UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-13895
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SEALIFE CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 34-1444240
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) DENTIFICATION NUMBER)
5601 W. SLAUSON AVENUE, CULVER CITY, 90230
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(310) 338-9757
(ISSUER'S TELEPHONE NUMBER INCLUDING AREA CODE)
FORMER FISCAL YEAR END: MAY 31
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes |X|. No |_|.
The number of shares outstanding of the issuer's Common Stock, as of
October 25, 2004, was 15,009,043.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
This Quarterly Report on Form 10-QSB (including the exhibits hereto), and other
reports, proxy and information statements, and other communications to our
stockholders, as well as oral statements made by representatives of the Company,
may contain certain "forward-looking statements" within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, and
other information detailed from time to time in our filings with the Securities
and Exchange Commission that are subject to risks and uncertainties, including,
but not limited to, our ability to raise additional capital, product demand and
market acceptance, capital spending plans, new product development, availability
of products from third party suppliers, fluctuations in operating results with
respect to, among other things, the Company's future revenues, operating income,
and earnings per share, as well as plans and objectives of management. These
forward-looking statements are typically identified by words or phrases such as
"believe," "expect," "anticipate," "plan," "estimate," "intend," and other
similar words and expressions, or future or conditional verbs such as "will,"
"should," "would," and "could." This Quarterly Report on Form 10-QSB should be
read in conjunction with the Company's consolidated financial statements and
accompanying notes.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
On August 20, 2004, the Company changed its fiscal year end from May 31 to
December 31. This report is being filed based on the date which is the end of
the quarterly period of our new fiscal year, September 30, 2004. Therefore, this
report includes both financial statements for the quarterly period ended
September 30, 2004, and the one month period ended June 30, 2004.
Consolidated Financial Statements (unaudited)
o Consolidated Balance Sheets at September 30, 2004 and May 31, 2004
o Consolidated Statement of Income for the one month ended June 30, 2004
and 2003, three months ended September 30, 2004 and 2003 and the four
months ended September 30, 2004 and 2003.
o Consolidated Changes of Stockholders' Equity
o Consolidated Statements of Cash Flows for the four months ended
September 30, 2004 and September 30, 2003
o Notes to Interim Stockholders Equity
2
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and May 31, 2004
September 30, May 31,
2004 2004
----------- -----------
ASSETS
Current Assets
Cash ............................................ $ 24,658 $ 34,056
Inventory ....................................... 13,174 6,000
Accounts receivable ............................. 60,342
Prepaid expenses ................................ 291,347 403,332
----------- -----------
Total Current Assets ....................... 389,521 443,388
Other Assets
Technology ...................................... 1,735,309 1,735,309
Less: accumulated amortization .................. (228,076) (189,512)
----------- -----------
1,507,233 1,545,797
----------- -----------
Total Assets ............................... $ 1,896,754 $ 1,989,185
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable ................................... $ 130,000 $ 130,000
Accounts payable ................................ 60,144 54,531
Accounts payable - shareholders ................. 81,130 61,130
Accrued wages ................................... 233,132 64,560
Accrued interest ................................ 15,042 4,584
Accrued payroll taxes ........................... 8,382 8,382
Current portion of long-term debt ............... 8,633 3,291
----------- -----------
Total Current Liabilities .................. 536,463 326,478
Long-Term Debt
Notes payable ................................... 309,683 315,025
----------- -----------
Total Liabilities .......................... 846,146 641,503
Stockholders' Equity
Common stock .................................... 1,509 1,454
Additional paid in capital ...................... 4,158,296 3,855,368
Retained deficit ................................ (3,109,197) (2,509,140)
----------- -----------
1,050,608 1,347,682
----------- -----------
Total Liabilities and Stockholders' Equity . $ 1,896,754 $ 1,989,185
=========== ===========
Unaudited - see accompanying notes and accountant's report.
3
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the one month ended June 30, 2004 and 2003
June 30, June 30,
2004 2003
-------- --------
Sales ...................................... $ -- $ 300
Cost of sales .............................. -- --
-------- --------
Gross Profit ................ -- 300
Sales and marketing ........................ 427 18
General and administrative ................. 94,368 11,123
-------- --------
94,795 11,141
-------- --------
Net Loss ................................... $(94,795) $(10,841)
======== ========
Unaudited - see accompanying notes and accountant's report.
4
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the three months ended September 30, 2004 and 2003
Three months ended
September 30,
----------------------------
2004 2003
--------- ---------
Sales .................................... $ 106,842 $ 2,374
Cost of sales ............................ 56,091 80
--------- ---------
Gross Profit ................ 50,751 2,294
Sales and marketing ...................... 7,837 6,562
General and administrative ............... 548,177 20,065
--------- ---------
556,014 26,627
Net Loss ................................. $(505,263) $ (24,333)
========= =========
Unaudited - see accompanying notes and accountant's report.
5
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the four months ended September 30, 2004 and 2003
Four Months Ended
September 30,
----------------------------
2004 2003
--------- ---------
Sales .................................... $ 106,842 $ 2,674
Cost of sales ............................ 56,091 80
--------- ---------
Gross Profit ................ 50,751 2,594
Sales and marketing ...................... 8,263 6,580
General and administrative ............... 642,545 31,188
--------- ---------
650,808 37,768
Net Loss ................................. $(600,057) $ (35,174)
========= =========
Unaudited - see accompanying notes and accountant's report.
6
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CHANGES OF STOCKHOLDERS' EQUITY
For the Period Ended September 30, 2004
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance May 31, 2004 ....... -- $ -- 14,536,155 $ 1,454 $ 3,855,368 $(2,509,140) $ 1,347,682
Stock for services .... -- -- 397,914 40 290,477 -- 290,517
Sale of stock ......... -- -- 14,577 15 12,451 -- 12,466
Net loss for the period -- -- -- -- -- (600,057) (600,057)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 2004 . -- $ -- 14,948,646 $ 1,509 $ 4,158,296 $(3,109,197) $ 1,050,608
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes and accountant's report.
7
SEALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the four months ended September 30, 2004 and 2003
September 30,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ........................................ $(600,057) $ (35,174)
Adjustments to reconcile net loss to net
cash provided used in operating activities
Amortization ............................... 185,231 --
Stock for services expenses ................ 255,835 --
Changes in Current Assets and liabilities:
(Increase) in Accounts Receivable .......... (60,342) --
(Increase) in Inventories .................. (7,174) --
Increase in Accounts payable ............... 5,613 1,077
Increase in Accrued wages .................. 168,572 --
Increase in Accrued interest ............... 10,458 --
--------- ---------
NET CASH (USED) BY
OPERATING ACTIVITIES .................. (41,864) (34,097)
CASH FLOWS FROM FINANCING ACTIVITIES
Investor proceeds ............................... 12,466 40,000
Increase in Notes payable ....................... -- 1,028
Increase (Decrease) in Accounts payable
Shareholders ................................ 20,000 (3,855)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .................. 32,466 37,173
--------- ---------
NET INCREASE (DECREASE) IN CASH ...................... (9,398) 3,076
CASH AT BEGINNING OF PERIOD .......................... 34,056 558
--------- ---------
CASH AT END OF PERIOD ................................ $ 24,658 $ 3,634
========= =========
See accompanying notes and accountant's report.
8
SEALIFE CORPORATION AND ITS SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY:
SeaLife Corp., a Nevada corporation ("SeaLife Nevada"), was incorporated on
January 21, 2002. On February 4, 2002, SeaLife Nevada formed a wholly owned
subsidiary, SeaLife Marine Products, Inc., a California corporation. The
subsidiary was formed to concentrate on the marine product applications of the
Technologies owned.
On June 30, 2002, SeaLife Nevada entered into an agreement with the three
shareholders' of Division G, Inc. to exchange 100% of the stock of Division G,
Inc. for 2,100,000 million shares of SeaLife Nevada's common stock. The
agreement was to be effective July 1, 2002. At the time of acquisition, Division
G, Inc. assets consisted of ownership of all rights in perpetuity to
GreaseBeast(TM), a grease treatment and cleaner, Soil ResQ(TM), a soil
conditioning product, OilEx(TM), a soil detoxification and rebuilding product,
and MuniMix(TM) a sewer clean-up and detoxification product. All products were
in the early stages of development. Division G, Inc. had no liabilities at the
time of acquisition and remains dormant to this day.
On July 31, 2002, SeaLife Nevada formed a wholly owned subsidiary, Proterra
Technologies, Inc., a California corporation. The subsidiary was formed to
concentrate on agricultural product applications.
On December 20, 2002, SeaLife Nevada was acquired by SeaLife Corporation, a
Delaware corporation (formerly Integrated Enterprises, Inc.), a public reporting
corporation (the "Company"). The Company was a shell at the time of the
acquisition and therefore the acquisition was treated as a reverse merger
whereby the acquired company is treated as the acquiring company for accounting
purposes. At the same time as the merger, the Company affected a 15 to 1 reverse
stock split.
A corporate history of the Company is as follows:
Sealife Corporation, formerly Integrated Enterprises, Inc., formerly Vast
Technologies Holding Company, Inc., formerly Fraser Realty Group, Inc., is the
successor to Fraser Mortgage Investments (the Trust), an unincorporated
association in the form of a business trust organized in Ohio under the
Declaration of Trust dated May 7, 1969. At a special meeting of the shareholders
of the Trust held on August 28, 1984 a plan of reorganization was approved
pursuant to which:
1- All of the assets of the Trust were sold to FRG;
2- FRG assumed all of the Trust's liabilities and obligations;
3- Each issued and outstanding share of the Trust was converted into one
share of FRG common stock; and
4- The Trust was terminated.
The purpose of the proposed reorganization was to convert the Trust to a
business organization taxable as an ordinary corporation, instead of a real
estate investment trust, under Federal income tax laws. Unless the context
otherwise requires, the term FRG includes its predecessor, the Trust.
FRG invested in real estate and mortgage loans. FRG was organized as a real
estate trust, primarily for the purpose of making passive investments in real
estate and passing through the income realized from such investments to its
shareholders. From its inception, FRG financed its real estate investment
operations principally through sale of common stock, and short-term debt
financing, including both bank borrowings and the issuance of commercial paper.
FRG saw its real estate investments evolve from principally short-term
construction loans to a mix of variable and fixed-rate mortgage loans of which a
significant portion consists of mortgage positions on improved and unimproved
land held by investors for development purposes. Accordingly, FRG's investments
in mortgage
9
loans represent long-term assets with the realization dates dependent upon the
equity holder's ability to complete development projects or obtain refinancing
from other sources. At the same time, bank notes payable and commercial paper
outstanding were all short-term borrowings renewable at the option of the note
holders. FRG relied on these short-term borrowings, the intermittent repayment
of loans and the refinancing or sale of portfolio investments in order to meet
its current obligations. During fiscal 1989, cash provided from these sources
was wholly inadequate to provide working capital to fund operations. Management
was unable to secure additional financing or find other means of obtaining
needed cash in fiscal 1990 to permit FRG to meet its current obligations.
Accordingly, management determined that there was no reason to continue
operating and, thus, incurring further losses. FRG has been inactive since 1990
and has not conducted any business since that time.
On August 4, 1998, the Chairman of the Board and President and with first
receiving the consent, approval and authorization of FRG's Board of Directors,
filed with the Secretary of State of Delaware for renewal, revival and
restoration of the Company's Certificate of Incorporation.
On October 27, 1999 the Company entered into an Acquisition Merger agreement
with a private company, Motorsports USA, Inc. The Company also effected a name
change at that time to Motorsports USA, Inc. With this transaction certain
assets became the property of the Company. However, the custody and control of
such assets were not perfected and the management of the private company
evidenced tentative compliance with SEC reporting requirements. This condition
was considered intolerable to the Company's Board of Directors and accordingly
on August 1, 2000 the transaction was rescinded. The Company also changed its
name on June 1, 2000 to Vast Technologies Holding Company. Accordingly the
enclosed financial statements were prepared as if the merger with Motorsports
USA, Inc. had not taken place.
On June 11, 2001 the Company changed its name to Integrated Enterprises, Inc.,
issued 12,000,000 shares of Common Stock for services and reverse split its
Common Shares, one new common share for each ten old common shares with a par
value of $ 0.0001 per share.
On December 17, 2002, the Company acquired all of the issued and outstanding
shares of SeaLife Nevada in exchange for a substantial majority of the common
stock of the Company.
Basis of Consolidation:
The accompanying consolidated financial statements include the accounts of the
Company, SeaLife Nevada, a wholly-owned subsidiary of the Company, and SeaLife
Marine Products, Inc., Proterra Technologies, Inc. and Division G, Inc., SeaLife
Nevada's three wholly-owned subsidiaries. All significant inter-company accounts
and transactions, if any, have been eliminated in consolidation.
Cash and Cash Equivalents:
For the purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities to be cash equivalents.
Income Taxes:
The Company accounts for income taxes under a method which requires a company to
recognize deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in a company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements carrying amounts and tax basis of assets and liabilities using
enacted tax rates. The Company presently prepares its tax return on the cash
basis and its financial statements on the accrual basis. No deferred tax assets
or liabilities have been recognized at this time, since the Company has shown
losses for both tax and financial reporting. The Company's net operating loss
carryforward at September 30, 2004 is approximately $2,675,000.
10
Amortization:
The Company provides for amortization of the technologies purchased, utilizing
the straight-line method to apportion costs over a 15 year estimated life.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Development Stage:
Until June 1, 2004, Sealife Corporation and Subsidiaries were development stage
companies as defined under Statements of Financial Accounting Standards No. 7
NOTE 2 - TECHNOLOGIES
SeaLife Marine entered into an asset purchase agreement to acquire certain
technologies from a third party developer on June 30, 2002. The purchase price
was $1,335,309. Under this purchase agreement the Company acquired the
following:
1- Patent application rights for EPA registration number 70214-1 and all
modifications, enhancements and improvements thereon.
2- All rights in perpetuity in and to SeaLife 1000, SeaLife 2000 (now
known as SeaLife 1000 OutDrive(TM)), and SeaLife 3000 (now known as
SeaLife 1000 XP(TM)), present and future marine coating and all
modifications, variations, enhancements and improvements thereon.
3- Full power to enforce its ownership interests.
SeaLife 1000 is a solvent based, anti-fouling coating for underwater use. It
provides a unique anti-shell, anti-algae, anti-fungus and anti-rust coating,
with competitive results.
SeaLife 1000 OutDrive(TM) is a solvent-based, anti-fouling coating for submerged
marine use. This product is in the early stages of development.
SeaLife 1000 XP(TM) is a water based coating with an advanced anti-rust
additives for the above water application. This product is in the early stages
of development.
The purchased technologies are being amortized on the straight-line basis over a
15-year life. It is management's opinion that 15 years represents a reasonable
estimate of product life at this time.
On September 17, 2003 the Company entered into an agreement with Gael Himmah to
purchase all proprietary rights and interests in four products and processes
developed by him. Two of the products are for the agriculture market and the
other two appeal to a broader market and are for soil recovery. The purchase
price was $400,000 and was paid with 400,000 shares of the Company's common
stock. These proprietary rights and interests are being amortized on a
straight-line basis over a 15-year life. It is management's opinion that 15
years represents a reasonable estimate of the product life at this time.
11
Amortization expense for the periods is as follows:
PERIOD ENDED:
SEPTEMBER 30, 2004 SEPTEMBER 30, 2000
------------------ ------------------
AMORTIZATION $ 38,564 $ -0-
Future amortization expense for the next five years is as follows:
2005 $115,688
2006 $115,688
2007 $115,688
2008 $115,688
2009 $115,688
All of the technologies acquired by the Company are referred to herein as the
"Technologies."
NOTE 3 - NOTES PAYABLE
Current Notes Payable:
On January 9, 2004, the Company, in connection with a consulting contract,
entered into a $30,000 note with an individual. The note is due January 8, 2005,
is unsecured, and does not call for any payments until maturity. The interest
rate is 7% per annum. The balance of the note at May 31, 2004 and 2003 was
$30,000 and $0 respectively.
On January 9, 2004, the Company, in connection with a consulting contract,
entered into a $100,000 note with an individual. The note is due January 8,
2005, is unsecured, and does not call for any payments until maturity. The
interest rate is 7% per annum. The balance of the note at May 31, 2004 and 2003
was $100,000 and $0 respectively.
LONG-TERM DEBT - NOTES PAYABLE:
In connection with the purchase of the Technologies on June 30, 2003 the Company
entered into a ten-year note for $1,220,309. The note is to be repaid based on
the Company's sales, i.e. at 5% of the first $3,000,000 of sales, and at 2.5% on
the sales in excess of that amount, until paid in full. The note payment is to
be paid monthly and the note bears interest at the rate of 7% per annum. The
note may be converted at the option of the holder to the common stock of the
company at a conversion price, which is equivalent to 80% of the market price,
based on the average bid price for the last 30 days. On January 2, 2003 the
holder converted $1,000,000 of the note for 1,000,000 shares of SeaLife
Corporation stock. The balance of the note at September 30, 2004 and May 31,
2004 was $309,683.
At September 30, 2004 there remained $8,633 past due on the note. The note has
certain default provisions and stated period of times to correct the default.
The note holder has not formally notified the Company of default.
On June 14, 2003 the Company borrowed $14,500 from an individual. The note is
due June 14, 2008, unsecured, and does not call for any payments until maturity.
The interest rate is 7.5% per annum. The balance of the note at September 30,
2004 and May 31, 2004 was $14,500.
Because of the repayment schedule of the June 30, 2003 note and an inability to
accurately forecast future sales, maturities on long-term debt annually cannot
be computed.
NOTE 4 - COMMON STOCK
The Company has 100,000,000 shares of $.0001 par value Common Stock authorized.
At September 30, 2004 and May 31, 2004 the Company had 14,948,646 and 14,536,155
shares outstanding respectively.
During the four-month period ended September 30, 2004 the Company issued 397,914
shares of Common Stock for services. The shares issued and value assigned for
these shares are as follows:
12
SERVICE SHARES VALUE
-------------------------------------- -------- --------
Legal Services ....................... 149,404 $109,065
Officer Salaries ..................... 107,688 78,652
Product Consulting ................... 140,822 102,800
-------- --------
Total Stock for Services ............. 397,914 $290,517
======== ========
NOTE 5- PREFERRED STOCK
The public shell had outstanding 2,000,000 shares of convertible preferred stock
outstanding at the date of merger. These had conversion rights of 10 shares of
common for each shares of preferred. In an agreement signed June 24, 2003 the
owners of these shares agreed to cancel 1,840,000 shares of preferred stock. The
remaining 160,000 shares were converted to 1,600,000 shares of common stock of
which 300,000 shares were conveyed to the original shareholders of the Company
on the date prior to the merger.
NOTE 6 - CONSULTING AGREEMENTS
On June 30, 2002 SeaLife Marine Products, Inc. entered into a consulting
agreement with the developer of the Technologies for his advice in the use and
improvement of the acquired Technologies. This agreement was assigned to the
Company and revised on January 1, 2003. The consultant is to provide all
necessary support in complying with government regulations, in solving specific
marketing and environmental problems, in product improvement, in developing
operational protocols, in advising and support on the operation of the Company's
business and to assist in the purchase or manufacture of the Company's products.
The agreement calls for the consultant to receive $10,000 per month from
September 1, 2002 to April 15, 2004, and $12,000 per month thereafter until
September 1, 2007. During the year the consultant agreed to convert $100,000 of
this payable into 100,000 shares of the Company's common stock. These amounts
were settled for stock under an agreement dated September 17, 2003 (see Note 8).
In addition, during the quarter ended November 30, 2003 the Company entered into
an additional agreement with this consultant to provide services through
December 31, 2003 for an additional 300,000 shares of the Company's common
stock. At September 30, 2004, the Company owed the consultant $103,750 under
this agreement.
The Company entered into four separate business-consulting agreements in March
of 2004. These agreements are for one year, ending in March 2005. The
compensation to be paid pursuant to the agreements is 800,000 shares of the
Company's common stock valued at $440,000. $359,332 was recorded as Prepaid
expense in connection with these agreements at May 31, 2004.
NOTE 7 - GOING CONCERN
The Company has not generated significant revenues or profits to date. This
factor among others may indicate the Company will be unable to continue as a
going concern. The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 8 - RELATED PARTIES
At September 30, 2004 and 2003 the Company owed two major shareholders $81,130
and $61,130 respectively for monies advanced the Company. The amounts due are
non-interest bearing and have no priority in liquidation.
The Company owed two of its officers $164,560 and $64,560 for wages at September
30, 2004 and May 31, 2004, respectively.
13
On January 1, 2004 the Company entered into a 5-year employment contract with
the President of the Company. The agreement defines the duties and
responsibilities of the position, provides an annual compensation of $300,000 a
year, with certain vacation and sick days. The Company is required to maintain
an office and certain death benefits during the term of the contract. On October
29, 2004 the contract was amended to provide for annual compensation of $200,000
per year.
On January 1, 2004 the Company entered into a 4-year employment contract with
the Vice-President of the Company. The agreement defines the duties and
responsibilities of the position, provides an annual compensation of $300,000,
with annual reviews and the participation in an incentive program when adopted.
On October 29, 2004 the contract was amended to provide for annual compensation
of $100,000 per year.
The Company also owes the consultant and the developer of the Technologies
$103,750 on the consulting agreements, $8,633 past due on the loan agreement and
$309,683, the balance of the loan at September 30, 2004. During the four-month
period ended September 30, 2004 the Company issued 140,822 shares to the
consultant for product consulting.
During the period ended September 30, 2004 the Company issued 107,688 shares to
an officer for compensation.
NOTE 9 - SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On August 4, 2003 the Company was advised that it is the subject of a Securities
and Exchange Commission investigation. The Company is uncertain of the nature of
the investigation, and no charges have been levied by the Commission against the
Company to date. The Company was advised on January 23, 2004 that the SEC Staff
intends to recommend that the SEC file enforcement proceedings against the
Company and its Chief Executive Officer for alleged violations of sections 5 and
17(a) of the Securities Act of 1933 and Sections 10(b), 13(d)1 and 16(a) of the
Securities Exchange Act of 1934, and Rules 10b-5, 13d-1 and 16a-3 thereunder.
The Company has received no additional communication regarding this matter since
that time. The ultimate disposition of this matter is unknown at this date.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL OVERVIEW
SeaLife Corporation (the "Company") was formed as a Delaware corporation in 1984
under the name Fraser Realty Group. The Company operated as a real estate
investment trust until 1990, when Management was unable to secure additional
financing or find other means of obtaining needed cash to permit the Company to
meet its obligations. As a result, the Company ceased operations and remained
inactive until December, 2002.
On December 17, 2002, pursuant to an Exchange Agreement dated June 30, 2002, the
Company acquired all of the issued and outstanding shares of SeaLife Corp., a
Nevada Corporation ("SeaLife Nevada"), in exchange for a substantial majority of
the shares of the Company's common stock (the "Acquisition"). The stockholders
of the Company retained their 274,554 shares of common stock which were issued
and outstanding prior to the consummation of the Acquisition. Concurrent with
the Acquisition, the Company changed its name from Integrated Enterprises, Inc.
to SeaLife Corporation, the former directors and officers of the Company
resigned, and the directors and officers of SeaLife Corp. became the directors
and officers of the Company. Also concurrent with the acquisition, the Company
effected a 15-to-1 reverse stock split.
The Acquisition resulted in a change of control of the Company, with the former
stockholders of SeaLife Nevada acquiring a substantial majority of the common
stock of the Company immediately following the closing of the Acquisition.
Therefore, the Acquisition was accounted for as a reverse merger, pursuant to
which the accounting basis of SeaLife Nevada continued unchanged subsequent to
the transaction date. Accordingly, the pre-transaction financial statements of
SeaLife Nevada are now the historical financial statements of the Company.
Sealife Nevada was organized in April of 2002 to acquire, develop and market
certain proprietary products invented by Gael Himmah. At the time of the
Acquisition, Sealife Nevada owned all of the outstanding stock of Division G,
Inc., a Nevada corporation ("Division G"), Sealife Marine Products, Inc., a
California corporation ("Sealife Marine"), and Proterra Technologies, Inc. a
California corporation ("Proterra"). As a result of the Acquisition, the Company
became the parent and sole shareholder of Sealife Nevada, which, in turn, was
the sole shareholder of Division G, Sealife Marine and Proterra.
The Company's vision is to develop, market and supply eco-friendly products that
can solve complex environmental problems with simple natural solutions,
establishing the environmentally safe choice as the right choice in specific
markets.
The Company's goal is to establish itself as the global leader in "probiotic"
technologies. Probiotic technologies refer to technologies and products that
work in "partnership with nature" without harming the environment in its
targeted markets. We believe that worldwide demand for development of products
that are not only safe for the environment but will also help clean the
environmental damage caused by decades of use and disposal of deadly toxins and
the overuse of pesticides and fertilizers, is growing, and will continue to
grow. The Company believes that a large percentage of the products in use today
can and will be replaced by effective, environmentally safe equivalents.
The Company has developed a line of products utilizing such "probiotic"
technologies for the marine, agricultural and remediation markets. The Company
is now entering its last stage as a development company and will begin
substantial sales and marketing efforts beginning in 2005. Recently, however,
the Company began sales and marketing efforts to launch its marine product,
SeaLife 1000(TM) and its agricultural products, NuLagoon(TM) and Soil ResQ(TM).
In anticipation of its intended growth and the introduction of additional
products to the market in the near future, the Company has implemented a
corporate structure whereby each market is served by a separately operated
subsidiary or division. The Company's marine products business is operated by
the Company's indirect wholly-owned subsidiary, SeaLife Marine. The Company's
agricultural products business is operated by the Company's indirect
wholly-owned subsidiary, ProTerra. The Company's remediation product business is
operated as a division of the Company. The Company also plans on establishing a
research and development division that will focus on the testing and development
of existing and new products for each of the Company's subsidiaries and
divisions provided sufficient capital can be obtained to fund such division. The
Company has structured its operations in this
15
manner to accommodate a range of products for specific markets that have been
and will be developed by the Company.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial conditions and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of financial statements requires management to
make estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses and disclosures on the date of the financial
statements. On an on-going basis, we evaluate our estimates, including, but not
limited to, those related to revenue recognition. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making judgments. Actual results could differ from those estimates. We believe
that the following critical accounting policies affect our more significant
judgments and estimates in the preparation of our consolidated financial
statements.
MANAGEMENT DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis should be read in conjunction with the
Company's consolidated financial statements and accompanying notes.
On August 27, 2004, the Company changed its fiscal year end from May 31 to
December 31, as reported on the Company's Current Report on Form 8-K filed
August 30, 2004.
Four months ended September 30, 2004 versus four months ended September 30, 2003
RESULTS OF OPERATIONS
The Company incurred a net loss of $600,058 for the four months ended September
30, 2004 as compared to a net loss of $35,174 for the four months ended
September 30, 2003. Our net loss increased primarily due to investments in
marketing, legal expenses, consulting fees and executive compensation.
The Company had revenues of $106,842 for the four months ended September 30,
2004 and revenues of $2,674 for the same period ending in 2003. The Company's
sales in the four month period ended September 30, 2004 represent the first
significant results in the marketplace for SeaLife Marine and Proterra products.
The Company's sales revenue was generated from two customers. One customer
purchased Proterra products, accounting for 43% of our sales revenue. The other
customer purchased SeaLife Marine products accounting for 57% of our sales
revenue. The Company expects to increase its sales over the next 12 months.
However, the rate of this increase will depend on the Company's marketing
efforts and its ability to raise additional capital to support continued
operations.
Gross profit for the four months ended September 30, 2004 is $50,751. The gross
profit margin is 47.5%. The cost of goods for SeaLife Marine products includes
the paint cost, freight and California pesticide tax. For Proterra products, the
cost of goods includes the material and freight costs. We did not have any sales
for the comparable period ending September 30, 2003.
Total operating expenses consist of general administrative, sales and marketing
expenses. For the four months ended September 30, 2004, total operating expenses
were $650,808. For the four months ended September 30, 2003, total operating
expenses were $37,174. This represents a 1751% increase over the same period in
the prior year.
The major increase in general and administrative expenses is due to compensation
paid for legal services, marketing and sales executives, business consulting,
research and development, industrial relations consulting and Company officers'
wages. The majority of our expenses are recorded as paid-in capital, because the
large majority of our administrative expenses were paid in the form of
restricted stock, not cash.
16
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, the Company had cash and cash equivalents of $24,658
as compared to cash and cash equivalents of $34,056 as of September 30, 2003. At
September 30, 2004 the Company had a working capital deficiency of $315,020 as
compared to a working capital excess of $116,910 as of September 30, 2003. Net
cash from financing activities was $32,466 for the four months ended September
30, 2004, as compared to $37,173 for the four months ended September 30, 2003.
The principal use of cash for the four months ended September 30, 2004 was to
fund the net loss from operations for the period. The Company raised a total of
$32,466 as follows: issuance of common stock, net of stock issuance costs of
$12,466 and a loan from a shareholder of $20,000 during the four months ended
September 30, 2004. This was used to fund the net loss from operations.
We currently have little cash reserves and may be unable to pay current
liabilities. The Company cannot continue in its current form without obtaining
additional financing. If operating revenues from product sales are not
sufficient to fund our operations, no assurance can be given that alternative
sources of funding could be obtained on acceptable terms, or at all. In
addition, we have historically compensated our executive officers, consultants
and service providers with common stock of the Company. No assurance can be
given that these persons and entities will continue to accept Company stock as
compensation. These conditions raise substantial doubt about our ability to
continue as a going concern.
We continue to seek external sources of funding, including but not limited to,
incurring debt, the sale of assets or stock, and/or other strategic transactions
sufficient to provide short-term funding, and potentially achieve our long-term
strategic objectives.
If we do not receive sufficient financing we may incur material harm to our
business, operations or financial conditions. We are currently speaking with
potential investors, however, no assurance can be given that any investment will
be consummated or any alternative sources of funding can be obtained on
acceptable terms, or at all. These conditions, combined with our historical
operating losses and our deficits in stockholders' equity and working capital,
raise substantial doubt about our ability to continue as a going concern.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward-looking statements (identified by the words "estimate," "anticipate,"
"expect," "believe," and similar expressions), which are based upon management's
current expectations and speak only as of the date made. These forward-looking
statements are subject to risks, uncertainties and factors that could cause
actual results to differ materially from the results anticipated in the
forward-looking statements and include, but are not limited to, competitors'
pricing strategies and technological innovations, changes in health care and
government regulations, litigation claims, foreign currency fluctuation, product
acceptance, as well as other factors discussed in our latest Report on Form
10-KSB.
RISKS RELATED TO OUR BUSINESS
OUR AUDITORS HAVE A GOING CONCERN QUALIFICATION IN THEIR OPINION CONTAINED
IN OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS WHICH RAISES SUBSTANTIAL
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
As a result of our substantial historical operating losses, limited revenues and
working capital and our capital needs, our auditors have added a going concern
qualification (explanatory paragraph) in their report contained in our audited
consolidated financial statements for the year ended May 31, 2004 which raises
substantial doubt about our ability to continue as a going concern. While we
have relied principally in the past on external financing to provide liquidity
and capital resources for our operations, we can provide no assurances that cash
generated from operations together with cash received in the future from
external financing, if any, will be sufficient to enable us to continue as a
going concern. In addition, if any funds are obtained, it could result in
significant dilution.
17
WE HAVE INCURRED SUBSTANTIAL LOSSES FROM INCEPTION WHILE REALIZING LIMITED
REVENUES AND WE MAY NEVER GENERATE SUBSTANTIAL REVENUES OR BE PROFITABLE IN
THE FUTURE.
For each fiscal year since our acquisition of SeaLife Nevada in 2002, we have
generated net losses and we have accumulated losses totaling approximately
$2,509,140 as of May 31, 2004. We have only recently emerged from our
development stage operations and have historically generated limited revenues.
We can provide no assurances that our operations will generate substantial
revenues or be profitable in the future. We have just recently introduced some
of our products into the marketplace and have shipped small quantities to our
distributors.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUT QUARTERLY OPERATING RESULTS
MAY FLUCTUATE SIGNIFICANTLY.
We have a very limited operating history, and have very little revenue to date.
We cannot forecast with any degree of certainty whether any of our products or
services will ever generate meaningful revenue or the amount of revenue to be
generated by any of our products or services. In addition, we cannot predict the
consistency of our quarterly operating results. Factors which may cause our
operating results to fluctuate significantly from quarter to quarter include:
- our ability to attract new and repeat customers;
- our ability to keep current with the evolving requirements of our
target market;
- our ability to protect our proprietary technology;
- the ability of our competitors to offer new or enhanced products or
services; and
- unanticipated delays or cost increases with respect to research and
development.
Because of these and other factors, we believe comparisons of our results of
operations for our fiscal years ending May 31, 2003 and May 31, 2004 are not
good indicators of our future performance. If our operating results fall below
the expectations of securities analysts and investors in some future periods,
then our stock price may decline.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL AND IT MAY NOT BE AVAILABLE TO US
ON FAVORABLE TERMS OR AT ALL; INABILITY TO OBTAIN ANY NEEDED ADDITIONAL
CAPITAL ON FAVORABLE TERMS COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
We estimate that our company may need to raise up to $2 million of additional
capital over the next 12 months to support our operations, meet competitive
pressures and/or respond to unanticipated requirements for a period of at least
12 to 15 months. While there are no definitive arrangements with respect to
sources of additional financing, management is optimistic that these funds will
be raised through public and/or private offerings offerings of our common stock.
We cannot assure you that additional financing will be completed on commercially
reasonable terms, if at all. The inability to obtain additional financing, when
needed or on favorable terms, could materially adversely affect our business,
results of operations and financial condition and could cause us to curtail or
cease operations.
OUR SUCCESS DEPENDS IN PART ON OUR SUCCESSFUL DEVELOPMENT AND SALE OF
PRODUCTS IN THE RESEARCH AND DEVELOPMENT STAGE.
Many of our product candidates are still in the research and development stage.
The successful development of new products is uncertain and subject to a number
of significant risks. Potential products that appear to be promising at early
states of development may not reach the market for a number of reasons,
including but not limited to, the cost and time of development. Potential
products may be found to be ineffective or cause harmful side effects, fail to
receive necessary regulatory approvals, be difficult to manufacture on a large
scale or be uneconomical or fail to achieve market acceptance. Our proprietary
products may not be commercially available for a number of years, if at all.
18
There can be no assurance that any of our intended products will be successfully
developed or that we will achieve significant revenues from such products even
if they are successfully developed. Our success is dependent upon our ability to
develop and market our products on a timely basis. There can be no assurance
that we will be successful in developing or marketing such products taking
advantage of the perceived demand for such products. In addition, there can be
no assurance that products or technologies developed by others will not render
our products or technologies non-competitive or obsolete.
FAILURE TO ADEQUATELY EXPAND TO ADDRESS EXPANDING MARKET OPPORTUNITIES
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF
OPERATIONS.
We anticipate that a significant expansion of operations will be required to
address potential market opportunities. There can be no assurances that we will
expand our operations in a timely or sufficiently large manner to capitalize on
these market opportunities. The anticipated substantial growth is expected to
place a significant strain on our managerial, operational and financial
resources and systems. While management believes it must implement, improve and
effectively use our operational, management, research and development,
marketing, financial and employee training systems to manage anticipated
substantial growth, there can be no assurances that these practices will be
successful.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS,
AND MAY BE EXPOSED TO INFRINGEMENT CLAIMS FROM THIRD PARTIES.
Our success will depend in part on our ability to preserve our trade secrets and
to operate without infringing on the proprietary rights of third parties. There
can be no assurance that others will not independently develop similar
technologies, duplicate our technologies or design around our technologies.
We do not believe that our technology infringes on the patent rights of third
parties. However, there can be no assurance that certain aspects of our
technology will not be challenged by the holders of patents or that we will not
be required to license or otherwise acquire from third parties the right to use
additional technology. The failure to overcome such challenges or obtain such
licenses or rights on acceptable terms could have a material adverse affect on
us, our business, results of operations and financial condition.
The processes and know-how of importance to our technology are dependent upon
the skills, knowledge and experience of our technical personnel, consultants and
advisors and such skills, knowledge and experience are not patentable. To help
protect our rights, we require employees, significant consultants and advisors
with access to confidential information to enter into confidentiality and
proprietary rights agreements. There can be no assurance, however, that these
agreements will provide adequate protection for our trade secrets, know-how or
proprietary information in the event of any unauthorized use or disclosure.
WE MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY LITIGATION, THE DEFENSE OF
WHICH COULD ADVERSELY IMPACT OUR BUSINESS OPERATIONS.
We may, from time to time, become involved in litigation regarding intellectual
property rights. From time to time, we may receive notices from third parties of
potential infringement and claims of potential infringement. Defending these
claims could be costly and time consuming and would divert the attention of
management and key personnel from other business issues. The complexity of the
technology involved and the uncertainty of intellectual property litigation
increase these risks. Claims of intellectual property infringement also might
require us to enter into costly royalty or license agreements. However, we may
be unable to obtain royalty or license agreements on terms acceptable to us, or
at all. In addition, third parties may attempt to appropriate the confidential
information and proprietary technologies and processes used in our business,
which we may be unable to prevent and which would harm the businesses and our
prospects.
WE FACE TECHNICAL RISKS ASSOCIATED WITH COMMERCIALIZING OUR TECHNOLOGY
WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS RESULTS AND
OPERATIONS.
A key to our future success is the ability to produce our products at lower
costs than our competitors. Although we are currently utilizing proprietary
technology to produce such products at lower costs, our method for producing
19
such products on a commercial basis has only recently begun. Further, although
results from recent independent tests and our early production results have been
encouraging, the ability of our technology to commercially produce such products
at consistent levels is still being evaluated. There can be no assurance that we
will continue to produce such products at lower costs than our competitors, nor
that our technology will allow us to commercially produce such products at
consistent levels.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH COMPETITORS OF PERCEIVED
COMPETING TECHNOLOGIES OR DIRECT COMPETITORS THAT MAY ENTER OUR MARKET WITH
NEW TECHNOLOGIES.
The market for our products and services is relatively new. Our ability to
increase revenues and generate profitability is directly related to our ability
to maintain a competitive advantage because of our U.S. Environmental Protection
Agency regulatory registration of our leading product, SeaLife 1000(TM).
However, we face potential direct competition from companies that may enter this
market with new competing technologies and with greater financial, marketing and
distribution resources than us. These greater resources could permit our
competitors to introduce new products and implement extensive advertising and
promotional programs, with which we may not be able to compete. As a result, we
can provide no assurances that we will be able to compete effectively in the
future.
OUR PRODUCTS MAY BE SUBJECT TO TECHNOLOGICAL OBSOLESCENCE.
Considerable research is underway by competitors and potential future
competitors into the causes and solutions for marine, agricultural and
remediation environmental solutions. Discovery of new technologies could replace
or result in lower than anticipated demand for our products, which would
materially adversely effect our operations and could cause us to curtail or
cease operations.
WE HAVE LIMITED HUMAN RESOURCES.
Our growth to date has placed, and our anticipated further expansion of our
operations will continue to place, a significant strain on our management,
systems and resources. We will need to continue to develop and improve our
financial and management controls and our reporting systems and procedures. We
cannot assure you that we will be able to efficiently or effectively manage the
growth of our operations, and any failure to do so may limit our future growth
and materially and adversely affect our business, financial condition and
results of operations.
OUR FUTURE SUCCESS DEPENDS, IN PART, ON OUR KEY PERSONNEL, CONSULTANTS AND
PRINCIPAL MANAGEMENT'S CONTINUED PARTICIPATION.
Our ability to successfully develop our products, manage growth and maintain our
competitive position will depend, in a large part, on our ability to attract and
retain highly qualified management and technologists. The Company is dependent
upon its Chief Executive Officer and Chief Financial Officer, President of
SeaLife Marine, and Gael Himmah, an independent contractor that acts as our
Chief Consulting Scientist, and other members of our management and consulting
team. The Company does not maintain Key Man life insurance on any of these
employees or consultants. Competition for such personnel is significant, and
there can be no assurance that the Company will be able to continue to attract
and retain such personnel. Our consultants may be affiliated or employed by
others and some may have consulting or other advisory arrangements with other
entities that may conflict or compete with their obligations to the Company. We
address such potential conflicts by requiring that our consultants and other
independent contractors execute confidentiality agreements upon commencement of
relationships with the Company, by closely monitoring the work of such persons
and by requiring material transfer and assignment agreements wherever possible
and appropriate.
Gael Himmah, the individual responsible for the development of most of the
technology that forms the basis of the Company's products is currently party to
a consulting agreement with us. If Mr. Himmah terminates his relationship with
the Company, or otherwise is unable to provide services to the Company, it may
have a negative effect on the Company's ability to continue development of its
current and new product lines. The Company does not carry any key-man life
insurance on Mr. Himmah and does not have any plans to do so in the near future.
20
WE ARE HIGHLY DEPENDENT ON OUTSIDE CONSULTANTS.
If our consultants or collaborative partners do not perform, we may be unable to
develop and bring to market new products as anticipated.
We may in the future enter into consulting or collaborative arrangements with
third parties to develop products. These arrangements may not produce successful
products. If we fail to establish these arrangements, the number of products
from which we could receive future revenues will be limited.
Our dependence on consulting or collaborative arrangements with third parties
subjects us to a number of risks. These arrangements may not be on terms
favorable to us. We cannot absolutely control the amount and timing of resources
our consultants or collaborative partners may devote to our products, and these
third parties may choose to pursue alternative products. These third parties
also may not perform their obligations as expected. Business combinations,
significant changes in their business strategy, or their access to financial
resources may adversely affect a consultant's or partner's willingness or
ability to complete its obligations under the arrangement. Moreover, we could
become involved in disputes with our consultants or partners, which could lead
to delays or termination of the arrangements and time-consuming and expensive
litigation or arbitration.
OUR INABILITY TO ACCESS, OR A CHANGE IN THE PRICES OF, RAW MATERIALS COULD
MATERIALLY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.
We purchase certain raw materials such as Cuprous Oxide and other biocides,
pesticides or toxins - under short- and long-term supply contracts. The purchase
prices are generally determined based on prevailing market conditions. If there
is a shortage in these raw materials, or if our suppliers otherwise increase the
costs of such materials, this could materially adversely impact our results of
operations.
WE EXPECT OUR BUSINESS TO BE SEASONAL WHICH MEANS THAT WE ANTICIPATE HAVING
LESS REVENUE DURING CERTAIN PORTIONS OF THE YEAR.
Management expects our business to be seasonal, with sales and earnings being
relatively higher during the outdoor season (such as spring and summer times)
and lower during the indoor season (such as fall and winter times). Accordingly,
we may show lower revenues during portions of the year which could
correspondingly adversely affect the price of our common stock.
RISKS RELATED TO OUR INDUSTRY
OUR INDUSTRY IS VERY COMPETITIVE, AND WE MAY BE UNABLE TO CONTINUE TO
COMPETE EFFECTIVELY IN THIS INDUSTRY IN THE FUTURE.
We are engaged in an industry that is highly competitive. We compete with many
other suppliers and new competitors continue to enter the markets. Many of our
competitors, both in the United States and elsewhere, are major chemical
companies, and many of them have substantially greater capital resources,
marketing experience, research and development staffs, and facilities than we
do. Any of these companies could succeed in developing products that are more
effective than the products that we have or may develop and may also be more
successful than us in producing and marketing their products. We expect this
competition to continue and intensify in the future. Competition in our markets
is primarily driven by:
- product performance, features and liability;
- price;
- timing of product introductions;
- ability to develop, maintain and protect proprietary products and
technologies;
- sales and distribution capabilities;
- technical support and service;
- brand loyalty;
- applications support; and
21
- breadth of product line.
If a competitor develops superior technology or cost-effective alternatives to
our products, our business, financial condition and results of operations could
be materially adversely affected.
WE ARE SUBJECT TO A WIDE VARIETY OF LOCAL, STATE AND FEDERAL RULES AND
REGULATIONS, WHICH COULD RESULT IN UNINTENTIONAL VIOLATIONS OF SUCH LAWS.
ALSO, CHANGES IN SUCH LAWS COULD RESULT IN LOSS OF REVENUES.
As a chemical manufacturer, we are subject to a wide variety of local,
state and federal rules and regulations. While we believe that our operations
are in compliance with all applicable rules and regulations, we can provide no
assurances that from time to time unintentional violations of such rules and
regulations will not occur. Certain of our products are regulated by the U. S.
Environmental Protection Agency and the individual states where marketed.
Government regulation results in added costs for compliance activities and
increases the risk of losing revenues should regulations change. Also, from time
to time we must expend resources to comply with newly adopted regulations, as
well as changes in existing regulations. If we fail to comply with these
regulations, we could be subject to disciplinary actions or administrative
enforcement actions. These actions could result in penalties, including fines.
RISKS ASSOCIATED WITH OUR COMMON STOCK
WE HAVE LIMITED TRADING VOLUME AND SHARES ELIGIBLE FOR FUTURE SALE BY OUR
CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE.
To date, we have had a very limited trading volume in our common stock. As long
as this condition continues, the sale of a significant number of shares of
common stock at any particular time could be difficult to achieve at the market
prices prevailing immediately before such shares are offered. In addition, sales
of substantial amounts of common stock, including shares issued upon the
exercise of outstanding options and warrants, under Rule 144 or otherwise could
adversely affect the prevailing market price of our common stock and could
impair our ability to raise capital at that time through the sale of our
securities. As a result of our limited cash, a number of our employees and
consultants have elected to accept a portion of their compensation in shares of
our common stock and a portion of these shares have been registered for resale
to the public.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for technology companies in particular,
has been highly volatile.
Factors that could cause such volatility in our common stock may include, among
other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of technological innovations;
- cchanges in financial estimates by securities analysts;
- conditions or trends in our industry; and
- changes in the market valuations of other comparable companies.
OUR COMMON STOCK IS A "PENNY STOCK"
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the Securities and Exchange Commission require broker
dealers dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account.
Potential investors in our common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial
22
situation, investment experience and investment objectives; (ii) reasonably
determine, based on that information, that transactions in penny stocks are
suitable for the investor and that the investor has sufficient knowledge and
experience as to be reasonably capable of evaluating the risks of penny stock
transactions; (iii) provide the investor with a written statement setting forth
the basis on which the broker-dealer made the determination in (ii) above; and
(iv) receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's financial situation,
investment experience and investment objectives. Compliance with these
requirements may make it more difficult for holders of our common stock to
resell their shares to third parties or to otherwise dispose of them in the
market or otherwise.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d015(e) under the
Securities Exchange Act of 1934 (the "Exchange Act"). Based on this evaluation,
the principal executive officer and principal financial officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
There was no change in the Company's internal control over financial reporting
during the Company's most recently completed fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
23
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 4, 2003 the Company was advised that it is the subject of a Securities
and Exchange Commission investigation. The Company is uncertain of the nature of
the investigation, and no charges have been levied by the Commission against the
Company to date. The Company was advised on January 23, 2004 that the Securities
and Exchange Commission Staff intends to recommend that the SEC file enforcement
proceedings against the Company and its Chief Executive Officer for alleged
violations of sections 5 and 17(a) of the Securities Act of 1933 and Sections
10(b), 13(d)1 and 16(a) of the Securities Exchange Act of 1934, and Rules 10b-5,
13d-1 and 16a-3 thereunder. The Company has received no further communication
from the SEC. The ultimate disposition of this matter is unknown at this date.
ITEM 5. OTHER INFORMATION
On October 29, 2004, the Company amended its employment agreement with Robert
McCaslin to reduce Mr. McCaslin's salary to $200,000 per year. In addition, on
October 29, 2004, the Company amended its employment agreement with J.P. Heyes
to reduce Ms. Heyes' salary to $100,000 per year.
ITEM 13. EXHIBITS
The following documents are included or incorporated by reference:
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of SeaLife Corporation (1)
3.2 Bylaws of SeaLife Corporation (1)
10.1 Amendment to Employment Agreement with Robert McCaslin, dated
October 29, 2004.
10.2 Amendment to Employment Agreement with J.P. Heyes, dated October
29, 2004.
31.1 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to pursuant Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ----------
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the
period ended May 31, 2003, dated September 19, 2003.
24
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized this 4th day of November
2004.
SEALIFE CORPORATION
By: /S/ ROBERT A. MCCASLIN
-----------------------------------------------
Robert A. McCaslin
President, Chief Financial Officer and Director
POWER OF ATTORNEY
The undersigned directors and officers of SeaLife Corporation do hereby
constitute and appoint Robert A. McCaslin and J.P. Heyes, and each of them, with
full power of substitution and resubstitution, as their true and lawful
attorneys and agents, to do any and all acts and things in our name and behalf
in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorney and agent, may deem necessary or advisable to enable said
corporation to comply with the Securities Exchange Act of 1934, as amended and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Quarterly Report on Form 10-QSB, including
specifically but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto, and we do hereby ratify and
confirm all that said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: November 4, 2004
By: /S/ ROBERT A. MCCASLIN
--------------------------------------
Robert A. McCaslin
President, Chief Financial Officer and
Director
Date: November 4, 2004
By: /S/ J.P. HEYES
--------------------------------------
J.P. Heyes
Secretary and Director
25
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of SeaLife Corporation (1)
3.2 Bylaws of SeaLife Corporation (1)
10.1 Amendment to Employment Agreement with Robert McCaslin, dated
October 29, 2004.
10.2 Amendment to Employment Agreement with J.P. Heyes, dated October
29, 2004.
31.1 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to pursuant Securities Exchange Act
Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ----------
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the
period ended May 31, 2003, dated September 19, 2003.
26