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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 September 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
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Former name, former address and former fiscal year,
if changed since last report: None
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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 October 31, 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 September 30, 2000
and March 31, 2000 3
Consolidated Statement of Operations for the six
months ended September 30, 2000 and September 30, 1999 5
Consolidated Statement of Cash Flows for the six
months ended September 30, 2000 and September 30, 1999 6
Consolidated Statement of Shareholders' Equity for the six
months ended September 30, 2000 and September 30, 1999 7
Notes to the financial statement 8
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
FYE
UNAUDITED AUDITED
September 30 March 31
2000 2000
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) 611,454 1,303,120
Accounts Receivable- net (Note 1) 1,985,476 851,718
Accounts Receivable - Related, net 238,002 350,451
Pre-paid income taxes 46,111 46,111
Pre-paid Expenses 1,827 1,827
Inventories (Note 1) 834,597 641,708
Deferred tax asset, current 2,300 2,300
-------------- --------------
TOTAL CURRENT ASSETS $3,719,766 $3,197,235
PROPERTY AND EQUIPMENT
Land 103,267 102,926
Buildings and Improvements 1,410,289 1,373,324
Furniture and Fixtures 29,319 29,319
Machinery and Equipment 3,239,269 3,096,515
Vehicles 30,920 27,820
Water Well 121,441 121,441
-------------- --------------
TOTAL FIXED ASSETS 4,934,504 4,751,345
Less Accumulated Depreciation (2,686,542) (2,488,294)
-------------- --------------
PROPERTY AND EQUIPMENT, NET $2,247,962 $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 $5,992,332 $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
September 30 March 31
2000 2000
-------------- ---------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable 511,244 49,288
Accounts Payable - Related (Note 1) - -
Accrued expenses 29,502 29,049
Income taxes payable 16 -
Notes Payable , short-term (Note 5) 500,000 -
Notes Payable, current portion (Note 3) 176,823 199,647
Notes Payable - Related (Note 4) 113,500 113,500
Obligations under capital leases (Note 6) 24,478 31,270
-------------- ---------------
$1,355,563 $422,754
LONG-TERM LIABILITIES
Notes Payable (Note 3) 1,403,064 1,402,584
Obligations under capital leases (Note 6) 42,718 54,261
-------------- ---------------
TOTAL LONG-TERM LIABILITIES $1,445,782 $1,456,845
TOTAL LIABILITIES $2,801,345 $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 non-compete agreement (95,667) (111,612)
Subscription Receivable (46,486) (46,486)
Retained Earnings (1,091,468) (661,296)
-------------- ---------------
TOTAL STOCKHOLDER'S EQUITY $3,190,987 $3,605,215
TOT. LIAB. AND EQUITY $5,992,332 $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
Six Months Ended September 30
2000 1999
--------------- --------------
<S> <C> <C>
NET SALES $9,211,238 $7,546,442
EXPENSES
Cost of Sales 7,281,698 $4,753,155
Non-compete covenant 15,944 7,972
Depreciation expense 198,246 205,695
Bad debt expense 0 0
Selling, general and administrative 2,112,613 2,631,186
--------------- --------------
TOTAL EXPENSES $9,608,501 $7,598,009
INCOME BEFORE OTHER ITEMS ($397,263) ($51,567)
Other income 20,265 23,933
Interest income 25,939 11,751
Gain of disposition of assets 0 0
Interest expense (79,113) (74,672)
--------------- --------------
TOTAL OTHER INCOME (EXPENSE) ($32,909) ($38,987)
NET INCOME BEFORE TAXES ($430,172) ($90,554)
PROVISION FOR TAXES $0 $918
NET INCOME ($430,172) ($91,472)
BASIC EARNINGS PER SHARE ($0.03) ($0.01)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,124,046 12,671,383
DILUTED EARNINGS PER SHARE ($0.02) ($0.00)
WEIGHTED AVERAGE NUMBER 19,624,046 19,171,383
OF DILUTED SHARES
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended September 30
-----------------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ($430,172) ($91,472)
Adjustments to Net Income:
Depreciation 198,246 205,695
(Gain) Loss on Sale of Assets 0 0
Decrease in Prepaid Non Compete 15,945 0
-------------- ---------------
Total Adjustments to Net Income $214,191 $205,695
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable
and Accounts Receivable Related (1,021,309) (427,346)
(Increase) Decrease in Taxes Receivable 0 0
(Increase) Decrease in Deferred Tax Asset 0 0
(Increase) Decrease in Inventories (192,889) (502,125)
(Increase) Decrease in Pre-paid Expenses 0 (162,355)
(Increase) Decrease in Deposits (75) (8,870)
Increase (Decrease) in Accounts Payable
and Accounts Payable Related 461,956 (179,125)
Increase (Decrease) in Taxes Payable 16 0
Increase (Decrease) in Accrued Expenses 453 2,366
-------------- ---------------
Total Changes in Assets and Liabilities (751,848) (1,277,456)
Net Cash Provided by Operating Activities ($967,829) ($1,163,233)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment 0 37,500
Purchase of Property and Equipment (183,158) (488,993)
-------------- ---------------
Net Cash Used in Investing Activities ($183,158) ($451,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Capital Contributed 0 792,600
Proceeds From Sale of Preferred Stock 0 2,000,000
Payments on Notes Payable and Leases Payable (40,679) (728,802)
Proceeds From Notes Payable and Leases Payable 500,000 769,531
-------------- ---------------
Net Cash Provided (Used by)Financing Activities $459,321 $2,833,329
NET INCREASE (DECREASE) IN CASH ($691,666) $1,218,603
BEGINNING CASH AND CASH EQUIVALENTS $1,303,120 $743,718
ENDING CASH AND CASH EQUIVALENTS $611,454 $1,962,321
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Consolidated Statements of Shareholders' Equity
Preferred Stock Common Stock Additional Prepaid Retained
--------------- ----------------- Paid-in Subscription Non-compete Earnings
Shares Amount Shares Amount Capital Receivable Agreement (Deficit)
------ ------ ------ ------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 2000 200,000 $200 13,124,046 $13,124 $4,411,285 ($46,486) ($111,612) ($661,296)
Amortization of Prepaid
Non-compete Agreement ($15,945)
Net income for six months ended
September 30, 2000 ($430,172)
------- ---- ---------- ------- ---------- -------- -------- -----------
Balance, September 30, 2000 200,000 $200 13,124,046 $13,124 $4,411,285 ($46,486) ($95,667) ($1,091,468)
======= ==== ========== ======= ========== ======== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
7
<PAGE>
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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.
8
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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. The operations of CoMar, as a full service processor and packager
of shrimp and other seafood products, were moved to Custom during the
last half of the last fiscal year.
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. The amount in excess of the insured limits at March 31, 2000
was $929,026.
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.
9
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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 September 30, 2000 and 1999,
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 September 30, 2000 and
1999 was $164 and $45,379, respectively.
The Company also sells some of its product to the same related company.
The amounts owed from this company at September 30, 2000 and 1999 was
$295,627 and $53,442, 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
September 30, 2000 financial statement presentation.
10
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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 September 30, 1999 was $39,000.
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
September 30, 2000 was $47,833.
11
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at September, 2000 and 1999 consisted of the
following:
September 30
2000 1999
------------ ------------
Land $ 103,267 $ 102,926
Buildings and improvements 1,410,289 2,057,887
Furniture and fixtures 29,319 26,780
Machinery and equipment 3,239,269 3,069,494
Vehicles 30,920 27,820
Water well 121,441 121,441
------------ ------------
Total 4,934,504 5,406,348
Less accumulated depreciation (2,686,542) (2,375,320)
------------ ------------
Property and equipment - net $ 2,247,962 $ 3,031,028
============ =============
Depreciation expense for the six months ended September 30, 2000 and
1999 was $198,246 and $205,695, 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 September 30, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
September 30
2000 1999
-------------- ---------------
<S> <C> <C>
Note payable, secured by property, interest at 8.05%,
interest and principal payments of $16,124 due monthly,
matures on July 5, 2003. $ 1,108,613 $ 1,214,975
Note payable, secured by property, interest at 9.0%,
interest and principal payments of $1,497 due monthly,
matures on July 1, 2012. 134,090 138,285
Note payable, secured by property, interest at 8.0%,
interest and principal payments of $702 due monthly,
matures on November 23, 2003. 23,133 29,401
Note payable, secured by property, interest at 7.5%,
interest and principal payments of $399 due monthly,
matures on November 15, 2002. 9,210 13,447
Note payable, secured by property, interest at 7.5%,
interest and principal payments of $737 due monthly,
matures on October 15, 2002. 16,991 24,218
Note payable, unsecured, interest at 8.0%, interest
due annually, principal due from gross profits (Note 11). 80,000 -
-------------- ---------------
Balance forward $ 1,372,037 $ 1,420,326
-------------- ---------------
12
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 3 - NOTES PAYABLE (Continued)
<CAPTION>
September 30
2000 1999
-------------- ---------------
<S> <C> <C>
Balance forward $ 1,372,037 $ 1,420,326
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. 9,615 13,766
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. 17,401 21,764
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. 59,256 72,175
Note payable to a bank, secured by property, interest at
8.0%, interest and principal payments of $1,447 due
monthly, matures June 2004. 55,958 68,221
Note payable to a bank, secured by property, variable Interest
rate, presently 9.5%, interest and principal payments
of $1,369.24 due monthly, matures September 5, 2005 65,000
Other notes payable 520 382
-------------- ---------------
Total notes payable 1,579,887 1,596,634
Less: current portion (176,823) (178,992)
-------------- ---------------
Long-term notes payable $ 1,403,064 $ 1,417,642
============== ===============
</TABLE>
Maturities of long-term debt are as follows:
Year Ending
March 31, Amount
2001 $ 160,584
2002 222,343
2003 236,469
2004 922,159
2005 21,613
2006 and thereafter -
--------------
Total $ 1,563,168
==============
13
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
September 30
2000 1999
-------------- ---------------
<S> <C> <C>
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
============== ===============
</TABLE>
NOTE 5 - LINE OF CREDIT
The Company has a line of credit with a bank. The line is secured by
commercial property under a deed of trust and mortgage and by a UCC
commercial security agreement, accrues interest at the bank's base
rate, currently 9.5% per annum, and has a maximum balance of
$1,000,000. The line is renewed annually and currently expires in
October, 2001. The balance outstanding on the line of credit at
September 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 September 30, 2000 and 1999
consisted of the following:
September 30
2000 1999
-------------- ---------------
Total $ 67,196 $ 97,034
Less: current portion (24,478) (33,080)
-------------- ---------------
Long-term portion $ 42,718 $ 63,954
============== ===============
The future minimum lease payments under these capital leases and the
net present value of the future minimum lease payments as of March 31,
2000 are as follows:
Year Ending
March 31, Amount
2001 $ 25,143
2002 20,907
2003 20,575
2004 9,789
2005 -
2006 and thereafter -
------------
Total future minimum lease payments 76,414
Less, amount representing interest (1,559)
------------
Present value of future minimum lease payments $ 74,855
============
14
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 7 - MAJOR CUSTOMERS AND SUPPLIERS
For the six months period ended September 30, 2000, two customers
generated sales in excess of 10% of the Company's total sales. Sales to
these two customers made up approximately 49% and 24%, respectively, of
total revenues for the six months ended September 30, 2000.
For the six months ended September 30, 1999, one customer in the
seafood processing and packaging segment generated sales in excess of
10% of the Company's total sales. Sales to that customer made up
approximately 13% of total revenues for the six months ended September
30, 1999.
The Company purchased product from two suppliers during the six months
ended September 30, 2000 that generated costs in excess of 10% of the
Company's total purchases. Purchases from these two suppliers made up
approximately 27% and 23%, respectively, of total purchases for the six
months ended September 30, 2000.
The Company purchased product from three suppliers during the six
months ended September 30, 1999 that generated costs in excess of 10%
of the Company's total purchases. Purchases from these three suppliers
combined made up approximately 45% of total purchases for the six
months ended September 30, 1999.
All significant sales and purchases that exceeded 10% during the
quarters ended September 30, 2000 and 1999 were in the seafood
packaging and processing segment.
15
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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 September 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 September 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 September 30, 2000.
16
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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 $ 84,903
2002 10,894
2003 10,894
2004 5,147
2005 -
2006 and thereafter -
-----------------
Total $ 111,838
=================
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
September 30, 2000 and 1999.
17
<PAGE>
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
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, 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 September 30, 2000. The agreement
is for one year, but can be extended annually at the agreement of the
parties.
18
<PAGE>
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 September 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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
AS OF AND FOR THE
SIX MONTH PERIOD ENDED SEPTEMBER 30,
INCOME STATEMENT
Percentage Percentage
2000 of Net Sales 1999 of Net Sales
----- ------------ ---- ------------
<S> <C> <C> <C> <C>
REVENUE: $ 9,211 100 % $ 7,546 100 %
OPER. EXPENSES $ 9,609 104 % $ 7,598 101 %
INCOME BEFORE
OTHER ITEMS $ (397) (4 %) $ (52) (1 %)
OTHER INC (EXP) $ (33) (0 %) $ (39) (0 %)
NET INCOME
BEFORE TAX $ (430) (5 %) $ (91) (1 %)
PROVISION FOR
INCOME TAX $ 0 $ 0
---------- ---------
NET INCOME $ (430) (5 %) $ (91) (1 %)
NET INCOME (LOSS)
PER SHARE(1) $ (0.03) $ (0.01)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
---------------------- --------------
<S> <C> <C>
BALANCE SHEET:
TOTAL ASSETS: $ 5,992 $ 5,484
LONG-TERM OBLIGATIONS:(2) $ 1,647 $ 1,608
TOTAL STOCKHOLDERS' EQUITY $ 3,191 $ 3,605
</TABLE>
(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.
These statements may be identified by the use of words and phrases such as
"believe", "expect", "anticipate", "should", "planned", "estimated", and
"potential", among others. 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.
Business Segments
Seafood Processing
Our core seafood packaging business of the company, which is conducted through
our Custom Pack subsidiary, provided 89% and 86% of revenues in each of the
first six months periods of the 1999 and 2000 fiscal years, respectively. The
core business volume at Custom Pack actually increased 18.5% when comparing
these two periods. The relative decline that is evidenced as a percentage of
total revenues is a function of greater revenue growth in other business
segments of the company.
Recreational Fishing Bait
Revenue growth from our Killer Bee Bait subsidiary has been strong for the first
six months, increasing 122% from $548,182 for the six months through September
30, 1999 to $1,214,490 for the comparable period in 2000. This has resulted from
both the growth in outlets to 566 and also from the late strength of ballyhoo
sales in the month of September. In order to position ourselves as a premium
supplier of ballyhoo, we had acquired Drag N Bait in June 1999, and also earlier
this year had expanded our contacts for this product from international sources.
However, availability of ballyhoo was extremely low in July and August
throughout the industry, and this factor adversely affected the performance of
Killer Bee during those critical sales months. In September we were able to
produce significant quantities domestically and acquire
20
<PAGE>
additional supplies internationally, which resulted in our largest sales month
in history for Killer Bee. We expect that ballyhoo sales will continue
throughout the fall months, even though sales of other bait products should
decline seasonally during that period.
Freshwater Shrimp Aquaculture
Revenues from our aquaculture division were not significant enough to impact
reported results for the first six months of the current fiscal year. For the
six months ending September 30, 1999, aquaculture revenues were only $19,454,
and for the current six months period, aquaculture revenues were $56,385, or
0.06% of total revenues for the company. However, contributions from this
business segment are expected to appear in future financial results next year,
because of our expanding capacities to grow freshwater shrimp.
On October 3, 2000 we announced the signing of an exclusive consulting agreement
with Aquaculture of Texas, Inc., which is expected to further enhance our
technological base to facilitate the growth of freshwater shrimp commercially in
the United States. More importantly, in this current fiscal year our aquaculture
division successfully demonstrated the commercial production of freshwater
shrimp by moving from small, test ponds to full scale production accommodating
approximately 80 acres in Wiggins, MS. The shrimp were successfully harvested
from our ponds, and the product produced favorable yields and margins, which
validated our business model for this segment. We are in the process of
expanding our capacities for hatching, nursing, and growing freshwater shrimp
over ten-fold for the next fiscal season. We are also pursuing potential joint
venture proposals, which could increase such expansion further if agreements can
be reached.
Results of Operations
Our company reported a consolidated net loss from operations for the six months
period ending September 30, 2000 of $430,172. The operations of our core
business were profitable, but Killer Bee contributed approximately $385,000 to
the reported loss figure and aquaculture operated at a $117,000 loss, as well.
Both of these areas reflect our company's planned investment in the future. The
unexpected shortage of ballyhoo, discussed above, contributed to the negative
results at Killer Bee. Additionally, the Killer Bee operations reflect the
increased levels of selling and administrative expenses which have been incurred
to increase sales activities. This has contributed to the 122% sales growth,
which we have experienced at Killer Bee, and we expect that continuing sales
growth will work to reduce these reported losses.
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.
21
<PAGE>
Net sales for the six months ended September 30, 2000 increased as compared to
the six months ended September 30, 1999 from $7,546,442 to $9,211,238, primarily
because of an increase in product sales amounting to $1,198,800 in the core
business segment. Management views this change as being a function of
fluctuating seasonal factors rather than an indication of a sales trend. On the
whole, core business operations continue to be viewed as stable.
Sales from Killer Bee increased 123% from $548,182 to $1,221,700 in comparing
the respective six month periods ending September 30. Killer Bee expanded from
serving under 100 accounts at September 30, 1999 to over 500 accounts at
September 30, 2000. Independent accounts increased to more than 400 in number,
and larger corporate retail accounts expanded to over 160, including 54 Wal Mart
and 32 K Mart locations in the Gulf Coast and Atlantic regions. The sales
increases were notably strong in the ballyhoo product, despite an industry-wide
shortage of supply in July and August. We were able to report strong September
ballyhoo sales, which contributed greatly to our reported results, because of
our ability to acquire abundant supplies from areas outside the traditional
Florida market sources. In the near future, we expected to see a seasonal
slowing in demand for bait products, but over-all, Killer Bee is continuing to
expand sales locations and should experience continued sales growth.
Expenses
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. Approximately18% 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.
The increase in cost of sales from $4,753,155 to $7,281,698 reflects the higher
volume of product sales in the core segment as well as the increased sales from
Killer Bee. Additionally, relatively higher prices that were paid for seafood
products in the September 30, 2000 period compared to the prevailing prices in
the September 30, 1999 period.
Selling, general and administrative expenses remained steady, and actually
recorded a reduction from $2,631,186 in the September 30, 1999 period to
$2,112,613 in the September 30, 2000 period, a decline of 20%. We believe that
the additional revenue growth, which is expected in upcoming quarters, can be
achieved without significant increases in administrative overhead.
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. Where operations of Co Mar had been discussed separately in previous
reports, all such operations are now being reported within the results of Custom
Pack.
22
<PAGE>
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 during the first
six months of the current fiscal year, and none are expected in the future.
Working Capital
As we continue to execute on our business plans for both Killer Bee and for our
aquaculture division, working capital requirements are expected to reflect
greater demands from those areas. 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. Additionally, the core business segment, which had not
required significant levels of inventory, has found it necessary to purchase
products in advance in order to fulfill customer needs. As a result, Custom Pack
inventories have shown an increase in this latest quarter. Killer Bee
inventories declined in the quarter in line with sales during the peak summer
fishing season, but should be restored in coming months. The balance sheet as of
September 30, 2000 reflects an increase in inventory to $834,597 from $641,708
at March 31, 2000 due primarily to the operations of Custom Pack.
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 six months of this
fiscal year, Custom Pack generated an increase in accounts receivable because of
an early start of the shrimp season and a need to acquire product in advance for
our customers. Custom Pack accounted for 83% of total accounts receivable at
September 30, 2000, which is proportionate to its contribution to total revenues
of the company.
As of September 30, 2000 the company maintained cash reserves of $611,454, and
current assets exceeded current liabilities by $2,365,585, or 175%. Current
liabilities increased from the figure at March 31,2000 to support a
corresponding increase in sales and trade accounts receivable.
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 the six months ending
September 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
23
<PAGE>
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.
Operating Activities
The Company's Consolidated Statement of Cash Flows reported $967,829 in funds
used by operating activities in the six months ended September 30, 2000 compared
to $1,163,233 used in operating activities in the September 30, 1999 period. The
primary factors involved increases in both accounts receivable of $1,021,309 and
inventory of $192,889 that accompanied an increase in accounts payable of
$461,956. The operating loss used $430,172 in funds, while Depreciation provided
$198,246.
24
<PAGE>
Investing Activities
Net investing activities in the six months ended September 30, 2000 consumed
only $183,158 in funds compared to $451,493 in funds used in the September 30,
1999 period. 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 September 30, 1999 period where $2,792,000 in proceeds from sale
of preferred and common stock and additional capital was contributed. In the six
months ended September 30, 2000 the only financing activities involved the
outflows relating to payments made on existing notes and leases plus additional
short term borrowings of $500,000.
25
<PAGE>
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
The Company's Annual Meeting of Stockholders was held on July 21, 2000,
pursuant to written notice and the Company's bylaws. The total number of the
Company's shares outstanding on July 14, 2000, the record date of the meeting,
was 13,124,046 of which 13,000,629 were present, in person or by proxy. The
following persons were nominated by management and each was elected to serve as
a director of the Company until the next annual meeting of stockholders:
Brent Gutierrez
Clayton F. Gutierrez
Frank C. Gutierrez
Anita K. Gutierrez
William Schofield
The following matters were submitted to stockholders and adopted by the
requisite vote of a majority of the shares present and voting on the matter:
26
<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
To approve the Company's 2000 Equity 6,280,798 179,326 99,800
Incentive Plan
For Against Abstain
--- ------- -------
To approve the adoption of new Bylaws 6,405,273 47,326 107,325
For Against Abstain
--- ------- -------
To ratify the selection of the Company's 12,711,646 46,123 72,050
independent certified public accountant
for the current fiscal year
</TABLE>
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
27
<PAGE>
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.
November 13, 2000 GLOBAL SEAFOOD TECHNOLOGIES, INC.
By: /s/ Brent Gutierrez
----------------------------------
Brent Gutierrez, President
and Chief Executive Officer
28
