U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X...Quarterly report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 1999.
....Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to _________.
Commission File No: 0-25868
CONTROLLED ENVIRONMENT
AQUACULTURE TECHNOLOGY, INC.
(Name of small business in its charter)
Colorado 84-1293167
(State or other (IRS Employer Id. No.)
jurisdiction of Incorporation)
CEA TECH USA, Inc.
Airport Industrial Park
3375 Koapake Street, Ste. H402
______________________________________
Address of Principal Executive Office (street and number)
Honolulu, HI 96819
______________________________________
City, State and Zip Code
Issuer's telephone number: (808) 521-1801
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ..X.. No ....
Applicable only to issuers involved in bankruptcy proceedings during the
past five years:
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____
No ____
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,255,405 shares of
common stock outstanding as of July 31, 1999.
Transitional Small Business Disclosure
Format (Check one):
Yes ____ No X
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTROLLED ENVIRONMENTAL AQUACULTURE
TECHNOLOGY, INC.
and subsidiaries
Quarter Ended July 31, 1999
CONTROLLED ENVIRONMENTAL AQUACULTURE
TECHNOLOGY, INC.
and subsidiaries
Index to Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet
Consolidated Condensed Statement of Operations
and Accumulated Deficit
Consolidated Condensed Statement of Cash Flows
Notes to Consolidated Condensed Financial Statements
CONTROLLED ENVIRONMENTAL AQUACULTURE
TECHNOLOGY, INC.
and subsidiaries
CONSOLIDATED BALANCE SHEET - July 31, 1999
(unaudited)
<TABLE>
<CAPTION>
July 31,
1999
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 426,285
Accounts receivable (net) 242,954
Stock subscription receivable -
Inventory 652,342
Deposits and prepaid expenses 31,150
Total current assets 1,352,731
PROPERTY AND EQUIPMENT (net) 4,540,340
OTHER ASSETS (net) 96,000
TOTAL ASSETS 5,989,071
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 353,439
Other current liabilities 303,389
TOTAL CURRENT LIABILITIES 656,828
Long-term debt 2,802,076
TOTAL LIABILITIES 3,458,904
STOCKHOLDERS' EQUITY
Common stock - no par value
Authorized - 100,000,000 shares
Issued and outstanding -
4,255,405 shares as of July
31, 1999 5,758,794
Change in Accounting Method (98,189)
Additional paid-in capital 175
Deficit Accumulated During the (3,130,612)
development stage
TOTAL STOCKHOLDERS' EQUITY 2,530,167
TOTAL LIABILITIES and
STOCKHOLDERS EQUITY 5,989,071
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENTAL AQUACULTURE TECHNOLOGY, INC.
and subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED
DEFICIT FOR THE SIX MONTHS ENDED July 31, 1998 AND 1999
(unaudited)
<TABLE>
<CAPTION>
Three Three
Six months Six months months months
ended ended ended ended
7/31/99 7/31/98 7/31/99 7/31/98
<S> <C> <C> <C> <C>
Sales 650,529 58,384 348,063 48,934
Cost of goods sold 662,454 49,512 323,113 39,924
Gross operating profit (11,925) 8,872 24,950 9,010
General and administrative
expenses 991,941 553,757 429,323 268,607
Change in accounting
principle
Net loss (1,003,866) (544,885) (404,373) (259,599)
Deficit accumulated during the
development stage
Beginning of period (2,126,746) (851,393) (2,824,128) (1,146,993)
Preferred stock dividend - (20,624) (10,312)
End of period (3,130,612) 1,416,902) (3,228,501) (1,146,902)
Basic and diluted
loss per common share (0.26) (0.17) (.10) (.07)
Weighted number of
shares outstanding 3,935,178 3,302,200 4,007,825 3,614,950
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENTAL AQUACULTURE TECHNOLOGY, INC.
and subsidiaries
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE
SIX MONTHS ENDED July 31, 1999.
<TABLE>
<CAPTION>
Six months Six months
ended ended
7/31/99 7/31/98
<S> <C> <C>
Cash flows from
operating activities:
Net cash used in
operating activities (840,275) (5,245)
Cash flow from
investing activities:
Net cash used in
investing activities (367,999) (932,033)
Cash flow from
financing activities:
Net cash provided by
financing activities 1,197,948 239,687
Net increase (decrease)
in cash and cash
equivalents (10,326) (697,591)
Cash and cash
equivalents at
beginning of period 436,611 1,276,660
Cash and cash
equivalents at
end of period 426,285 579,069
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENTAL AQUACULTURE
TECHNOLOGY, INC.
(a development stage company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS - July 31, 1999
NOTE 1. Basis of Presentation
The information included in the consolidated condensed financial
statements is unaudited, but includes all adjustments (consisting of
normal recurring items) which are, in the opinion of management,
necessary for a fair representation of the interim period presented.
The consolidated statements include the accounts of Controlled
Environment Aquaculture Technology, Inc. (the "Company") and its
wholly-owned subsidiaries, Ceatech HHGI Breeding Corp., Ceatech
Plantations, Inc., Hawaii High Health Seafood, Inc., and Sunkiss Shrimp
Co., Ltd. All significant inter-company transactions and balances have
been eliminated in consolidation. The consolidated financial statements
and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1999.
NOTE 2. Interest and Income Tax Expenses
The Company paid interest in the amount of $2,699.98 and
incurred no income tax liability during the interim period presented.
NOTE 3. Development Stage Company
Since its inception, January 19, 1995, through the year ended
January 31, 1999, the Company was a development stage company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION.
OVERVIEW
Product production and the continuing construction activities at Ceatech
Plantations resulted in an operating loss of $404,373 for the quarter
ending July 31, 1999. Total Stockholder equity increased by $195,326
during the quarter as a result of the Company's receipt of $600,000 from
the sale of units consisting of common stock and warrants to an existing
shareholder.
For the six months ended July 31, 1999, the Company has sustained a
pre-tax net operating loss of $1,003,866. During that period, Total
Stockholder equity decreased slightly, from $2,535,935 to $2,530,167.
Total Assets for the Company, including its wholly-owned subsidiaries,
stand at $5,989,071 as of July 31, 1999, and consist primarily of
Property, Plant and Equipment of $4,450,340, Inventory of $652,342,
and Accounts Receivable of $242,954. Company liabilities include
primarily Long Term Debt of $2,802,076 which was incurred to finance
construction of twenty one-acre ponds and six half-acre ponds at Ceatech
Plantations. By the end of the Second Quarter, construction was
substantially completed and all ponds were producing.
Notwithstanding completion of the "grow-out" production ponds during
the period, results for the six months ending July 31, 1999 were not
consistent with Management expectations. The production facilities,
including both the ponds and the Company's "state of the art" hatchery
have proven to be capable of operating in accordance with the
Company's business plan. However, sales during the period were
substantially lower than projected. Management's 1999 operating plan
for the period projected "break-even" results before tax, based on sales
of approximately $1,600,000. Actual sales for the period were only
$650,520, and as a result, the Company incurred a substantial operating
loss.
Comparison of the Period Ending July 31, 1999 to July 31, 1998
Management does not consider a comparison of period to period results
to be substantially meaningful because the Company's production
facilities were still in the development stage during the first six months
of 1998 and did not become operational until February, 1999. For the
six-month period ending July 31, 1998 sales revenue was negligible, at
$58,384, as compared to sales revenue of $650,529 for the six-month
period ending July 31, 1999. Also, the Company's balance sheet at July
31, 1999 is substantially different from its balance sheet as of July 31,
1998.. At July 31, 1998, construction of the hatchery was under way at
Ceatech HHGI, but no construction yet had been started at Ceatech
Plantations. As a result, at July 31, 1998 cash assets stood at $579,069,
Property Plant and Equipment were $2,617,713, and Inventory was
$352,004. At that time, the Company had no long-term debt and
Shareholders Equity was $3,337,766.
As of July 31, 1999 the Company has substantially completed all planned
construction and its facilities are in operation. At July 31, 1999, the total
assets against long term debt are as stated in the above Overview.
Plan of Operations
Notwithstanding the development of a "state of the art" hatchery and
"grow-out" production ponds, results for the fiscal six months ending July
31, 1999 have disappointed Management. The primary area in which
Management must focus its efforts for the remainder of the current fiscal
year is increasing sales by finding and developing more adequate
resources and outlets for processing, distribution and marketing of the
Company's products.
The business plan outlined in the Company's Private Placement
Memorandum was to move the majority of the Company's production to
the US mainland for processing and sale. That plan has not been
achieved. Instead, sales efforts have focused primarily on the local
Hawaiian market. In that market, general acceptance of the product has
been uniformly favorable and exciting. However, the local market is not
large enough to enable the Company to reach sustaining levels of sales.
The process of preserving the high standard for the product while it is in
channels of distribution to the U.S. mainland, and then marketed on the
mainland, is part of management's broadened focus, because of the
obvious exponentially larger market base the mainland provides.
Delays in harvesting are in the process of being addressed, and, to
recover the impetus of the original business plan, a broader and more
focused distribution and marketing program is being implemented.
Distribution and marketing are now key to obtaining the results expected
by management and shareholders, alike. While the Company's original
goals are being re-implemented, it is management's plan to continue its
efforts to optimize the production out put of our existing facilities,
The Company will require additional working capital funds, until such
time as cash flow reaches levels sufficient for the Company to be
self-sustaining. Sources of additional funding which management is
exploring include the Company's existing banking and investment
relationships. However, there is no assurance that the Company will be
able to obtain the additional working capital which will be required, or
that it will be able to obtain such working capital on terms which
Management deems acceptable.
In its analysis of the First and Second Fiscal Quarter results for the
period ending July 31, 1999, management has given renewed assessment
to the import of the roles originally played by the Company's founders.
Two of the three original founders survive and remain dedicated to the
company; the third is recently deceased.
Founder, Ernest K. Dias filled an important role in the early stages of the
Company's development in conjunction with the engineering and
construction of the Company's production facilities which are critical to
maintenance of the uniquely high quality of the Company's Hawaiian
Plantation Shrimp product. Mr. Dias continues to oversee quality and
production control which provides the Company its signature brand of
quality shrimp. Ronald L. Ilsley, Chairman and Chief Financial Officer,
whose financial, investment banking, and public company leadership
experience has guided the Company during the critical initial fund-raising
and start-up phase, will continue to be an invaluable resource for the
Company's future growth.
The illness and untimely death of former Chief Executive Officer, Mr. J.
Albert Garcia, in January 1999, resulted in the loss to the Company of
the executive whose role had been crucial to the development and
implementation of the original business plan. Mr. Garcia's death has had
a negative impact on the Company, sufficient for management to
determine that it would be appropriate for the Company to maintain "key
man" insurance on members of management to help offset the financial
impacts of any future untimely interruption in leadership. The Company
is currently seeking to arrange the purchase of a key man policy through
a highly rated provider.
In summary, with production of the high quality product now exceeding
existing local Hawaiian outlets for distribution and marketing, the
correction of the Company's course, and the resumption of its original
business plan targets, are being pursued through a new emphasis on
broader and more focused distribution and marketing programs for the
mainland markets.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This report contains various forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this report, the words
"believe," "expect," "anticipate," "estimate" and similar expressions are
intended to identify forward-looking statements. Such statements may
include statements regarding completion of construction of facilities,
commencement of operations, operation and expansion of facilities,
planned levels of shrimp production, marketing matters, and the like, and
are subject to certain risks, uncertainties and assumptions which could
cause actual results to differ materially from projections or estimates
contained herein. Factors which could cause actual results to differ
materially include, among others, unanticipated delays or difficulties in
completion of construction of facilities, lack of adequate financing,
unexpected problems in obtaining licenses or permits, environmental costs
and risks, competition and changes in market conditions, unanticipated
problems or difficulties in operation of facilities, lack of adequate
personnel, changes in project parameters as plans continue to be refined,
and the like. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially form those anticipated, estimated or projected.
The Company cautions again placing undue reliance on forward-looking
statements all of which speak only as of the date made.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
July 31, 1999.
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.
CONTROLLED ENVIRONMENTAL AQUACULTURE
TECHNOLOGY, INC.
(Registrant)
/s/____________________________________________
Ronald Ilsley, Acting Chairman of the Board and
Chief Financial Officer
Date: September 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JUL-31-1999
<CASH> 426,285
<SECURITIES> 0
<RECEIVABLES> 242,954
<ALLOWANCES> 0
<INVENTORY> 652,342
<CURRENT-ASSETS> 1,352,731
<PP&E> 4,803,501
<DEPRECIATION> 263,161
<TOTAL-ASSETS> 5,989,071
<CURRENT-LIABILITIES> 656,828
<BONDS> 0
0
0
<COMMON> 5,758,794
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,989,071
<SALES> 650,529
<TOTAL-REVENUES> 0
<CGS> 662,454
<TOTAL-COSTS> 991,941
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,003,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,003,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,003,866)
<EPS-BASIC> (0.26)
<EPS-DILUTED> 0
</TABLE>
