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, 2000

[_]  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 968
Lake Stevens, Washington                                                   98258
----------------------------------------------------                  ----------
(Address of principal executive offices)                              (Zip Code)

Issuer's telephone number (425) 397-0409

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

                                                        Name of each exchange on
      Title of each class                                       which registered

                None                                                        None
-----------------------------                          -------------------------

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

                          Common Stock, $.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 10,564,147  shares of voting stock of the registrant  issued and
outstanding   as  of  December   31,  2000,   3,341,427   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

         (a)      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 intends to apply to the National Association of Securities Dealers
to have its Common Stock quoted on the Over the Counter  Bulletin  Board.  There
can be no  guarantee  that such  application  will be  approved.  Its  executive
offices are  presently  located at P.O. Box 968,  Lake  Stevens,  WA 98258.  Its
telephone number is (425) 397- 0409 and its facsimile number is (425) 672-8012.

         The Company was  incorporated  in the State of Florida on July 8, 1996.
On August 22, 1996, the Company entered into a share exchange  agreement whereby
the Company  issued and exchanged  8,800,000  shares of its Common Stock for one
hundred  percent  (100%) of the  issued  and  outstanding  stock of  Mariculture
Systems,  Inc., a Washington  corporation ("MSIW") (the "Share Exchange").  As a
result  of that  transaction,  MSIW  became a  wholly  owned  subsidiary  of the
Company.

         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 licensed  technology  to  commercial  reality via a pilot system for rearing
finfish.  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.

         Mariculture   Systems,   Inc.  develops,   manufactures,   and  markets
proprietary   systems  that  allow   commercial   "fish   farmers"  to  increase
productivity  and  profits  while  reducing  risks  to their  crop and  limiting
environmental  impact.  The Company has  engineered  and  developed  proprietary
systems that are  manufactured  to its  specifications  by one or more specialty
firms. Reinforced Tank Products, Inc. of Drain, Oregon is a primary supplier for
the  tanks.  Other  components  utilized  in the system are either off the shelf
items or  slightly  modified  to meet the  Company's  needs and  specifications.
Included are pumps by Flygt,  generators by Stewart & Stevenson,  and many other
well-known vendors of marine rated equipment. Marketing and the system sales are
actively  being  handled  through  both  full-time  inside sales  personnel  and
part-time sales representatives. An extensive web site (www.sargo.net) is on the
Internet and several links to other listings are presently in place. Discussions
are underway with  advertising  agencies to represent  the  Company's  products.
Brochures  and other media have been  produced and are being  disseminated  on a
regular basis. At this time,  sales contacts and ongoing  discussions  have been
made  with  responses  to  direct  inquiries.  Additional  sales  positions  are
currently being  interviewed for expansion of the sales staff.  See Part I, Item
1. "Description of the Business - (b) Business of Registrant."

        The  Company  is  filing  this  Form  10-KSB  in  compliance  with   the
effectiveness  of its filing on Form 10-SB  September 13, 2000. The SEC has sent
an initial set of comments to the Company's  Registration  Statement,  which the
Company  has  responded  to in  the  form  of  both  a  letter  and  an  amended
Registration Statement. The SEC has yet to reach a point of "no further comment"
with regard to the filing.  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".)



                                        3

<PAGE>



         The Company  relied upon Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and Rule 506 of Regulation D promulgated  thereunder  ("Rule
506") for  several  transactions  regarding  the  issuance  of its  unregistered
securities. In each instance, such reliance was based upon the fact that (i) the
issuance  of the shares did not  involve a public  offering,  (ii) there were no
more than thirty-five (35) investors (excluding "accredited  investors"),  (iii)
each  investor  who was not an  accredited  investor  either  alone  or with his
purchaser  representative(s)  has such knowledge and experience in financial and
business  matters that he is capable of  evaluating  the merits and risks of the
prospective  investment,  or the issuer reasonably believes immediately prior to
making any sale that such  purchaser  comes  within this  description,  (iv) the
offers  and  sales  were made in  compliance  with  Rules  501 and 502,  (v) the
securities  were subject to Rule 144  limitations on resale and (vi) each of the
parties was a sophisticated  purchaser and had full access to the information on
the Company necessary to make an informed  investment  decision by virtue of the
due diligence  conducted by the purchaser or available to the purchaser prior to
the transaction (the "506 Exemption").

         The Company relied upon Section  517.061(11)  for several  transactions
regarding  the  issuance of its  unregistered  securities  in  Florida.  In each
instance, such reliance was based upon the fact that: (i) sales of the shares of
Common  Stock were not made to more than 35 persons;  (ii) neither the offer nor
the  sale  of any of the  shares  was  accomplished  by the  publication  of any
advertisement;  (iii)  all  purchasers  either  had a  preexisting  personal  or
business  relationship with one or more of the executive officers of the Company
or, by reason of their  business or financial  experience,  could be  reasonably
assumed to have the capacity to protect their own  interests in connection  with
the transaction;  (iv) each purchaser represented that he was purchasing for his
own  account  and  not  with a view  to or  for  sale  in  connection  with  any
distribution of the shares; and (v) prior to sale, each purchaser had reasonable
access to or was  furnished all material  books and records of the Company,  all
material contracts and documents relating to the proposed  transaction,  and had
an  opportunity to question the executive  officers of the Company.  Pursuant to
Rule  3E-500.005,  in offerings  made under Section  517.061(11)  of the Florida
Statutes, an offering memorandum is not required; however each purchaser (or his
representative)  must be provided  with or given  reasonable  access to full and
fair disclosure of material information.  An issuer is deemed to be satisfied if
such purchaser or his representative has been given access to all material books
and records of the issuer;  all material contracts and documents relating to the
proposed  transaction;  and an opportunity to question the appropriate executive
officer.  In that  regard,  Mr.  Dauplaise  supplied  such  information  and was
available for such questioning (the "Florida Exemption").

         The Company  relied upon WAC  460-44A-506  of the  Washington  Code for
several  transactions  regarding the issuance of its unregistered  securities in
Washington.  In each  instance,  such reliance was based upon the fact that: (i)
the  Company  filed a completed  SEC Form D with the  Washington  Department  of
Financial  Institutions,  Securities Division; (ii) the Form was filed not later
than  fifteen (15) days after the first sale;  and (iii) the Company  executed a
Form U-2 consent to service of process, and (iv) the Company paid an appropriate
filing  fee of  $300.00  to the  Washington  State  Treasurer  (the  "Washington
Exemption").

         January 2000 through  April 2000,  the Company  issued 32,000 shares of
its  restricted  common  stock to seven (7)  persons  for a total of thirty  two
thousand  dollars  ($32,000).  The  obligation to issue such shares arose during
1999 and was accounted for in fiscal year 1999. For such  offering,  the Company
relied upon the 506 Exemption,  Section 25102.1 of the California Code,  Section
80 A.15 Subd. 2(h) of the Minnesota  Code,  Section 109.13 of the Texas Code and
the Washington  Exemption.  See Part III, Item 12.  "Certain  Relationships  and
Related Transactions".


                                        4

<PAGE>



         The facts  relied  upon to make the  California  Exemption  include the
following:  (i) the  Company  filed a completed  SEC Form D with the  California
Department  of  Corporations;  (ii) the  Company  executed a Form U-2 consent to
service of process  in the state of  California;  (iii) the Forms were filed not
later  than  fifteen  (15)  days  after  the  first  sale of the  securities  in
California; and (v) the Company paid an appropriate filing fee.

         The facts  relied  upon to make the  Minnesota  Exemption  include  the
following:  (i) bad boy  provisions  of the rule apply to the  Company;  (ii) no
commission or other  remuneration was paid for soliciting any prospective buyer;
(iii) the Company filed a completed SEC Form D with the Minnesota  Department of
Commerce  signed by a person duly  authorized  by the  issuer;  (iv) the Company
executed a Form U-2 consent to service of process in the state of Minnesota; (v)
the Forms were filed not later  than  fifteen  (15) days after the first sale of
the securities in Minnesota;  (vi) the Company paid an appropriate filing fee of
$50.00 to the Minnesota Department of Commerce.

         The  facts  relied  upon  to  make  the  Texas  Exemption  include  the
following:  (i) the Company  filed a  completed  SEC Form D with the Texas State
Securities Board; (ii) the Form was filed not later than fifteen (15) days after
the first sale;  (iii) the Company provided the State Securities Board a copy of
the  information  furnished  by the  Company to the  offerees,  (iv) the Company
executed a Form U-2 consent to service of process;  and (v) the Company  paid an
appropriate filing fee to the State Securities Administrator.

         In March 2000,  the Company  issued  250,000  shares of its  restricted
Common Stock to Donald  Mintmire in connection with his legal services on behalf
of the Company.  The shares were issued  pursuant to Section 3(b),  Rule 701 and
the  Florida  Exemption.  See Part I, Item 1.  "Description  of  Business  - (b)
Business of  Registrant - Employees  and  Consultants";  and Part III,  Item 12.
"Certain Relationships and Related Transactions".

         In March  2000,  the  Company  executed a  Promissory  Note in favor of
Elaine  Meilahn,  in the  amount  of  fourteen  thousand  four  hundred  dollars
($14,400) at an interest rate of twelve percent (12%) per annum. The Note was in
exchange for monies lent by Ms. Meilahn to the Company between 1995 and 2000 for
working  capital  purposes.  The Note was payable on demand.  In April 2000,  by
mutual  agreement of the parties,  the Company  cancelled  the March note due to
certain  inaccuracies in the note. It was replaced by a note dated April 3, 2001
in the amount of $12,400.97.  For such offering, the Company relied upon the 506
Exemption and the  Washington  Exemption.  See Part I, Item 1.  "Description  of
Business - (b) Business of Registrant - Employees and Consultants"; 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 March 2000, the Company executed a Promissory Note in favor of David
Meilahn  in the amount of twenty  one  thousand  nine  hundred  seventy  dollars
($21,970.00) at an interest rate of twelve percent (12%) per annum. The Note was
in exchange for monies lent by Mr. Meilahn to the Company  between 1995 and 1999
for working capital purposes.  The Note is payable on demand. For such offering,
the Company relied upon the 506 Exemption and the Washington Exemption. See Part
I, Item 1. "Description of Business - (b) Business of Registrant - Employees and
Consultants";  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

                                        5

<PAGE>



Beneficial Owners and Management"; and Part III, Item 12. "Certain Relationships
and Related Transactions".

         In March 2000, pursuant to the Company's Bylaws, a  vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy  was  filled  by Dr.  Robert J.  Janeczko  by an  affirmative  vote of a
majority of the remaining directors.  Dr. Janeczko shall serve until election by
the  shareholders  at the  2001  shareholders  meeting.  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".

         In March 2000, pursuant to the Company's Bylaws, a  vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy was filled by Don N. Jonas by an  affirmative  vote of a majority of the
remaining directors. Mr. Jonas shall serve until election by the shareholders at
the 2001  shareholders  meeting.  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".

         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.  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".

         In August  2000,  the Company  executed a  Promissory  Note in favor of
Elaine Meilahn in the amount of ten thousand six hundred dollars ($10,600) 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 the 506 Exemption
and the Washington Exemption. See Part I, Item 1. "Description of Business - (b)
Business  of  Registrant  -  Employees  and   Consultants";   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  2000,  the Company  entered into an Employment  Agreement
with  Richard J. Luce  ("Luce"),  to employ Luce as Vice  President of Sales and
Marketing.  The term of the  agreement  is for a period of four (4) years and is
automatically  renewable  for one (1) year.  Mr.  Luce's  annual  base salary is
ninety three thousand five hundred dollars  ($93,500.00) for the first year, one
hundred thousand forty five dollars  ($100,045) for the second year, one hundred
seven  thousand  forty eight  dollars  ($107,048)  for the third  year,  and one
hundred  fourteen  thousand  five hundred forty one dollars  ($114,541)  for the
fourth  year.  Luce will also  receive  commission  payments of one half percent
(0.5%) based on gross sales of the Company  products and an additional  one half
percent  (0.5%) for all direct sales by Luce.  Luce is also granted the right to
purchase up to one hundred thousand (100,000) shares of the Company's restricted
Common Stock at a price of four dollars ($4.00) per share.  Twenty-five  percent
(25%) of the options shall become vested on January 1, 2001,  and the  remaining

                                        6

<PAGE>



seventy-five  percent (75%) of the options shall become vested at the equal rate
of twenty-five  percent (25%) upon each successive one (1) year anniversary date
of  employment.  All vested  options  shall expire with three (3) years from the
date of vesting.  For such  offering,  the Company relied upon the 506 Exemption
and the Washington Exemption. 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".

         In November  2000, 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 the 506  Exemption  and the
Washington  Exemption.  See  Part I,  Item 1.  "Description  of  Business  - (b)
Business  of  Registrant  -  Employees  and   Consultants";   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 November 2000, the Company entered into a Consulting  Agreement with
Websters' Inc. The Consulting  Agreement  provides that the Company is to engage
Websters' Inc. as a registered professional engineering firm for the purposes of
performing the comprehensive design,  development and production of a functional
integrated  commercial  SARGO system,  and to provide  technical  support to the
installation of the resulting device into 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)  shares 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.  Payments for services in shares will be
presented as a certificate of the restricted  Common Stock on a quarterly  basis
upon approval of the Company's  Board of Directors.  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 be in the event that the stock tendered to Websters' Inc. is unable to
be sold in a  brokers'  transaction  after a period of one year from the date of
issue of the  certificate.  The  agreement  expires  December 1, 2002.  For such
offering,  the  Company  relied  upon  the  506  Exemption  and  the  Washington
Exemption.  See Part I, Item 1.  "Description  of  Business  - (b)  Business  of
Registrant  -  Employees  and  Consultants";  and 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 the 506 Exemption,  Section 4[5/4]S of the Illinois Code and
the Washington  Exemption.  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".

                                        7

<PAGE>



         The facts relied upon to make the Illinois Exemption applicable include
the  following:  (i) The offer,  sale or issuance was to a person who was or was
reasonably  believed to be a director,  executive officer, or general partner of
the issuer of the securities being offered or sold .

         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 the 506  Exemption  and the
Washington  Exemption.  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".

         In February  2001,  the Company hired Cary Grant as a consultant to the
Company.  As payment for such  services,  the Company  committed  to provide Mr.
Grant with 25,000 shares of its  unrestricted  Common Stock.  To date, no shares
have  been  issued  in  connection  with  this  agreement.  See Part I,  Item 1.
"Description   of  Business  -  (b)  Business  of  Registrant  -  Employees  and
Consultants";   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 the 506  Exemption  and the
Washington  Exemption.  See  Part I,  Item 1.  "Description  of  Business  - (b)
Business  of  Registrant  -  Employees  and   Consultants";   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".

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

         (b)      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 licensed
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.


                                        8

<PAGE>



         The Company's  independent certified public accountants have emphasized
a substantial doubt about the Company's ability to continue as a "going concern"
in their report on the Company's accompanying financial statements. Accompanying
financial  statements have been prepared assuming that the Company will continue
as a "going concern" and do not include any  adjustments  that might result from
the outcome of this  uncertainty.  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.

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.  Inasmuch  as
worldwide environmental  degradation of the oceans contributes to the decline of
marine life, overfishing 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.
During the 1980's and  1990's,  per  capita  seafood  consumption  in the United
States  has  also  steadily  increased.  Seafood  consumption  is  projected  by
management  to  continue  to  increase  in the coming  years.  Meanwhile,  world
population is growing exponentially annually.

          It is widely  known that  worldwide  commercial  fishing  yields  have
declined,  mostly due to extensive fishing by large-scale  industrial operations
and often in waters  that are  becoming  increasingly  polluted.  Catches in all
fishing grounds in the Atlantic and Pacific Oceans, as well as the Mediterranean
and Black  Seas,  are in  substantial  decline  with  hundreds  of fish  species
endangered or becoming extinct due to overfishing and the human caused pollution
of our global oceans.

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  decline of wild  catches  during the past  decade 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 finfish sea farms cultivate Salmon, Sea Bass
and Seabream. 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. Management expects the world aquaculture
production  to exceed fifty percent  (50%) of seafood  consumption  in the early
2000's. To meet that demand, management expects that world aquaculture will have
to increase production at least five-fold by the year 2025.



                                        9

<PAGE>



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 sq.  ft.) or fifty  feet  square (50 sq.  ft.) by
twenty feet (22 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.
     *    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

                                       10

<PAGE>



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.  One hundred percent (100%) of the solid fish waste and other organic
matter is collected for disposal in a waste  management  and optional  treatment
system.

         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

         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 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.
</TABLE>




                                       11



<PAGE>



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

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.

         The Company produced and installed a full-scale demonstration unit at a
pilot site in June 1996. The scope of the project at National  Marine  Fisheries
Service ("NMFS") was a pilot-scale test of a new concept in floating aquaculture
systems 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
tank 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 National
Marine  Fisheries  Service,  of the United  States  Department  of Commerce,  to
utilize  a  portion  their  existing  permit  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.

                                       12

<PAGE>



         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 were  installed in the test site unit in October 1996 with harvest
of the crop accomplished in August 1997. The  demonstration  unit performed very
effectively and beyond original expectations. The fish growth characteristics of
the  system  have been  verified  to exceed all  parameters.  As a result of the
demonstration unit, the economic model has been confirmed and updated. The pilot
was done as a comparison to a traditional  net-pen  system,  and the  comparison
results are approximated in the following table:


<TABLE>
<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
Red tide bloom:                                      zero mortality             $3 million loss
Predation:                                           zero loss                  40,000 fish lost
Escapement:                                          none                       300,000 Atlantic salmon escaped
</TABLE>

         Due to the results achieved to date,  several  environmental  groups in
the United States and Canada have contacted Mariculture. Recent lawsuits against
fish  farming  and the  endangered  species  issues have cited the need that the
aquaculture  industry must use the best currently available  technology to raise
fish.  These lawsuits have named  Mariculture's  SARGO technology as a basis for
comparison.

         In November 2000, the Company entered into a Consulting  Agreement with
Websters' Inc. The Consulting  Agreement  provides that the Company is to engage
Websters' Inc. as a registered professional engineering firm for the purposes of
performing the comprehensive design,  development and production of a functional
integrated  commercial  SARGO system,  and to provide  technical  support to the
installation of the resulting device into SARGO commercial fish rearing vessels.


                                       13

<PAGE>



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.  From the early 1980's to the early 1990's the
market grew tremendously. Management expects the world aquaculture production to
exceed fifty percent (50%) of seafood consumption in the early 2000's.

         To meet that demand,  management  expects that world  aquaculture  will
have to increase  production  at least  five-fold  by the year 2025.  Management
projects that the total  aquaculture  capital equipment market will grow to over
$8 billion by the year 2003, and that finfish aquaculture equipment will grow to
over $5 billion  by the end of 2003.  Mariculture  believes  it needs to capture
less than two percent (2%) of the total finfish  aquaculture  capital  equipment
market to meet its projections.

         Tremendous  marketing  opportunities  continue  to  develop  for  SARGO
throughout the world as extraordinary  political  pressures intensify to address
endangerment  and extinction of various finfish  species.  In Japan,  where food
resource  security is a high government  priority,  the government has set up an
incentive  funding program to subsidize fish farms that invest in  environmental
technology.

         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.



                                       14

<PAGE>



         Marketing's  initial  objective  was  to  build  a SARGO pilot facility
installation.  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.

         Mariculture  will  market  its  state-of-the-art   SARGO  fish  rearing
technology based on its' superior return on investment results and environmental
design versus traditional means, Mariculture's customer service and a guaranteed
yield.

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.

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 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  systems  can be sold with an  industry  precedent
setting limited warranty,  conditionally guaranteeing a specific fish crop yield
minimum. This fish crop yield number is expected to be a conservative total fish
volume which,  however,  is a noteworthy  improvement  over  traditional net pen
yields and well within SARGO  technology  yield  potential.  The warranted total
fish volume would be  documented  in a performance  based  contract  between the
Company  and its  customers.  Both  parties  are  expected  to agree to  provide
specific farm  functions  whose results are to be  cooperatively,  periodically,
measured and documented so as to maximize desired results. The

                                       15

<PAGE>



Company  knows of no other  supplier  of  aquaculture  systems  that  offers its
customers a warrantee on the amount of yield the system will produce. Currently,
the  Company  does not  have any  warranty  contracts  in place  with any of its
customers.  If the  purchaser  desires,  the  Company  will  negotiate  with the
individual purchaser,  the terms of which would be defined at each circumstance.
The Company will report any such contracts upon entering into them.

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 and so the negative  environmental
impact is not an issue. However, the moratorium still inhibits the possibilities
of some new installations,  but this does not impact the "retro-fitting," or 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.


                                       16

<PAGE>



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 months to begin  fabrication and
installation.  Installation  of a basic system would  normally be expected to be
complete  within six months from date of order.  A basic  system is sold as four
(4) tanks, a service module with emergency power, water handling pumps and basic
oxygenation controls.

          Mariculture  has no other  products at this time.  The expected  sales
price of a basic SARGO installation in the US would be approximately $1,500,000.

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.


                                       17

<PAGE>



         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.

         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 (1) of the ten (10) 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 start up 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.

                                       18

<PAGE>



         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 complete  effectively against such
competitors in the future.

SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS

         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.

INTELLECTUAL PROPERTY

         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."

         The Company intends to protect the 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 December  1998,  a License  Agreement  was entered  into between the
Company  and David  Meilahn,  whereby  Meilahn  assigned  a license to utilize a
patent to a proprietary  fish farming  technology.  The  agreement  provides the
Company with license  rights to Mr.  Meilahn's  intellectual  property,  and the
Company will in turn develop,  manufacture and install products derived from the
technology. In consideration of the grant of license by Mr. Meilahn, the Company
agreed  to pay a one time fee in the  amount  of two  hundred  thousand  dollars
($200,000)  in  December  1999,  which has not yet been paid,  and  additionally
agreed to pay a quarterly  royalty  payment of three percent (3%) of total sales
of  Licensed  Technology  Products  from the  agreement  date  until  the  final
abandonment,  expiration,  or invalidation of the last remaining  patent rights.
Since the agreed upon fee for such license has not yet been paid to Mr. Meilahn,
he therefore  retains the right to pull the grant of his license at any time. As
an  officer to the  Company,  Mr.  Meilahn  has not yet pulled the grant to this
license,  and has  indicated  that he does not intend to do so. In the event Mr.
Meilahn does pull the grant to his license,  the company would no longer be able
to sell any  products  related  to his  license.  There  are  other  aquaculture
products,  equipment  and  services  that  the  Company  would  still be able to
provide, but the Company would have to revise its direction and product line.

                                       19

<PAGE>



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 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.

RESEARCH & DEVELOPMENT

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

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, 2000,  the Company  employed five (5) persons,  two (2)
full time, two (2)

                                       20

<PAGE>



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 March 2000,  the Company  issued  250,000  shares of its  restricted
Common Stock to Donald  Mintmire in connection with his legal services on behalf
of the Company.  The shares were issued  pursuant to Section 3(b),  Rule 701 and
the Florida Exemption. See Part III, Item 12. "Certain Relationships and Related
Transactions".

         In March  2000,  the  Company  executed a  Promissory  Note in favor of
Elaine  Meilahn,  in the  amount  of  fourteen  thousand  four  hundred  dollars
($14,400) at an interest rate of twelve percent (12%) per annum. The Note was in
exchange for monies lent by Ms. Meilahn to the Company between 1995 and 2000 for
working  capital  purposes.  The Note was payable on demand.  In April 2000,  by
mutual  agreement of the parties,  the Company  cancelled  the March note due to
certain  inaccuracies in the note. It was replaced by a note dated April 3, 2001
in the amount of $12,400.97.  For such offering, the Company relied upon the 506
Exemption  and the  Washington  Exemption.  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 March 2000, the Company executed a Promissory Note in favor of David
Meilahn  in the amount of twenty  one  thousand  nine  hundred  seventy  dollars
($21,970.00) at an interest rate of twelve percent (12%) per annum. The Note was
in exchange for monies lent by Mr. Meilahn to the Company  between 1995 and 1999
for working capital purposes.  The Note is payable on demand. For such offering,
the Company relied upon the 506 Exemption and the Washington Exemption. 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 March 2000, pursuant to the Company's Bylaws, a  vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy  was  filled  by Dr.  Robert J.  Janeczko  by an  affirmative  vote of a
majority of the remaining directors.  Dr. Janeczko shall serve until election by
the  shareholders  at the 2001  shareholders  meeting.  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 March 2000, pursuant to the Company's Bylaws, a  vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy was filled by Don N. Jonas by an  affirmative  vote of a majority of the
remaining directors. Mr. Jonas shall serve until election by the shareholders at
the 2001 shareholders meeting. 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 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

                                       21

<PAGE>



attendance at quarterly board meetings.  The Company will also reimburse  direct
travel  expenses  presented by each member of the board.  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  2000,  the Company  executed a  Promissory  Note in favor of
Elaine Meilahn in the amount of ten thousand six hundred dollars ($10,600) 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 the 506 Exemption
and the Washington Exemption.  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 2000, the Company entered into an Employment  Agreement to
employ Luce as Vice President of Sales and Marketing.  The term of the agreement
is for a period  of four (4) years and is  automatically  renewable  for one (1)
year.  Mr.  Luce's  annual base salary is ninety  three  thousand  five  hundred
dollars ($93,500.00) for the first year, one hundred thousand forty five dollars
($100,045)  for the second year,  one hundred seven thousand forty eight dollars
($107,048)  for the third year, and one hundred  fourteen  thousand five hundred
forty one  dollars  ($114,541)  for the  fourth  year.  Luce  will also  receive
commission  payments  of one half  percent  (0.5%)  based on gross  sales of the
Company  products and an additional one half percent (0.5%) for all direct sales
by Luce.  Luce is also granted the right to purchase up to one hundred  thousand
(100,000)  shares of the  Company's  restricted  Common Stock at a price of four
dollars ($4.00) per share. Twenty-five percent (25%) of the options shall become
vested on January 1, 2001, and the remaining  seventy-five  percent (75%) of the
options shall become vested at the equal rate of twenty-five  percent (25%) upon
each successive one (1) year anniversary date of employment.  All vested options
shall expire with three (3) years from the date of vesting.  For such  offering,
the Company relied upon the 506 Exemption and the Washington Exemption. 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 November  2000, 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 the 506  Exemption  and the
Washington Exemption.  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 November 2000, the Company entered into a Consulting  Agreement with
Websters' Inc. The Consulting  Agreement  provides that the Company is to engage
Websters' Inc. as a registered professional engineering firm for the purposes of
performing the comprehensive design,  development and production of a functional
integrated  commercial  SARGO system,  and to provide  technical  support to the
installation of the resulting device into SARGO commercial fish rearing

                                       22

<PAGE>



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) shares 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.  Payments for services in shares will be
presented as a certificate of the restricted  Common Stock on a quarterly  basis
upon approval of the Company's  Board of Directors.  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 be in the event that the stock tendered to Websters' Inc. is unable to
be sold in a  brokers'  transaction  after a period of one year from the date of
issue of the  certificate.  The  agreement  expires  December 1, 2002.  For such
offering,  the  Company  relied  upon  the  506  Exemption  and  the  Washington
Exemption.   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 the 506 Exemption,  Section 4[5/4]S of the Illinois Code and
the  Washington  Exemption.  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  relied upon the 506  Exemption  and the
Washington Exemption.  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 hired Cary Grant as a consultant to the
Company.  As payment for such  services,  the Company  committed  to provide Mr.
Grant with 25,000 shares of its  unrestricted  Common Stock.  To date, no shares
have been  issued in  connection  with this  agreement.  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 the 506  Exemption  and the
Washington Exemption.  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".

                                       23

<PAGE>



Item 2. Description of Property

         The Company has been located in offices at 2504  Hartford  Drive,  Lake
Stevens,  Washington,  98258, since November 1998. Mail service is provided only
through  Post  Office Box 968 in Lake  Stevens.  Its  telephone  number is (425)
397-0409, and its facsimile number is (425) 672-8012.

         The Company's  headquarters  are owned by Sanford  Tager,  president of
Methow Valley  Excavating,  Inc. and have been provided gratis for an indefinite
period of time in exchange for past  renovation  services  and ongoing  computer
services.

        The office space  consists of 360 square feet.  The  facilities  provide
enough space to support current operations.  Therefore,  Mariculture anticipates
the necessity to move its headquarters when additional personnel are engaged. At
this time,  Mariculture  has no  further  obligation  to Mr.  Tager or to Methow
Valley Excavating, Inc.

         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 2000  fiscal  year ended  December  31,  2000,  covered by this
report.

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.

                                       24

<PAGE>



         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.

         As of December  31,  2000,  the Company  had  10,564,147  shares of its
Common Stock issued and outstanding, 9,187,591 of which were restricted Rule 144
shares  and  1,376,556  of which  were  free-trading.  Of the  Rule 144  shares,
7,133,048  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.

                                       25

<PAGE>



         The Company is a  development  stage  enterprise.  The Company has only
recently begun marketing the SARGO system and has not yet sold any units. 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.

         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 increase
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,
1999

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 spent
approximately  $499,380 on general and  administrative  expenses.  For the years
ended  December  31, 1999 and  December  31,  2000,  general and  administrative
expenses  were $9,820 and  $158,429  respectively.  The  increase in expenses is
primarily related to legal expenses in the amount of $80,000, salary expenses to
Richard  Luce in the  amount of $33,667  and  audit/accounting  expenses  in the
amount of  $20,585.  The Company  expects  continuously  increasing  general and
administrative expenses as it continues to expand its operations.


                                       26

<PAGE>



Assets and Liabilities

         Assets were $63,231 as of December  31, 2000,  and $57,802 for the year
ended December 31, 1999. As of December 31, 2000, assets consisted  primarily of
test facility equipment, with a combined net book value of $55,429.  Liabilities
were  $498,883  and  $338,855 as of  December  31,  2000 and  December  31, 1999
respectively.  As of December  31,  2000,  liabilities  consisted  primarily  of
accounts payable-trade in the amount of $252,316.

Stockholders' Deficit

         Stockholders'  deficit  was  ($435,652)  as of  December  31,  2000 and
($281,053) as of December 31, 1999.

Financial Condition, Liquidity and Capital Resources

         At  December  31, 2000 the  Company  had cash and cash  equivalents  of
$7,232 as compared to $2,373 as of December 31, 1999.

         In March  2000,  the  Company  executed a  Promissory  Note in favor of
Elaine  Meilahn,  in the  amount  of  fourteen  thousand  four  hundred  dollars
($14,400) at an interest rate of twelve percent (12%) per annum. The Note was in
exchange for monies lent by Ms. Meilahn to the Company between 1995 and 2000 for
working  capital  purposes.  The Note was payable on demand.  In April 2000,  by
mutual  agreement of the parties,  the Company  cancelled  the March note due to
certain  inaccuracies in the note. It was replaced by a note dated April 3, 2001
in the amount of $12,400.97.  For such offering, the Company relied upon the 506
Exemption  and the  Washington  Exemption.  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 March 2000, the Company executed a Promissory Note in favor of David
Meilahn  in the amount of twenty  one  thousand  nine  hundred  seventy  dollars
($21,970.00) at an interest rate of twelve percent (12%) per annum. The Note was
in exchange for monies lent by Mr. Meilahn to the Company  between 1995 and 1999
for working capital purposes.  The Note is payable on demand. For such offering,
the Company relied upon the 506 Exemption and the Washington Exemption. 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  2000,  the Company  executed a  Promissory  Note in favor of
Elaine Meilahn in the amount of ten thousand six hundred dollars ($10,600) 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 the 506 Exemption
and the Washington Exemption.  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  November  2000, 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

                                       27

<PAGE>



Note is payable on demand.  For such  offering,  the  Company  relied on the 506
Exemption  and the  Washington  Exemption.  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 the 506  Exemption  and the
Washington Exemption.  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.

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.

                                       28

<PAGE>



                       Financial Statements and Report of
                    Independent Certified Public Accountants

                            MARICULTURE SYSTEMS, INC.
                          (A development stage company)

                           December 31, 2000 and 1999




<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>




               Report of Independent Certified Public Accountants
    ------------------------------------------------------------------------


Board of Directors
Mariculture Systems, Inc.


We have audited the accompanying balance sheet of MariCulture Systems, Inc. (The
Company  and a  development  stage  company) as of December  31,  2000,  and the
related statement of operations,  stockholders'  deficit, and cash flows for the
year ended December 31, 2000. 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. as of December 31, 1999 and for the year then ended,
including  cumulative results of operations,  statement of stockholders'  equity
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 audit 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  audit  provides  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, 2000,  and the results of its  operations and its cash flows for
the year 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 not B to the financial
statements, the Company has suffered recurring losses from operations and has an
accumulated  deficit of  $1,192,416  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
March 2, 2001



                                       F-3

<PAGE>


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

                                 BALANCE SHEETS
                                  December 31,



ASSETS                                                             2000             1999
                                                                --------------  --------------
<S>                                                             <C>             <C>
CURRENT ASSETS
Cash                                                            $        7,232  $        2,373
Receivable                                                                 570              -
                                                                --------------  --------------

Total current assets                                                     7,802           2,373
TEST FACILITY EQUIPMENT, at salvage value                               55,429          55,429
                                                                --------------  --------------

Total assets                                                    $       63,231  $       57,802
                                                                ==============  ==============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Notes payable - related party                                   $       97,296  $        78,765
Notes payable - other                                                   10,000           10,000
Accounts payable - trade                                               252,316          158,874
Accounts payable - related party                                        23,695           18,016
Payables to stockholders                                                17,500           26,200
Accrued liabilities                                                     34,267               -
Accrued interest                                                        63,809           47,000

Total current liabilities                                              498,883          338,855
                                                                --------------  ---------------

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             10,314           10,285
Additional paid-in capital                                             746,450          725,849
Accumulated development stage deficit                              (1,192,416)      (1,017,187)
                                                                --------------  ---------------

Total stockholders' deficit                                          (435,652)        (281,053)
                                                                --------------  ---------------

Total liabilities and stockholders' deficit                     $       63,231  $        57,802
                                                                ==============  ===============
</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
                                        2000             1999                   (August 25, 1994)
                                     -------------    --------------            -----------------
<S>                                  <C>              <C>                       <C>
OPERATING EXPENSES
General and administrative           $     158,429    $        9,820            $      499,380
Research and development                        -              3,851                   629,289
                                     -------------    --------------            ---------------

Total operating expenses                   158,429            13,671                 1,128,669
                                     -------------    --------------            ---------------

NET LOSS FROM OPERATIONS                  (158,429)          (13,671)               (1,128,669)

INTEREST INCOME                                  9                -                      7,200

INTEREST EXPENSE                           (16,809)          (13,000)                  (70,947)

NET LOSS                             $    (175,229)   $      (26,671)           $   (1,192,416)
                                     =============    ==============            ===============

LOSS PER COMMON SHARE -
BASIC AND DILUTED                    $       (0.02)   $       (0.003)           $       (0.14)
                                     =============    ==============            ==============
</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, 2000


                                                           Common Stock         Additional     Accumulated
                                                     -----------------------     paid-in       development
                                                       Shares       Amount       capital      stage deficit        Total
                                                     ------------ ----------    -----------   --------------     -----------
<S>                                                  <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 founders in 1995            8,213,080      8,212        (8,212)

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

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

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

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

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

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

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

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

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

Net loss since inception through December 31, 1999                                               (1,017,187)      (1,017,187)
                                                     ------------ ----------    -----------   --------------     -----------

Balance at December 31, 1999                           10,284,817     10,285        725,849      (1,017,187)        (281,053)

Issuance of 17,400 common stock shares for services
on January 20, 2000                                        17,400         17          8,683               -            8,700

Issuance of 11,930 common stock shares for services
on February 29, 2000                                       11,930         12         11,918               -           11,930

Issuance of shares into escrow on March 21, 2000          250,000         -              -                -               -

Net loss for the year ended December 31, 2000                  -          -              -         (175,229)        (175,229)
                                                     ------------ ----------    -----------   --------------     -----------

Balance at December 31, 2000                           10,564,147 $   10,314    $   746,450   $  (1,192,416)     $  (435,652)
                                                     ============ ==========    ===========   ==============     ===========
</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
                                                                   2000             1999          (August 25, 1994)
                                                               -------------    ------------     ------------------
<S>                                                            <C>              <C>              <C>
Increase (Decrease) in Cash
Cash flows from operating activities
     Net loss                                                  $    (175,229)   $    (26,671)    $       (1,192,416)
     Adjustments to reconcile net loss to net cash used in
     operating activities:
         Issuance of common stock for services                        20,630               -                113,375
         Depreciation and write down of test facility                      -               -                441,892
         Changes in assets and liabilities
             Accounts receivable                                        (570)              -                   (570)
             Payables to shareholders                                 (8,700)              -                 (8,700)
             Accounts payable and accrued liabilities                150,197          21,873                370,070
                                                               -------------    ------------     ------------------

                 Net cash used in operating activities               (13,672)         (4,798)              (276,349)

Cash flows from investing activities
                                                                           -          (2,929)              (497,321)
                                                               -------------    ------------     ------------------

                 Net cash used in investing activities                     -          (2,929)              (497,321)

Cash flows from financing activities
     Proceeds from notes payable                                      18,531           7,950                111,313
     Proceeds from sale of common stock                                    -           2,000                643,389
     Proceeds from unissued shares                                         -               -                 26,200
                                                               -------------    ------------     ------------------

                 Net cash provided by financing activities            18,531           9,950                780,902

Net increase in cash                                                   4,859           2,223                  7,232

Cash at beginning of period                                            2,373             150                      -
                                                               -------------    ------------     ------------------

Cash at end of period                                          $       7,232    $      2,373     $            7,232
                                                               =============    ============     ==================

Noncash financing activities
                                                               $       8,700    $     30,000     $           38,700
                                                               =============    ============     ==================
</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, 2000 and 1999

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 has filed a Form 10-SB
with the SEC on September 13, 2000,  and the Company is currently in the process
of answering SEC comments.

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

1.   Cash and Cash Equivalents

For purpose of the  statement of cash flows,  the Company  considers  all highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.

2.   Research and Development

Research and development (R&D) costs are expensed as incurred.

3.   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.

4.   Fair Value of Financial Instruments

The carrying amounts of cash,  receivables,  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.

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  10,521,486  for 2000,  10,268,817  for 1999 and 8,616,658 from
inception  through  December 31, 2000.  Diluted loss per share is not  presented
because the effect would be anti-dilutive.  At December 31, 2000 and 1999, there
were no common stock equivalents outstanding.


                                       F-8

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

6.   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.

7.   Reclassifications

Certain  reclassifications  of the  prior  year  information  have  been made to
conform to the current year classifications.


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
$1,192,416 at December 31, 2000. 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 and United States governmental agencies and
aquaculturists to establish  demonstration  sites for its SARGO(TM)  technology.
These  demonstration  sites  will  be  fully  operating  farms  with  agreements
permitting use by the Company's sales,  marketing,  and research and engineering
departments.  The  tentative  site  locations are on the West Coast of Vancouver
Island,  British Columbia,  and on the East Coast in the New England States. The
Company  expects  that one or both of these sites will be  operational  in 2001.
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.








                                       F-9

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE B - MANAGEMENT PLANS - Continued

The Company plans to obtain partial  financing through the sale of up to 100,000
shares of restricted  stock issued prior to completion of the SEC  registration.
Additional  financing is expected to be obtained  through the sale of registered
securities  after  approval by the SEC. 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 has received
notification  from  several  potential  investors  that they are  interested  in
investing in the Company upon the  Company's  successful  registration  with the
SEC.


NOTE C - PATENTS AND LICENSES

On December  21,  1998 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[TM].   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 3% of gross sales on
systems  sold by the  Company.  If the  payment  was not made by the date of the
agreement the agreement would be suspended for up to two years until payment was
made. This agreement  terminated on December 21, 2000, as the Company was unable
to make a payment per the  agreement.  Subsequent  to  December  31,  2000,  the
Company entered into a negotiation of a new patent agreement.  See note K(2) for
additional information.


NOTE D - NOTE PAYABLE

The Company has $10,000 in unpaid  principal  balance on a note  payable  from a
third  party.  This note  accrues  500  shares  of stock a month for any  unpaid
balance in lieu of interest.  As of December 31, 2000 and 1999,  the Company had
accrued  23,500 and 17,500  shares  respectively,  which was recorded as accrued
interest of $23,500 and $17,500 as of December 31, 2000 and 1999,  respectively.
This note originally had a maturity date of August 1997,  which was not met. The
note is currently due on demand and the Company is liable for legal  expenses of
the lender if legal action for payment is pursued.


NOTE E - STOCKHOLDERS' LOANS AND RELATED PARTY PAYABLES

As of December 31, 1999, the Company had $78,765 in unpaid principal balances on
six related party notes payable.  Of this amount,  $31,371 was borrowed from the
Company's  president and his spouse.  The remaining  $47,394 was borrowed from a
former  employee  and current  stockholder.  During the year ended  December 31,
2000, the Company  borrowed an additional  $18,531 from the president's  spouse.
The notes totaled  $97,296 as of December 31, 2000 and have a 10% interest rate.
Three of the notes to the former employee stipulated  repayment dates, which the
Company  defaulted on. Per the note agreements,  the Company is liable for legal
expenses of the former  employee if he should pursue legal action to collect the
notes.  Two of these notes contain a clause were the Company is required to make
payments from up to 15% of the proceeds  received by the Company from financings
or sales.  Currently,  all notes are due on demand.  Accrued  interest  on these
notes   totaled   $40,309  and  $29,500  as  of  December  31,  2000  and  1999,
respectively.


                                      F-10

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE E - STOCKHOLDERS' LOANS AND RELATED PARTY PAYABLES

The  Company  has  related  party  payables  totaling  $23,695 and $18,016 as of
December  31, 2000 and 1999,  respectively.  These  amounts  represent  expenses
incurred by stockholders and employees to be reimbursed by the Company.


NOTE F - 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, 2000 and 1999,  the Company had
payables to stockholders for $17,500 and $26,200, respectively.


NOTE G - SHARES IN ESCROW

The Company  entered into a verbal  agreement with  corporate  counsel in which,
250,000  shares of  restricted  common  stock were  issued into escrow for legal
services.  Once these shares become freely trading,  the attorneys will sell the
stock and apply all proceeds against outstanding  payables to the attorneys.  As
of December 31, 2000 and 1999,  the  outstanding  payables to the attorneys were
$80,000 and $0, respectively.


NOTE H - 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  $1,280,000  expiring  from  2009 to 2019 is  available  to offset
future taxable income. For financial reporting  purposes,  a valuation allowance
of $462,900 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 $59,500 from the allowance recorded at December 31, 1999.





                                      F-11

<PAGE>



                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE H - INCOME TAXES - Continued

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>
<S>                                                     <C>                <C>
                                                           2000                1999
                                                        ---------------    --------------
Deferred tax assets:
Net operating loss carryforward                         $      361,200     $     329,800
Amortization and depreciation                                    5,400            10,700
Accrued salaries                                                11,700                 -
Accrued interest payable                                        21,700                 -
Research and experimentation credit carryforward                62,900            62,900
Valuation allowance                                           (462,900)         (403,400)
                                                        ---------------    --------------
                                                        $            -     $           -
                                                        ===============    ==============
</TABLE>

The income tax benefit  reconciled to the tax computed at the statutory  federal
rate were as follows for the year ended December 31, 2000:

<TABLE>
<S>                                            <C>
Tax benefit at statutory rate                  $   (59,600)
Miscellaneous non-deductible items                     100
Other                                                    -
Valuation allowance                                 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 I - 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.





                                      F-12

<PAGE>


                            MariCulture Systems, Inc.
                          (A development stage company)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE I - COMMITMENTS - Continued

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
300 shares for both the third and fourth quarters of 2000 subsequent to December
31, 2000.


NOTE J - STOCK OPTIONS

The Company has not established a formal Stock Option Plan.  However, a total of
100,000  options for  purchase of common  stock of the Company was 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>
<S>                                                         <C>
                                                               Year ended
                                                            December 31, 2000
                                                            ------------------
Outstanding at beginning of year                                         -
Granted at $4.00 per share                                         100,000
Exercised                                                                -
Forfeited or canceled                                                    -
Expired                                                                  -
Outstanding at the end of the year                                 100,000
                                                            ===============

Weighted-average options exercise price per share           $         4.00
Weighted-average fair value of stock options issued         $          .02
Options exercisable                                                      -
</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 and volatility of
25%, and  expected  life of seven  years.  Due to no options  being vested as of
December 31, 2000, there is no pro forma effect related to outstanding options.



                                      F-13

<PAGE>


                            MariCulture Systems, Inc.
                          (A development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE K - SUBSEQUENT EVENTS

1.   Consulting Agreements

The Company  entered into two consulting  agreements  subsequent to December 31,
2000. One agreement is for  engineering  services and technical  support for the
construction  of the Company's  product.  The consultant is to be paid in common
stock  at a rate of 100  shares  for  each  hour of  service  performed  through
December 1, 2002.  On January 2, 2001,  the Company  authorized  the issuance of
1,000 shares as a deposit for services.

On February 13, 2001,  the Company  authorized  the issuance of 25,000 shares as
payment for public  relations  services to be  rendered  by an  unrelated  third
party.

2.   Patent and License Agreement

The Company is in the process of  formulating a new agreement with the Company's
president for the purchase of the patent for the "aquaculture  system" currently
marketed under SARGO[TM]. The agreement will require an up-front payment for the
purchase  of the patent and then  royalty  payments on  subsequent  sales of the
system.

3. Payment of Payroll Liability

In January  2001,  the Company  issued  31,167  shares to a Company  employee in
satisfaction of accrued wages owed to the employee at December 31, 2000.

4. Note Payable

On February 8, 2001,  the Company  executed a note  payable to the spouse of the
Company's  president in the amount of $5,000.  The note is payable on demand and
bears an interest rate of 12% per annum.


                                      F-14







<PAGE>



                                    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.

Name                      Age         Position(s) with Company
---------------           ----        ------------------------------
David Meilahn             61          President, Secretary, Treasurer, Chairman

Richard Luce              41          Vice President, Sales & Marketing

Robert Janeczko           60          Director

Don Jonas                 59          Director

         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 61,  currently  serves as President,  Secretary,
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 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 41, currently serves as Vice President,  Sales and
Marketing.  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.


                                       43

<PAGE>



         Dr. Robert J.  Janeczko,  age 60,  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 59, 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.

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
Secretary,      1999    $0
Treasurer       2000    $0                                                             200
and
Chairman(2)
(3)(7)(9)(10)
(11)

Richard         1996    $0
Luce, V.P.,     1997    $0
Sales &         1998    $0
Marketing(8)    1999    $0
(12)            2000    $0                  31,167                          100,000

Robert          1996    $0
Janeczko,       1997    $0
Director(4)     1998    $0
(11)            1999    $0
                2000    $0                                                             200
</TABLE>


                                       44

<PAGE>


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

Don Jonas,     1996    $0
Director(5)    1997    $0
(11)           1998    $0
               1999    $0
               2000    $0                                                              200
------------------------------------
</TABLE>

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

(2)  In March 2000,  the Company  executed a Promissory  Note in favor of Elaine
     Meilahn,  in the amount of fourteen thousand four hundred dollars ($14,400)
     at an  interest  rate of twelve  percent  (12%) per annum.  The Note was in
     exchange  for monies lent by Ms.  Meilahn to the Company  between  1995 and
     2000 for working capital purposes. The Note was payable on demand. In April
     2000, by mutual agreement of the parties,  the Company  cancelled the March
     note due to certain  inaccuracies  in the note.  It was  replaced by a note
     dated April 3, 2001 in the amount of  $12,400.97.  For such  offering,  the
     Company  relied upon the 506 Exemption and the  Washington  Exemption.  See
     Part III, Item 11.  "Security  Ownership of Certain  Beneficial  Owners and
     Management";  and Part III,  Item 12.  "Certain  Relationships  and Related
     Transactions".

(3)  In March 2000,  the Company  executed a  Promissory  Note in favor of David
     Meilahn in the amount of twenty one thousand nine hundred  seventy  dollars
     ($21,970.00)  at an interest rate of twelve  percent  (12%) per annum.  The
     Note was in exchange for monies lent by Mr. Meilahn to the Company  between
     1995 and 1999 for working capital purposes.  The Note is payable on demand.
     For such  offering,  the  Company  relied  upon the 506  Exemption  and the
     Washington Exemption. See Part III, Item 11. "Security Ownership of Certain
     Beneficial  Owners  and  Management";  and  Part  III,  Item  12.  "Certain
     Relationships and Related Transactions".

(4)  In March 2000,  pursuant to the Company's  Bylaws, a vacancy was created in
     the Board of Directors by an increase in the number of the  directors.  The
     vacancy was filled by Dr.  Robert J. Janeczko by an  affirmative  vote of a
     majority  of the  remaining  directors.  Dr.  Janeczko  shall  serve  until
     election by the  shareholders at the 2001  shareholders  meeting.  See Part
     III,  Item  11.  "Security  Ownership  of  Certain  Beneficial  Owners  and
     Management";  and Part III,  Item 12.  "Certain  Relationships  and Related
     Transactions".

(5)  In March 2000,  pursuant to the Company's  Bylaws, a vacancy was created in
     the Board of Directors by an increase in the number of the  directors.  The
     vacancy was filled by Don N. Jonas by an affirmative  vote of a majority of
     the  remaining  directors.  Mr.  Jonas shall  serve  until  election by the
     shareholders  at the 2001  shareholders  meeting.  See Part  III,  Item 11.
     "Security Ownership of Certain Beneficial Owners and Management";  and Part
     III, Item 12. "Certain Relationships and Related Transactions".

(6)  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. See Part III, Item 11. "Security  Ownership of
     Certain Beneficial Owners and Management";  and Part III, Item 12. "Certain
     Relationships and Related Transactions".

(7)  In August 2000, the Company  executed a Promissory  Note in favor of Elaine
     Meilahn in the amount of ten thousand six hundred  dollars  ($10,600) at an
     interest rate of twelve percent

                                       45

<PAGE>



     (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 the 506  Exemption  and the  Washington
     Exemption. See Part III, Item 11. "Security Ownership of Certain Beneficial
     Owners and Management";  and Part III, Item 12. "Certain  Relationships and
     Related Transactions".

(8)  In September  2000,  the Company  entered into an  Employment  Agreement to
     employ  Luce as Vice  President  of Sales  and  Marketing.  The term of the
     agreement is for a period of four (4) years and is automatically  renewable
     for one (1) year.  Mr. Luce's  annual base salary is ninety three  thousand
     five hundred dollars  ($93,500.00) for the first year, one hundred thousand
     forty five  dollars  ($100,045)  for the second  year,  one  hundred  seven
     thousand forty eight dollars ($107,048) for the third year, and one hundred
     fourteen thousand five hundred forty one dollars  ($114,541) for the fourth
     year. Luce will also receive commission payments of one half percent (0.5%)
     based on gross sales of the Company  products  and an  additional  one half
     percent (0.5%) for all direct sales by Luce. Luce is also granted the right
     to purchase up to one hundred  thousand  (100,000)  shares of the Company's
     restricted  Common  Stock at a price of four  dollars  ($4.00)  per  share.
     Twenty-five  percent (25%) of the options shall become vested on January 1,
     2001,  and the  remaining  seventy-five  percent (75%) of the options shall
     become  vested at the equal  rate of  twenty-five  percent  (25%) upon each
     successive one (1) year anniversary date of employment.  All vested options
     shall  expire  with  three (3)  years  from the date of  vesting.  For such
     offering,  the Company  relied upon the 506  Exemption  and the  Washington
     Exemption. See Part III, Item 11. "Security Ownership of Certain Beneficial
     Owners and Management";  and Part III, Item 12. "Certain  Relationships and
     Related Transactions".

(9)  In November 2000, 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 the 506 Exemption and the
     Washington Exemption. See Part III, Item 11. "Security Ownership of Certain
     Beneficial  Owners  and  Management";  and  Part  III,  Item  12.  "Certain
     Relationships and Related Transactions".

(10) 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 the 506 Exemption and the
     Washington Exemption. See Part III, Item 11. "Security Ownership of Certain
     Beneficial  Owners  and  Management";  and  Part  III,  Item  12.  "Certain
     Relationships and Related Transactions".

(11) 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 the 506 Exemption, Section 4[5/4]S of the
     Illinois  Code  and the  Washington  Exemption.  See  Part  III,  Item  11.
     "Security Ownership of Certain Beneficial Owners and Management";  and Part
     III, Item 12. "Certain Relationships and Related Transactions".

(12) 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 the 506 Exemption and
     the Washington  Exemption.  See Part III, Item 11.  "Security  Ownership of
     Certain Beneficial Owners and Management";  and Part III, Item 12. "Certain
     Relationships and Related Transactions".

                                       46

<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, 2000,
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>                     <C>
David Meilahn(1)(2)(3)(7)      Common         2,365,960               22.4%
(9)(10)(11)

Robert Work (1)                Common         2,226,421               21.1%

William Evans(1)               Common         2,033,615               19.3%

Mark Kruschwitz (1)            Common           629,191                6.0%

Richard Luce (1)(8)(12)        Common                 0                0.0%

Robert Janeczko(1)(4)(11)      Common                 0                0.0%

Don Jonas (1)(5)(11)           Common                 0                0.0%

All Executive Officers and     Common         2,365,960               22.4%
Directors as a Group
(four (4) persons)
-----------------------------
</TABLE>

(1)  The address for each of the above is c/o  Mariculture  Systems,  Inc., P.O.
     968, Lake Stevens, WA, 98258.

(2)  In March 2000,  the Company  executed a Promissory  Note in favor of Elaine
     Meilahn,  in the amount of fourteen thousand four hundred dollars ($14,400)
     at an  interest  rate of twelve  percent  (12%) per annum.  The Note was in
     exchange  for monies lent by Ms.  Meilahn to the Company  between  1995 and
     2000 for working capital purposes. The Note was payable on demand. In April
     2000, by mutual agreement of the parties,  the Company  cancelled the March
     note due to certain  inaccuracies  in the note.  It was  replaced by a note
     dated April 3, 2001 in the amount of  $12,400.97.  For such  offering,  the
     Company  relied upon the 506 Exemption and the  Washington  Exemption.  See
     Part III, Item 12. "Certain Relationships and Related Transactions".


                                       47

<PAGE>



(3)  In March 2000,  the Company  executed a  Promissory  Note in favor of David
     Meilahn in the amount of twenty one thousand nine hundred  seventy  dollars
     ($21,970.00)  at an interest rate of twelve  percent  (12%) per annum.  The
     Note was in exchange for monies lent by Mr. Meilahn to the Company  between
     1995 and 1999 for working capital purposes.  The Note is payable on demand.
     For such  offering,  the  Company  relied  upon the 506  Exemption  and the
     Washington  Exemption.  See Part III, Item 12. "Certain  Relationships  and
     Related Transactions".

(4)  In March 2000,  pursuant to the Company's  Bylaws, a vacancy was created in
     the Board of Directors by an increase in the number of the  directors.  The
     vacancy was filled by Dr.  Robert J. Janeczko by an  affirmative  vote of a
     majority  of the  remaining  directors.  Dr.  Janeczko  shall  serve  until
     election by the  shareholders at the 2001  shareholders  meeting.  See Part
     III, Item 12. "Certain Relationships and Related Transactions".

(5)  In March 2000,  pursuant to the Company's  Bylaws, a vacancy was created in
     the Board of Directors by an increase in the number of the  directors.  The
     vacancy was filled by Don N. Jonas by an affirmative  vote of a majority of
     the  remaining  directors.  Mr.  Jonas shall  serve  until  election by the
     shareholders  at the 2001  shareholders  meeting.  See Part  III,  Item 12.
     "Certain Relationships and Related Transactions".

(6)  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. See Part III, Item 12. "Certain  Relationships
     and Related Transactions".

(7)  In August 2000, the Company  executed a Promissory  Note in favor of Elaine
     Meilahn in the amount of ten thousand six hundred  dollars  ($10,600) 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 the 506
     Exemption and the  Washington  Exemption.  See Part III, Item 12.  "Certain
     Relationships and Related Transactions".

(8)  In September  2000,  the Company  entered into an  Employment  Agreement to
     employ  Luce as Vice  President  of Sales  and  Marketing.  The term of the
     agreement is for a period of four (4) years and is automatically  renewable
     for one (1) year.  Mr. Luce's  annual base salary is ninety three  thousand
     five hundred dollars  ($93,500.00) for the first year, one hundred thousand
     forty five  dollars  ($100,045)  for the second  year,  one  hundred  seven
     thousand forty eight dollars ($107,048) for the third year, and one hundred
     fourteen thousand five hundred forty one dollars  ($114,541) for the fourth
     year. Luce will also receive commission payments of one half percent (0.5%)
     based on gross sales of the Company  products  and an  additional  one half
     percent (0.5%) for all direct sales by Luce. Luce is also granted the right
     to purchase up to one hundred  thousand  (100,000)  shares of the Company's
     restricted  Common  Stock at a price of four  dollars  ($4.00)  per  share.
     Twenty-five  percent (25%) of the options shall become vested on January 1,
     2001,  and the  remaining  seventy-five  percent (75%) of the options shall
     become  vested at the equal  rate of  twenty-five  percent  (25%) upon each
     successive one (1) year anniversary date of employment.  All vested options
     shall  expire  with  three (3)  years  from the date of  vesting.  For such
     offering,  the Company  relied upon the 506  Exemption  and the  Washington
     Exemption.  See Part  III,  Item 12.  "Certain  Relationships  and  Related
     Transactions".

(9)  In November 2000, 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

                                       48

<PAGE>



     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 the 506  Exemption  and the  Washington
     Exemption.  See Part  III,  Item 12.  "Certain  Relationships  and  Related
     Transactions".

(10) 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 the 506 Exemption and the
     Washington  Exemption.  See Part III, Item 12. "Certain  Relationships  and
     Related Transactions".

(11) 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 the 506 Exemption, Section 4[5/4]S of the
     Illinois Code and the Washington Exemption. See Part III, Item 12. "Certain
     Relationships and Related Transactions".

(12) 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 the 506 Exemption and
     the Washington Exemption. 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

         January 2000 through  April 2000,  the Company  issued 32,000 shares of
its  restricted  common  stock to seven (7)  persons  for a total of thirty  two
thousand  dollars  ($32,000).  The  obligation to issue such shares arose during
1999 and was accounted for in fiscal year 1999. For such  offering,  the Company
relied upon the 506 Exemption,  Section 25102.1 of the California Code,  Section
80 A.15 Subd. 2(h) of the Minnesota  Code,  Section 109.13 of the Texas Code and
the Washington Exemption.

         In March 2000,  the Company  issued  250,000  shares of its  restricted
Common Stock to Donald  Mintmire in connection with his legal services on behalf
of the Company.  The shares were issued  pursuant to Section 3(b),  Rule 701 and
the Florida Exemption.

         In March  2000,  the  Company  executed a  Promissory  Note in favor of
Elaine  Meilahn,  in the  amount  of  fourteen  thousand  four  hundred  dollars
($14,400) at an interest rate of twelve percent (12%) per annum. The Note was in
exchange for monies lent by Ms. Meilahn to the Company between 1995 and 2000 for
working  capital  purposes.  The Note was payable on demand.  In April 2000,  by
mutual  agreement of the parties,  the Company  cancelled  the March note due to
certain  inaccuracies in the note. It was replaced by a note dated April 3, 2001
in the amount of $12,400.97.

         In March 2000, the Company executed a Promissory Note in favor of David
Meilahn  in the amount of twenty  one  thousand  nine  hundred  seventy  dollars
($21,970.00) at an interest rate of twelve percent (12%) per annum. The Note was
in exchange for monies lent by Mr. Meilahn to the Company  between 1995 and 1999
for working capital purposes.  The Note is payable on demand. For such offering,
the Company relied upon the 506 Exemption and the Washington Exemption.

         In March 2000,  pursuant to the Company's Bylaws, a vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy was filled by Dr. Robert J.

                                       49

<PAGE>



Janeczko by an affirmative  vote of a majority of the remaining  directors.  Dr.
Janeczko shall serve until election by the shareholders at the 2001 shareholders
meeting.

         In March 2000,  pursuant to the Company's Bylaws, a vacancy was created
in the Board of  Directors  by an increase in the number of the  directors.  The
vacancy was filled by Don N. Jonas by an  affirmative  vote of a majority of the
remaining directors. Mr. Jonas shall serve until election by the shareholders at
the 2001 shareholders meeting.

         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.

         In August  2000,  the Company  executed a  Promissory  Note in favor of
Elaine Meilahn in the amount of ten thousand six hundred dollars ($10,600) 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 the 506 Exemption
and the Washington Exemption.

         In September 2000, the Company entered into an Employment  Agreement to
employ Luce as Vice President of Sales and Marketing.  The term of the agreement
is for a period  of four (4) years and is  automatically  renewable  for one (1)
year.  Mr.  Luce's  annual base salary is ninety  three  thousand  five  hundred
dollars ($93,500.00) for the first year, one hundred thousand forty five dollars
($100,045)  for the second year,  one hundred seven thousand forty eight dollars
($107,048)  for the third year, and one hundred  fourteen  thousand five hundred
forty one  dollars  ($114,541)  for the  fourth  year.  Luce  will also  receive
commission  payments  of one half  percent  (0.5%)  based on gross  sales of the
Company  products and an additional one half percent (0.5%) for all direct sales
by Luce.  Luce is also granted the right to purchase up to one hundred  thousand
(100,000)  shares of the  Company's  restricted  Common Stock at a price of four
dollars ($4.00) per share. Twenty-five percent (25%) of the options shall become
vested on January 1, 2001, and the remaining  seventy-five  percent (75%) of the
options shall become vested at the equal rate of twenty-five  percent (25%) upon
each successive one (1) year anniversary date of employment.  All vested options
shall expire with three (3) years from the date of vesting.  For such  offering,
the Company relied upon the 506 Exemption and the Washington Exemption.

         In November  2000, 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 the 506  Exemption  and the
Washington Exemption.

         In November 2000, the Company entered into a Consulting  Agreement with
Websters' Inc. The Consulting  Agreement  provides that the Company is to engage
Websters' Inc. as a registered professional engineering firm for the purposes of
performing the comprehensive design,  development and production of a functional
integrated  commercial  SARGO system,  and to provide  technical  support to the
installation of the resulting device into 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)  shares 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.  Payments for services in shares will be
presented as a certificate of the restricted Common Stock on

                                       50

<PAGE>



a  quarterly  basis upon  approval  of the  Company's  Board of  Directors.  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 be in the event that the stock tendered to Websters'
Inc. is unable to be sold in a brokers'  transaction  after a period of one year
from the date of issue of the  certificate.  The agreement  expires  December 1,
2002.  For such  offering,  the Company  relied upon the 506  Exemption  and the
Washington Exemption.

         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 the 506 Exemption,  Section 4[5/4]S of the Illinois Code and
the Washington Exemption.

         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 the 506  Exemption  and the
Washington Exemption.

         In February  2001,  the Company hired Cary Grant as a consultant to the
Company.  As payment for such  services,  the Company  committed  to provide Mr.
Grant with 25,000 shares of its  unrestricted  Common Stock.  To date, no shares
have been issued in connection with this agreement.

         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 the 506  Exemption  and the
Washington Exemption.

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.
</TABLE>


                                       51

<PAGE>


<TABLE>
<S>      <C>      <C>
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     *        Promissory Note in the amount of $5,000 bearing 12% interest in favor of
                  Elaine Meilahn dated February 8, 2001.

4.11     *        Promissory Note in the amount of $12,400.97 bearing 12% interest in favor of Elaine
                  Meilahn dated April 3, 2001.

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]      License Agreement with David Meilahn dated December 1998.

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.

(*  Filed herewith)

(b) A report on Form 8-K was filed on February  26, 2001  disclosing a change in
the Registrant's Certifying Accountant.




                                       52

<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: April 11, 2001   By: /s/ David Meilahn
                       -----------------------------------------
                       David Meilahn, President, Secretary, Treasurer & Chairman

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

                       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.

Signature                           Title                   Date

/s/ David Meilahn
--------------------       President, Secretary,           April 11, 2001
David Meilahn              Treasurer & Chairman

/s/ Richard Luce
--------------------       Vice President                  April 11, 2001
Richard Luce               Sales & Marketing

/s/ Robert Janeczko
--------------------       Director                        April 11, 2001
Robert Janeczko

/s/ Don Jonas
--------------------       Director                        April 11, 2001
Don Jonas

                                       53