U.S. Securities and Exchange Commission
                             Washington, D.C. 20549
                                   Form 10-KSB
(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

     For the transition period from _______________ to ________________

Commission File No.:000-31521


                            Mariculture Systems, Inc.
                  --------------------------------------------
               (Name of small business registrant in its charter)

         Florida                                              65-0677315
-------------------------------                          -------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                               Identification No.)

P.O. Box 1746
Edmonds, Washington                                             98020
-------------------------------                          -------------------
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number: (425) 778-5975

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                                 Name of each exchange
         None                                       on which registered
-----------------------------                       -------------------------

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



<PAGE>



     Check whether the registrant (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
                      -----                 -----

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     State registrant's revenues for its most recent fiscal year. $0

     Of the  11,646,958  shares of voting  stock of the  registrant  issued  and
outstanding   as  of  December   31,  2001,   4,080,290   shares  were  held  by
non-affiliates.  Because of the absence of an established trading market for the
voting stock,  the registrant is unable to calculate the aggregate  market value
of the voting  stock held by  non-affiliates  as of a specified  date within the
past sixty (60) days.















                                                         2

<PAGE>




                                                      PART I

Item 1. Description of Business

         Business Development

     Mariculture Systems,  Inc. (the "Company" or "Mariculture") is incorporated
in the State of Florida.  The Company is not  presently  trading on an exchange,
but has applied to have its common stock quoted on the Over the Counter Bulletin
Board.  There can be no assurance that such  application  will be accepted.  Its
executive  offices are presently located at P.O. Box 1746,  Edmonds,  Washington
98020.  Its telephone number is (425) 778-5975 and its facsimile number is (425)
672- 8012.

     The Company is filing  this Annual  Report on Form 10KSB so that the public
will have  access to the  required  periodic  reports on  Mariculture's  current
status and financial  condition.  The Company will file periodic  reports in the
event its obligation to file such reports is suspended  under the Securities and
Exchange Act of 1934 (the "Exchange Act").

     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"). MSIW was
incorporated  on August 25, 1994 with the goal of  becoming a major  supplier of
proprietary and non-  proprietary  equipment to the aquaculture  industry.  As a
result of the Share Exchange transaction,  MSIW became a wholly owned subsidiary
of the Company.  When MSIW entered into the Share  Exchange  agreement  with the
Company  and  became  a  wholly  owned  subsidiary  of  the  Company,  MSIW  was
administratively dissolved on September 19, 1997 with all assets and liabilities
transferred to the Company.

     MSIW  concentrated  its  initial  efforts to  fundraising  through  private
placement  of its  common  stock and on the  engineering  necessary  to take the
Company's closed  containment  finfish rearing  technology to commercial reality
via a pilot system for growing  finfish.  The closed  containment  technology is
recognized by the registered brand name SARGO. The pilot project, titled SARGO1,
initiated by MSIW and completed by the Company,  was  instrumental  in providing
proof of concept for closed containment aquaculture.  Although several prototype
systems of closed  containment design have been attempted on land by other firms
over the past twenty (20) years,  no attempt had been made to develop a floating
facility of closed containment grow-out reservoirs.

     A limited two (2) year term agreement was provided  through National Marine
Fisheries Service ("NMFS") to operate the pilot system in federal waters. Actual
installation   of  the  pilot  was   accomplished  in  July  1996  and  operated
continuously  until September 1997, when a successful  harvest was accomplished.
The  harvested  fish were sold  through a Seattle  brokerage  used by the nearby
net-pen operation to take their live harvested fish to market.

     Through September 1999,  further efforts in operating the pilot system were
confined to water flow  analysis,  effecting  improvements  in waste removal and
processing, evaluating water pumping requirements, water oxygenation methods and
general  support  systems.  The entire facility was removed from the water after
the expiration of the NMFS agreement.


                                        3

<PAGE>



     Currently,  there are no SARGO systems installed, sold or in operation. The
Company has been operating on a very low level of borrowed operating capital and
private stock  placements  until sales begin to bring in revenue.  In June 2001,
David E.  Meilahn,  the  Company's  current  President,  Treasurer  and Chairman
assigned  the  patent  for the  SARGO  system to the  Company  in  exchange  for
1,000,000 shares of the Company's restricted common stock and $30,000.

     See (b) "Business of Registrant" immediately below for a description of the
Company's business.

     Business of Registrant

General

     The Company was formed in July 1996 and had little or no  operations  until
August  1996,  when it  acquired  MSIW  through  the  Share  Exchange.  MSIW was
incorporated  on August 25, 1994 with the goal of  becoming a major  supplier of
proprietary  and  non-proprietary  equipment to the aquaculture  industry.  MSIW
concentrated  its initial efforts to fund raising through private  placements of
its unregistered  stock and on the engineering  necessary to take the technology
to commercial reality via a pilot system for rearing finfish. As a result of the
Share Exchange,  MSIW became a wholly owned subsidiary of the Company,  and then
administratively  dissolved on September 19, 1997. Mariculture is an aquaculture
technology  company  involved in the business of "farming"  aquatic  animals and
plants. Its principal activity is to develop, manufacture and market proprietary
systems that enable commercial fish farmers to increase productivity and profits
while  reducing  risks  to  their  crop  and  limiting   environmental   impact.
Ultimately,   the  Company  seeks  to  lead  the  world  in  providing  turnkey,
state-of-the-art  equipment  solutions  for  productive  farming  of the  global
aquatic resources.

     The Company's  independent  certified public accountant has referred to the
Company as a "going concern" in the Company's financial statements. Accompanying
financial  statements have been prepared assuming that the Company will continue
as a going  concern.  As discussed in Note 5 to the  financial  statements,  the
Company  has  a  working  capital  deficiency  and  faces  uncertain  conditions
regarding  its ability to  transition  from a  development  stage  company to an
operating entity that raise substantial doubt about its ability to continue as a
going concern.  Management's plans regarding those matters are also described in
Note 5. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.

World Wide Fishing Industry

     Management's  market  analysis has found that the world's  oceans have been
fished nearly to the limits of their sustainable yields. Through a press release
by  Worldwatch  dated,  Saturday,  September  28,  1996,  Lester R. Brown wrote,
"Marine  biologists  report that all 17 oceanic fisheries are being fished at or
beyond  capacity.  For the first time in  history,  the  world's  farmers can no
longer  expect any help from its fishers in  expanding  the world food  supply."
Inasmuch as worldwide environmental degradation of the oceans contributes to the
decline of marine life,  over-fishing  is the primary  cause of  dwindling  fish
populations.  The oceans are not an unlimited  reservoir,  and human demands are
approaching the limits of oceanic fisheries to supply fish.

     Global  demand for fresh  seafood has steadily  increased in recent  years.
United  Nations Food and  Agriculture  Organization  ("FAO") data shows that the
disposition of world aquaculture and commercial  catches to "Marketed Fresh" has
increased from 25.3% in 1993 to 35.1% in 1997.

                                        4

<PAGE>



Worldwide  consumption of seafood has also increased.  Data published in 2000 by
FAO shows consumption of seafood  increasing from 27.0 pounds per capita in 1976
to 30.0 pounds per capita in 1990 and 33.5 pounds per capita in 1996.  US Bureau
of Census data,  published in December 1998, predicts that world population will
continue  to grow and is  anticipated  to reach 6.8 billion  people by 2010,  an
increase  of 1 billion  people  from  1997.  In order to  maintain  the  current
consumption level of 33.5 pounds per capita,  management  forecasts that seafood
production  will have to increase by 15.5 million  metric tons by 2010. The same
forecast predicts that seafood  production will need to increase by another 15.5
million metric tons in 2025 and again in 2040. This concurs with United Nation's
Medium-Term  Outlook:  Fish Consumption in 2010, published in The State of World
Fisheries and Aquaculture 1998. "It is estimated that world demand for food fish
in 2010  would be between  105  million  and 110  million  tonnes and  available
supplies  about 105 million  tonnes,  with an additional 30 million tonnes being
converted into animal feed." With 1998 fisheries and  aquaculture  production at
122  million  tonnes,  FAO  forecasts  an  increase in demand of 13 - 18 million
tonnes.

     It is widely  believed that the oceans are  approaching  their  sustainable
yields, mostly due to extensive fishing by large-scale industrial operations and
over-fishing.  In addition to comments by Lester Brown,  Worldwatch member David
Roodman states in a press release dated Saturday,  December 7, 1996,  "Subsidies
for the global fishing fleet have helped produce enough boats,  hooks,  and nets
to catch twice the available fish,  contributing to over-fishing and destruction
of fisheries."  From the FAO, The State of The World  Fisheries and  Aquaculture
2000, part one, page one, we quote:  "For the two decades  following 1950, world
marine and inland capture fisheries  production  increased on average by as much
as 6 percent  per year,  trebling  from 18 million  tonnes in 1950 to 56 million
tonnes in 1969.  During  the 1970s  and  1980s,  the  average  rate of  increase
declined  to 2 percent  per year,  falling  to almost  zero in the  1990s.  This
leveling off of the total catch follows the general trend of most of the world's
fishing areas, which have apparently reached their maximum potential for capture
fisheries production,  with the majority of the stocks being fully exploited. It
is therefore  very  unlikely that  substantial  increases in total catch will be
obtained."  K.J.  Rana of FAO  states,  "It is  widely  acknowledged  that  fish
supplies from  traditional  marine and inland capture  fisheries are unlikely to
increase  substantially  and that the  projected  shortfalls in fish supply will
probably  be  met  mainly  from  expansion   within  the  aquaculture   sector."
"Aquaculture is one of the fastest growing food-producing sectors,  providing an
acceptable  supplement to and substitute  for wild fish and plants."  Management
concurs,  that with the current  state of  fisheries,  additional  production of
seafood will have to come mainly from aquaculture.

Aquaculture Industry

     Aquaculture is the art of cultivating  the products of water or the raising
of fish. It includes the culture of fish, mollusks,  crustaceans, algae, seaweed
and even  bullfrogs  and  alligators.  Fish  farming  is the  process of rearing
desirable  species of fish in  captivity  and  managing  both the fish and their
environment  to improve growth and  reproduction.  Fish are reared in fish farms
much as farm animals are raised in the barnyard.  The fish culturist manages the
aquatic  environment to protect the fish from predators,  parasites and disease.
The  culturist  also  feeds  the fish and  controls  water  quality  to  prevent
pollution.

     The  increase  in demand for  seafood  has  spawned  new growth in the fish
farming industry.  As happened with other basic meats, the traditional "hunting"
means of  providing  fish is now being  replaced by a  "farming"  means known as
aquaculture. This growth in aquaculture created many new fish culture facilities
around the world, producing a wide variety of finfish species. Currently, large

                                        5

<PAGE>



finfish sea farms cultivate salmon, sea bass and sea bream.  Tuna,  sturgeon and
halibut are now being developed and farmed on a small scale.

     The animal aquaculture industry continues to be a large and growing segment
of the  world's  seafood  economy.  FAO,  THE STATE OF THE WORLD  FISHERIES  AND
AQUACULTURE 2000, part one, page one, states:  "In contrast (to the leveling off
of the fisheries  production),  growth in  aquaculture  production has shown the
opposite tendency.  Starting from an insignificant total production,  inland and
marine  aquaculture  production grew by about five percent (5%) per year between
1950 and 1969 and by about  eight  percent  (8%) per year  during  the 1970s and
1980s,  and it has increased  further to ten percent (10%) per year since 1990."
Data  from the  Department  of  Commerce,  National  Marine  Fisheries  Service,
("NMFS")  published in 1999,  shows that  aquaculture  production  increased two
hundred  forty-six percent (246%) from 1988 to 1997 (11.7 million metric tons in
1988 to 28.8 million metric tons in 1997).

Existing Aquaculture Methods

     Aquaculture  facilities now operate in lakes,  ponds, on land, in the ocean
near shore and in the open ocean.  Current  marine  finfish  farming  techniques
employ "open net pens," that are commonly  clustered into "farms" located within
cold or warm near-shore  coastal waters,  in warm water ponds as well as in cool
water impoundment  areas. At this time, the net pens are  predominantly  used to
farm Atlantic salmon.  Research is now being performed to develop the techniques
and knowledge base to rear many other species of finfish.

     Nearly  all open net pen cages are  suspended  from  floating  walkways  or
support structures that are moored near shore. Normally, pens or cages are sized
either  forty feet  square (40 ft.  sq.) or fifty  feet  square (50 ft.  sq.) by
twenty feet (20 ft.) to forty feet (40 ft.) in depth, although larger nets up to
eighty feet (80 ft.) are now being  introduced  in some farms.  Farms  typically
consist  of twenty  (20) to eighty  (80) cages  floating  in two (2) to five (5)
acres of surface water. These cage operations must be placed in high tidal water
exchange  locations  to  maintain  adequate  levels of  dissolved  oxygen and to
dispose of  accumulated  fish and food wastes that fall  through the nets to the
bottom.

     Operation of a net pen facility is relatively labor intensive.  As the fish
grow in size and  require  more  water  flow,  the nets  must be  replaced  with
different  mesh  sizes or the fish must be moved  from pen to pen.  Removal  and
cleaning  of the nets  must be  performed  on a regular  basis to reduce  marine
fouling that grows over and closes the mesh.  Constant inspection of the nets is
required to find predator damage and immediately repair the nets to avoid escape
of the  crop.  Feeding  of the  fish  is  usually  performed  by  hand  or  with
semi-automatic  feeders  and  must be done on a  regular  schedule  to  maintain
growth.  Handling  and  moving  the  fish  is kept to a  minimum  as it  creates
excessive stress and increases mortality losses.

     With net pen  facilities,  many factors  contribute to a high  incidence of
disease  and  mortality,  resulting  in a less than ideal  survival  rate,  thus
challenging   the  net  pen   farmer's   ability  to  raise  fish  and  maintain
profitability. These are:

     *    Location - net pens must be located where there is pollution-free high
          tidal water flow.
     *    Diseases  - high  mortality  rate  fluctuations  due to "red tide" and
          other shallow water diseases
     *    Biological - predators  penetrate  or damage nets,  and eat or release
          fish crop.  * High Food Cost - water  currents  carry away much of the
          feed.

                                        6

<PAGE>



     *    Environment  -  discharge  of high  levels of  organic  fish waste and
          pollutants.
     *    Scenic View - the  increase  in  shore-side  landowners  not wanting a
          facility within sight.

New SARGO(TM) Technology

     Management  believes  the  SARGO  rearing  system is the first to offer the
industry  unparalleled  control  of the  growing  environment.  The  system is a
floating farm facility that uses methods proven in land-based  systems and makes
them work in the near-shore ocean and lake locations.

     A SARGO  system  consists  of one (1) or more  modular  pods.  Each  pod is
composed of four (4), rigid wall, floating fish reservoirs.  Each pod also has a
centralized  service platform fitted with required pumps,  feeding equipment and
sensor control systems.  Ideal,  deep source water is pumped into the reservoirs
continuously,  replenishing  oxygen  levels for the fish and  providing  a water
current "raceway" for the fish to school  naturally.  Nearly one hundred percent
(100%)  of the  solid  fish  waste and other  organic  matter is  contained  and
collected in the SARGO system.  Once collected,  the customer can pump the waste
to shore where it can be processed to be used as fertilizer,  or can be disposed
in a land fill. The operator can also process the waste on site with an optional
treatment system.

     The optional  marine  sanitation  device  oxidizes and  disinfects the fish
fecal waste and uneaten food by means of electrochemical  reaction. A mixture of
finely ground,  or macerated,  waste and seawater  passes  between  electrically
charged   plates.   The  chloride  salts  of  the  seawater  are  decomposed  by
electrolysis to form hypochlorite, which kills harmful bacteria and oxidizes the
organic  compounds in the waste  stream.  A single pass between the plates kills
nearly  one  hundred   percent   (100%)  of  resident   bacteria   and  oxidizes
approximately  ninety-five  percent (95%) of organic  compounds.  The sanitation
device  will  process  over  fifty-six  thousand  (56,000)  liters  per  day  of
concentrated waste.

     In a typical farm,  there are multiples of pods,  each of which provide the
fish  raising  ability  of over forty (40) net pens.  A SARGO  farm,  physically
equivalent  in site size to the largest net pen farms  currently  in  operation,
would produce  approximately  eight  thousand  (8,000) metric tons of salmon per
year. The production  capacity of the comparably sized net pen operation is only
1,000 metric tons per year.

Technology Comparison

         Advantages

     There are many  advantages  that the SARGO  system  offers over its biggest
current  competitor,  the common net pen.  The system can  substantially  reduce
operating costs through improved feed management,  reduced labor and eliminating
the  predator  losses and fish  escapes  that plague all net-pen  operators.  In
addition, the system offers unprecedented control over waste containment,  water
flow and oxygen,  permitting  three hundred  percent (300%) and higher  stocking
densities.  A fully  contained  SARGO system offers the finfish farmer  complete
control of the fish- rearing  environment  leading to the lowest production cost
per pound of fish.

     Many of the key SARGO features provide advantages so pronounced,  that when
compared  to current net pen  technology,  management  believes  the system will
create new  environmental  and regulatory  standards for commercial fish farming
facilities.  Such concerns,  as discussed under "Existing  Aquaculture Methods",
are quickly resolved with a SARGO system. Management's

                                        7

<PAGE>


research has created the following  chart,  which  estimates  the  comparison of
these specific attributes and the SARGO benefits:

<TABLE>
<CAPTION>
                    Traditional Net Pens                                  SARGO System
<S>                 <C>                                                   <C>
ENVIRONMENTAL       Fish waste and excess food accumulations              Controlled removal of food and organic waste for
STANDARDS           beneath pens are cause for significant                treatment or disposal minimizes environmental
                    environmental concern among regulatory                controversies.  Provides regulatory agencies with
                    agencies, environmentalists and public interest       viable alternatives for permitting as aquaculture
                    groups.                                               proliferates.

CONTAMINATION       Danger of 50% to 100% crop losses from toxic          Phytoplankton bloom phenomena do not occur at
CONTROL             phytoplankton blooms that thrive in surface           depths from which water is supplied. Surface
                    waters.  No control is currently available.           water pollution avoided since source is a clean
                                                                          deep-water site.

SURVIVAL            Source of growth environment water is from            Nonporous rigid pen reservoir isolates fish from
RATES               surface down to 40 feet.  Very limited control        surrounding environment.  Growth environment
                    over environment characteristics. Survival rates      water controlled by supply from desired depths.
                    less than ideal.                                      Survival rates expected to consistently reach 95%
                                                                          or more.

DISEASE ISOLATION   No control over spread of disease to adjacent         Independent pen environment provides significant
                    pens.  Indiscriminate or uncontrolled use of          control over disease outbreak and transmission.
                    medicines results in highly erratic effectiveness     Allows for discriminate use of antibiotics for
                    and can negatively impact surrounding ecology.        more consistent results and reduced ecological
                                                                          side effects.

PREDATION           Very susceptible to predation losses from seals,      Impenetrable, opaque, rigid-wall reservoir shields
LOSS                sea lions, dog fish, otters and other predators.      fish crops from predators, eliminates predation
                                                                          losses.

STRESS              Stress is caused by all the above factors. It is      Growth environment control reduces stress
                    the major factor in disease outbreak and subsequent   factors.  Promotes greater fish growth and higher
                    mortality.                                            survival rates.

OXYGEN              Loading densities per pen volume are limited by       Pumped water provides sufficient water exchange
LEVELS              surface water exchange, oxygenation levels and        and oxygenation levels to support 3 to 5 times
                    temperature.  All of which vary greatly by            greater fish loading densities per comparable pen
                    location and by tidal action.                         volume.  Reduces farm size and capital costs thus
                                                                          yielding better profits.

TEMPERATURE         Susceptible   to  variable   surface   water          Water pumped from 60 to 200+ feet source, provides
CONTROL             conditions which  stress  organisms  and slow         stable temperature and salinity control.  Environment
                    growth.   Water temperatures and salinity             is consistent with species requirements that promote
                    characteristics at near surface levels not            optimal growth and health.
                    optimal for many species.  Warmer water promotes      requirements that promote optimal growth and
                    disease outbread.                                     health.

PRODUCT             Lack of open water current discourages fish from      Controlled current flow promotes schooling and
QUALITY             exercising thus lowering flesh quality.               continuous exercise, resulting in more consistent
                                                                          firm flesh characteristics.

FEED                Open net pen design contributes to loss of feed       Collection and analysis of waste by-products
UTILIZATION         through the netting and increased feed costs.         maximizes feed utilization and helps reduce over-
                                                                          feeding waste and excess costs.

SYSTEM              Nets require replacement every 3-4 years,             Reservoir life estimated at 30 years plus.  Reduces
MAINTENANCE         increasing capital costs.  Cleaning, repair,          long term capital costs.  Less maintenance and
LIFE                maintenance and labor costs are high.  Frequent       cleaning required.  Minimizes fish handling and
                    cleaning and repair increases fish stress.            the resulting stress.

PERMITTING and      Lengthy and costly permitting process.  Many          Offers alternatives for speedier regulatory
LICENSING COSTS     sites are not available for permitting due to         permitting.  Sites are made available that would
                    environmental issues.                                 not be possible for open net pens.
</TABLE>

Limitations

     The SARGO FinFarm may have a higher up-front  capital cost when compared to
conventional  net pen farms.  A net pen  depends  upon tidal  exchange to supply
oxygen and to remove  wastes.  As a closed  containment  system,  the SARGO farm
depends on additional controls and processes for

                                        8

<PAGE>



     successful  operation.  These controls and processes require backup systems
for redundancy. The cost for the controls and processes contribute to the higher
up-front  costs.  However,  both net pen and SARGO capital costs are  comparable
when looking at overall farm costs.  The total installed  capital cost for a net
pen that produces 440 metric tons of fish is similar to the cost of a SARGO farm
that produces 440 metric tons of fish.

     For example:  In the National Strategic  Initiative Project Summaries 2000,
the National Marine Aquaculture Initiative, ("NMAI"), reported to the Department
of Commerce, ("DOC"), National Oceanic and Atmospheric Administration, ("NOAA"),
on their  development  of  codes of  practice  for  environmentally  responsible
aquaculture.  The report  indicated  that per their  economic model for Atlantic
cod, their farm study required an investment of $4.5 million for thirty-six (36)
net pens divided into twelve groups or cohorts  providing  five  thousand  cubic
meters  (5,000 m3) of cage  space at a cost of  $375,000  per group.  Each SARGO
reservoir  has a usable tank volume of two thousand  five  hundred  cubic meters
(2500 m3) and a four (4)  reservoir  system would have a usable volume of 10,000
cubic  meters.  A ten thousand  cubic meter  (10,000 m3) net pen facility  would
require two (2) of the reported  study's  cohorts or a total of six (6) net pens
at a cost of $750,000. When considering volume only, at approximately $1,500,000
for four (4)  reservoirs,  the  up-front  capital  cost  for a SARGO  system  is
initially higher.

     When  looking at  production  output,  net pens are more  costly.  Stocking
densities  have been  historically  greater  in  tank/reservoirs  than net pens.
Investigations  by the  Environmental  Assessment  Office  presented  in "Salmon
Aquaculture  Review,"  British  Columbia,  Canada  have shown that the  stocking
densities of 8 to 14 kg/m3 of water volume in net pen  operations  are increased
to over  75kg/m3 in tests  using  land based  reservoirs  and  rearing  Atlantic
salmon.  Researchers have taken the stocking  densities to 120 kg/m3 and believe
the ultimate limit is much higher.  Management recommends that the reservoirs be
stocked so as to reach a minimum of 45 - 50 kg/m3 at  harvest.  When  looking at
production  capacity,  the SARGO  technology  is capable of producing  three (3)
times as many fish per volume than a net pen  operation  of similar  volume.  To
produce the same volume of Atlantic  salmon as a four (4) reservoir  SARGO farm,
the  net pen  farmer  would  need  eighteen  (18)  net  pens at a total  cost of
$2,250,000.

     Risk of system failure. At the higher stocking densities, pump failure will
cause the oxygen  levels to deplete to a harmful  level for the fish crop in one
and  half-hours.  Power  outages  and pump  damage are the two  reasons for pump
failure.  The Sargo system is run on local power or by a stand- alone generation
plant.  In each case,  a standby  generator is connected to the system to supply
power when the primary  systems fail. In the event that a pump becomes  damaged,
the farm  manager  can  drop an  emergency  oxygen  diffuser  directly  into the
affected reservoir to add up to twenty-four (24) hours of life supporting oxygen
until the damaged pump is removed and replaced.  The SARGO system is designed so
that a damaged pump can be removed and replaced in less than one-hour.

     The system  requires a labor force with a higher  skill set.  The farm will
require at least one (1) laborer with the  knowledge and ability to maintain the
electrical and mechanical systems of the farm.


     The process and controls of the SARGO farm require  additional power, which
contribute to slightly higher utility costs.



                                        9

<PAGE>



     Both net pens and the SARGO system require installation in protected sites.
The SARGO farm was  developed to work  effectively  in harsh  environments.  The
system has proven itself against 100+ mile winds, 6-knot currents and continuous
wave  action.  However,  waves  higher  than  5  feet  could  introduce  surface
contaminated  water into the reservoir.  The reservoir is built with an overflow
port that  allows  excess  water to flow out of the  tank.  The  effects  of the
contamination  are minimal,  as this is the same water that flows  through a net
pen  continuously  and by the fact that the entire volume water in the reservoir
is exchanged in less than one and a half-hours.  To minimize the effects of wave
action  management  recommends that the SARGO system be installed in a protected
area.

Product Development

     Mariculture  developed  the  SARGO  design  with  over  three  (3) years of
research into addressing the aquaculturists' needs and engineering a sustainable
alternative. All major design work was done by the Mariculture staff and outside
consulting  engineers  were used for  evaluation of the  subsystems  and various
issues  associated with water based platforms.  Patents are issued or pending on
all  proprietary  system and software  designs.  (See  "Patents,  Copyrights and
Trademarks").

     The Company produced and installed a fully operational  demonstration  unit
consisting of a service  platform or barge and a single grow-out  reservoir at a
pilot site provided by the National Marine  Fisheries  Service  ("NMFS") in June
1996.  The scope of the project at NMFS was to test and provide proof of concept
for a newly  designed  floating  aquaculture  system for the  marine  culture of
finfish.  The project, a 24- month trial, was to test the economic and technical
feasibility  of  floating,  rigid wall  circular  reservoir  systems  containing
Atlantic  salmon.  Permission  to place the test  facility,  with no cost to the
governing  agencies,  at the  existing  NMFS site was obtained  through  earlier
orders issued by the United States Department of Commerce,  National Oceanic and
Atmospheric  Administration for the NMFS. There was no formal contract regarding
this test site.  Mariculture  was  allowed by the U S  Department  of  Commerce,
National  Marine  Fisheries  Service,  to  utilize a portion  of their  existing
permit, expanded for this evaluation, from the United States Corp. of Engineers.

     Cooperation  between  NMFS and  Mariculture  was  consistent  with  federal
science policy  elements  establishing  working  relationships  with the private
sector  (Stevenson-Wydler  Technology  Innovation Act of 1980 {P.L. 96-480}, and
the  Technology  Transfer  Act of 1986 {P.L.  99-502}.  Cooperation  is likewise
consistent  with  recent  NFMS  policy  and  goals   regarding   development  of
sustainable  aquaculture  through  improving the efficiency and profitability of
aquaculture production systems.

     In addition, the Department of Commerce  Administrative Order 217-19, dated
November  13, 1986,  entitled  "Use of  Department  of Commerce  Facilities  for
Proprietary  or   Non-Proprietary   Research   Purposes"  states  in  part  that
specialized Federal facilities, laboratories,  observatories, vessels, aircraft,
and scientific  equipment are a high-cost  national resource that should be used
to the maximum.  The Department  encourages sharing these resources for research
by Federal  agencies  and,  when  appropriate,  by State and local  governments,
educations  institutions,  and  the  private  sector.  This  order  consolidates
existing authorities,  procedures,  and responsibilities for managing the use of
Commerce facilities under these circumstances.  Under the conditions established
in this Order,  the head of an operating unit will allow the use of specifically
designated  facilities by scientific and other qualified outside individuals and
entities.  These  directives  permitted  Mariculture the benefit of using a free
site for its pilot test.

     Fish, in the form of Atlantic salmon smolts from a neighboring net pen fish
farm,  were  purchased  and installed in the test unit in late  September  1996.
Global Aqua Farms, an independent Washington farm operation owned by a Norwegian
parent, provided and sold the smolts at cost to

                                       10

<PAGE>



the Company.  The Company also procured at cost from Global Aqua,  the feed used
to rear the  fish.  As both the fish and the feed  were  obtained  from the same
lots, and Global Aqua agreed to share data,  this allowed the net pen to be used
as a control  group for grow-out  comparisons.  The Company's  association  with
Global Aqua was solely in the  interest of economics  and  provided  insight for
Global Aqua into whether they would become a customer for the SARGO system.  All
information  gathered  from the control net pens was provided by Global Aqua and
was  considered by them, to be typical of the results  usually  obtained  during
grow-out of Atlantic salmon in their net pen facilities. Global Aqua was, at the
time of the pilot SARGO project,  the largest fish farm operator in the State of
Washington.

     Due to  limitations  imposed by the US Army Corp.  of  Engineers  permit to
NMFS,  the Company was not allowed to install the maximum  number of fish that a
full sized SARGO  reservoir would  accommodate.  Thus, the overall volume of the
pilot  reservoir  installed at the NMFS site was scaled down in size to directly
simulate the  operational  performance and the biomass  densities  expected of a
fully loaded, full size commercial reservoir.

     The fish  crop was  harvested  in  September  1997.  No  direct  scientific
comparison  was made between  SARGO raised  Atlantic  salmon and other farmed or
wild catch  Atlantic  salmon.  The fish were graded and sold by Global Aqua, the
net pen operator used as a control group manager. When filets of farmed vs. wild
Atlantic  salmon were compared  visually,  the wild fish  generally  have firmer
muscle mass and have less fat.  The SARGO farmed  salmon  filets were firmer and
leaner  that the filets  from the net pen control  group.  The harvest  produced
approximately  4,500 fish that were sold through Global Aqua's broker. The SARGO
crop  produced  income of $36,380  after  deductions  for the cost of smolts and
feed.  Considering the cost of energy and the cost of labor, the overall cost of
production  for that period was determined to be  approximately  $0.50 per pound
less than that of the conventional net pen farming techniques.

     After  the  harvest,  the  demonstration  unit  was  kept in use to study a
variety of improved waste handling and waste education schemes, energy reduction
studies,  water  flow  patterns,   oxygenation  methods  and  other  operational
characteristics. Upon completion of these studies and the expiration of the time
limit on the NMFS agreement, the system was dismantled in September of 1999.

     The  pilot  study  was  done  as a  comparison  to  its  control  group  (a
traditional  net-pen system).  Net pen operations are directly affected by their
surrounding environment and the resulting grow out parameters will vary from one
net pen to  another.  The noted  mortality  rates are due to general  losses and
biological  sampling during the grow-out period including  predation losses. The
control group was subject to  extraordinary  losses due to escapement  and a Red
tide bloom. The extraordinary  losses are not used in the scientific  comparison
of grow-out analysis.  A comparison of results are approximated in the following
table:

<TABLE>
<CAPTION>
COMPARATIVE GROW-OUT RESULTS

                                            SARGO (Mariculture)            Control Net Pen
<S>                                         <C>                            <C>
Food Conversion Ratio
(ratio of feed to produced muscle tissue):  1.26/lb                        1.40/lb

Mortality rate:                             3.5%                           20%

Time to grow to marketable size:            10 months                      13-14 months

Cost of Production:                         $1.24/lb                       $1.65/lb

Harvest Densities:                          29.4 kg per cubic meter        15 kg per cubic meter

Sediment quality:                           no impact                      Benthic (sea floor)
                                                                           kill zones observed

Predation:                                  zero loss                      40,000 fish lost
</TABLE>


                                       11

<PAGE>





     Net Pen and Cage farms are dependent on tidal  exchange for crop  survival.
The open flow of water  through  the farm can also move  undesirable  conditions
into the nets.  Operators have to continually  monitor the surrounding water for
algae blooms, sea lice,  predators,  pollution,  and disease.  Once any of these
conditions are  encountered,  crop losses can be significant.  The control group
suffered  from one of these  catastrophes.  A Red tide bloom  swept  through the
waters  surrounding the test facility and control group. The bloom resulted in a
$3 million loss for the control group in fish  mortalities and initiated  events
that caused 300,000 escapes.  In the same water,  with the same conditions,  the
SARGO test facility was unaffected.

EXTRAORDINARY LOSSES
<TABLE>
<S>                      <C>                     <C>
                         SARGO(Mariculture)      Control(Net Pen)
                         ------------------      ----------------

Red tide bloom:          zero mortality          $3 million loss

Escapement:              none                    300,000 Atlantic
salmon escaped
</TABLE>


     Although the SARGO system is ready for sale, the Company is continuing its'
efforts to make improvements to the system. In the area of waste collection, the
company  believes  that it can improve upon its current  collection  method.  By
making  improvements,  the Company will  simplify the mechanics and lower costs.
This product  innovation  is thought to be  patentable  and will create  another
point of differentiation. To accomplish this goal, the Company has negotiated an
agreement with Webster's Inc. for their services.

     Due to the results achieved to date and the fact that the SARGO system does
not discharge untreated waste into the surrounding waters, several environmental
groups in the United  States and Canada have been in contact  with the  Company.
The Company has engaged Websters' Inc. as a registered professional  engineering
firm for the purposes of performing the comprehensive development and production
of a  functional  water  driven,  integrated  commercial  flow-through  effluent
handling  device to  capture,  separate  and  consolidate  the water borne waste
originating from a SARGO fish farming system. This device is to improve upon and
replace existing energy intensive  technology  currently being used in the SARGO
System.  Websters' Inc. is to provide  technical  support to the integration and
installation of the resulting device into the current design of SARGO commercial
fish rearing vessels.  Websters' Inc agrees to provide approximately two hundred
fifty (250) hours of service to the  Company,  and to accept  restricted  common
stock of the  Company  in Lieu of cash  payment at a rate of one  hundred  (100)
share for every one (1) hour of services, or a pro-rata amount thereof, or, upon
the  approval  of the  Company's  Board of  Directors,  in a cash  amount of one
hundred fifty dollars  ($150) per hour of service.  Websters'  Inc.  received an
initial  deposit in advance  against the  consulting  agreement  of one thousand
(1,000)  shares  of  restricted  common  stock of the  Company.  Websters'  Inc.
received  the deposit of  restricted  common  stock in order to reserve  time to
develop advanced  environmental waste handling concepts and to provide advice as
customers  request  options.  To date,  no services  have been  provided  and no
payments or accruals have been  necessary.  The agreement also provides that the
Company  agrees to exchange  for cash,  at the same rate of value as at original
issue, any designated part or the total of all stock issued to Websters' Inc. as
a fee from the consulting agreement. The exchange for cash will only

                                       12

<PAGE>



be in the event that the stock  tendered to Websters'  Inc. is unable to be sold
in a brokered  transaction  after a period of one year from the date of issue of
the certificate. The agreement expires December 1, 2002.

     At the higher  biomass  stocking  densities  present  when the fish crop is
nearing  marketable  size, a pump failure can cause the dissolved oxygen content
in that specific reservoir to approach  potentially  stressful levels within one
to one and one-half  hours.  In the event that a pump  failure is not  corrected
within  that time  period,  losses  could  begin to appear  with weaker fish and
ultimately  could cause total loss of the crop  within the  affected  reservoir.
Power  outages  or damage to a pump  impeller  are the two (2) basic  origins of
interrupted water flow.

     The SARGO  system is run from  shore  power via a  submarine  cable or from
diesel generation equipment maintained on the service platform.  In either case,
there is a standby generator actuated by an automatic transfer switch to provide
uninterrupted power if the primary system fails. In the event of a pump failure,
the farm operator has available a manual  diffuser  system that can operate from
bottled  oxygen  or,  if the  power  source is  operational,  directly  from the
mechanical  oxygen  generators.  The diffuser array can be dropped directly into
the affected tank and will support the fish as long as oxygen is supplied to it.
As a last  resort,  the farm  operator  can also  transfer the fish into another
reservoir.  This transfer  requires labor and time and is not recommended nor is
it  felt  to be  necessary.  It  is  recommended  that  all  operators  maintain
recommended spares of critical equipment. The SARGO system is designed such that
a damaged pump can be replaced with a spare in less than one (1) hour.

Comparative Analysis

     The following  analysis  compares the costs of a net pen system and a SARGO
of equal  volume  to  produce  440  metric  tons of  Atlantic  salmon  per year.
Comparative data are presented in Table 6-1 for traditional net pens and for new
SARGO installations:

<TABLE>
<CAPTION>
                                Comparative Data

Assumptions                                            Net Pen System[1]           SARGO System
<S>                                                     <C>                     <C>
Size - Pens, Reservoirs  (meters)  [2]                    15 x 15 x 7.1           18.5 Dia. X 10
Volume - Pens, Reservoirs  (m3)                              1,600                    2,500
Loading Density @ Harvest (Kg/m3)  [3]                         15                       45
Number Required @ 500 Metric Tons per Year                     18                       4
Total Installed Cost for System                         $  2,250,000.00         $  1,500,000.00
Production Cost per Pound - Smolts  [4]                 $          0.24         $          0.17
Production Cost per Pound - Feed  [5] [6]               $          0.68         $          0.57
Production Cost per Pound - Labor                       $          0.36         $          0.09
Production Cost per Pound - Other  [7]                  $          0.22         $          0.21
Total Cost per Pound                                    $          1.50         $          1.04
Cost Advantage per Pound of Fish                                    -0-         $          0.46
</TABLE>

     The cost  analysis  for a net pen  operation  is based upon  United  States
Department of Commerce  information  produced in 1992 for the Norwegian  dumping
analysis and from a British Columbia,  Canada  consultant to the industry.  This
information has been updated to compensate for improved husbandry and feed.




                                                        13

<PAGE>


     The assumed pen size for net pen systems is based on a standard  Wavemaster
Ltd.  design.  Loading  density  for net pen  systems  is  based  on the  latest
Norwegian  production  data,  found in Northern  Aquaculture,  January-February,
1994. These densities are down from earlier densities of 15 kg/m3. It is further
assumed  that the  grow-out  period will be 18 months so that fish in 2/3 of the
pens and reservoirs will be harvested each year. Thus, in calculating densities,
it was assumed that annual  production would be 500 metric tons utilizing 2/3 of
the total available net or reservoir capacity.

     Current net pen operations  have fish  mortality  rates of 15% to 40%. Test
systems using design characteristics  similar to SARGO have mortality rates less
than 5%.

     Current  conversion  ratios in net pen operations  approximate  1.5 lbs. of
feed per pound of fish throughout the production cycle.  Current test operations
in controlled feeding  environments similar to SARGO produce ratios of 1.05 lbs.
or less of feed per pound of fish. The above analysis uses 1.15 lbs. of feed per
pound of fish.

Feed costs are based on the cost of the feed times the conversion factor.

     Production  Cost  -  Other  includes   veterinary   charges,   medications,
maintenance,  utilities and other miscellaneous costs. Maintenance costs decline
significantly due to higher automation in the SARGO.

     The total cost per pound  revealed in the  comparative  data example is not
identical to the  calculations  portrayed in the grow-out results from the pilot
project.  This  difference  is due to the use of current cost data as opposed to
the cost  data in  effect  during  the  period  when the  pilot  project  was in
operation.

Business Strategy

     Currently,  the  Company  has no  contracts  in  place  for sale of a SARGO
system.  Any  discussion  of business  strategy  contained  herein is  therefore
contingent upon the ability of the Company to continue as a going concern.

     The Company  intends to exploit its leading edge  technology to replace the
use of inferior net pen products  currently  in use.  Additionally,  the Company
aspires to eliminate  the  increasing  problem of water  pollution as it affects
current fish farming operations,  decrease  vulnerability to occurrences such as
red tides and predation and to provide  consumers with more  efficiently  raised
fish products  which will result in a cost savings to the farm and ultimately to
the end consumer.

     Generally,  the Company  plans to continue to research and further  develop
its product  and to market its  existing  product to  potential  customers.  The
Company's  revenues  are  dependent on the volume of sales from its products and
services it provides.

     Revenues  from sales and  services  are  recognized  in the period in which
sales are made or services are provided.  The Company's gross profit margin will
be  determined  in part by its ability to estimate  and control  direct costs of
manufacturing  and production costs and its ability to incorporate such costs in
the price charged to customers and clients.

Marketing and Distribution

Marketing

     Management's  research has found that the worldwide  market for aquaculture
is growing  rapidly.  United Nation's FAO published data shows that  aquaculture
production increased 246%

                                       14

<PAGE>



over an eleven (11) year period from 1988 to 1997.  From the World Wide  Fishing
Industry section, the Company showed that an additional one billion people added
to world  population  from 1997 to 2010 would  increase  demand for  aquaculture
production  by 15.5  million  metric  tons a year by 2010.  If wild catch can be
maintained at its 1997 level of 93 million metric tons,  aquaculture  production
will supply forty percent (40%) of seafood consumption by 2010.

     To meet this demand, management expects that world aquaculture will have to
increase  farm  operations  by 31,000 - 500 metric ton farms by 2010; or 2,600 -
500 metric ton farms per year from 1998 to 2010.  At an average  capital cost of
US $1,500,000  per 500 metric ton farm,  the annual  market for new  aquaculture
equipment is expected to be $4.4 billion.  This does not include  replacement of
any  equipment  for existing  farming  operations.  According  to FAO  Fisheries
Department  Trends  in Global  Aquaculture  Production:  1984-1996  contribution
analysis,  finfish and shellfish aquaculture represented thirty percent (30%) of
total  aquaculture  production  in 1996 and is expected to continue  rising.  At
thirty percent  (30%),  the annual market for finfish  aquaculture  equipment is
expected to be $1.4  billion.  Mariculture  believes it needs to capture four to
five percent (4-5%) of the total finfish  aquaculture  equipment  market to meet
its projections.

     Tremendous marketing  opportunities  continue to develop for SARGO FinFarms
throughout the world as extraordinary  political  pressures intensify to address
the need for  increased  food  production in balance with the  endangerment  and
extinction of various finfish species.

     A persuasive  argument can be made for purchasing a SARGO  considering  its
environmental  compliance  capabilities alone. However,  Mariculture  management
believes the primary  purchase  motivation  for its  environmentally  engineered
systems  will come from the  system's  ability  to  greatly  reduce  the cost of
rearing fish.

     Marketing's initial objective was to build a SARGO  demonstration  facility
at a pilot site. A Pacific  Northwest  commercially  permitted farm location was
chosen for  convenience  of access.  This first  facility was installed with the
support of the National  Marine  Fisheries  Service at their  existing site with
existing permits in Manchester, Washington. The size and production capabilities
of the  pilot  farm  were  designed  to allow for  direct  extrapolation  of all
production data.

     In 1998,  the permit for the pilot  facility  expired and the  facility was
dismantled  in 1999.  Since  1999,  the  Company  has not had a SARGO  system in
operation.  The lack of a demonstration system has not diminished the industry's
interest  in the SARGO  technology.  Sales  management  has  still  been able to
propose the SARGO  technology to finfish farming  companies in North America and
Europe. A demonstration  system would significantly  shorten the sales cycle and
it is management's goal to establish a full production site as soon as possible.

     Mariculture will market its state-of-the-art  SARGO fish rearing technology
based on its' superior return on investment and environmentally sensitive design
versus traditional production means, and Mariculture's customer and consultative
services.

Financial Model

     A comprehensive Return On Investment,  (ROI) computer based sales tool will
be used by the Company,  allowing a potential  system  customer to enter various
Mariculture  system data inputs to determine  realistic farm financial  results.
This model has been  completed for salmon and is currently  being  developed for
mahi-mahi and trout.



                                       15

<PAGE>



Products

     Mariculture's  primary  source  of  revenue  will be  through  the  sale of
SARGO(TM)Turnkey  Finfish  Production  Systems  to  fish  farming  organizations
worldwide.  Mariculture's secondary sources of revenue will come through finfish
farm ownership through joint ventures,  through  modifications of existing farms
by  retrofitting  SARGO reservoir  technology into current net pen systems,  and
through  consulting  to the  industry  on farm  operations  and  development  of
solutions to specific environmental and equipment needs.

Turnkey Service

     The  SARGO  system  is sold as a  turnkey  installation  that will be fully
operational  when  turned  over to the  customer.  Mariculture  will  offer  its
customers  a  complete  customer  service  program  consisting  of  site  survey
assistance,   system   installation  and  contracted  farm  operation   support.
Mariculture  Systems do not include any site work,  ground tackle or shore based
equipment.  A basic  system is sold as four (4)  tanks,  a service  module  with
emergency power,  water handling pumps and basic  oxygenation  controls.  Liquid
oxygen tanks, shore power,  feeding equipment,  crew quarters,  etc. are all the
responsibility  of the customer.  The Company may sell its products and services
piecemeal, or as an entire installation, and the responsibility for installation
is to be negotiated  between the Company and the customer.  All negotiated terms
are then  incorporated  into the  contract.  If a  customer  under  contract  so
desires,  the  Company  will  oversee  the  installation  and  startup  of  this
equipment.

Product and Species Diversification

     Providing the turnkey solution  involves the acquisition and development of
additional  products and services  that benefit the customer by providing  ready
availability  from a single  source  and peace of mind.  This may range  from PC
based remote monitoring solutions to outfitting and providing  workboats.  These
peripheral  products may be  necessary  for the Company to become a full service
provider to the aquaculture  marketplace.  New  technologies for raising finfish
and shellfish may be sought, so that the Company may expand its line to meet the
demand for high value species.

Guarantee

     SARGO  fish  rearing  reservoirs  can  be  sold  with  a  warranty  against
manufacturer defects in materials and workmanship. This and all other guarantees
and  warranties  are pass through  guarantees  or  warranties  from the original
manufactures  of the materials  and  products.  There will be no guarantee as to
fish yields.  The insurance  industry is now providing the aquaculture  industry
with commercial  crop insurance to protect against general or catastrophic  crop
loss. In the event that a potential  purchaser requires further risk assurances,
the Company will negotiate with each  individual  purchaser,  the terms of which
would be defined at each circumstance.

Global Marketing of the SARGO System

     After publicizing the Company's  success in its pilot program,  Mariculture
hopes  to  leverage  the  expected   media   attention  to  acquire   interested
distribution channels.  Mariculture also expects to aggressively pursue selected
strategic  relationships to quickly place the SARGO technology in Latin America,
Asia, the Middle East and the Mediterranean  while focusing the Company's direct
sales effort in North America and Europe.  Although there are moratoriums in the
United States and Canada, there is partial lifting of the moratorium in favor of
new  technology  that would  demonstrate a positive  environmental  impact.  The
policy  reason  for the  moratoriums  is that  the old  technology,  the net pen
systems,  have a negative effect on the biological  balance of the waters due to
the waste that is dropped onto the sea floor and excreted  into the  surrounding
waters.  The SARGO  System  contains  the waste so that  negative  environmental
impact is not an issue.  However,  the moratorium still inhibits the possibility
of some new installations, but this does not impact the "retro-fitting," or

                                       16

<PAGE>



the replacement of parts of existing sites.  The Company  therefore would not be
inhibited from servicing and replacing parts of existing systems.

Distribution

     The Company has spoken with  representatives  of governments,  corporations
and individuals  worldwide that have an interest in aquaculture.  These meetings
may  generate  future sales  opportunities  for the  Company.  In addition,  the
Company has spoken with several  government and corporate entities in developing
countries that have targeted aquaculture as a significant area for growth.

     The following are a variety of potential SARGO purchasers to be targeted by
the Company's marketing team:

EXISTING NET PEN FISH FARMERS: Current users of traditional net pen fish rearing
systems offer Mariculture its greatest potential customer base. Small,  standard
SARGO  modules or  reservoirs  can be supplied  for retrofit  installation  into
existing net cage permitted areas. A new four (4) reservoir SARGO with pumps and
service platform is available for either new fish farms or additions to existing
farms.  Existing  net pen fish  farmers  can  easily  justify  exclusive  use of
Mariculture  systems in the future  once they are  convinced  by the  advantages
inherent to SARGO technology.

FOOD CORPORATIONS:  Several large processors of chicken,  beef, pork, and turkey
currently own sizable seafood concerns and are interested in producing their own
competitively  priced "home grown" fish.  This  fulfills  their goals to augment
their existing  seafood  processing  operations and to provide the United States
domestic market, which is highly dependent on imports, with a constant supply of
fish.  Many of these companies are not yet aware of SARGO  technology,  but they
currently manage their other meat operations utilizing similar methods.

FISH  PROCESSING & EQUIPMENT  COMPANIES:  Fish  processing is a highly  seasonal
business and in recent years one of  increasingly  great  uncertainty  over fish
supplies.  Many fish  processing  companies also own and operate fishing vessels
that  compete for  limited  fish  resources  along with their  customers.  These
companies are now forced to look for  alternative,  year around sources of fish.
Other companies  supplying  essential  products to farming  operations,  such as
equipment,  feed,  and  medications  are potential  customers  with channels for
global distribution and could become VAR's (Value Added Resellers).

COMMERCIAL  FISHERMEN:  Over the last several  years,  depletion of natural fish
stocks has significantly  affected commercial  fishermen's  personal cash flows.
These  commercial  fishing  revenues  are  declining  very  rapidly,  are highly
seasonal and subject to canceled  seasons.  There is growing interest from these
independent  operators in fish farming as a means to provide a sustainable  year
round income.

FISH RESEARCH FACILITIES: Fish research has increased as native fish populations
decrease worldwide.  These research labs require technology for rearing juvenile
and adult aquatic species.

Status of Publicly Announced Products and Services

     The SARGO System is ready for purchase at any time. If an order were placed
today,  the Company  would  require two to three  (2-3)  months to complete  the
engineering  evaluations  plus another two (2) months to begin  fabrication  and
installation.  Installation  of a basic system would  normally be expected to be
complete within six (6) months from date of order. A basic system will

                                       17

<PAGE>



be sold as four (4)  reservoirs,  a service  module  with short  term  emergency
power, water handling pumps and basic oxygenation controls.

     Mariculture  is currently  offering four (4) products and services based on
the SARGO  technology.  The  Complete  Turnkey  Sargo  FinFarm,  The SARGO Joint
Venture (joint farm ownership to create demonstration farms in new markets), The
SARGO Replacement Reservoirs  (modifications to existing farms by replacement of
net pens with SARGO  reservoirs) and SARGO Consulting  Services (farm operations
consulting and product  development).  The expected sales price of a basic SARGO
installation in the United States would be approximately $1,500,000. The revenue
on a joint  venture would be negotiated  on a  case-by-case  basis.  The average
sales  price  for  a  replacement   reservoir  in  the  US  is  expected  to  be
approximately  $50,000.  The revenue from consulting will be on a negotiated per
hour basis.

     Various  independent   contractors  who  are  experienced   fabricators  of
containment  vessels are expected to perform field  fabrication and installation
of SARGO systems.  Two (2) such fabricators,  Reinforced Tank Products,  Inc. of
Drain,  Oregon  and  Pacific  Poly-Pipe  Ltd of  British  Columbia,  Canada  are
anticipated to be primary  suppliers for the Company in North  America.  Under a
separate contract for each job, they would presumptively  assume  responsibility
for the fabrication, transportation and installation of each reservoir delivered
to  customers  and placed at their  site.  All costs of a  delivered  vessel are
anticipated  to be  included  in the  purchase  price to the end  customer.  The
supplier is also expected to be responsible for the basic pass-through  warranty
on the vessels.

Competition

     The  market  is  highly  fragmented  with  no  leader.  Direct  competitors
supplying the finfish  aquaculture  equipment industry include the makers of net
pen  systems,  high-energy  open  ocean  pens,  bag  type  pens  and  land-based
recirculating systems.

     There are new technology  advancements  in land-based  aquaculture  systems
that are being  successfully  applied in fish farms in  Northern  Europe.  These
advancements eliminate most of the noted challenges against net pens, however at
a prohibitive  cost.  The SARGO System  evolved as a lower cost variant of these
land-based concepts,  but is a self contained floating system located near shore
with access to deep water.

     Current  natural stocks of fish have been  over-fished  and impacted to the
point that the fishery in certain areas has disappeared or is discontinued. This
bodes  well for  aquaculture  as an  alternative  to supply the demand for those
diminished  resources.  However,  traditional wild harvests are still considered
the profitable industry to support and subsidize. This commitment to established
methods has slowed the growth of  aquaculture  and competes  with  Mariculture's
ability to sell.

     Mariculture's initial focus is to gain a significant share of the new sales
and  potential  retrofit  sales  opportunities  for near shore  finfish  rearing
systems.  This directly targets the Company at farms that are raising  primarily
salmonids in the Northern Hemisphere.  Open net pen technology,  whether located
near shore or offshore, is the major competitor to a floating, near shore, rigid
wall  fish  rearing  system.  This  net  pen  technology  and the  fish  farming
industry's  robust  growth in total fish  capacity  during the last fifteen (15)
years has been reinforced  principally by an  infrastructure of well established
vendors.  These firms are supplying fishing nets,  rubber,  galvanized metal and
plastic  products  to  commercial  fishermen.  Fishing  nets  combined  with the
flotation gear are the predominant  materials used in salt-water  aquaculture to
enclose  commercial fish crops. As a consequence,  several fish net and plastics
manufacturers  have diversified  into supplying  floating net pen systems to the
fish farming industry.



                                       18

<PAGE>



     Net pen or net cage systems today are not just nets with simple  flotation.
Rather,  they  are  cage  systems  that  range  from  offshore  semi-submersible
structures to robust steel platforms. These platforms can be self-contained with
automated  centralized feeding and processing  systems.  Most of our competitors
provide additional  products,  such as work boats,  mooring systems,  processing
equipment and feeding systems in an effort to be "a total  solution"  company to
their  customers.  The  leading  suppliers  of  aquaculture  net pen systems are
located in Norway, Sweden, Ireland, Scotland, Canada and recently, Japan.

     Wavemaster Ltd., based in Ireland with  manufacturing  and sales offices in
Vancouver,   British  Columbia,  Canada  is  the  largest  aquaculture  facility
producer.  The volume of fish reared from these net pens  represents 2.5% of the
world  salmon  production  but  only  0.16%  of the  world  finfish  production.
Wavemaster Ltd. has sold installations in Scotland, Ireland, Greece, Canada, the
Faroe  Islands,  Iceland  and the Middle  East.  This firm also  supplies  other
equipment such as landing stages, net washers and workboats.

     Only  one  of  the  ten  most  prominent  net  pen  suppliers,  Ocean  Spar
Technologies  of Bainbridge  Island,  Washington is based in the United  States.
Their  operation  primarily  focuses  on  providing  a  very  large  submersible
tensioned  netting  system  that may be raised  and  lowered as  desired.  Their
product is used primarily for deep water and high current locations.  Therefore,
Mariculture's  initial  competition in the Pacific Northwest will be principally
from foreign, primarily European, based companies. Many net pen systems are sold
as turnkey  operations with floats,  nets,  walkways and moorage included in the
capital costs.  All replacement  components are priced and sold on an individual
basis.

     Moratoriums  exist in the United States,  Canada and other locations around
the  world  preventing  the  installation  of new  fish  farms  that use the old
technology.  Countries with national agendas,  such as Norway,  Chile and Japan,
that are  pushing  aquaculture  as a high  agribusiness  opportunity  are target
markets for  Mariculture and offer the least  resistance to the  introduction of
new technology.

     One of the alternative  competitive  technologies  utilized in recent years
has been some  unsuccessful  attempts to grow salmon in  floating  barges.  High
startup costs,  relatively high production  costs, and low fish volume densities
identified this as a  noncompetitive  means of rearing salmon in salt water. The
bag system is another limited  success  product that uses a non-porous  flexible
membrane in place of an open net.  These  systems solve some of the problems but
only work in the  calmest of waters due to loss of shape in rough  currents  and
difficulties associated with maintenance and mooring.

     The Aquaculture industry in general is very competitive, with several major
companies  involved.  The Company will be competing  with larger  competitors in
international,  national,  regional and local markets. In addition,  the Company
may encounter  substantial  competition  from new market  entrants.  Many of the
Company's  competitors  have  significantly  greater name  recognition  and have
greater marketing,  financial and other resources than the Company. There can be
no assurance that the Company will be able to compete  effectively  against such
competitors in the future.




                                       19

<PAGE>


Sources and Availability of Raw Materials

     The  materials  needed to produce the SARGO system and related  aquaculture
products are widely  available from numerous third parties for rent or for sale.
These  materials  include  post-  stressed  wood,  high  density   polyethylene,
polystyrene  foam,  Alaska yellow cedar,  treated fir,  zinc  galvanized  steel,
fiberglass  reinforced plastic and/or polyester resin, plastic film,  fiberglass
and fish  food.  The final  product is then  manufactured  and  produced  by the
Company. No shortage of materials is expected in the foreseeable future.

Dependence on one or few customers

     Presently,  the Company has no customers.  The Company will rely heavily on
its quality of  technology,  products and  services,  in providing its customers
with  turnkey  service,  and being a full  service  provider to the  aquaculture
customers.  Should  Mariculture  obtain customers in the future, it is likely to
depend  heavily  on  their  business,  as it  is  likely  to  represent  all  or
significantly all of the Company's source of income. If the Company is unable to
attain  this  customer  base,  this may have a  material  adverse  effect on the
Company.

Patents, Copyrights and Trademarks

     To date,  Mr.  Meilahn has  registered  one (1) patent.  Mr. Meilahn is the
originator  of the SARGOTM  concept and has been awarded  United States Patent #
5,762,024 titled "Aquaculture  System." He assigned the patent to the Company in
June 2001.

     The Company  intends to protect its  original  intellectual  property  with
patents, copyrights and/or trademarks as appropriate.

     Mariculture  developed  the  SARGO  design  with  over  three  (3) years of
research into addressing the aquaculturists' needs and engineering a sustainable
alternative. All major design work was done by the Mariculture staff and outside
consulting  engineers  were used for  evaluation of the  subsystems  and various
issues  associated with water based platforms.  Patents are issued or pending on
all proprietary system and software designs.

     To date, the Company has one (1) Canadian patent pending.

     In June 2001, David E. Meilahn, the Company's current President,  Treasurer
and Chairman sold the patent for the SARGO system to the Company in exchange for
1,000,000 shares of the Company's  restricted common stock and $30,000. For such
offering the Company  relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act"),  Rule 506 of  Regulation D  promulgated  thereunder  ("Rule
506")  and  Section  460-44A-506  of the  Washington  Code.  See Part I, Item 1.
"Description   of  Business  -  (b)  Business  of  Registrant  -  Employees  and
Consultants";  Part III, Item 10. "Executive  Compensation - Employee  Contracts
and Agreements";  Part III, Item 11. "Security  Ownership of Certain  Beneficial
Owners  and  Management";  and Part III,  Item 12.  "Certain  Relationships  and
Related Transactions".

Governmental Regulation

     There are currently no uniform set  guidelines or  cooperative  regulations
that an installer of fish farming  equipment  may follow to obtain  installation
and operation permits. It depends upon

                                       20

<PAGE>



the site  chosen for the system.  There  exists a myriad of  regulations  on the
local, state,  provincial and federal levels in most developed countries. In the
United States most  aquaculture  guidelines have been established by the federal
government  by the  National  Oceanic and  Atomospheric  Administration  and the
National Marine Fisheries Service. The process of obtaining all of the necessary
permits usually begins with the local governments, such as a State Department of
Ecology,  which controls and monitors water quality and water use,  specifically
those  managing  the various  waters  where a permit is intended for salt water,
fresh water,  navigable waters and whether the waters are under state or federal
control.  However, it is the responsibility of the purchaser or farm operator of
a system to obtain a site and to acquire the correct permits for installation of
the system.  Since the Company is only in the business of selling the systems or
parts  to the  system  and  servicing  the  systems,  there  is no  governmental
regulation  on its sales or  servicing,  and  therefore  is not  required by the
government to obtain any such  permits.  The Company is also not required to nor
does it assist  the  customer  in  obtaining  whichever  necessary  permits  are
required for their site.

State and Local Licensing Requirements

     The  regulations in the United States that impact SARGO are those licensing
provisions  mandated by virtually all jurisdictions  where fish farms are placed
in North America. These licensing requirements pose no hindrance to the Company,
as it is the sole  responsibility  of the  owner or  operator  of the  system to
obtain the necessary  permits.  It is the customer's  responsibility to show the
Company proof of permitting  prior to installation of any equipment.  This proof
may be in the form of  copies  of  permits,  correspondence  or  other  official
documents  granting the permit to the owner or operator at a specific  site. The
need  for such  proof is to  protect  the  Company  from  any  undue  delays  or
additional  costs involved in the startup or completion of an  installation.  In
most instances,  the owner or operator will already have permits  available that
allow increasing the production capacity of an existing permitted farm site.

Effect of Probable Governmental Regulation on the Business

     The  Company  does not expect that any law  presently  in place or proposed
will negatively  impact the sale or operation of SARGO Sytems.  Regulations vary
from one location or  jurisdiction  to another,  thus the Company cannot measure
the affect until an actual  application  for a permit for a  particular  site is
made. If the customer is unable to obtain a permit for a particular  site,  they
can apply in another jurisdiction.  If the customer is unable to obtain a permit
in any jurisdiction, then it would impact the Company's sales of such systems.

     Most  regulations  of fish farms  address the issue of discharge of uneaten
food and expelled solid fecal waste into the surrounding  waters of the farm and
thus  endangering  marine life on the seafloor.  The Company's SARGO system does
not expel food or waste into the surrounding waters as it is a contained system,
and thus  eliminates  the  claim of  endangering  marine  life on the  seafloor.
Therefore  these  controls  do not affect the SARGO  system.  At this time,  the
Company knows of no other fish rearing systems that have this capacity.

Cost of Research and Development

     At the current time, the costs associated with research and development are
bourne  primarily by equity  investors  and  secondarily  from  additional  debt
financing. The costs associated with

                                       21

<PAGE>



research and  development  are  currently  not bourne  directly by the customer,
however there is no guarantee that such costs will not be bourne by customers in
the future  and, at the current  time,  the Company  does not know the extent to
which such costs will be bourne by the customer, if at all.

     New technologies for raising finfish and shellfish will be sought,  so that
the  Company  may expand  its line to meet the  demand  for high value  species.
Constant research and improvements  will attempt to keep the productivity  above
any other competitor  entering the market. The Company is developing  additional
engineering  improvements  especially  in the  waste  collection  and  treatment
functions of the system. The Company is improving the performance,  reducing the
cost of  manufacturing  and  ultimately  expects to take at least 15% out of the
overall cost.

     Mariculture  will also pursue various  government-sponsored  technology and
research   grants  targeted  at  programs  for   environmental   mitigation  and
aquaculture or fisheries enhancement.

Cost and Effects of Compliance with Environmental Laws

     The major cost of fish farming's  compliance with  environmental laws is in
the management of fecal and food waste released by the farms net  installations.
SARGO  offers as an  option  for an  environmentally  friendly  waste  treatment
facility that is incorporated directly into the daily operation of the facility.
The  discharge  from this United  States Coast Guard rated plant is suitable for
any  navigable  waterway  in the  world.  At this  time,  SARGO can  exceed  the
requirements of virtually any restriction  imposed by governments on fish farms.
Management  believes that SARGO is a favored product because it does not release
waste byproducts to the environment.

Employees and Consultants

     At December 31, 2001, the Company  employed five (5) persons,  two (2) full
time, two (2) part time and one (1) consultant. Only one (1) of the employees is
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.

     In January 2001, the Company  issued 1,000 shares of its restricted  common
stock to George Webster for professional engineering services rendered. For such
offering,  the Company relied upon Section 4(2) of the Act, Rule 506 and Section
460-44A-506   of  the  Washington   Code.  See  Part  III,  Item  12.   "Certain
Relationships and Related Transactions".

     In January  2001,  the Company  issued 100 shares of the  Company's  common
stock each to David Meilahn, Don Jonas and Robert Janeczko for services rendered
to the Company in the third fiscal quarter of year 2000. For such offering,  the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
10. "Executive Compensation - Employee Contracts and Agreements"; Part III, Item
11. "Security  Ownership of Certain Beneficial Owners and Management";  and Part
III, Item 12. "Certain Relationships and Related Transactions".

     In January  2001,  the  Company  issued  31,167  shares to Richard  Luce as
compensation in lieu of salary for services rendered to the Company through year
2000. For such offering, the Company

                                       22

<PAGE>



relied upon Section 4(2) of the Act,  Rule 506, and Section  460-44A-506  of the
Washington  Code.  See Part III,  Item 10.  "Executive  Compensation  - Employee
Contracts and  Agreements";  Part III, Item 11.  "Security  Ownership of Certain
Beneficial Owners and Management"; and Part III, Item 12. "Certain Relationships
and Related Transactions".

     In February 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of five thousand  dollars  ($5,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the  Company  relied on Section  4(2) of the Act,  Rule 506 and
Section  460-44A  of the  Washington  Code.  See Part I,  Item 6.  "Management's
Discussion  and Analysis or Plan of Operation - Financial  Condition,  Liquidity
and Capital  Resources";  Part III, Item 10. "Executive  Compensation - Employee
Contracts and  Agreements";  Part III, Item 11.  "Security  Ownership of Certain
Beneficial Owners and Management"; and Part III, Item 12. "Certain Relationships
and Related Transactions".

     In April and May 2001,  the Board of Directors  authorized  the issuance of
200 shares each to David E.  Meilahn,  Don N. Jonas and Robert J.  Janeczko  for
their service to the Company during the fourth fiscal quarter 2000 and the first
fiscal quarter 2001. For such offering,  the Company relied upon Section 4(2) of
the Act, Rule 506, Section 4[5/4]S of the Illinois Code and Section 460-44A- 506
of the  Washington  Code.  See Part  III,  Item 10.  "Executive  Compensation  -
Employee  Contracts and Agreements";  Part III, Item 11. "Security  Ownership of
Certain  Beneficial  Owners and  Management";  and Part III,  Item 12.  "Certain
Relationships and Related Transactions".

     In May 2001, David Meilahn resigned as Secretary of the Company. He remains
the Company's current President,  Treasurer and Chairman. The Board of Directors
subsequently  appointed  Richard  Luce,  the  Company's  current  Secretary  and
Vice-President  of Sales and  Marketing,  to the  position as  Secretary  of the
Company.  Mr.  Luce will  receive  100  shares  of the  Company's  common  stock
quarterly in  connection  with the position.  See Part III, Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In June 2001, David E. Meilahn, the Company's current President,  Treasurer
and Chairman sold the patent for the SARGO system to the Company in exchange for
1,000,000 shares of the Company's  restricted common stock and $30,000. For such
offering the Company  relied upon Section 4(2) of the Act,  Rule 506 and Section
460-44A-506  of  the  Washington  Code.  See  Part  III,  Item  10.   "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In June 2001, the Company's Board of Directors  approved issuance of 26,069
shares of its common stock to David Meilahn,  the Company's  current  President,
Treasurer and Chairman as payment for  $21,064.34 in expenses plus  $5,004.46 in
interest.  For such  offering,  the Company relied upon Section 4(2) of the Act,
Rule 506 and Section  460-44A-506 of the Washington Code. See Part III, Item 10.
"Executive Compensation - Employee Contracts and Agreements"; Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".

                                       23

<PAGE>



     In June 2001, the Company's Board of Directors  approved  issuance of 8,675
shares of its common  stock to three (3)  persons,  as payment for  $8,373.31 in
expenses  plus  $301.69 in interest  incurred  by Richard  Luce,  the  Company's
current Secretary and Vice-President of Sales and Marketing.  For such offering,
the Company relied upon Section 4(2) of the Act, Rule 506,  Section  517.061(11)
of the Florida Code,  Section  460-44A-506  of the  Washington  Code and Section
551.23(19) of the Wisconsin Code. See Part III, Item 10. "Executive Compensation
- Employee Contracts and Agreements";  Part III, Item 11. "Security Ownership of
Certain  Beneficial  Owners and  Management";  and Part III,  Item 12.  "Certain
Relationships and Related Transactions".

     From July 2001,  through the date of this report,  the Company has raised a
total of $33,250  from the sale of one (1) year  convertible  notes  bearing ten
percent  (10%).  The  notes are  automatically  convertible  into  shares of the
Company's  restricted  common  stock at a price of $0.50  per  share.  Robert J.
Janeczko,  a current Director of the Company purchased a total of $1,000 of such
securities.  Richard J. Luce, the Company's current  Vice-President of Sales and
Marketing and Secretary,  received $60,000 of such securities in lieu of $60,000
compensation.  For such  offering,  the Company  relied upon Section 4(2) of the
Act, Rule 506, Section 5102.1 of the California Code,  Section 10-5-9(13) of the
Georgia Code, Section 4[5/4]S of the Illinois Code,  Section  460-44A-506 of the
Washington  Code and Section  551.23(19) of the Wisconsin Code. See Part I, Item
6.  "Management's  Discussion  and  Analysis  or Plan of  Operation  - Financial
Condition,  Liquidity  and Capital  Resources";  Part III,  Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In August 2001, the Company  executed a promissory  note in favor of Elaine
Meilahn  in the amount of two  thousand  five  hundred  dollars  ($2,500)  at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the  Washington  Code. See Part I,
Item 6.  "Management's  Discussion and Analysis or Plan of Operation - Financial
Condition,  Liquidity  and Capital  Resources";  Part III,  Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In  September  2001,  the Company  executed a  promissory  note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the  Washington  Code. See Part I,
Item 6.  "Management's  Discussion and Analysis or Plan of Operation - Financial
Condition,  Liquidity  and Capital  Resources";  Part III,  Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In October 2001, the Company  executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand  dollars  ($4,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such offering, the Company relied upon Section 4(2) of the Act,

                                       24

<PAGE>



Rule 506 and Section  460-44A-506  of the  Washington  Code. See Part I, Item 6.
"Management's   Discussion  and  Analysis  or  Plan  of  Operation  -  Financial
Condition,  Liquidity  and Capital  Resources";  Part III,  Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In January 2002, the Company issued 93,600 shares of its restricted  common
stock,  previously  granted in December  2001, to Richard J. Luce, the Company's
current  Vice-President  of Sales & Marketing and Secretary of the Company.  The
shares were issued as compensation for his services to the Company.  They are in
addition  to his  salary,  which to date is  unpaid,  but for which the  Company
accrues.  For such  offering,  the Company  relied upon Section 4(2) of the Act,
Rule 506 and Section  460-44A-506 of the Washington Code. See Part III, Item 10.
"Executive Compensation - Employee Contracts and Agreements"; Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".

     In January 2002,  the Company  issued 300 shares of its  restricted  common
stock each to Robert J.  Janeczko,  Richard  J. Luce,  Don N. Jonas and David E.
Meilahn for service on the Company's Board of Directors.  For such offering, the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
10. "Executive Compensation - Employee Contracts and Agreements"; Part III, Item
11. "Security  Ownership of Certain Beneficial Owners and Management";  and Part
III, Item 12. "Certain Relationships and Related Transactions".

     In February 2002, the Company issued 19,570 shares of its restricted common
stock to Charles A.  Gaudio and Mary Ann Gaudio  JTWROS,  previously  granted in
January  2002,  for  consulting  services  performed  by  Creative  Solutions  &
Strategies,  Inc. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section  517.061(11)  of the Florida Code.  See Part III, Item
12. "Certain Relationships and Related Transactions".

Item 2. Description of Property

     The Company is located at P.O. Box 1746,  Edmonds,  Washington  98020.  Its
telephone number is (425) 778-5975 and its facsimile number is (425) 672-8012.

     The Company owns no real  property and its  personal  property  consists of
furniture,  fixtures and equipment, with an original cost of $43,690 on December
1, 1996.

Item 3. Legal Proceedings

     No legal  proceedings  have been initiated either by or against the Company
to date.

Item 4. Submission of Matters to a Vote of Security Holders

     No matter was  submitted to a vote of the Company's  shareholders,  through
the  solicitation  of proxies or otherwise  from the Company's  inception to the
close of the 2001 fiscal year ended December 31, 2001, covered by this report.


                                       25

<PAGE>



Item 5. Market for Common Equity and Related Stockholder Matters.

     The Company has made application to NASD for the Company's common shares to
be quoted on the OTC  Bulletin  Board.  The  Company's  application  to the NASD
consisted  of current  corporate  information,  financial  statements  and other
documents as required by Rule 15c2-11 of the Exchange Act.  Inclusion on the OTC
Bulletin Board, if approved, permits price quotation for the Company's shares to
be published by such service.  There is no guarantee  that such approval will be
obtained.

     The  Company  is not aware of any  existing  trading  market for its common
stock. The Company's common stock has never traded in a public market. There are
no plans,  proposals,  arrangements  or  understandings  with any person(s) with
regard  to  the  development  of a  trading  market  in  any  of  the  Company's
securities.

     If and when the  Company's  common stock is traded in the  over-the-counter
market,  most  likely the shares  will be subject to the  provisions  of Section
15(g) and Rule 15g-9 of the  Securities  Exchange  Act of 1934,  as amended (the
Exchange Act"),  commonly  referred to as the "penny stock" rule.  Section 15(g)
sets  forth  certain  requirements  for  transactions  in penny  stocks and Rule
15g9(d)(1)  incorporates  the  definition  of penny  stock as that  used in Rule
3a51-1 of the Exchange Act.

     The Commission generally defines penny stock to be any equity security that
has a market  price less than $5.00 per  share,  subject to certain  exceptions.
Rule 3a51-1  provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting  specified  criteria set by the Commission;  authorized for quotation on
The NASDAQ Stock Market;  issued by a registered  investment  company;  excluded
from the  definition  on the basis of price (at  least  $5.00 per  share) or the
registrant's  net  tangible  assets;  or  exempted  from the  definition  by the
Commission.  If the Company's shares are deemed to be a penny stock,  trading in
the shares will be subject to additional sales practice  requirements on broker-
dealers who sell penny stocks to persons  other than  established  customers and
accredited  investors,  generally persons with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse.

     For transactions covered by these rules, broker-dealers must make a special
suitability  determination  for the  purchase of such  securities  and must have
received  the  purchaser's  written  consent  to the  transaction  prior  to the
purchase.  Additionally,  for any  transaction  involving a penny stock,  unless
exempt,  the rules require the delivery,  prior to the first  transaction,  of a
risk  disclosure  document  relating to the penny stock market.  A broker-dealer
also must disclose the  commissions  payable to both the  broker-dealer  and the
registered representative,  and current quotations for the securities.  Finally,
the monthly  statements must be sent disclosing recent price information for the
penny stocks held in the account and  information on the limited market in penny
stocks. Consequently,  these rules may restrict the ability of broker dealers to
trade and/or maintain a market in the Company's  common stock and may affect the
ability of shareholders to sell their shares.

     As of December 31, 2000, there were one hundred forty-four (144) holders of
record of the Company's common stock.

                                       26

<PAGE>



     As of December 31, 2001,  the Company had  11,646,958  shares of its common
stock  issued and  outstanding,  10,252,262  of which were  restricted  Rule 144
shares,  1,376,556 of which were free-  trading and 18,140 of which were control
stock. Of the Rule 144 shares,  7,164,515 shares have been held by affiliates of
the Company for more than one (1) year.

Dividend Policy

     The Company has never paid or declared  any  dividends  on its common stock
and does not anticipate paying cash dividends in the foreseeable future.

Item 6. Management's Discussion and Analysis

         Discussion and Analysis

     Initially the Company was engaged in the business of  installing  cable and
fiber optic  systems.  The Company began an offering to raise money and interest
in the Company. The Company began contacting possible suppliers of raw materials
necessary  for entering  into the cable and fiber optic  business,  but found it
difficult to establish this type of business. When the Company encountered MSIW,
its sole officer and director  decided it would be more profitable to enter into
the  aquaculture  business.  In August 1996,  at the time it acquired  MSIW as a
wholly-owned subsidiary, its purpose changed to Mariculture's initial purpose of
producing  Aquaculture  systems,  specifically  the  SARGO  system,  which  is a
self-contained fish farming unit.  Mariculture's  founding philosophy arose from
the experience of its management in the aquaculture and related industries.

     The Company was in the  development  stage until August 1996 when the Share
Exchange took place between MSIW and the Company and is still emerging from that
stage.  The Company has only recently  begun  marketing the SARGO system and has
not yet sold any  units.  From the date of the Share  Exchange  in  August  1996
through December 31, 2000, the Company generated no revenues.  Since the date of
the Share  Exchange  through  December  31,  2001,  the  Company  has  generated
cumulative  losses of  approximately  $1,568,091.  Due to the Company's  limited
operating history and limited  resources,  among other factors,  there can be no
assurance that  profitability  or significant  revenues on a quarterly or annual
basis will occur in the future.

     On December 21, 1997 the Company entered into a license  agreement with the
Company's president for the use of his patent covering the "aquaculture  system"
technology the Company is currently marketing under SARGO. This agreement stated
that the Company would pay a non- refundable up-front payment of $200,000 on the
date of the agreement and then a royalty of three percent (3%) of gross sales on
systems sold by the Company.  This agreement was rescinded on December 21, 2000.
As the Company did not record the grant of the original  license,  no adjustment
was made upon its  recission.  Subsequent  to  December  31,  2000,  the Company
entered into a negotiation of a new patent agreement.

     On June 6, 2001,  the Company  negotiated  a purchase of the patent for the
"aquaculture  system"  currently  marketed  under SARGO from its  president  and
majority shareholder.  Under the terms of the new agreement, the patent was sold
to the Company in exchange for 1,000,000  shares of the Company's  voting common
stock and $30,000 payable in cash. Due to related party nature

                                       27

<PAGE>



of the transaction,  the Company recorded the patent at the transferor's cost of
$30,000 with a  corresponding  payable of $30,000 and recognized the issuance of
shares as a transfer of par value with  additional  paid in capital  into common
stock  subscribed.  The shares were included in earnings per share  computations
for the six (6) months ended June 30, 2001 and from  inception  through June 30,
2001 (presented in the Form 10QSB filed by the Company on August 14, 2001) as of
June 30, 2001.

     The Company has begun to make  preparations  for a period of growth,  which
may  require it to  significantly  increase  the scale of its  operations.  This
increase will include the hiring of additional personnel in all functional areas
and will result in  significantly  higher  operating  expenses.  The increase in
operating  expenses  is  expected  to be matched  by a  concurrent  increase  in
revenues.  However,  the  Company's  net loss may continue  even if revenues are
generated and operating  expenses may still  continue to increase.  Expansion of
the  Company's  operations  may  cause a  significant  strain  on the  Company's
management,  financial  and other  resources.  The  Company's  ability to manage
recent and any  possible  future  growth,  should it occur,  will  depend upon a
significant  expansion of its accounting and other internal  management  systems
and the  implementation  and  subsequent  improvement  of a variety of  systems,
procedures and controls.  There can be no assurance that significant problems in
these areas will not occur.  Any failure to expand these areas and implement and
improve such systems,  procedures and controls in an efficient  manner at a pace
consistent with the Company's  business could have a material  adverse effect on
the Company's  business,  financial  condition and results of  operations.  As a
result of such expected expansion and the anticipated  increase in its operating
expenses,  as well as the difficulty in forecasting  revenue levels, the Company
expects to continue to  experience  significant  fluctuations  in its  revenues,
costs and gross margins, and therefore its results of operations.

Results of Operations - For the Year Ended December 31, 2000 and December 31,
2001

Revenues

     To date the Company has had no revenues. The Company will focus its efforts
on the  solicitation  and  marketing to new  customers.  The Company  intends to
advertise  its  products at trade  shows,  through the use of  advertising,  and
through other methods.

     The Company  currently  has no contracts in place.  Therefore,  there is no
assurance  that  the  Company  will be able to  successfully  contract  with new
customers.

Operating Expenses

General and Administrative

     These expenses consist primarily of the general and administrative expenses
for salaries,  contract  labor and other expenses for management and finance and
accounting,  legal and other professional services including ongoing expenses as
a publicly owned Company related to legal,  accounting and other  administrative
services and expenses.  Since inception,  the Company has incurred approximately
$852,067 on general and  administrative  expenses.  For the years ended December
31,  2001 and 2000,  general  and  administrative  expenses  were  $352,687  and
$158,429

                                       28

<PAGE>



respectively.  The increase in expenses is  primarily  related to an increase in
legal, salary and  audit/accounting  expenses.  The Company expects continuously
increasing  general and  administrative  expenses as it  continues to expand its
operations.

Assets and Liabilities

     Assets were $63,231 as of December 31, 2000, and $81,691 for the year ended
December 31, 2001. As of December 31, 2001,  assets consisted  primarily of test
facility equipment, at salvage value, with a value of $46,950.  Liabilities were
$498,883   and   $711,157  as  of  December  31,  2000  and  December  31,  2001
respectively.  As of December  31,  2001,  liabilities  consisted  primarily  of
accounts payable-trade in the amount of $313,200.

Stockholders' Deficit

     Stockholders' deficit was ($435,652) as of December 31, 2000 and ($629,466)
as of December 31, 2001.

Financial Condition, Liquidity and Capital Resources

     At  December  31, 2000 the Company had cash of $7,232 as compared to $5,908
as of December 31, 2001.

     In February 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of five thousand  dollars  ($5,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the  Company  relied on Section  4(2) of the Act,  Rule 506 and
Section  460-44A  of the  Washington  Code.  See Part III,  Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     From July 2001,  through the date of this report,  the Company has raised a
total of $33,250  from the sale of one (1) year  convertible  notes  bearing ten
percent  (10%).  The  notes are  automatically  convertible  into  shares of the
Company's  restricted  common  stock at a price of $0.50  per  share.  Robert J.
Janeczko,  a current Director of the Company purchased a total of $1,000 of such
securities.  Richard J. Luce, the Company's current  Vice-President of Sales and
Marketing and Secretary,  received $60,000 of such securities in lieu of $60,000
compensation.  For such  offering,  the Company  relied upon Section 4(2) of the
Act, Rule 506, Section 5102.1 of the California Code,  Section 10-5-9(13) of the
Georgia Code, Section 4[5/4]S of the Illinois Code,  Section  460-44A-506 of the
Washington Code and Section 551.23(19) of the Wisconsin Code. See Part III, Item
10. "Executive Compensation - Employee Contracts and Agreements"; Part III, Item
11. "Security  Ownership of Certain Beneficial Owners and Management";  and Part
III, Item 12. "Certain Relationships and Related Transactions".

     In August 2001, the Company  executed a promissory  note in favor of Elaine
Meilahn  in the amount of two  thousand  five  hundred  dollars  ($2,500)  at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the Washington Code. See Part III,
Item 10.

                                       29

<PAGE>



"Executive Compensation - Employee Contracts and Agreements"; Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".

     In  September  2001,  the Company  executed a  promissory  note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the Washington Code. See Part III,
Item 10. "Executive Compensation - Employee Contracts and Agreements"; Part III,
Item 11. "Security  Ownership of Certain Beneficial Owners and Management";  and
Part III, Item 12. "Certain Relationships and Related Transactions".

     In October 2001, the Company  executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand  dollars  ($4,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the Company  relied upon Section 4(2) of the Act,  Rule 506 and
Section  460-44A-506 of the Washington  Code. See Part III, Item 10.  "Executive
Compensation - Employee Contracts and Agreements";  Part III, Item 11. "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     The Company may raise  additional  capital  through  private  and/or public
sales of securities in the future but has no definite commitments at this time.

Forward-Looking Statements

     This Form 10-KSB 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-KSB 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),  demand
for the Company's  products and services,  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-KSB 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.

Item 7. Financial Statements

     The  Company's  financial  statements  have  been  examined  to the  extent
indicated  in their  reports by Grant  Thornton  LLP and have been  prepared  in
accordance  with  generally  accepted  accounting  principles  and  pursuant  to
Regulation S-B as promulgated by the Securities and Exchange  Commission and are
included herein, on Page F-1 hereof in response to Part F/S of this Form 10-KSB.



<PAGE>

                                 C O N T E N T S



                                                                        Page


Report of Independent Certified Public Accountants                        F-3


FINANCIAL STATEMENTS

         Balance SheetS                                                   F-4

         STATEMENTS OF OPERATIONS                                         F-5

         STATEMENT OF STOCKHOLDERS' DEFICIT                               F-6

         STATEMENTS OF CASH FLOWS                                         F-7

         NOTES TO FINANCIAL STATEMENTS                                    F-8



<PAGE>

Accountants and                                        GRANT THORNTON [Logo]
Management Consultants
Grant Thornton, LLP
The US Member Firm of
Grant Thornton International



               Report of Independent Certified Public Accountants



Board of Directors
MariCulture Systems, Inc.

We have audited the  accompanying  balance sheets of MariCulture  Systems,  Inc.
(the Company),  a development  stage company,  as of December 31, 2001 and 2000,
and the related statements of operations,  stockholders' deficit, and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of MariCulture
Systems,  Inc.,  including  cumulative  results  of  operations,   statement  of
stockholders'  deficit and cash flows from  inception  (August 25, 1994) through
December 31, 1999,  were  audited by other  auditors  whose report dated May 10,
2000, expressed an unqualified opinion with an explanatory  paragraph addressing
a substantial doubt about the Company's ability to continue as a going concern.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of MariCulture Systems,  Inc., as
of December 31, 2001 and 2000,  and the results of its  operations  and its cash
flows for the  years  then  ended,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  note B to the
financial statements,  the Company has suffered recurring losses from operations
and has an accumulated  deficit of $1,568,091,  which raises  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in note B. The financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ Grant Thornton LLP

Seattle, Washington
January 18, 2002, except for note M as to which the date is February 22, 2002.



Suite 1500
701 Pike Street
Seattle, WA 98101-2310
Tel: 206 623-1121
Fax: 206 623-9247

F-3


<PAGE>



<TABLE>
<CAPTION>
                            MariCulture Systems, Inc.
                          (A development stage company)

                                 BALANCE SHEETS

                                  December 31,



               ASSETS

                                                                          2001                 2000
                                                                     ---------------      ---------------
<S>            <C>                                                   <C>                  <C>
CURRENT ASSETS
    Cash                                                             $      5,908         $      7,232
    Receivable                                                                 -                   570
                                                                     ---------------      ---------------

              Total current assets                                          5,908                7,802

TEST FACILITY EQUIPMENT, at salvage value                                  46,950               55,429

PATENTS, net of accumulated amortization of $1,167 and $0                  28,833                   -
                                                                     ---------------      ---------------

              Total assets                                           $     81,691         $     63,231
                                                                     ===============      ===============

          LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Notes payable - related party                                    $    111,296         $     97,296
    Notes payable - other                                                  10,000               10,000
    Convertible debt, net of unamortized discount of $5,250                    -                    -
    Accounts payable - trade                                              313,200              252,316
    Accounts payable - related party                                       37,793               23,695
    Payables to stockholders                                               17,500               17,500
    Accrued liabilities                                                   132,741               34,267
    Accrued interest                                                       88,627               63,809
                                                                     ---------------      -----------------

              Total current liabilities                                   711,157              498,883
                                                                     ---------------      -----------------

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            11,396               10,314
    Common stock subscribed                                                94,800                   -
    Additional paid-in capital                                            832,429              746,450
    Accumulated development stage deficit                              (1,568,091)          (1,192,416)
                                                                     ---------------      -----------------

              Total stockholders' deficit                                (629,466)            (435,652)
                                                                     ---------------      -----------------

              Total liabilities and stockholders' deficit            $     81,691         $     63,231
                                                                     ===============      =================
</TABLE>





The accompanying notes are an integral part of these statements.


F-4

<PAGE>



<TABLE>
<CAPTION>
                            MariCulture Systems, Inc.
                          (A development stage company)

                            STATEMENTS OF OPERATIONS



                                                                                           Cumulative results
                                                    Year ended December 31,                   of operations
                                             --------------------------------------          since inception
                                                  2001                   2000               (August 25, 1994)
                                             ----------------      ----------------      -----------------------
<S>                                           <C>                   <C>                   <C>
Operating Expenses
    General and administrative                $   352,687           $   158,429           $          852,067
    Research and development                           -                     -                       629,289
                                             ----------------      ----------------      -----------------------

        Total operating expenses                  352,687               158,429                    1,481,356
                                             ----------------      ----------------      -----------------------

Net loss from operations                         (352,687)             (158,429)                  (1,481,356)

OTHER EXPENSES (INCOME)
    Interest                                       30,124                16,809                      101,071
    Other                                          (7,136)                   (9)                     (14,336)
                                             ----------------      ----------------      -----------------------
                                                   22,988                16,800                       86,735
                                             ----------------      ----------------      -----------------------

NET LOSS                                      $  (375,675)          $  (175,229)          $       (1,568,091)
                                             ================      ================      =======================

LOSS PER COMMON SHARE -
    BASIC AND DILUTED                        $     (0.03)          $     (0.02)          $             (0.18)
                                             ================      ================      =======================
</TABLE>






The accompanying notes are an integral part of these statements.

F-5


<PAGE>

<TABLE>
<CAPTION>
                            MariCulture Systems, Inc.
                          (A development stage company)

                       STATEMENT OF STOCKHOLDERS' DEFICIT
                    Since inception through December 31, 2001

                                                                                                Accumulated
                                     Common stock           Subscribed stock       Additional   development
                                 ----------------------  ------------------------   paid-in       stage
                                  Shares       Amount     Shares        Amount      capital      deficit         Total
                                 ---------    ---------  ----------    ----------  ----------   -----------    -----------
<S>                             <C>           <C>         <C>          <C>         <C>          <C>            <C>
Sale of common stock in 1995     1,640,000    $ 1,640          -       $    -      $431,321     $              $432,961

Issuance of common stock to      8,213,080      8,212          -            -        (8,212)
    founders in 1995

Sale of common stock in 1996       130,000        130          -            -        32,370                      32,500

Issuance of common stock to      1,200,000      1,200          -            -        (1,200)
    founders in 1996

Issuance of common stock for        10,766         11          -            -         3,074                       3,085
    services in 1996

Share exchange agreement of    (10,075,354)   (10,075)         -            -        10,075
    MSIW in August 1996

Share exchange agreement of      8,800,000      8,800          -            -        (8,800)
    MSIW in August 1996

Sale of common stock in 1997       186,978        187          -            -       145,741                     145,928

Issuance of common stock for       126,747        127          -            -        68,933                      69,060
    services in 1997

Issuance of common stock for        20,600         21          -            -        20,579            -         20,600
    services in 1998

Sale of common stock in 1999        32,000         32          -            -        31,968            -         32,000

Net loss since inception                                       -            -                   (1,017,187)    (1,017,187)
    through December 31, 1999
                                 ---------    ---------  ----------    ----------  ----------   -----------    -----------
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       17,400         17          -            -         8,683            -          8,700
    in January 2000

Issuance of 11,930 common
    stock shares for services       11,930         12          -            -        11,918            -         11,930
    in February 2000

Issuance of shares into escrow     250,000          -          -            -            -             -             -
    in March 2000

Net loss for the year ended             -           -          -            -            -        (175,229)    (175,229)
    December 31, 2000
                                 ---------    ---------  ----------    ----------  ----------   -----------    -----------
Balance at December 31, 2000    10,564,147     10,314          -            -       746,450     (1,192,416)    (435,652)

Issuance of shares for
    services in January 2001        31,467         31          -            -        31,436            -         31,467
    at $1.00 per share

Issuance of shares in March
    2001 in connection with a        9,000          9          -            -         8,991            -          9,000
    sale at $1 per share

Issuance of shares in April
    2001 for services
    performed during the year          300         -           -            -           300            -            300
    ended December 31, 2000,
    at $1.00 per share

Issuance of shares for
    services in May 2001 at            300         -           -            -           300            -            300
    $1.00 per share

Issuance of shares in June
    2001 in lieu of expense
    reimbursement and related       34,744         36          -            -        34,708            -         34,744
    accrued interest at $1.00
    per share

Issuance of shares in June
    2001 in connection with      1,000,000      1,000          -            -        (1,000)           -             -
    acquisition of a patent

Issuance of shares in November
    2001 in connection with a        6,000          6          -            -         5,994            -          6,000
    sale at $1 per share

Common stock shares granted
    for services                        -           -       94,800       94,800           -             -         94,800
    in December 2001 at $1.00
    per share

Allocation of debenture
    proceeds to beneficial              -           -           -            -         5,250            -          5,250
    conversion feature

Net loss for the year ended             -           -           -            -            -       (375,675)     (375,675)
    December 31, 2001
                                 ---------    ---------  ----------    ----------  ----------   -----------    -----------
Balance at December 31, 2001    11,645,958    $11,396       94,800     $94,800     $832,429    $(1,568,091)    $(629,466)
                                 =========    =========  ==========    ==========  ==========   ===========    ===========
</TABLE>


The accompanying notes are an integral part of this statement.

F-6

<PAGE>

<TABLE>
<CAPTION>
                                                MariCulture Systems, Inc.
                                              (A development stage company)

                                                STATEMENTS OF CASH FLOWS


                                                                                                      Cumulative results
                                                                        Year ended December 31,          of operations
                                                                   ----------------------------------   since inception
                                                                         2001             2000         (August 25, 1994)
                                                                   ---------------------------------- --------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Increase (Decrease) in Cash

Cash flows from operating activities
   Net loss                                                         $ (375,675)       $ (175,229)     $  (1,568,091)
   Adjustments to reconcile net loss to net cash used in
       operating activities:
           Amortization                                                  1,167                 -              1,167
           Depreciation and write down of test facility                  8,479                 -            450,371
           Issuance of common stock for services                        95,100            20,630            208,475
           Issuance of common stock in lieu of expense
           reimbursement                                                34,744                 -             34,744
           Changes in assets and liabilities
               Receivable                                                  570              (570)                 -
               Payables to stockholders                                      -            (8,700)            (8,700)
               Accounts payable and accrued liabilities                200,041           150,197            570,111
                                                                  --------------  ------------------ ------------------

                 Net cash used in operating activities                 (35,574)          (13,672)          (311,923)

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                     19,250            18,531            130,563
   Proceeds from sale of common stock                                   15,000                 -            658,389
   Proceeds from unissued shares                                             -                 -             26,200
                                                                  --------------  ------------------ ------------------

                 Net cash provided by financing activities              34,250            18,531            815,152
                                                                  --------------  ------------------ ------------------


Net increase (decrease) in cash                                         (1,324)            4,859              5,908

Cash at beginning of period                                              7,232             2,373                  -
                                                                  --------------  ------------------ ------------------

Cash at end of period                                               $    5,908      $      7,232       $      5,908
                                                                  ==============  ================== ==================

Noncash
activities
   Unissued shares payable exchanged for common stock               $        -      $      8,700       $     38,700
                                                                  ==============  ================== ==================
   Acquisition of patent in exchange for a liability                $    30,000     $          -       $     30,000
                                                                  ==============  ================== ==================
   Common shares issued to satisfy liabilities                      $    31,467     $          -       $     31,467
                                                                  ==============  ================== ==================
   Allocation of proceeds of convertible debt
       To beneficial conversion feature                             $     5,250     $          -       $      5,250
                                                                  ==============  ================== ==================
</TABLE>


The accompanying notes are an integral part of these statements.

F-7


<PAGE>


                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE A - SUMMARY OF ACCOUNTING POLICIES

MariCulture Systems, Inc. (the Company), a Florida Corporation  (incorporated on
July 8, 1996), was organized to develop and market products based on proprietary
aquaculture technology (SARGO(TM)). On August 22, 1996, the Company entered into
a share exchange  agreement with the stockholders of MariCulture  Systems,  Inc.
(MSIW),  a Washington  corporation  (incorporated  on August 25, 1994),  for the
exchange  of 100% of MSIW  stock  for  shares  in the  Company.  MSIW  became  a
wholly-owned subsidiary,  which was administratively  dissolved on September 19,
1997. Cumulative results are reported since the inception date of MSIW.

The Company completed  research in regards to its proprietary  technology during
1999 and is developing its marketing  plans. The Company filed a Form 10-SB with
the Securities and Exchange Commission (SEC) on September 13, 2000, and became a
reporting company in December 2001.

A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows.

1.       Research and Development

Research and development costs are expensed as incurred.

2.       Test Facility Equipment

Test facility  equipment consists of a non operating test facility and is stated
at the net salvage  value with no  depreciation  taken for  financial  statement
purposes. Management believes the carrying amount of the asset will be recovered
through a future sale of the equipment.

3.       Intangible Assets

Intangible  assets  consist of the SARGO patent.  The patent is being  amortized
over a  fifteen-year  period,  its  estimated  economic  useful life,  using the
straight-line method.

4.       Fair Value of Financial Instruments

The carrying amounts of cash, receivable,  accounts payable accrued expenses and
notes payable  approximate  fair value because of the  short-term  maturities of
these items.  The carrying amounts of current  obligations  approximate the fair
market  value due to either the  short-term  maturity of the  obligation  or the
interest rate changes with market interest rates.

F-8


<PAGE>


                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

5.       Loss Per Share

Basic loss per share is based on the weighted  average  number of common  shares
outstanding  during the period.  The weighted  average  number of common  shares
outstanding  was  11,119,591,  10,521,486  and  8,954,132  for the  years  ended
December  31, 2001 and 2000,  and from  inception  through  December  31,  2001.
Diluted loss per share is not presented because of the  anti-dilutive  effect of
potentially  issuable  common stock.  At December 31, 2001 and 2000, the Company
had 100,000 shares of potentially issuable common stock.

6.       Stock-Based Compensation

The Company  accounts for its stock-based  compensation  plan in accordance with
Accounting  Principle Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees.  The Company has adopted Statement of Financial  Accounting Standards
No. 123 (SFAS 123),  Accounting  for  Stock-Based  Compensation,  for disclosure
purposes.  The  Company  accounts  for its  stock-based  compensation  issued to
non-employees  in accordance  with  paragraphs 8-10 of SFAS No. 123 and Emerging
Issue Task  Force  (EITF)  96-18;  thus,  valuing  equity  securities  issued to
non-employees based on the fair value of the consideration  received or the fair
value of the equity instruments issued, whichever is more reliably measurable.

7.       New Accounting Pronouncements

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business  Combinations.  SFAS
141 applies to all business combinations initiated after September 30, 2001. The
Statement  also applies to all  business  combinations  accounted  for using the
purchase method for which the date of acquisition is July 1, 2001, or later. The
adoption  of  SFAS  141  did  not  have an  impact  on the  Company's  financial
statements.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets.  The  provisions  of SFAS 142 are required to be applied  starting  with
fiscal  years  beginning  after  December  15,  2001  with  earlier  application
permitted for entities with fiscal years beginning after March 15, 2001 provided
that the first interim financial statements have not been previously issued. The
statement is required to be applied at the beginning of the entity's fiscal year
and to be applied to all goodwill and other intangible  assets recognized in its
financial  statements  to that date.  The  adoption  of SFAS 142 did not have an
impact on the Company's financial statements.

In October 2001, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standard  (SFAS) 144,  Accounting  for the  Impairment or
Disposal of Long-Lived Assets.  SFAS 144 supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of, and 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, for Segments of a Business to Be Disposed Of.
SFAS 144 is effective for fiscal years  beginning  after  December 15, 2001. The
Company is currently  evaluating the potential effect of the initial application
of the SFAS 144 on its financial statements.

F-9

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

8.       Use of Estimates

In preparing the Company's financial statements,  management is required to make
estimates  and  assumptions   that  affect  the  reported   amounts  of  assets,
liabilities and equity,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported  amounts of revenue and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.


NOTE B - MANAGEMENT PLANS

The  Company  is a  development  stage  company as defined  under  Statement  of
Financial Accounting Standards No. 7. The Company is devoting  substantially all
of its  present  efforts  to  establishing  a new  business  in the  aquaculture
industry and its planned  operations  have not commenced  and,  accordingly,  no
operating revenues have been derived to date. The Company has incurred recurring
losses from operations and has a total accumulated  development stage deficit of
$1,568,091 at December 31, 2001. The development of the Company's technology and
products will continue to require a commitment of substantial funds.

However, 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.

The Company is working with Canadian governmental agencies and aquaculturists to
establish a demonstration site for its SARGO(TM) technology.  This demonstration
site  will  be a  fully  operating  farm  for  organic  salmon  with  agreements
permitting use by the Company's sales,  marketing,  and research and engineering
departments.  The tentative site location is on the West Coast of Quadra Island,
British  Columbia.  The Company  expects that this site will be  operational  in
2002.  Several  inquiries  have been  received  to  provide  modified  SARGO(TM)
reservoirs  to  directly  replace  nets in  existing  net pen farms.  Successful
adaptation of the Company technology could lead to new product lines and revenue
streams.  All farm sales are  predicated  on receipt of an up-front  deposit and
progress  payments as a project advances  through the engineering,  fabrication,
and installation stages.

The  Company  continues  to  obtain  financing  through  sales  of  unregistered
restricted  stock.  Additional  financing is expected to be obtained through the
sale of registered securities after obtaining listing on the OTC Bulletin Board.


F-10

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE C - PATENTS AND LICENSES

On June  6,  2001,  the  Company  negotiated  a  purchase  of a  patent  for the
"Aquaculture  System" currently  marketed under SARGO(TM) from its president and
majority shareholder.  Under the terms of the agreement,  the patent was sold to
the Company in exchange for  1,000,000  shares of the  Company's  voting  common
stock and  $30,000  payable in cash.  Due to the  related  party  nature of this
transaction,  the  patent was  recorded  at  transferor's  cost of  $30,000.  At
December 31, 2001, $30,000 remained unpaid and were included in accounts payable
to related parties.


NOTE D - NOTE PAYABLE

At December 31, 2001 and 2000, the Company had $10,000 unpaid principal  balance
on a note payable to a third party.  The note accrues 500 shares of common stock
a month in lieu of interest.  As of December 31, 2001 and 2000,  the Company had
accrued 29,500 and 23,500 shares, respectively, and recorded accrued interest of
$29,500 and  $23,500,  respectively.  The note is  currently in default due to a
failure to make required  payments at the note's original  maturity  (August 31,
1997), and is now due on demand. The Company is liable for legal expenses of the
lender, if legal action is pursued.


NOTE E - CONVERTIBLE DEBT

In  December  2001,  the  Company  borrowed  $5,250  through an  issuance of two
convertible  notes  payable.  The notes bear a 10% interest  rate and convert to
common  stock at $0.50  per  share.  The  notes  mature a year  from the date of
borrowing.  The Company recognized $5,250 as a beneficial conversion feature due
to the  conversion  ratio being below the  underlying  stock's  fair value.  The
resulting debt discount will be amortized  using the effective  conversion  rate
over one year. No  amortization  was taken for the year ended December 31, 2001.
As  of  December  31,  2001,  the  balance  of  convertible  debentures  net  of
unamortized discount was $0.


NOTE F - STOCKHOLDERS' LOANS AND RELATED PARTY PAYABLES

During the year ended  December 31,  2001,  the Company  borrowed an  additional
$14,000 from the president's  spouse. The notes outstanding at December 31, 2001
and 2000  bore  10% - 12%  interest  rates.  Three  of the  notes to the  former
employee  stipulated  repayment dates, which the Company is presently in default
on. Per the note  agreements,  the  Company is liable for legal  expenses of the
debt holder should she pursue legal action to collect on the notes. In addition,
two of the notes contain a clause where the Company is required to make payments
of up to 15% of the proceeds to be received from financings or sales activities.
Currently,  all notes are due on demand.  Outstanding  principal balance totaled
$111,296 and $97,296,  and accrued  interest on these notes totaled  $56,208 and
$40,309 as of December 31, 2001 and 2000, respectively.

The  Company  has  related  party  payables  totaling  $37,793 and $23,695 as of
December  31, 2001 and 2000,  respectively.  These  amounts  represent  expenses
incurred by stockholders and employees to be reimbursed by the Company.

F-11

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE G - PAYABLES TO STOCKHOLDERS

The  Company  received  funds in 1995  through  1999 from  stockholders  for the
purchase  of common  stock of the  Company.  These funds were  deposited  by the
Company, but no stock had been issued to the stockholders.  The Company has made
attempts  to  locate  these  stockholders  and  issue  stock to them  for  their
investment.  Until the  stockholders  are located  these  funds are  recorded as
payables  to  stockholders.  As of December  31, 2001 and 2000,  the Company had
payables to stockholders for $17,500.


NOTE H - SHARES IN ESCROW

The Company  entered into a verbal  agreement  with  corporate  counsel to issue
250,000 shares of restricted  common stock into escrow for legal services.  Once
these shares become freely trading,  the attorneys will sell the stock and apply
all proceeds against outstanding payables for services performed. As of December
31, 2001 and 2000, the outstanding  payables to the attorneys were approximately
$134,500 and $80,000,  respectively.  Shares  issued in escrow were  included in
loss per share  computations for the years ended December 31, 2001 and 2000, and
since  inception  through the year ended  December 31,  2001,  as of the date of
their issuance.


NOTE I - INCOME TAXES

The  Company  records  income  taxes  using the asset  and  liability  method of
Statement of  Financial  Accounting  Standards  (SFAS) No. 109,  Accounting  for
Income  Taxes.  At  December  31,  2000,  an  operating  loss   carryforward  of
approximately  $1,336,000  expiring  from  2009 to 2020 is  available  to offset
future taxable income. For financial reporting  purposes,  a valuation allowance
of $590,000 has been  recorded to offset the deferred tax asset related to those
carryforwards and other net deferred tax assets.  This represents an increase of
approximately $127,000 from the allowance recorded at December 31, 2000.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows at December 31:

<TABLE>
<CAPTION>
                                                              2001                   2000
                                                         ----------------       ----------------
<S>                                                      <C>                    <C>
Deferred tax assets:
    Net operating loss carryforward                      $     454,000          $     361,200
    Amortization and depreciation                                5,000                  5,400
    Accrued salaries                                            38,000                 11,700
    Accrued interest payable                                    30,000                 21,700
    Research and experimentation credit carryforward            63,000                 62,900
    Valuation allowance                                       (590,000)              (462,900)
                                                         ----------------       ----------------
                                                         $          -           $          -
                                                         ================       ================
</TABLE>

F-12

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE I - INCOME TAXES - Continued

The income tax benefit  reconciled to the tax computed at the statutory  federal
rate were as follows for the year ended December 31:

<TABLE>
<CAPTION>
                                                  2001                     2000
                                            ------------------       ------------------
<S>                                         <C>                      <C>
Tax benefit at statutory rate               $     (127,100)          $      (59,600)
Miscellaneous non-deductible items                      -                       100
Valuation allowance                                127,100                   59,500
                                            ------------------       ------------------
                                            $           -            $           -
                                            ==================       ==================
</TABLE>

Internal  Revenue Code  Section 382 place a limitation  on the amount of taxable
income that can be offset by carryforwards  after a change in control (generally
greater  than a 50%  change  in  ownership).  As a result  of these  provisions,
utilization of the NOL and tax credit carryforwards may be limited.


NOTE J - COMMITMENTS

1.   Employment Agreements

On September 1, 2000, the Company entered into a four-year  employment agreement
with an employee  expiring in December 2004. The agreement has specified  annual
compensation   levels   ranging   from   $93,000  to  $115,000  and  includes  a
noncompetition clause.

2.   Board Member Compensation

On March 10,  2000,  the Company  granted  compensation  of 100 shares of common
stock to each  member of the Board of  Directors  for each  quarter  of  service
starting with the third quarter of the year ended December 31, 2000. The Company
granted  shares  for all four  quarters  of 2001 and for the  third  and  fourth
quarters of 2000.

3.   Shares Issued for Future Services

In January 2001,  the Company issued 1,000 shares of its common stock in lieu of
prepayment  for future  engineering  services.  No services have been  performed
through  December 31, 2001.  These shares were  excluded  from the  Statement of
Stockholders'  Deficit  and  computations  of loss per share for the year  ended
December 31, 2001 and for the period since inception through December 31, 2001.

F-13

<PAGE>


                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE K - STOCK OPTIONS

The Company has not  established  a formal Stock Option Plan.  However,  100,000
options to purchase  common  stock of the Company were granted to an employee on
September 1, 2000.  These  options vest ratably over four years have an exercise
price of $4.00 a share and a term of seven years.

The following is a summary of stock option information:

<TABLE>
<CAPTION>
                                                            Year ended               Year ended
                                                         December 31, 2001        December 31, 2000
                                                       ----------------------   ----------------------
<S>                                                    <C>                      <C>
Outstanding at beginning of year                                    100,000                       -
Granted at $4.00 per share                                               -                   100,000
Exercised                                                                -                        -
Forfeited or canceled                                                    -                        -
Expired                                                                  -                        -
                                                       ----------------------   ----------------------
Outstanding at the end of the year                                  100,000                  100,000
                                                       ======================   ======================

Weighted-average options exercise price per share      $              4.00      $              4.00
Weighted-average fair value of stock options issued    $                 -      $              0.02
Options exercisable                                                  25,000                       -
</TABLE>

The Company  accounts for its stock-based  compensation  plan in accordance with
Accounting  Principle Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees.  The Company has adopted  SFAS No. 123,  Accounting  for  Stock-Based
Compensation,  for  disclosure  purposes.  In  accordance  with  the  disclosure
requirements  of SFAS No. 123, the Company is required to calculate  and present
the pro forma effect of all awards granted.  For disclosure  purposes,  the fair
value of each option granted to an employee has been estimated as of the date of
grant  using  the   Black-Scholes   option  pricing  model  with  the  following
assumptions:  risk-free interest rate of 6%, dividend yield of 0% and volatility
of 25%, and expected  life of seven  years.  Pro forma effect of options  earned
through  December  31,  2001  and  2000,  was   approximately   $667  and  $230,
respectively.


F-14


<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2001 and 2000



NOTE L - NON CASH EQUITY TRANSACTIONS

On January 2, 2001,  the Company  issued 31,167 shares of its common stock to an
officer of the  Company is lieu of unpaid  compensation.  The shares were valued
based on the amount of compensation due of $31,167.

In June 2001, the Company issued 26,069 and 8,675 shares,  respectively,  of its
common stock to its president and to its vice president.  The shares were issued
in  lieu  of  expense  reimbursements  (including  interest  accumulated  on the
outstanding  balances) for expenses  incurred during the year ended December 31,
2001.  The shares  were  valued  based on the amounts  due,  resulting  in total
expense of $34,744.

During the years ended  December 31, 2001 and 2000, the Company issued 1,500 and
1,200 shares,  respectively,  of its common stock, in lieu of  compensation  for
Board member's services. In connection with these grants, the Company recognized
additional  expenses  of $1,500 and  $1,200,  respectively,  for the years ended
December 31, 2001 and 2000.

On January 20, 2000, the Company issued 17,400 shares of its voting common stock
to a spouse of its president in consideration for bookkeeping services performed
during the years ended  December  31, 1995 through  1998.  Based on the original
agreement  reached  between the Company  and the  contractor,  two shares of the
Company's  voting  common  stock were to be issued for each dollar  billed.  The
Company  inadvertently  omitted  recording this liability  until the shares were
issued.  Due to  immaterial  effect  on the  opening  accumulated  deficit,  all
associated  expenses were recorded  during the year ended  December 31, 2000. In
accordance  with guidance of SFAS 123, the transaction was recorded based on the
value of securities  granted (which was deemed to be more reliably  measurable),
using the  estimated  fair value during the period ended  December 31, 1998,  of
$.50 per share, resulting in total expenses of $8,700.

On February 29, 2000,  the Company  issued  11,930  shares of its voting  common
stock to a contractor in consideration  for excavation  services  performed.  In
accordance  with  guidance of SFAS 123, the  associated  expenses  were measured
based on the value of the shares  issued  (which was deemed to be more  reliably
measurable) and resulted in total expenses of $11,930.


NOTE M - SUBSEQUENT EVENTS

In January 2002, the Company executed seven  convertible notes totaling $25,500.
The notes  convert into common stock at $0.50 per share at any time though their
conversion date, which is a year from the origination date.

On January 15, 2002, the Company  committed to issue 19,570 shares of its common
stock for  future  consulting  services.  The  amount of shares to be issued was
determined as 0.167% of total shares  outstanding on January 7, 2002. The shares
were issued February 22, 2002.


F-15



<PAGE>



Item 8.  Changes  In  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

     On February 23, 2001, the Company engaged the firm of Grant Thornton LLP of
701 Pike Street,  Seattle, WA 98101-2310 as the Company's  independent auditors.
Such appointment was accepted by James D. Young, Managing Partner. Prior to such
engagement,  the  Company  had not  consulted  Grant  Thornton  LLP on any prior
matters,  including  any  matters  relative  to the  application  of  accounting
principles or any subject of disagreement with Moss Adams LLP.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

     (a) Set forth below are the names,  ages,  positions,  with the Company and
business experiences of the executive officers and directors of the Company.

<TABLE>
<S>                      <C>       <C>
Name                     Age       Position(s) with Company
----------------         ----      ------------------------------
David Meilahn            62        President, Treasurer, Chairman

Richard Luce             42        Vice President, Sales & Marketing & Secretary

Robert Janeczko          61        Director

Don Jonas                60        Director
</TABLE>

     All  directors  hold office until the next annual  meeting of the Company's
shareholders and until their successors have been elected and qualify.  Officers
serve at the pleasure of the Board of Directors. The officers and directors will
devote such time and effort to the business and affairs of the Company as may be
necessary  to  perform  their  responsibilities  as  executive  officers  and/or
directors of the Company.

Family Relationships

         None.

Business Experience

     David E. Meilahn,  age 62,  currently  serves as  President,  Treasurer and
Chairman, to the Company. He has served in this capacity since December 1997 and
also served as President  of the MSIW since  August of 1994.  His duties in this
position include directing all activities of the Company, including engineering,
new product development,  and origination.  From September 1957 to May 1963, Mr.
Meilahn attended the University of Wisconsin, Menomonie, where he received

                                       43

<PAGE>



a Bachelor of Science in Industrial Technology.  From September 1978 to May 1980
he attended the University of Wisconsin,  Milwaukee, where he received a Masters
in Business Administration.

     Richard J. Luce,  age 42,  currently  serves as Vice  President,  Sales and
Marketing and Secretary.  He has served as Vice President of Sales and Marketing
since  September  2000. His duties at  Mariculture  include sales and marketing.
From April 1999 to January 2000, Mr. Luce was employed as Operations  Manager of
G-Zero Technologies. His responsibilities were to develop and implement business
strategies,  minimizing  inventory and production  problems.  From March 1996 to
April  1999,  Mr.  Luce was  employed  as Product  Marketing  Manager of Menasha
Corporation.  His  responsibilities  at  Menasha  Corporation  were to lead  the
development,  manufacturing,  pricing,  promotion,  and marketing goals of their
product line.  From June 1994 to March 1996 Mr. Luce was the  Owner/Operator  of
Pendulum  Productions,  Inc. His duties at Pendulum  Productions,  Inc. included
product development, sales and administration of product. From September 1978 to
January 1982, Mr. Luce attended the University of Wisconsin at Oshkosh, where he
received a Bachelors in Science.  From July 1988 to May 1990,  Mr. Luce attended
the University of Wisconsin,  Milwaukee, where he received a Masters in Business
Administration.

     Dr.  Robert  J.  Janeczko,  age 61,  currently  serves as  Director  to the
Company.  He has  served  in that  capacity  since  March  2000.  His  duties at
Mariculture include  manufacturing and administration.  He is also currently the
President  of the Morton  Metalcraft  Co., a Division  of the Morton  Industrial
Group, Inc. ("Morton"). He has served as President of Morton since May 1995. His
duties at Morton include directing all activities of the corporation, as well as
dealing  directly with major  customers.  From  September 1959 to June 1963, Dr.
Janeczko  attended  the  University  of  Wisconsin,  Stout,  where he received a
Bachelor of Science.  From,  September  1965 to June 1966 he attended Ball State
University,  where he received a Masters in Science.  And from September 1970 to
May 1971, he attended the University of Missouri where he received an E.D.D.

     Don N. Jonas, CPA, age 60, currently serves as Director to the Company.  He
has served in that capacity since March 2000. His duties at Mariculture  include
business,  finance  and  administration.  He is also  currently a Manager in the
certified public  accounting firm of Davis & Jonas PS. He has been employed with
Davis & Jonas  since  1973.  His  duties  at  Davis & Jonas PS  include  general
management.  From  September 1962 to May 1966, Mr. Jonas attended the University
of Washington, Spokane, where he received a B.B.A. in Accounting.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     No Director,  Officer,  Beneficial  Owner of more than ten percent (10%) of
any class of equity  securities of the Company  failed to file on a timely basis
reports  required by Section  16(a) of the  Exchange  Act during the most recent
fiscal year or prior fiscal years.




                                       44

<PAGE>


Item 10.          Executive Compensation

<TABLE>
<CAPTION>
                                 Annual        Annual        Annual       LT Comp          LT                     All
Name and                          Comp         Comp          Comp         Rest            Comp         LTIP       Other
Post                   Year      Salary        Bonus         Other        Stock           Options      Payouts    (1)
                                 (1) ($)
<S>                    <C>         <C>         <C>           <C>          <C>             <C>          <C>        <C>
David                  1996        $0                                     2,348,560
Meilahn,               1997        $0
President,             1998        $0                                        17,400
Treasurer              1999        $0
and                    2000        $0                                                                             200
Chairman(2)            2001        $0                                          $400
(4)(5)(6)(7)
(8)(11)(12)
(13)(15)
Richard                1996        $0
Luce, V.P.,            1997        $0
Sales &                1998        $0
Marketing &            1999        $0
Secretary(3)           2000        $0                         31,167                       100,000
(6)(9)(10)             2001        $39,804                   $60,000           $400
(14)(15)
Robert                 1996        $0
Janeczko,              1997        $0
Director(2)            1998        $0
(5)(10)(15)            1999        $0
                       2000        $0                                                                             200
                       2001        $0                                          $400
Don Jonas,             1996        $0
Director(2)            1997        $0
(5)(15)                1998        $0
                       1999        $0
                       2000        $0                                                                             200
                       2001        $0                                          $400
</TABLE>

     All other compensation  includes certain health and life insurance benefits
paid by the Company on behalf of its employees.

     In January  2001,  the Company  issued 100 shares of the  Company's  common
stock each to David Meilahn, Don Jonas and Robert Janeczko for services rendered
to the Company in the third fiscal quarter of year 2000. For such offering,  the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
11. "Security  Ownership of Certain Beneficial Owners and Management";  and Part
III, Item 12. "Certain Relationships and Related Transactions".

     In January  2001,  the  Company  issued  31,167  shares to Richard  Luce as
compensation in lieu of salary for services rendered to the Company through year
2000. For such  offering,  the Company relied upon Section 4(2) of the Act, Rule
506, and Section  460-44A-506  of the  Washington  Code.  See Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".


                                       45

<PAGE>



     In February 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of five thousand  dollars  ($5,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the  Company  relied on Section  4(2) of the Act,  Rule 506 and
Section  460-44A  of the  Washington  Code.  See Part  III,  Item 11.  "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In April and May 2001,  the Board of Directors  authorized  the issuance of
200 shares each to David E.  Meilahn,  Don N. Jonas and Robert J.  Janeczko  for
their service to the Company during the fourth fiscal quarter 2000 and the first
fiscal quarter 2001. For such offering,  the Company relied upon Section 4(2) of
the Act, Rule 506, Section 4[5/4]S of the Illinois Code and Section  460-44A-506
of the Washington  Code. See Part III, Item 11.  "Security  Ownership of Certain
Beneficial Owners and Management"; and Part III, Item 12. "Certain Relationships
and Related Transactions".

     In May 2001, David Meilahn resigned as Secretary of the Company. He remains
the Company's current President,  Treasurer and Chairman. The Board of Directors
subsequently  appointed  Richard  Luce,  the  Company's  current  Secretary  and
Vice-President  of Sales and  Marketing,  to the  position as  Secretary  of the
Company.  Mr.  Luce will  receive  100  shares  of the  Company's  common  stock
quarterly in  connection  with the position.  See Part III,  Item 11.  "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In June 2001, David E. Meilahn, the Company's current President,  Treasurer
and Chairman sold the patent for the SARGO system to the Company in exchange for
1,000,000 shares of the Company's  restricted common stock and $30,000. For such
offering the Company  relied upon Section 4(2) of the Act,  Rule 506 and Section
460-44A-506 of the Washington Code. See Part III, Item 11.  "Security  Ownership
of Certain  Beneficial  Owners and Management";  and Part III, Item 12. "Certain
Relationships and Related Transactions".

     In June 2001, the Company's Board of Directors  approved issuance of 26,069
shares of its common stock to David Meilahn,  the Company's  current  President,
Treasurer and Chairman as payment for  $21,064.34 in expenses plus  $5,004.46 in
interest.  For such  offering,  the Company relied upon Section 4(2) of the Act,
Rule 506 and Section  460-44A-506 of the Washington Code. See Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".

     In June 2001, the Company's Board of Directors  approved  issuance of 8,675
shares of its common  stock to three (3)  persons,  as payment for  $8,373.31 in
expenses  plus  $301.69 in interest  incurred  by Richard  Luce,  the  Company's
current Secretary and Vice-President of Sales and Marketing.  For such offering,
the Company relied upon Section 4(2) of the Act, Rule 506,  Section  517.061(11)
of the Florida Code,  Section  460-44A-506  of the  Washington  Code and Section
551.23(19) of the Wisconsin Code. See Part III, Item 11. "Security  Ownership of
Certain  Beneficial  Owners and  Management";  and Part III,  Item 12.  "Certain
Relationships and Related Transactions".

     From July 2001,  through the date of this report,  the Company has raised a
total of $33,250  from the sale of one (1) year  convertible  notes  bearing ten
percent  (10%).  The  notes are  automatically  convertible  into  shares of the
Company's  restricted  common  stock at a price of $0.50  per  share.  Robert J.
Janeczko,  a current Director of the Company purchased a total of $1,000 of such
securities. Richard J. Luce, the

                                       46

<PAGE>



Company's current Vice-President of Sales and Marketing and Secretary,  received
$60,000 of such securities in lieu of $60,000  compensation.  For such offering,
the Company relied upon Section 4(2) of the Act, Rule 506, Section 5102.1 of the
California Code,  Section 10-5-9(13) of the Georgia Code, Section 4[5/4]S of the
Illinois Code, Section 460-44A-506 of the Washington Code and Section 551.23(19)
of the Wisconsin  Code.  See Part III, Item 11.  "Security  Ownership of Certain
Beneficial Owners and Management"; and Part III, Item 12. "Certain Relationships
and Related Transactions".

     In August 2001, the Company  executed a promissory  note in favor of Elaine
Meilahn  in the amount of two  thousand  five  hundred  dollars  ($2,500)  at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the Washington Code. See Part III,
Item 11. "Security  Ownership of Certain Beneficial Owners and Management";  and
Part III, Item 12. "Certain Relationships and Related Transactions".

     In  September  2001,  the Company  executed a  promissory  note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section  460-44A-506 of the Washington Code. See Part III,
Item 11. "Security  Ownership of Certain Beneficial Owners and Management";  and
Part III, Item 12. "Certain Relationships and Related Transactions".

     In October 2001, the Company  executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand  dollars  ($4,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the Company  relied upon Section 4(2) of the Act,  Rule 506 and
Section  460-44A-506  of the Washington  Code. See Part III, Item 11.  "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In January 2002, the Company issued 93,600 shares of its restricted  common
stock,  previously  granted in December  2001, to Richard J. Luce, the Company's
current  Vice-President  of Sales & Marketing and Secretary of the Company.  The
shares were issued as compensation for his services to the Company.  They are in
addition  to his  salary,  which to date is  unpaid,  but for which the  Company
accrues.  For such  offering,  the Company  relied upon Section 4(2) of the Act,
Rule 506 and Section  460-44A-506 of the Washington Code. See Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management";  and Part III,
Item 12. "Certain Relationships and Related Transactions".

     In January 2002,  the Company  issued 300 shares of its  restricted  common
stock each to Robert J.  Janeczko,  Richard  J. Luce,  Don N. Jonas and David E.
Meilahn for service on the Company's Board of Directors.  For such offering, the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
11. "Security  Ownership of Certain Beneficial Owners and Management";  and Part
III, Item 12. "Certain Relationships and Related Transactions".




                                       47

<PAGE>


Compensation of Directors

     In March  2000,  the Board of  Directors  authorized  the  issuance  of one
hundred (100) shares of  restricted  common stock of the Company for each member
of the Board of Directors when in attendance at quarterly  board  meetings.  The
Company will also reimburse  direct travel expenses  presented by each member of
the board.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets  forth  information  as of  December  31,  2001,
regarding the ownership of the Company's Common Stock by each shareholder  known
by the Company to be the beneficial  owner of more than five percent (5%) of its
outstanding shares of common stock, each director and all executive officers and
directors as a group.  Except as otherwise  indicated,  each of the shareholders
has sole voting and  investment  power with respect to the share of Common Stock
beneficially owned.

<TABLE>
<CAPTION>
Name and Address of              Title of        Amount and Nature of          Percent of
Beneficial Owner                    Class          Beneficial Owner               Class
-----------------------------------------------------------------------------------------
<S>                                                    <C>                      <C>
David Meilahn(2)(4)(5)(6)(7)        Common             3,270,190                28.1%
(8)(11)(12)(13)(14)(16)

Robert Work                         Common             2,226,421                19.1%

William Evans                       Common             2,033,615                17.5%

Mark Kruschwitz                     Common               629,191                 5.4%

Richard J. Luce(3)(6)(9)(10)        Common                35,842                 0.3%
(15)(16)

Robert J. Janeczko(2)(5)(16)        Common                   300                 0.1%

Don N. Jonas(2)(5)(16)              Common                   300                 0.1%

All Executive Officers and          Common             3,306,632                28.4%
Directors as a Group
(four (4) persons)
-----------------------------
</TABLE>

     The address for each of the above is c/o  Mariculture  Systems,  Inc., P.O.
Box 1746, Edmonds, Washington 98020.

     In January  2001,  the Company  issued 100 shares of the  Company's  common
stock each to David Meilahn, Don Jonas and Robert Janeczko for services rendered
to the Company in the third fiscal quarter of year 2000. For such offering,  the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
12. "Certain Relationships and Related Transactions".

     In January  2001,  the  Company  issued  31,167  shares to Richard  Luce as
compensation in lieu of salary for services rendered to the Company through year
2000. For such offering, the Company

                                       48

<PAGE>



relied upon Section 4(2) of the Act,  Rule 506, and Section  460-44A-506  of the
Washington  Code.  See Part III,  Item 12.  "Certain  Relationships  and Related
Transactions".

     In February 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of five thousand  dollars  ($5,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the  Company  relied on Section  4(2) of the Act,  Rule 506 and
Section  460-44A  of the  Washington  Code.  See Part  III,  Item 11.  "Security
Ownership of Certain  Beneficial Owners and Management";  and Part III, Item 12.
"Certain Relationships and Related Transactions".

     In April and May 2001,  the Board of Directors  authorized  the issuance of
200 shares each to David E.  Meilahn,  Don N. Jonas and Robert J.  Janeczko  for
their service to the Company during the fourth fiscal quarter 2000 and the first
fiscal quarter 2001. For such offering,  the Company relied upon Section 4(2) of
the Act, Rule 506, Section 4[5/4]S of the Illinois Code and Section  460-44A-506
of the  Washington  Code.  See Part III,  Item 12.  "Certain  Relationships  and
Related Transactions".

     In May 2001, David Meilahn resigned as Secretary of the Company. He remains
the Company's current President,  Treasurer and Chairman. The Board of Directors
subsequently  appointed  Richard  Luce,  the  Company's  current  Secretary  and
Vice-President  of Sales and  Marketing,  to the  position as  Secretary  of the
Company.  Mr.  Luce will  receive  100  shares  of the  Company's  common  stock
quarterly in  connection  with the  position.  See Part III,  Item 12.  "Certain
Relationships and Related Transactions".

     In June 2001, David E. Meilahn, the Company's current President,  Treasurer
and Chairman sold the patent for the SARGO system to the Company in exchange for
1,000,000 shares of the Company's  restricted common stock and $30,000. For such
offering the Company  relied upon Section 4(2) of the Act,  Rule 506 and Section
460-44A-506   of  the  Washington   Code.  See  Part  III,  Item  12.   "Certain
Relationships and Related Transactions".

     In June 2001, the Company's Board of Directors  approved issuance of 26,069
shares of its common stock to David Meilahn,  the Company's  current  President,
Treasurer and Chairman as payment for  $21,064.34 in expenses plus  $5,004.46 in
interest.  For such  offering,  the Company relied upon Section 4(2) of the Act,
Rule 506 and Section  460-44A-506 of the Washington Code. See Part III, Item 12.
"Certain Relationships and Related Transactions".

     In June 2001, the Company's Board of Directors  approved  issuance of 8,675
shares of its common  stock to three (3)  persons,  as payment for  $8,373.31 in
expenses  plus  $301.69 in interest  incurred  by Richard  Luce,  the  Company's
current Secretary and Vice-President of Sales and Marketing.  For such offering,
the Company relied upon Section 4(2) of the Act, Rule 506,  Section  517.061(11)
of the Florida Code,  Section  460-44A-506  of the  Washington  Code and Section
551.23(19) of the Wisconsin Code. See Part III, Item 12. "Certain  Relationships
and Related Transactions".

     From July 2001,  through the date of this report,  the Company has raised a
total of $33,250  from the sale of one (1) year  convertible  notes  bearing ten
percent  (10%).  The  notes are  automatically  convertible  into  shares of the
Company's  restricted  common  stock at a price of $0.50  per  share.  Robert J.
Janeczko,  a current Director of the Company purchased a total of $1,000 of such
securities.  Richard J. Luce, the Company's current  Vice-President of Sales and
Marketing and Secretary,  received $60,000 of such securities in lieu of $60,000
compensation. For such offering, the Company relied upon Section 4(2)

                                       49

<PAGE>



of the Act, Rule 506, Section 5102.1 of the California Code,  Section 10-5-9(13)
of the Georgia Code, Section 4[5/4]S of the Illinois Code,  Section  460-44A-506
of the Washington  Code and Section  551.23(19) of the Wisconsin  Code. See Part
III, Item 12. "Certain Relationships and Related Transactions".

     In August 2001, the Company  executed a promissory  note in favor of Elaine
Meilahn  in the amount of two  thousand  five  hundred  dollars  ($2,500)  at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and 460-44A-506 of the Washington Code. See Part III, Item 12.
"Certain Relationships and Related Transactions".

     In  September  2001,  the Company  executed a  promissory  note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and 460-44A-506 of the Washington Code. See Part III, Item 12.
"Certain Relationships and Related Transactions".

     In October 2001, the Company  executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand  dollars  ($4,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the Company  relied upon Section 4(2) of the Act,  Rule 506 and
460-44A-506   of  the  Washington   Code.  See  Part  III,  Item  12.   "Certain
Relationships and Related Transactions".

     The number of shares  listed for David E. Meilahn  includes  17,400  shares
owned by his wife, Elaine L. Meilahn.

     In January 2002, the Company issued 93,600 shares of its restricted  common
stock,  previously  granted in December  2001, to Richard J. Luce, the Company's
current  Vice-President  of Sales &  Marketing  and  Secretary.  The shares were
issued as compensation for his services to the Company.  They are in addition to
his salary, which to date is unpaid, but for which the Company accrues. For such
offering,  the Company relied upon Section 4(2) of the Act, Rule 506 and Section
460-44A-506   of  the  Washington   Code.  See  Part  III,  Item  12.   "Certain
Relationships and Related Transactions".

     In January 2002,  the Company  issued 300 shares of its  restricted  common
stock each to Robert J.  Janeczko,  Richard  J. Luce,  Don N. Jonas and David E.
Meilahn for service on the Company's Board of Directors.  For such offering, the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code. See Part III, Item
12. "Certain Relationships and Related Transactions".

     There are no arrangements  which may result in the change of control of the
Company.

Item 12. Certain Relationships and Related Transactions

     In January 2001, the Company  issued 1,000 shares of its restricted  common
stock to George Webster for professional engineering services rendered. For such
offering,  the Company relied upon Section 4(2) of the Act, Rule 506 and Section
460-44A-506 of the Washington Code.

                                       50

<PAGE>



     In January  2001,  the Company  issued 100 shares of the  Company's  common
stock each to David Meilahn, Don Jonas and Robert Janeczko for services rendered
to the Company in the third fiscal quarter of year 2000. For such offering,  the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code.

     In January  2001,  the  Company  issued  31,167  shares to Richard  Luce as
compensation in lieu of salary for services rendered to the Company through year
2000. For such  offering,  the Company relied upon Section 4(2) of the Act, Rule
506, and Section 460-44A-506 of the Washington Code.

     In February 2001, the Company executed a promissory note in favor of Elaine
Meilahn in the amount of five thousand  dollars  ($5,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the  Company  relied on Section  4(2) of the Act,  Rule 506 and
Section 460-44A of the Washington Code.

     In March 2001,  the Company sold a total of 9,000 shares of its  restricted
common stock to three (3)  investors for a total of $9,000.  For such  offering,
the Company relied upon Section 4(2) of the Act, Rule 506,  Section  460-44A-506
of the Washington Code and Section 551.23(19) of the Wisconsin Code.

     In April and May 2001,  the Board of Directors  authorized  the issuance of
200 shares each to David E.  Meilahn,  Don N. Jonas and Robert J.  Janeczko  for
their service to the Company during the fourth fiscal quarter 2000 and the first
fiscal quarter 2001. For such offering,  the Company relied upon Section 4(2) of
the Act, Rule 506, Section 4[5/4]S of the Illinois Code and Section 460-44A- 506
of the Washington Code.

     In May 2001, David Meilahn resigned as Secretary of the Company. He remains
the Company's current President,  Treasurer and Chairman. The Board of Directors
subsequently  appointed  Richard  Luce,  the  Company's  current  Secretary  and
Vice-President  of Sales and  Marketing,  to the  position as  Secretary  of the
Company.  Mr.  Luce will  receive  100  shares  of the  Company's  common  stock
quarterly in connection with the position.

     In June 2001, David E. Meilahn, the Company's current President,  Treasurer
and Chairman sold the patent for the SARGO system to the Company in exchange for
1,000,000 shares of the Company's  restricted common stock and $30,000. For such
offering the Company  relied upon Section 4(2) of the Act,  Rule 506 and Section
460-44A-506 of the Washington Code.

     In June 2001, the Company's Board of Directors  approved issuance of 26,069
shares of its common stock to David Meilahn,  the Company's  current  President,
Treasurer and Chairman as payment for  $21,064.34 in expenses plus  $5,004.46 in
interest.  For such  offering,  the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 460-44A-506 of the Washington Code.

     In June 2001, the Company's Board of Directors  approved  issuance of 8,675
shares of its common  stock to three (3)  persons,  as payment for  $8,373.31 in
expenses  plus  $301.69 in interest  incurred  by Richard  Luce,  the  Company's
current Secretary and Vice-President of Sales and Marketing.  For such offering,
the Company relied upon Section 4(2) of the Act, Rule 506,  Section  517.061(11)
of the Florida Code,  Section  460-44A-506  of the  Washington  Code and Section
551.23(19) of the Wisconsin Code.


                                       51

<PAGE>



     From July 2001,  through the date of this report,  the Company has raised a
total of $33,250  from the sale of one (1) year  convertible  notes  bearing ten
percent  (10%).  The  notes are  automatically  convertible  into  shares of the
Company's  restricted  common  stock at a price of $0.50  per  share.  Robert J.
Janeczko,  a current Director of the Company purchased a total of $1,000 of such
securities.  Richard J. Luce, the Company's current  Vice-President of Sales and
Marketing and Secretary,  received $60,000 of such securities in lieu of $60,000
compensation.  For such  offering,  the Company  relied upon Section 4(2) of the
Act, Rule 506, Section 5102.1 of the California Code,  Section 10-5-9(13) of the
Georgia Code, Section 4[5/4]S of the Illinois Code,  Section  460-44A-506 of the
Washington Code and Section 551.23(19) of the Wisconsin Code.

     In August 2001, the Company  executed a promissory  note in favor of Elaine
Meilahn  in the amount of two  thousand  five  hundred  dollars  ($2,500)  at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section 460-44A-506 of the Washington Code.

     In  September  2001,  the Company  executed a  promissory  note in favor of
Elaine Meilahn in the amount of two thousand five hundred dollars ($2,500) at an
interest rate of twelve  percent  (12%) per annum.  The Note was in exchange for
monies  lent by Ms.  Meilahn to the Company  for  working  capital.  The Note is
payable on demand.  For such  offering,  the Company relied upon Section 4(2) of
the Act, Rule 506 and Section 460-44A-506 of the Washington Code.

     In October 2001, the Company  executed a promissory note in favor of Elaine
Meilahn in the amount of four thousand  dollars  ($4,000) at an interest rate of
twelve percent (12%) per annum.  The Note was in exchange for monies lent by Ms.
Meilahn to the Company for working capital.  The Note is payable on demand.  For
such  offering,  the Company  relied upon Section 4(2) of the Act,  Rule 506 and
Section 460-44A-506 of the Washington Code.

     In  November  2001,  the  Company  sold a  total  of  6,000  shares  of its
restricted  common stock to two (2)  investors  for a total of $6,000.  For such
offering,  the Company relied upon Section 4(2) of the Act, Rule 506 and Section
551.23(19) of the Wisconsin Code.

     In January 2002, the Company issued 93,600 shares of its restricted  common
stock to  Richard J.  Luce,  the  Company's  current  Vice-President  of Sales &
Marketing and Secretary. The shares were issued as compensation for his services
to the Company. They are in addition to his salary, which to date is unpaid, but
for which the  Company  accrues.  For such  offering,  the  Company  relied upon
Section  4(2) of the Act,  Rule 506 and Section  460-44A-506  of the  Washington
Code.

     In January 2002, the Company issued 93,600 shares of its restricted  common
stock,  previously  granted in December  2001, to Richard J. Luce, the Company's
current  Vice-President  of Sales &  Marketing  and  Secretary.  The shares were
issued as compensation for his services to the Company.  They are in addition to
his salary, which to date is unpaid, but for which the Company accrues. For such
offering,  the Company relied upon Section 4(2) of the Act, Rule 506 and Section
460-44A-506 of the Washington Code.

     In January 2002,  the Company  issued 300 shares of its  restricted  common
stock each to Robert J.  Janeczko,  Richard  J. Luce,  Don N. Jonas and David E.
Meilahn for service on the Company's Board of Directors.  For such offering, the
Company  relied upon Section 4(2) of the Act, Rule 506,  Section  4[5/4]S of the
Illinois Code and Section 460-44A-506 of the Washington Code.


                                       52

<PAGE>



     In February 2002, the Company issued 19,570 shares of its restricted common
stock to Charles A.  Gaudio and Mary Ann Gaudio  JTWROS,  previously  granted in
January  2002,  for  consulting  services  performed  by  Creative  Solutions  &
Strategies,  Inc. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 517.061(11) of the Florida Code.


Item 13.          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:

<TABLE>
<CAPTION>
Exhibit No.     Description
-------------------------------------------------------------------------------------------------------------
<S>      <C>      <C>
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.

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.
</TABLE>

                                       53

<PAGE>


<TABLE>
<S>      <C>      <C>
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.

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.
-----------------------
</TABLE>

[1]  Incorporated herein by reference to the Company's Registration Statement on
     Form 10SB filed September 13, 2000.

[2]  Incorporated   herein  by  reference  to  the   Company's   first   amended
     Registration Statement on Form 10SB filed December 21, 2000.

[3]  Incorporated  herein by reference to the Company's  Current  Report on Form
     8-K filed on February 26, 2001.

[4]  Incorporated  herein by reference to the  Company's  Annual  Report on Form
     10KSB for the period ended December 31, 2000 filed on April 13, 2001.

[5]  Incorporated   herein  by  reference  to  the   Company's   third   amended
     Registration Statement on Form 10SB filed 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.



                                       54

<PAGE>


                                   SIGNATURES

         In accordance with Section 13 and 15(d) 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: March 27, 2002

              By:  /s/ David Meilahn
                   -----------------------------------------------------------
                   David Meilahn, President, Treasurer & Chairman

              By:  /s/ Richard Luce
                   -----------------------------------------------------------
                   Richard Luce, Vice President Sales & Marketing & Secretary

              By:  /s/ Robert Janeczko
                   -----------------------------------------------------------
                   Robert Janeczko, Director

              By:  /s/ Don Jonas
                   -----------------------------------------------------------
                   Don Jonas, Director

     Pursuant to the  requirements  of the  Exchange  Act,  this report has been
signed by the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                           Title                                       Date

<S>                                 <C>                                         <C>
/s/ David Meilahn                   President, Treasurer & Chairman             March 27, 2002
-----------------------------
David Meilahn

/s/ Richard Luce                    Vice President Sales & Marketing            March 27, 2002
-----------------------------       & Secretary
Richard Luce

/s/ Robert Janeczko                 Director                                    March 27, 2002
-----------------------------
Robert Janeczko

/s/ Don Jonas                       Director                                    March 27, 2002
------------------------------
Don Jonas
</TABLE>

                                       55