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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended June 30, 2000
Commission File No. 0-28495
GLOBAL SEAFOOD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
Nevada 95-41778228
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 Bayview Avenue, Biloxi, Mississippi 39530
---------------------------------------- -------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (228) 435-3632
--------------------------------------------------- --------------
Former name, former address and former fiscal year,
if changed since last report: None
--------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of August 16, 2000, there were 13,124,046 shares of Common Stock, $.001 par
value outstanding.
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<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2000 and
March 31, 2000 3
Consolidated Statement of Operations for the three
months ended June 30, 2000 and June 30, 1999 5
Consolidated Statement of Cash Flows for the three
months ended June 30, 2000 and June 30, 1999 6
Notes to the financial statement 7
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
June 30 March 31
2000 2000
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 1) 1,016,264 1,303,120
Accounts Receivable (Note 1) 1,412,244 851,718
Accounts Receivable - Related (Note 1) 230,185 350,451
Pre-paid income taxes 46,111 46,111
Pre-paid Expenses 1,827 1,827
Inventories (Note 1) 711,111 641,708
Deferred tax asset, current 2,300 2,300
------------------ ---------------
TOTAL CURRENT ASSETS $3,420,042 $3,197,235
PROPERTY AND EQUIPMENT
Land 102,926 102,926
Buildings and Improvements 1,381,995 1,373,324
Furniture and Fixtures 29,319 29,319
Machinery and Equipment 3,130,352 3,096,515
Vehicles 27,820 27,820
Water Well 121,441 121,441
------------------ ---------------
TOTAL FIXED ASSETS (Note 1&2) 4,793,853 4,751,345
Less Accumulated Depreciation (2,587,419) (2,488,294)
------------------ ---------------
PROPERTY AND EQUIPMENT, NET $2,206,434 $2,263,051
OTHER ASSETS
Deferred tax asset 12,300 12,300
Deposits 12,303 12,228
------------------ ---------------
Total Other Assets 24,603 $24,528
TOTAL ASSETS $5,651,079 $5,484,814
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
June 30 March 31
2000 2000
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable 509,866 49,288
Accounts Payable - Related (Note 1) - -
Accrued expenses 28,351 29,049
Income taxes payable 16 -
Notes Payable, current portion (Note 3) 166,302 199,647
Notes Payable - Related (Note 4) 113,500 113,500
Obligations under capital leases (Note 6) 26,613 31,270
------------------ ---------------
TOTAL CURRENT LIABILITIES $844,648 $422,754
LONG-TERM LIABILITIES
Notes Payable (Note 3) 1,396,866 1,402,584
Obligations under capital leases (Note 6) 48,242 54,261
------------------ ---------------
TOTAL LONG-TERM LIABILITIES $1,445,108 $1,456,845
TOTAL LIABILITIES $2,289,756 $1,879,599
STOCKHOLDER'S EQUITY
Preferred stock 200 200
(Issued and outstanding) 200,000 200,000
Common stock 13,124 13,124
(Issued and outstanding) 13,124,046 13,124,046
Additional Paid-in Capital 4,411,285 4,411,285
Prepaid Consulting (Note 1) - -
Prepaid Non Compete (Note 1) (103,639) (111,612)
Subscription Receivable (46,486) (46,486)
Retained Earnings (913,161) (661,296)
------------------ ---------------
TOTAL STOCKHOLDER'S EQUITY $3,361,323 $3,605,215
TOT. LIAB. AND EQUITY $5,651,079 $5,484,814
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
For Three Months Ending June 30
------------------------------------------------
2000 1999
<S> <C> <C>
Processing Sales 717,050 900,144
Sales of Product 3,227,806 3,394,452
------------------ ---------------
NET SALES $3,944,856 $4,294,596
EXPENSES
Cost of Sales 3,091,574 3,218,194
Non-compete covenant 7,972 7,972
Depreciation expense 99,125 98,608
Selling, general and administrative 987,974 998,558
------------------ ---------------
TOTAL EXPENSES $4,186,645 $4,323,332
INCOME BEFORE OTHER ITEMS ($241,789) ($28,736)
Other income 10,060 13,612
Interest income 15,328 7,352
Interest expense (35,464) (45,047)
------------------ ---------------
TOTAL OTHER INCOME (EXPENSE) ($10,076) ($24,083)
NET INCOME BEFORE TAXES ($251,865) ($52,819)
PROVISION FOR TAXES 0 918
NET INCOME ($251,865) ($53,737)
BASIC EARNINGS PER SHARE ($0.02) ($0.00)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,124,046 13,124,046
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THREE MONTHS ENDED
June 30 June 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss (251,865) (53,737)
Adjustments to Net Loss:
Depreciation 99,125 98,608
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (560,526) (723,379)
(Increase) Decrease in Accts Rec Related 120,266 0
(Increase) Decrease in Inventories (69,403) (373,585)
(Increase) Decrease in Pre-paid Expenses 7,973 (162,355)
(Increase) Decrease in Deposits (75) (8,635)
Increase (Decrease) in Accounts Payable 460,578 429,196
Increase (Decrease) in Taxes Payable 16 0
Increase (Decrease) in Accrued Expenses (698) 120
--------------- --------------
Net Cash Provided (Used) by Operating Activities ($194,609) ($793,767)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (42,508) (344,487)
--------------- --------------
Net Cash Provided (Used) in Investing Activities (42,508) (344,487)
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred and Common Stock 0 2,792,601
Net Payments on Notes and Leases Payable (49,739)
Net Proceeds From Notes and Leases Payable 106,279
--------------- --------------
Net Cash Provided (Used) by Financing Activities ($49,739) $2,898,880
NET INCREASE (DECREASE) IN CASH ($286,856) $1,760,626
BEGINNING CASH AND CASH EQUIVALENTS $1,303,120 $743,718
ENDING CASH AND CASH EQUIVALENTS $1,016,264 $2,504,344
</TABLE>
6
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements include those of Global Seafood
Technologies, Inc. (GST) and its wholly-owned subsidiaries, Custom
Pack, Inc., CoMar Foods, Inc. and Killer Bee, Inc. Custom Pack, Inc.
has a separate division that is accounted for as the "Aguaculture
Division" in the consolidated financial statements, although it is not
a separate subsidiary. Collectively, they are referred to herein as
"the Company".
GST was incorporated under the laws of the State of Nevada on May 29,
1986 under the name of Rue de Rivoli Perfumeries of America, Ltd. It
later changed its name to Enviro Solutions International, Inc. on
November 21, 1994 in contemplation of a merger with Enviro Solutions
International, Inc. of Utah. The merger was never completed. However,
the name was still changed.
On October 31, 1995, the Company completed an Agreement and Plan of
Reorganization whereby GST issued 8,000,000 shares of its common stock
in exchange for all of the outstanding common stock of Custom Pack,
Inc. (Custom). Pursuant to the reorganization, the name was changed to
International Custom Pack, Inc. The Company later changed its name to
Global Seafood Technologies, Inc. during 1998.
The reorganization was accounted for as a recapitalization of Custom
because the shareholders of Custom control the Company after the
acquisition. Therefore, Custom is treated as the acquiring entity.
Accordingly, there was no adjustment to the carrying value of the
assets or liabilities of GST. GST is the acquiring entity for legal
purposes and Custom is the surviving entity for accounting purposes.
On October 1, 1997, the Company completed an Agreement and Plan of
Reorganization whereby GST issued 422,492 shares of its common stock
valued at $933,707, paid $300,000 in cash and assumed liabilities of
$266,293 for a total of $1,500,000 in exchange for all of the
outstanding common stock of CoMar Foods, Inc. (CoMar). The acquisition
has been accounted for as a purchase. The 422,492 shares issued were
valued at $933,707 or $2.21 per share. The $2.21 per share amount was
determined based upon the market price of the 422,492 shares issued
over a reasonable period of time before and after the Agreement and
Plan of Reorganization was reached, which approximated the fair market
value of the assets and liabilities acquired through the purchase.
On April 1, 1999, the Company issued 152,564 shares of its common stock
to purchase the assets of a related company, Killer Bee, Inc. (Killer
Bee) for $238,000. The acquisition was accounted for by the purchase
method. The 152,564 shares issued were valued at $238,000 or $1.56 per
share, the market value of the shares on the date of the acquisition.
On June 25, 1999, the Company purchased the assets and brand name of
Drag N Bait, Inc., a recognized supplier of recreational fishing bait
in the Southeastern United States, and particularly in Florida. The
acquisition was $339,000 cash, which represented the value of the
assets acquired, and was accounted for by the purchase method. The
operations of Drag N Bait after June 25, 1999 have been consolidated
with those of Killer Bee, Inc. for the year ended March 31, 2000.
GST was incorporated for the purpose of creating a vehicle to obtain
capital to seek out, investigate and acquire interests in products and
businesses which may have a potential for profit.
7
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
a. Organization (Continued)
Custom, a wholly-owned subsidiary, was incorporated under the laws of
the State of Mississippi on February 15, 1988. It was incorporated for
the purpose of being a full service processor, packager, and storage
provider of shrimp and other seafood.
CoMar, a wholly-owned subsidiary, was incorporated under the laws of
the State of Alabama on February 26, 1993. CoMar is a full service
processor and packager of shrimp and other seafood products.
Killer Bee, a wholly-owned subsidiary, was incorporated under the laws
of the State of Mississippi on September 18, 1998. It was incorporated
for the purpose of being a full service processor, packager and
distributor of bait and other recreational fishing products.
b. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a March 31 year
end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition. The
Company's cash accounts at its banks are insured by the FDIC up to
$100,000.
d. Basic and Fully Diluted Earnings Per Share
The computations of basic earnings per share of common stock are based
on the weighted average number of shares outstanding during the period
of the consolidated financial statements. Common stock equivalents,
consisting of the preferred shares and warrants, have been included in
the fully diluted earnings per share.
e. Principles of Consolidation
The consolidated financial statements include those of Global Seafood
Technologies, Inc. and its wholly-owned subsidiaries, Custom Pack,
Inc., CoMar Foods, Inc. and Killer Bee, Inc. All significant
intercompany accounts and transactions have been eliminated.
f. Inventories
Inventory supplies are stated at the lower of cost (computed on a
first-in, first-out basis) or market. The inventory consists of
seafood, bait products, seafood storage bags, packing boxes and other
miscellaneous packaging materials.
8
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property and equipment are stated at cost. Expenditures for small
tools, ordinary maintenance and repairs are charged to operations as
incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line and accelerated
methods over estimated useful lives as follows:
Machinery and equipment 5 to 7 years
Furniture and fixtures 5 to 7 years
Buildings 3 to 7 years
Vehicles 5 years
Water well 7 years
h. Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful
accounts of $5,886 and $5,886 as of June 30, 2000 and March 31, 2000,
respectively.
i. Related Party Transactions
The Company purchases some of its product and supplies from a related
company. The amounts owed to this company at June 30, 2000 and March
31, 2000 was $-0- and $-0-, respectively.
The Company also sells some of its product to the same related company.
The amounts owed from this company at June 30, 2000 and March 31, 2000
was $230,185 and $158,477, respectively.
j. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
k. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
l. Reclassifications
Certain prior period amounts have been reclassified to conform to the
June 30, 2000 financial statement presentation.
9
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
n. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption
of this statement had no material impact on the Company's consolidated
financial statements.
o. Prepaid Consulting
During the year ended March 31, 1999, the Company issued 50,000 shares
of its outstanding common stock valued at $1.56 per share under a
consulting/investment relations agreement for a 12-month period
beginning April 1, 1999. The 50,000 shares issued were valued at the
fair market value of the services to be performed or $78,000 which
approximated the fair value of the shares on the date of issuance. The
$78,000 was recorded by the Company as prepaid consulting as on March
31, 1999, and was fully amortized during the year ended March 31, 2000.
The unamortized balance as of June 30, 1999 was $58,500.
p. Prepaid Non-Compete Agreement
The Company entered into a covenant-not-to-compete during the year
ended March 31, 1991. The original agreement required $492,000 to be
paid over 10 years at $49,200 each year. The agreement was amended in
1994 due to an examination by the Internal Revenue Service that reduced
the required annual payment to $32,800.
During the year ended March 31, 2000, the Company issued 114,800 shares
of its outstanding common stock in lieu of the future payments required
under the non-compete agreement. These shares were valued at $143,500
or $1.25 per share. Amortization on the prepaid agreement through June
30, 2000 was $39,860.
10
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and March 31, 2000 consisted of
the following:
June 30, March 31,
2000 2000
------------ ------------
(unaudited)
Land $ 102,926 $ 102,926
Buildings and improvements 1,381,995 1,373,324
Furniture and fixtures 29,319 29,319
Machinery and equipment 3,130,352 3,096,515
Vehicles 27,820 27,820
Water well 121,441 121,441
------------ ------------
Total 4,793,853 4,751,345
Less accumulated depreciation (2,587,419) (2,488,294)
------------ ------------
Property and equipment - net $ 2,206,434 $ 2,263,051
============ ============
Depreciation expense for the quarters ended June 30, 2000 and 1999 was
$99,125 and $98,608, respectively.
During the year ended March 31, 2000, the Company recorded an
impairment loss of $775,000 on the building and improvements based upon
the decline in market value of the building during the year.
NOTE 3 - NOTES PAYABLE
Notes payable at June 30, 2000 and March 31, 2000 consisted of the
following:
June 30, March 31,
2000 2000
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(unaudited)
Note payable, secured by property, interest at
8.05%, interest and principal payments of
$16,124 due monthly, matures on July 5,
2003. $ 1,142,281 $ 1,166,816
Note payable, secured by property, interest at
9.0%, interest and principal payments of
$1,497 due monthly, matures on July 1, 2012. 135,029 136,469
Note payable, secured by property, interest at
8.0%, interest and principal payments of
$702 due monthly, matures on November 23,
2003. 24,736 26,351
Note payable, secured by property, interest at
7.5%, interest and principal payments of
$399 due monthly, matures on November 15,
2002. 10,548 11,532
Note payable, secured by property, interest at
7.5%, interest and principal payments of
$737 due monthly, matures on October 15,
2002. 18,872 20,673
Note payable, unsecured, interest at 8.0%,
interest due annually, principal due from
gross profits (Note 11). 80,000 80,000
----------- -----------
Balance forward $ 1,411,466 $ 1,441,841
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11
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 3 - NOTES PAYABLE (Continued)
June 30, March 31,
2000 2000
----------- -----------
(unaudited)
Balance forward $ 1,411,466 $ 1,441,841
Note payable to a bank, secured by property
and equipment, interest at 9.25%, interest
and principal payments of $440 due monthly,
matures in September 2002. 10,691 11,751
Note payable to a bank, secured by property
and equipment, interest at 8.0%, interest
and principal payments of $492 due monthly,
matures in January 2004. 18,532 19,656
Note payable to a bank, secured by property,
interest at 8.0%, interest and principal
payments of $1,531 due monthly, matures in
June 2004. 62,624 65,895
Note payable to a bank, secured by property,
interest at 8.0%, interest and principal
payments of $1,447 due monthly, matures June
2004. 59,192 62,284
Other notes payable 663 804
----------- -----------
Total notes payable 1,563,168 1,602,231
Less: current portion (166,302) (199,647)
----------- -----------
Long-term notes payable $ 1,396,866 $ 1,402,584
=========== ===========
Maturities of long-term debt are as follows:
Year Ending
March 31, Amount
--------- ------
2001 $ 199,647
2002 222,343
2003 236,469
2004 922,159
2005 21,613
2006 and thereafter -
-----------
Total $ 1,602,231
===========
12
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
June 30, March 31,
2000 2000
----------- -----------
(unaudited)
Note payable to shareholder, unsecured,
interest at 10%, interest payments due
quarterly and annually, principal amount is
due on demand. $ 113,500 $ 113,500
----------- -----------
Total notes payable - related parties $ 113,500 $ 113,500
=========== ===========
NOTE 5 - LINE OF CREDIT
The Company has a line of credit with a bank. The loan is secured by
commercial property under a deed of trust and mortgage and by a UCC
commercial security agreement, accrues interest at 7.5% per annum, and
has a maximum balance of $1,000,000. The line is renewed annually and
currently expires on October 5, 2000. The balance outstanding on the
line of credit at June 30, 2000 was $-0-.
NOTE 6 - CAPITAL LEASES
The Company leases certain equipment with lease terms through September
2003. Obligations under these capital leases have been recorded in the
accompanying consolidated financial statements at the present value of
future minimum lease payments.
Obligations under capital leases at June 30, 2000 and 1999 consisted of
the following:
June 30, March 31,
2000 2000
----------- -----------
(unaudited)
Total $ 74,855 $ 85,531
Less: current portion (26,613) (31,270)
----------- -----------
Long-term portion $ 48,242 $ 54,261
=========== ===========
The future minimum lease payments under these capital leases and the
net present value of the future minimum lease payments are as follows:
Year Ending
March 31, Amount
--------- ------
2001 $ 36,039
2002 20,907
2003 20,575
2004 9,789
2005 -
2006 and thereafter -
---------------
Total future minimum lease payments 87,310
Less, amount representing interest (1,779)
---------------
Present value of future minimum lease payments $ 85,531
===============
14
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 7 - MAJOR CUSTOMERS AND SUPPLIERS
For the quarter ended June 30, 2000, two customers generated sales in
excess of 10% of the Company's total sales. Sales to these two
customers made up approximately 28% and 15%, respectively, of total
revenues for the quarter ended June 30, 2000.
For the quarter ended June 30, 1999, two customers generated sales in
excess of 10% of the Company's total sales. Sales to these two
customers made up approximately 34% and 24%, respectively, of total
revenues for the quarter ended June 30, 1999.
The Company purchased product from two suppliers during the quarter
ended June 30, 2000 that generated costs in excess of 10% of the
Company's total purchases. Purchases from these two suppliers made up
approximately 23% and 19%, respectively, of total purchases for the
quarter ended June 30, 2000.
The Company purchased product from two suppliers during the quarter
ended June 30, 1999 that generated costs in excess of 10% of the
Company's total purchases. Purchases from these two suppliers made up
approximately 22%, and 17%, respectively, of total purchases for the
quarter ended June 30, 1999.
All significant sales and purchases that exceeded 10% during the
quarters ended June 30, 2000 and 1999 were in the seafood packaging and
processing segment.
15
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Common Stock Contingency
The Company is aware of numerous possible claims by individuals that
received either through purchase or otherwise, 850,000 forged shares of
the Company's common stock that purport to represent issued and
outstanding shares. The shares are not listed on the Company's
shareholder records and do not represent duly issued and outstanding
shares of the Company's common stock. Although no litigation is pending
in relation to these shares, it is possible that the Company may have
to honor these 850,000 shares of common stock in the future. The shares
have not been recorded by the Company at June 30, 2000 since the
ultimate outcome is currently not estimatable.
The Company is in the process of trying to recover 1,700,000 common
shares. The holder of the shares is claiming breach of contract and
claims that he is entitled to the shares. The claim is currently in
litigation and management intends on vigorously contesting the claim.
The Company has filed an answer and a counterclaim against the holder
seeking specific performance of a settlement agreement previously
entered into. While the possibility that an unfavorable outcome exists,
the Company has determined that the potential loss is remote and fully
intends on recovering the entire 1,700,000 shares. It is remotely
possible, however, that the Company may have to honor these shares in
the future, although the shares have not been recorded by the Company
as outstanding shares as of June 30, 2000.
The Company is also in the process of trying to recover 203,400 shares
that were issued for no consideration. The shares have been requested
to be returned for cancellation but are in receivership pending
authorization to be returned. Management of the Company fully intends
on receiving the shares back and will pursue litigation, if necessary,
to recover the shares. It is remotely possible, however, that the
Company may have to honor these shares in the future, although the
shares have not been recorded by the Company as outstanding shares as
of June 30, 2000.
16
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Leases
The Company has entered into several non-cancelable leases, accounted
for as operating leases, of certain machinery and equipment used in
operations. The minimum future payments required under the operating
leases are as follows:
Year Ending
March 31, Amount
--------- ------
2001 $ 113,204
2002 10,894
2003 10,894
2004 5,147
2005 -
2006 and thereafter -
-----------------
Total $ 140,139
=================
NOTE 9 - WARRANTS OUTSTANDING
On November 1, 1998, the Company granted warrants to a consultant to
purchase 1,000,000 shares of common stock at $1.00 per share which
approximated market value for the shares at the time of issuance. This
is consistent with the accounting treatment of SFAS No. 123,
"Accounting for Stock-Based Compensation." The warrants are exercisable
until July 1, 2008.
During April 1999, the Company granted warrants to an investor to
purchase 2,000,000 shares of the Company's common stock at $1.00 per
share, which was the prevailing market value for the shares at the time
of issuance. This is consistent with the accounting treatment of SFAS
No. 123, "Accounting for Stock-Based Compensation". The warrants are
exercisable until July 15, 2001.
On April 1, 1999, the Company granted warrants to purchase 1,500,000
shares of the Company's common stock at $1.56 per share in connection
with the purchase of the assets of Killer Bee, Inc. Warrants of 500,000
shares were granted to each of the sellers (three individuals, which
included two executive officers and directors of the Company). The
warrants were valued at the prevailing market value of $1.56 per share
at the time of issuance. This is consistent with the accounting
treatment of SFAS No. 123, "Accounting for Stock-Based Compensation".
The warrants are exercisable until April 1, 2009.
The Company estimates the fair value of each stock option and warrant
at the grant date by using the Black-Scholes pricing model. The
following assumptions were used: risk-free interest rate of 6%, eight
year expected life, 35% expected volatility, and no expected dividends.
Accordingly, no additional expense was recorded for the quarters ended
June 30, 2000 and 1999.
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GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
June 30, 2000 and March 31, 2000
NOTE 10 - JOINT PARTICIPATION AGREEMENT
On March 20, 2000, the Company entered into a joint participation
agreement for the allocation and distribution of profit to be derived
from participation in an aquaculture farming operation in the State of
Mississippi. As part of the agreement, the other participant paid a
$100,000 participation fee to the Company that was recorded as
additional capital contributed for the year ended March 31, 2000. In
addition, the participant loaned the Company $80,000 to be used for
working capital in the operation of the farm (see Note 3). The Company
is to provide the agricultural land lease, expertise in producing
freshwater prawns, macrobrachia post-larvae to seed the ponds,
equipment and housing for the operation.
Profits derived from the operation of the farm will be allocated 51% to
the Company and 49% to the other participant, after the $80,000 loan is
repaid. No profit had been earned at June 30, 2000. The agreement is
for one year, but can be extended annually at the agreement of the
parties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following selected financial data, as of, and for each of the comparable
fiscal quarters ended June 30, have been extracted from the unaudited financial
statements of the Company, a copy of which is included herein. All such data
should be read only in conjunction with, and is qualified in their entirety by
reference to, the Company's financial statements and accompanying notes.
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
AS OF AND FOR THE
THREE MONTH PERIOD ENDED JUNE 30,
INCOME STATEMENT
Percentage Percentage
2000 of Net Sales 1999 of Net Sales
----- ------------ ---- ------------
REVENUE: $ 3,945 100.00 $ 4,295 100.00
OPER. EXPENSES $ 4,187 106.06 $ 4,323 100.67
INCOME BEFORE
OTHER ITEMS $ (242) (6.06) $ (29) (0.67)
OTHER INC (EXP) $ (10) (0.25) $ (24) (0.56)
NET INCOME
BEFORE TAX $ (252) (6.31) $ (53) (1.23)
PROVISION FOR
INCOME TAX $ 0 0.00 $ 1 0.02
---------- -------- ---------- -------
NET INCOME $ (252) (6.31) $ (54) (1.25)
NET INCOME (LOSS)
PER SHARE (1) $ (0.02) $ (0.00)
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JUNE 30, 2000 MARCH 31, 2000
------------- --------------
BALANCE SHEET:
TOTAL ASSETS: $ 5,651 $ 5,484
LONG-TERM OBLIGATIONS:(2) $ 1,638 $ 1,688
TOTAL STOCKHOLDERS' EQUITY $ 3,361 $ 3,605
(1) Net Income (Loss) from continuing operations per share includes the
weighted average number of shares of the Company's common capital
outstanding
(2) Long-term Obligations includes the current portion of long-term debt
and capital leases
Overview and Forward-Looking Statements
This report and other oral and written statements made by the Company to the
public contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on management's current expectations of
beliefs and are subject to a number of factors and uncertainties that could
cause actual results, levels of activity, performance or achievements to differ
materially from those described.
Our core seafood packaging business provided 91% of revenues in the first
quarter of fiscal year 1999 and 86% in the first quarter of our current fiscal
year. This resulted from a 13% reduction in revenues from this core business,
coupled with a 127% growth in revenue from our Killer Bee subsidiary. The core
business volume remains stable, and the decreased revenue is not viewed as a
trend. Revenue growth from Killer Bee is expected to continue to expand.
Revenues from our aquaculture division were not significant enough to impact
reported results in this quarter, but contributions from this business segment
is expected to appear in the financial results for the full fiscal year.
Working Capital
As we continue to execute on our business plans for Killer Bee and for our
aquaculture division, balance sheet representations of working capital
requirements are expected to exhibit changes, which will reflect greater
demands. Historically, the core business has not required significant levels of
inventory, as products are either sold immediately from processing or are
packaged for third-party accounts. However, beginning with the acquisition of
Killer Bee, Inc. last year, we began packaging and distributing frozen bait
products for the recreational fishing industry. The nature of this business
segment requires that we acquire, process, and have available for distribution
an adequate supply of product in inventory. As this business expands, our
relative levels of inventory will also expand. The balance sheet as of June 30,
2000 reflects an increase in inventory to $711,111 from $641,708 at March 31,
2000 due to the operations of Killer Bee.
Similarly, sales in the core business segment are generally settled at the time
of wholesale delivery, so that accounts receivable have customarily been
maintained at relatively low levels. However, in the first quarter of fiscal
year 2001, Custom Pack generated an increase in accounts
20
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receivable because of an early start of the shrimp season. Additionally, the
nature of the recreational bait business requires that normal account terms be
extended to corporate accounts. Of the reported increase in accounts receivable,
$145,526 is related to the increased sales of Killer Bee.
The increased equity capital we received during the last fiscal year provided
additional liquidity to support the growth of inventory and accounts receivable
assets that continued during this quarter. As of June 30, 2000 the company
maintained cash reserves of $1,016,264, and current assets exceeded current
liabilities by $2,575,394. Current liabilities declined by 47% reported in the
comparable quarter in 1999, primarily through a reduction in trade accounts
payable of $609,205 or 54%. As a result, we continue to maintain considerable
liquidity.
Net Sales
Net sales primarily reflect the results of our processing and packaging
operations. The amount of revenues recognized in any given year is a function of
whether the products in that business segment are either: a) purchased,
processed, and packaged by the Company, or; b) processed and packaged for third
parties on a consignment basis. In the first instance, revenues would be higher,
reflecting the cost of the product, and in the latter case revenues would only
reflect a processing charge. Gross margins are relatively unaffected by either
scenario, but the reported net sales figures can be greatly affected.
Net sales for the quarter ended June 30, 2000 decreased as compared to the
quarter ended June 30, 1999 from $4,294,596 to $3,944,856, primarily because of
a decline in product sales amounting to $343,895 in the core business segment.
Management views this reduction as being a function of fluctuating seasonal
factors rather than an indication of a declining sales trend. On the whole, core
business operations continue to be viewed as stable.
Sales from Killer Bee increased 127% from $241,768 to $548,480 in comparing the
respective first quarter periods ending June 30. Killer Bee expanded from
serving under 100 accounts at June 30, 1999 to over 500 accounts at June 30,
2000. Independent accounts increased by more than 300 in number, and larger
corporate retail accounts expanded to 150, including 51 Wal Mart and 32 K Mart
locations in the Gulf Coast and Atlantic regions. Same location sales through
June 30, 2000 increased 1% compared to the same period last year, even though
sales in the June 30, 1999 quarter were inflated by initial stocking activities.
Over-all, Killer Bee is continuing to expand sales locations in line with
management projections, and sales per location are meeting expectations.
Cost of Sales
Cost of sales includes processing and packaging costs, including plant labor,
in-bound and out-bound freight, and the raw material (seafood) costs where the
products are processed for the Company's own account. Where processing is done
for third-party accounts, the raw material (seafood) costs are not carried on
the Company's books. Approximately 20% of net sales in the core business segment
is reflected in processing for third parties, in which case we charge a
processing fee and do not maintain any inventory level of product for our own
account.
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The decrease in cost of sales from $3,218,194 to $3,091,574 reflects a lower
volume of product sales. Similarly, relatively higher prices that were paid for
seafood products in the June 30, 2000 quarter compared to the prevailing prices
in the June 30, 1999 quarter coupled with a decrease in processing sales in the
core business segment helped to lower gross profit margins to 22% from 25%.
Killer Bee products, which are produced with higher profit margins, helped to
offset this decline.
Selling, general and administrative expenses remained steady, and actually
recorded a slight reduction from $998,558 in the June 30, 1999 quarter to
$987,974 in the June 30, 2000 quarter. We believe that the additional revenue
growth, which is expected in upcoming quarters, can be achieved without
significant increases in administrative overhead.
Operating Income
We have historically used the operating income (income before other items) from
our core business of Custom Pack, Inc. to offset operating losses from Comar
Foods, the aquaculture division and Killer Bee. For the quarter ending June 30,
1999, an operating profit of $81,727 from Custom Pack was offset by the combined
operating losses from the other sources of $100,237. For the quarter ending June
30, 2000, Custom Pack recorded an operating profit of $42,463 and the operating
losses from the other areas totaled $281,557. The CoMar and aquaculture
operating losses were collectively $108,740, and the operating loss of Killer
Bee was $172,817.
We have integrated the CoMar operations with those of Custom Pack by
transferring the packaging and processing operations of CoMar to the Custom Pack
facility which management believes will improve the performance of that
business. In subsequent reports, all such operations will be reported within the
results of Custom Pack. The loss reflected from the aquaculture division was the
result of costs incurred in anticipation of revenues, which will be recognized
in the next two fiscal quarters as freshwater shrimp are harvested from our grow
out ponds. The Company expects the aquaculture division to contribute positive
operating income for the current fiscal year taken as a whole. The revenues of
Killer Bee are seasonal in nature, but are expanding at a rate, which we believe
will also provide sufficient operating profits to cover operating expenses in
the current fiscal year.
Other Income (Expenses)
Impairment Loss
During the last fiscal year, we decided to discontinue the operations at the
CoMar Foods facility. This decision was influenced by the cessation of certain
product lines and the transfer of other processing operations to Custom Pack.
The CoMar facility was listed for sale, and the Company recorded a one time
Impairment Loss of $775,000 in the financial statements for the year ending
March 31, 2000. There were no additional write downs necessary in the current
quarter, and none are expected in the future.
22
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Seasonality
Because of the availability of seafood throughout the world markets, there is
only a modest seasonal factor for the Company's core business. Typically, the
Company's operating activities increase slightly during the spring and fall
domestic shrimp harvesting seasons, depending on the abundance of the crop that
is found in the wild. In the results reported for this quarter ending June 30,
2000 there was a relatively early start to the shrimp season. The revenues of
Killer Bee demonstrate seasonality that reflects the higher recreational fishing
activities in the warmer months of the year, which encompass the first and
second quarters of the fiscal year. Future revenues of the aquaculture division
will reflect a seasonal harvest of product, which is recognized in the second
and third quarters of our fiscal year.
Inflation
Our business is not significantly affected by inflation. We anticipate that any
increased costs can be passed on to our customers.
New Products and Services
On April 1, 1999 we acquired the assets, brand name and customer lists of Killer
Bee, Inc. and became a supplier of bait products to the recreational fishing
industry. Killer Bee packages and distributes over 30 brand name bait products
for recreational fishermen. These products are currently sold along the United
States Gulf Coast and the Atlantic coast from Florida to Virginia through
selected K Mart and Wal Mart stores, other larger corporate retail locations and
independent outlets.
On June 25, 1999 we purchased the assets and brand name of Drag N Bait, Inc., a
recognized supplier of ballyhoo to the recreational fishing market, particularly
in Florida. Ballyhoo is considered a premium bait product, and this addition
expanded the availability of products for Killer Bee. The operations of Drag N
Bait after June 25, 1999 have been consolidated with those of Killer Bee in the
company's financial statements.
The aquaculture division has successfully initiated commercial production of
freshwater shrimp in the United States by seeding several ponds in Mississippi
earlier this year. The company expects to harvest and market less than 100,000
pounds of freshwater shrimp this season, but anticipates significant increases
in the future, depending on the availability of capital and the acreage seeded
each season. Discussions are on-going with potential investors, and the extent
of our expansion in this business segment will be determined by the results of
these potential financing activities.
Cash Flow
The operations of the Company and its subsidiaries have historically been funded
from cash flow from operations of Custom Pack. This continues to be the case,
however, financing activities in the last fiscal year ended March 31, 2000
provided significant capital resources, as well.
23
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Operating Activities
The Company's Consolidated Statement of Cash Flows reported $194,609 in funds
used by operating activities in the quarter ended June 30, 2000 compared to
$793,767 used in operating activities in the June 30, 1999 quarter. The primary
factors involved increases in both accounts receivable ($560,526) and inventory
($69,403) that accompanied an increase in accounts payable ($460,578).
Depreciation provided $99,125.
Investing Activities
Net investing activities in the quarter ended June 30, 2000 consumed only
$42,508 in funds compared to $344,487 in funds used in the June 30, 1999
quarter. The related activities last year included the acquisition of Drag N
Bait as part of our investment in Killer Bee.
Financing Activities
Financing activities were a much more significant source of net cash for the
Company in the June 30, 1999 quarter where $2,792,601 in proceeds from sale of
preferred and common stock and additional capital was contributed. In the
quarter ended June 30, 2000 the only financing activities involved the outflows
relating to payments made on existing notes and leases.
24
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, we are periodically made a party to
routine proceedings or litigation, the expected results of which will have no
material adverse affect upon our financial or operating condition. At the
present time, neither the Company nor any of its directors or executive
officers, nor any controlling shareholder, is a party to any pending legal or
administrative proceeding having the potential for any material affect upon any
matter herein discussed, nor are any of the Company's properties the subject of
such a proceeding, and no such proceeding is known to be overtly threatened.
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
(c) None
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report
27 Financial Data Schedule
(b) Reports on Form 8-K
None
25
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
August 17, 2000 GLOBAL SEAFOOD TECHNOLOGIES, INC.
By: /s/ Brent Gutierrez
---------------------------------
Brent Gutierrez, President and
Chief Executive Officer
26
