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 April 30, 1999.
....Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] 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 June 5, 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 April 30, 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 - April 30, 1999
(unaudited)
<TABLE>
<CAPTION>
April 30,
1999
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 389,829
Accounts receivable (net) 51,029
Stock subscription receivable -
Inventory 535,677
Deposits and prepaid expenses 37,080
Total current assets 1,013,615
PROPERTY AND EQUIPMENT (net) 4,501,060
OTHER ASSETS (net) 96,000
TOTAL ASSETS 5,610,675
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 369,937
Other current liabilities 325,414
TOTAL CURRENT LIABILITIES 695,351
Long-term debt 2,580,483
TOTAL LIABILITIES 3,275,834
STOCKHOLDERS' EQUITY
Common stock - no par value
Authorized - 100,000,000 shares
Issued and outstanding -
4,105,450 shares as of April
30, 1999 5,158,794
Additional paid-in capital 175
Retained deficit (2,824,128)
TOTAL STOCKHOLDERS' EQUITY 2,334,841
TOTAL LIABILITIES and
STOCKHOLDERS EQUITY 5,610,675
</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 THREE MONTHS ENDED April 30, 1998 AND 1998
(unaudited)
<TABLE>
<CAPTION>
For the For the
three months three months
ended 4/30/99 ended 4/30/98
<S> <C> <C>
Sales 302,466 9,450
Cost of goods sold 339,342 9,588
Gross operating loss (36,876) (138)
General and administrative
expenses 562,317 285,148
Net loss (599,193) (285,286)
Accumulated deficit
Beginning of period (2,224,935) (861,705)
End of period (2,824,128) (1,146,991)
Loss per common
share (0.16) (0.11)
Weighted number of
shares outstanding 3,760,200 2,530,229
</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
THREE MONTHS ENDED April 30, 1999 and 1998
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
4/30/99 4/30/98
<S> <C> <C>
Cash flows from operating activities:
Net cash used in
operating activities (66,327) (218,863)
Cash flow from investing activities:
Net cash used in
investing activities (205,455) (471,010)
Cash flow from financing activities:
Net cash provided by
financing activities 225,000 1,430,937
Net increase (decrease)
in cash and cash
equivalents (46,782) 741,061
Cash and cash equivalents at
beginning of period 436,611 535,598
Cash and cash equivalents at
end of period 389,829 1,276,659
</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 - April 30, 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., 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 $2,400.78, 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.
The information included in this Form 10-QSB should be read
in conjunction with the Management's Discussion and Analysis of
Financial Conditions or Plan of Operations and financial statements
and notes thereto, included in the Company's Report 10-KSB dated
January 31, 1999.
For the period ending April 30, 1999, total stockholders'
equity decreased from $2,535,935 at year-end to $2,393,844. This
change included the conversion of 200,000 Warrants by a shareholder,
which increased common stock by 200,000 shares. This was offset
by operating losses during the quarter of $540,189 and an inventory
adjustment charge of $59,277, which management deemed necessary
to adjust finished inventories on hand to market value. Cash
decreased by $46,751 to $389,860 from the fiscal year end.
Inventory at the fiscal year end stood at $659,540 and
consisted almost entirely of shrimp being grown to a marketable size,
virtually no finished inventory was being held for sale a year end. At
the end of the current period, management determined the finished
inventory on had (freezer inventory) was being carried at a cost
higher than current market and wrote inventory down to current
market value. An analysis of shrimp ponds in production was also
conducted. This analysis indicated that certain production ponds,
which had been in production for an unusually long period of time,
were being carried at value higher than what could be realized by the
sale of these production units. A write-down of these production units
was also taken during the first quarter.
Property, plant and equipment increased from $4,206,815 to
$4,501,060 reflecting the further construction of production facilities
at Ceatech Plantations. This increase in fixed assets was financed by
draw downs on the long-term debt provided under the USDA
guaranteed bank loan. Accounts payable increased by $140,568 to
$370,211, reflecting increased working capital requirements associated
with production and construction.
COMPARISON OF PERIOD ENDING APRIL 30, 1998 TO APRIL
30, 1999:
The Company's production facilities were still in the
developmental stage during the first quarter of 1998, in contrast to
reaching operations status in the first quarter of 1999. Therefore, a
comparison of period to period results is not meaningful. For the
period ending April 30, 1998, sales revenue was negligible as opposed
to sale of $302,466 for the period ending April 30, 1999.
The balance sheet for April 30, 1999, was dramatically
different from the balance sheet for the comparable period in 1998.
At april 30, 1998, cash stood at $1,276,659 and total assets were
$3,351,946, the Company had no long-term debt and shareholder
equity was $3,331,887. At this point in time, the Company was in
the final stages of raising equity to implement its Business Plan. No
construction had been started at Ceatech Plantations. For the period
ending April 30, 1999, total assets stood at $5,669,984, which was
comprised of cash of $389,860; property, plant and equipment of
$4,501,060; and, long-term bank debt was $2,580,483.
The Company was projecting that its first operational quarter
would produce a loss. However, the size of the loss in the first
quarter ending April 30, 1999, was larger than anticipated.
The first harvests of shrimp took place in January, 1999, and
for the first time the Company actively engaged in the sale of product.
The Company's primary marketing strategy, as indicated on the
placement memorandum, envisioned the sale of fresh, head-on shrimp
to high end users, such as hotels, cruise ship lines, restaurants, etc.
Attempts to implement this strategy in the first quarter of 1999
showed that, while there is a considerable market for premium fresh
shrimp, reaching this market is difficult, mostly due to the short time
span that fresh head-on shrimp maintains a "premium" appearance and
quality. As a result, first quarter sales were much slower than
anticipated which, in turn, forced the Company to delay and stage
harvesting to accommodate low sales velocity. These delays in
harvesting resulted in production costs rising far beyond initial (and
future) projections without producing a concomitant increase in
revenues.
The Company leased a small handling and packing facility near
the town of Hanapepe and has made contractual arrangements with a
company in Honolulu on the island of Oahu to freeze a portion of its
harvests. However, it has become apparent that in order for the
Company to reach operational profitability, it will have to find or
acquire better processing facilities, as the current arrangement with
the Honolulu processor is proving to be too costly and inefficient from
the standpoint of the Company's present and future needs.
Management expects that it will be difficult to raise production and
sales levels to the point of making the Company profitable until
suitable processing facilities can be acquired. In view of this
situation, Management is scrutinizing other means of reducing costs
and expenses.
Although initial income and expense performance is
disappointing, Management is encouraged that the Company's
production technology and practices have proven to be sound and have
confirmed the Company's projected ability to produce as much as
40,000 pounds of shrimp annually from a one-acre pond.
Management also believes that, to date, its product has been well
received by consumers in both its fresh and frozen form.
In addition, in the latter part of 1998 and early 1999, the
Company made significant highly profitable sales of broodstock to
overseas and U.S. mainland shrimp hatcheries. In fact, the Company
could not meet the demand for its broodstock. As a consequence,
Management made a decision to dedicate two ponds (1 one-acre pond,
and 1 half-acre pond) to the production of broodstock available for
sale at prices ranging from $25 - $40 per animal. However, in March
and April, demand for broodstock fell dramatically due to the
widespread outbreak of "White Spot" virus in Western Hemisphere
producing nations and "Taura" virus in Asian producing nations.
While this development has temporarily halted broodstock and post
larvae sales by the Company, the resumption of those sales may still
be a viable source of revenue depending on whether animals
developed from Ceatech broodstock will reach maturity free of the
effects of the aforementioned viruses. If this occurs, broodstock sales
could resume in earnest in the second quarter.
Cost overruns in the construction at Ceatech Plantations, which
are not eligible for funding under the USDA guaranteed loan, have
had an adverse impact on the Company's working capital position.
At the end of the quarter, the Company was in the process of
arranging for additional financing to cover cost overruns in the
construction of the first 20 one-acre ponds and to make necessary
equipment purchases, and to pay for anticipated capital improvement
costs in outfitting a processing facility. One of the Company's major
investors, the Hotel and Restaurant Workers Union, exercised its
option to purchase stock pursuant to its warrants and acquired an
additional 200,000 shares of stock at $2.00 per share. The Company
has agreed to sell an additional 150,000 shares of common stock and
Class A Warrants to the Union in order to raise additional capital.
This purchase should take place early in the second quarter of the
year.
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 April 30, 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: June 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 389,829
<SECURITIES> 0
<RECEIVABLES> 51,029
<ALLOWANCES> 0
<INVENTORY> 535,677
<CURRENT-ASSETS> 1,013,615
<PP&E> 4,792,312
<DEPRECIATION> 291,252
<TOTAL-ASSETS> 5,610,675
<CURRENT-LIABILITIES> 695,351
<BONDS> 2,580,483
0
0
<COMMON> 5,158,794
<OTHER-SE> (2,823,953)
<TOTAL-LIABILITY-AND-EQUITY> 5,610,675
<SALES> 302,466
<TOTAL-REVENUES> 302,466
<CGS> 339,342
<TOTAL-COSTS> 339,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (599,193)
<INCOME-TAX> 0
<INCOME-CONTINUING> (599,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (599,193)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
