shares of its common stock for one hundred percent
(100%) of the issued and outstanding stock of Mariculture Systems, Inc., a
Washington corporation ("MSIW") (the "Share Exchange"). As a result of that
transaction, MSIW became a wholly owned subsidiary of the Company. The
Washington corporation was administratively dissolved on September 19, 1997.
The Company is principally involved in the aquaculture industry, including
developing, manufacturing, and marketing proprietary systems that allow
commercial fish farmers to increase productivity and profits while reducing
risks to their crop and limiting environmental impact. Current activities
include the search for potential customers of the Company's proprietary product.
The Company is continuing its efforts to establish demonstration facilities
both in fresh water and salt water. The farms should validate the results of the
earlier pilot facility to the aquaculture industry and its stakeholders as well
as benefit the Company financially through their purchase of the SARGO(TM)
Finfarm Technology and with a share of the profits from harvest.
The Company's management continued its negotiations with the owners of
Yellow Island Aquaculture ("YIA") to install a four-reservoir farm at their
marine site near Campbell River, British Columbia, Canada. YIA issued a letter
of interest to the Company earlier this summer, and submitted to the Canadian
Government an application for permit expansion. A meeting was held to finalize
the permit application at the governmental offices on Vancouver Island in
September, with the owners of YIA, members of government and management from the
Company in attendance. The meeting answered all parties' questions and developed
a timeline that should give final approval for expansion in early December 2002.
12
Business executives and landowners from the Midwestern United States have
met with the Company to discuss the purchase and installation of multiple SARGO
Systems. A future order would be predicated on the success of an initial
8-reservoir system. They're in the process of formulating their organization,
developing their markets and applying for the necessary permits. A letter of
commitment and purchase order are anticipated in the near future.
A Freshwater Finfish farmer in the Northwest has met with the Company to
discuss installation of a 4-reservoir system in the Columbia River Basin. The
meetings have moved the project closer to fruition. Species, location selection
and possible sources of financing have been presented.
The Company has hired Dan Robles, P.E. as an employee. Dan previously
worked for Boeing, where he was responsible for engineering and systems
integration. He is currently assisting the Company by upgrading tank design for
structure and assembly while focusing on the integration of life support and
waste removal systems. Several concepts are unique, for which the Company
intends to file patents in early 2003.
The Company is in the development stage. It is acquiring the necessary
operating assets and it is beginning its proposed business. While the Company is
developing tools necessary to enter the acquaculture industry, there is no
assurance that any benefit will result from such activities. The Company will
receive limited operating revenues and will continue to incur expenses during
its development, possibly in excess of revenue.
The ability of the Company to continue as a going concern is dependent upon
increasing sales and obtaining additional capital and financing. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. The Company is currently seeking
financing to allow it to begin its planned operations.
Results of Operations -For the Three and Nine Months Ended September 30, 2002
and September 30, 2001
Financial Condition, Capital Resources and Liquidity
During the three and nine months ended September 30, 2002 and 2001 the
Company generated no revenues. For the three months ended September 30, 2002 and
2001 the Company had general and administrative expenses of $133,648 and
$53,759. The reason for the increase in general and administrative expenses of
$79,889 is interest, selling expenses and salaries. For the nine months ended
September 30, 2002 and 2001, the Company had general and administrative expenses
of $324,208 and $171,254 respectively. The reason for the increase in general
and administrative expenses for the nine months is interest, selling expenses
and salaries.
13
For the 3rd quarter ended September 30, 2002 and 2001, the Company had
total operating expenses of $133,648 and $53,759. For the nine months ended
September 30, 2002 and 2001, the Company had total operating expenses of
$324,208 and $171,254, respectively.
Both in July and in August 2002, Elaine Meilahn, the wife of the Company's
current President, Treasurer and Chairman loaned the Company $1,000. The loans
bear interest at a rate of ten percent per annum and are payable on demand. For
such offering, the Company relied upon the 506 Exemption and the Washington
Exemption.
Net Losses
For the 3rd quarter ended September 30, 2002 and 2001, the Company reported
a net loss from operations of $133,648 and $53,759 respectively. For the nine
months ended September 30, 2002 and 2001, the Company reported a net loss from
operations of $324,208 and $171,254, respectively.
The ability of the Company to continue as a going concern is ultimately
dependent upon its ability to generate sales and obtain additional capital and
financing. The Company is currently seeking financing to allow it to begin its
planned operations. However, there can be no assurance that such financing will
be available on acceptable terms, if at all.
New Accounting Pronouncements
The FASB issued SFAS No. 145, "Recision of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," on April 30,
2002. Statement No. 145 rescinds Statement No. 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of Statement No. 145, companies will be required to apply the criteria
in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments of debt.
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Company is currently evaluating the requirements and impact of this
statement on its results of operations and financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of this statement is not expected to have
a material impact on the Company's results of operations and financial position.
14
Employees
At September 30, 2002, the Company employed five (5) persons, three (3)
full time and two (2) part time. Only two (2) of the employees are paid by the
Company. None of these employees are represented by a labor union for purposes
of collective bargaining. The Company considers its relations with its employees
to be excellent. The Company plans to employ additional personnel as needed upon
product rollout to accommodate fulfillment needs.
Research and Development Plans
The Company believes that research and development is an important factor
in its future growth. The aquaculture industry is closely linked to
technological advances, which produce new ways of producing product for its use
by the public. Therefore, the Company must continually invest in the latest
technology to appeal to the public and to effectively compete with other
companies in the industry. No assurance can be made that the Company will have
sufficient funds to purchase technological advances as they become available.
Additionally, due to the rapid advance rate at which technology advances, the
Company's equipment and inventory may be outdated quickly, preventing or
impeding the Company from realizing its full potential profits.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), expansion
and growth of the Company's business and operations, and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results or developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
general economic market and business conditions; the business opportunities (or
lack thereof) that may be presented to and pursued by the Company; changes in
laws or regulation; and other factors, most of which are beyond the control of
the Company.
Consequently, all of the forward-looking statements made in this Form
10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
15
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending September 30, 2002,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:
Exhibit No. Description
- ------------------------------------------------------------------------------------------------------------
3.(i).1 [1] Articles of Incorporation of Mariculture Systems, Inc. filed July 8, 1996.
3.(ii).1 [1] Bylaws of Mariculture Systems, Inc.
4.1 [1] Promissory Note in the amount of $18,000 bearing 10% interest in favor of William Evans dated April 1996.
4.2 [1] Form of Private Placement Offering of 1,200,000 common shares at $0.01 per share.
4.3 [1] Promissory Note in the amount of $10,000 bearing 10% interest in favor of William Evans dated January 1997
16
4.4 [1] Promissory Note in the amount of $22,000 bearing 10% interest in favor of William Evans dated April 1997.
4.5 [1] Form of Private Placement Offering of 985,000 common shares at $1.00 per share.
4.6 [1] Replaced by Exhibit 4.11.
4.7 [1] Promissory Note in the amount of $21,970 bearing 12% interest in favor of David Meilahn dated March 2000.
4.8 [1] Promissory Note in the amount of $10,600 bearing 12% interest in favor of Elaine Meilahn dated August 2000.
4.9 [2] Promissory Note in the amount of $5,000 bearing 12% interest in favor of Elaine Meilahn dated December 1, 2000.
4.10 [4] Promissory Note in the amount of $5,000 bearing 12% interest in favor of Elaine Meilahn dated February 8, 2001.
4.11 [4] Promissory Note in the amount of $12,400.97 bearing 12% interest in favor of Elaine
Meilahn dated April 3, 2001.
4.12 [5] Promissory Note in the amount of $2,500.00 bearing 12% interest in favor of Elaine
Meilahn dated August 22, 2001.
4.13 [5] Promissory Note in the amount of $2,500.00 bearing 12% interest in favor of Elaine
Meilahn dated September 14, 2001.
4.14 [5] Promissory Note in the amount of $4,000.00 bearing 12% interest in favor of Elaine
Meilahn dated October 1, 2001.
4.15 * Promissory Note in the amount of $1,000.00 bearing 10% interest in favor of Elaine
Meilahn dated July 29, 2002.
4.16 * Promissory Note in the amount of $1,000.00 bearing 10% interest in favor of Elaine
Meilahn dated August 22, 2002.
10.1 [1] Share Exchange Agreement dated August 1996.
10.2 [1] Agreement with Corporate Imaging dated July 1997.
10.3 [1] Agreement with Stephen Jaeb dated August 1997.
10.4 [1] Agreement with Reinforced Tank Products, Inc. dated April 1998.
10.5 [1] Void.
17
10.6 [1] Agreement with Sanford Tager dated September 1999.
10.7 [1] Employment Agreement with Rich Luce dated September 2000.
10.8 [2] Consulting Agreement with Websters' Inc. Dated December 1, 2000.
16.1 [3] Letter on change of certifying accountant pursuant to Regulation SK, Section 304(a)(3)2.
16.2 [3] Letter from Moss Adams LLP.
99.1 * Section 906 of the Sarbanes-Oxley Act of 2002 CEO Certification.
99.2 * Section 906 of the Sarbanes-Oxley Act of 2002 CFO Certification.
- -----------------------
[1] Previously filed with the Company's Registration Statement on Form 10SB on
September 13, 2000.
[2] Previously filed with the Company's first amended Registration Statement on
Form 10SB on December 21, 2000.
[3] Previously filed with the Company's Current Report on Form 8-K on February
26, 2001.
[4] Previously filed with the Company's Annual Report on Form 10KSB for the
period ended December 31, 2000 on April 13, 2001.
[5] Previously filed with the Company's third amended Registration Statement on
Form 10SB on November 13, 2001.
(* Filed herewith)
(b) A report on Form 8-K was filed on February 26, 2001 disclosing a change
in the Registrant's Certifying Accountant.
Item 2. Description of Exhibits
The documents required to be filed as Exhibits Number 2 and 6 and in Part
III of Form 1-A filed as part of this Registration Statement on Form 10-SB are
listed in Item 1 of this Part III above. No documents are required to be filed
as Exhibit Numbers 3 , 5 or 7 in Part III of Form 1-A and the reference to such
Exhibit Numbers is therefore omitted. The following additional exhibits are
filed hereto:
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Mariculture Systems, Inc.
(Registrant)
Date: November 14, 2002
By: /s/ David Meilahn
--------------------------
David Meilahn
President, Treasurer and Chairman
By: /s/ Richard Luce
--------------------------
Richard Luce
Vice President of Sales & Marketing and Secretary
By: /s/ Robert Janeczko
--------------------------
Robert Janeczko
Director
By: /s/ Don Jonas
---------------------------
Don Jonas
Director
19
CERTIFICATIONS
I, David Meilahn, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Mariculture
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 14, 2002
/s/ David Meilahn
- ----------------------------------------------
David Meilahn
Chief Executive Officer (or equivalent thereof)
I, David Meilahn, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Mariculture
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: November 14, 2002
/s/ David Meilahn
- ----------------------------------------------
David Meilahn
Chief Financial Officer (or equivalent thereof)
20