U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
X...Quarterly report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 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 Koapaka Street, Ste. H402
______________________________________
Address of Principal Executive Office (street and number)
Honolulu, HI 96819
______________________________________
City, State and Zip Code
Issuer's telephone number: (808) 836-3707
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 October 31, 1999.
Transitional Small Business Disclosure
Format (Check one):
Yes ____ No X
CONTROLLED ENVIRONMENT AQUACULTURE
TECHNOLOGY, INC and Subsidiaries.
Index
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
[S]
Consolidated Condensed Balance Sheet
October 31, 1999
Consolidated Condensed Statements of Loss
Quarter and Three Quarters Ended
October 31, 1999 and October 31, 1998
Consolidated Condensed Statements of Cash Flow
Three Quarters Ended October 31, 1999 and
October 31, 1998
Notes to Consolidated Condensed Financial Statements
CONTROLLED ENVIRONMENT AQUACULTURE TECHNOLOGY, INC and
Subsidiaries.
CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
October 31, 1999
(unaudited)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 2,868
Restricted Cash 360,411
Accounts receivable 222,091
Inventory 687,326
Prepaid expenses 44,362
Other current assets 14,900
Total current assets 1,331,958
Ponds, buildings and
equipment - net 4,561,471
Other assets 52,500
Total assets 5,945,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 399,921
Accrued expenses 10,480
Current portion of
long-term debt 24,360
Current notes payable 285,000
Other current liabilities 63,722
Total current liabilities 783,483
Equipment loan 68,890
Construction loan 2,871,452
Total Long-term debt 2,940,342
Total liabilities 3,723,825
Commitments and contingencies -
Stockholders' equity
Common stock - no par value
Authorized - 100,000,000 shares
Issued and outstanding -
4,255,405 shares as of October
31, 1999 5,758,794
Additional paid-in capital 2,075
Retained deficit (3,538,765)
Total stockholders' equity 2,222,104
Total liabilities and
stockholders' equity 5,945,929
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENT AQUACULTURE TECHNOLOGY, INC.
and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(unaudited)
<TABLE>
<CAPTION>
Quarters ended Three quarters ended
October 31, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales 521,273 152,726 1,202,303 211,110
Cost of sales 433,742 98,722 1,254,068 148,324
Gross profit (loss) 87,531 54,004 (51,765) 62,876
General and administrative
expenses 323,476 390,670 1,192,347 961,821
Operating loss (235,945) (336,666) (1,244,112) (898,945)
Asset impairment loss (43,500) - (43,500) -
Interest income
expense, net (30,519) 6,793 (26,218) 24,187
Loss before income
tax benefit (309,964) (329,873) (1,313,830) (874,758)
Income tax benefit - - - -
Net loss (309,964) (329,873) (1,313,830) (874,758)
Loss per common share (0.07) (0.07) (0.31) (0.22)
Weighted number of
shares outstanding 4,255,405 3,614,950 4,255,250 3,614,950
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENT AQUACULTURE TECHNOLOGY, INC and
Subsidiaries.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
October 31,
1999 1998
<S> <C> <C>
Operating Activities
Net Loss (1,313,830) (874,758)
Adjustment to net loss
Asset impairment loss 43,500 -
Depreciation and
amortization 42,049 38,775
Changes in operating
assets and liabilities
Restricted cash 14,420 -
Accounts receivable (159,406) 9,732
Inventory (27,386) (179,641)
Prepaid expenses (21,985) (47,358)
Other current assets (3,086) -
Other assets 1,900 (14,615)
Accounts payable 170,278 285,222
Accrued expenses (10,019) 48,701
Other current liabilities 5,784 -
Cash flow from (used in)
operating activities (1,257,781) (734,482)
Investing activities
Capital expenditures (396,705) (2,294,556)
Cash flow from (used in)
operating activities (396,705) (2,294,556)
Financing activities
Conversion of Class A
warrants 400,000 -
Sale of Common Units 600,000 1,670,450
Proceeds from
construction loan 442,324 1,147,706
Net proceeds from
equipment loan 93,250 -
Proceeds from current
notes payable 60,000 175,000
Cash flow from (used in)
operating activities 1,595,574 2,993,156
Increase (decrease) in cash
and cash equivalents (58,912) (35,882)
Cash and cash equivalents at
the beginning of period 61,780 535,598
Cash and cash equivalents at
end of period 2,868 499,716
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
CONTROLLED ENVIRONMENT AQUACULTURE TECHNOLOGY,
INC and Subsidiaries.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS - October 31, 1999
1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements of Controlled Environment Aquaculture
Technology, Inc. (the "Company") include all adjustments (consisting
only of normal recurring adjustments) considered necessary to present
fairly its financial position as of October 31,1999, and the results of
operations and cash flows for the periods ended October 31,1999.
Certain prior period amounts have been reclassified to conform with the
1999 presentation. The results of operations for the quarter and three
quarters ended October 31,1999 are not necessarily indicative of the
results to be expected for the full year or for any future period.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-
company transactions and balances have been eliminated in
consolidation. The consolidated condensed financial statements and
notes included herein should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1999.
2. Development Stage Company
Since its inception, January 19, 1995, through the year ended
January 31, 1999, the Company was a development stage company as
defined by Statement of Financial Accounting Standards No.7 -
Accounting and Reporting by Development Stage Enterprises.
3. Going Concern
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern.
Since inception in January 1995, the Company has sustained substantial
operating losses and incurred significant debt. The future funding of such
losses and the funding necessary for expansion are critical to the
continuation of the Company as a going concern. The inability of the
Company to obtain such financing on acceptable terms could have a
material adverse impact on the Company's operations and its ability to
continue as a going concern.
4. Asset Impairment Loss
During the quarter ended October 31, 1999, the Company
determined that certain non-inventory assets had no value, and
accordingly, recognized an asset impairment loss of $43,500.
4. Restricted Cash
Restricted cash includes a $250,000 certificate of deposit pledged
as security for the repayment of the Central Pacific Bank outstanding
revolving loans. In addition, the Bank of America construction loan
requires retention of certain undisbursed portions of designated
construction cost line items.
5. Current Notes Payable
On March 1,1999, a shareholder and officer of the Company
advanced the Company $50,000. This promissory note is due and
payable on February 2, 2000, together with interest on any unpaid
balance thereof at an annual interest rate of 10%. However, the
Company may, at its option, extend the maturity of the promissory note
for an additional ninety days from such date. The promissory note may
be prepaid in whole or in part at any time without penalty.
Subsequent to the quarter ended October 31, 1999, the same
shareholder and officer referred to above advanced the Company
$225,000. This promissory note is due and payable on February 2, 2000,
together with interest on any unpaid balance thereof at an annual interest
rate of 9.75%. However, the Company may, at its option, extend the
maturity of the promissory note for an additional ninety days from such
date. The promissory note may be prepaid in whole or in part at any
time without penalty.
On May 5, 1998, the Company entered into a revolving credit
agreement, as amended, with Central Pacific Bank in the amount of
$235,000, secured by a $250,000 Central Pacific Bank certificate of
deposit At October 31, 1999 the outstanding balance on the line of credit
was $235,000. The expiration date on the revolving credit agreement, as
amended, is May 5, 2000, at which time the full unpaid principal
balance together with interest thereon, is due and payable in full. Interest
on the outstanding borrowing accrues at 1.50% above the Central Pacific
Bank certificate of deposit interest rate.
6. Equipment Loan
In June 1999, the Company entered into an installment sale
contract with Pacific Machinery, Inc. to acquire two Caterpillar
generators for $116,250 with a cash down payment of $17,400. The
installment loan, which is secured by the generators, was provided by
Caterpillar Financial Services Corporation and is payable in 60 equal
monthly installments of $2,030.
7. Construction Loan
On September 9, 1998, the Company entered into a construction
loan agreement ("Construction Loan") with the Bank of America which
provided for advances of up to a maximum principal amount of
$3,000,000. The proceeds from the Construction Loan were used to
construct certain improvements, including self-constructed maturation
ponds and buildings on real property owned in leasehold by the
Company.
As of October 31, 1999, the principal balance outstanding on the
Construction Loan was $2,871,452 and the improvements were
substantially complete. The current annual interest rate on the
Construction Loan is Bank of America's Reference Rate plus 2.0%.
During the nine months ended October 31,1999, the Company
capitalized approximately $81,000 of Construction Loan interest to the
related improvements.
Under the terms of the Construction Loan, the Company must,
among other things; 1) maintain a minimum tangible net worth of
$2,000,000; 2) not declare or pay out any dividends to its shareholders
during the term of the loan; 3) not repurchase treasury stock and make
no cash transfers to shareholders, and 4) not exceed a ratio of 1.7 to 1
of total senior liabilities to total net worth.
The United States Department of Agriculture, Rural Business-
Cooperative Service has provided Bank of America with a 90% loan
guarantee. In addition, the Company and its subsidiaries have pledged
substantially all of their assets as collateral for the loan.
The Company intends to convert the Construction Loan to a
Permanent Loan in accordance with the loan agreement. The Permanent
Loan would provide for monthly payments over a period of seven years
and a balloon payment may be due at the end of the seven-year
amortization period. The interest rate on the Permanent Loan for the
first two years would be based on Bank of America's Reference Rate
plus 2.0% per year. Such rate would be subject to quarterly adjustments.
From years three through seven, the interest rate would be based on the
most recently auctioned United States Treasury Bond or Note plus
2.75%.
8. Stockholders' Equity
As of October 31, 1999, the Company had 4,255,405 shares of
common stock outstanding, together with 2,760,149 Class A Common
Stock Purchase Warrants ("Class A Warrants") exercisable at $2.00 per
share. Exercise of the warrants may have an adverse effect upon the
trading price of and market for the Company's common stock. In
addition, the Company is currently contemplating an additional equity
offering. The issuance of these additional shares may further dilute the
interests of the current shareholders and could reduce their proportionate
ownership and voting power in the Company.
In May 1999, an existing shareholder purchased an additional
150,000 units at $4.00 per unit, each of which consisted of one share of
the Company's common stock and one Class A Warrant to purchase one
additional share of common stock at a price of $2.00. Total proceeds to
the Company were $600,000, which were primarily used for working
capital purposes.
Additionally, in March 1999, the same shareholder exercised
200,000 Class A Warrants it held to purchase 200,000 shares of the
Company's common stock at an exercise price of $2.00. Total proceeds
to the Company were $400,000.
9. Loss Per Common Share
Loss per common share is computed using the weighted average
number of common shares outstanding during the period. The
outstanding Class A Warrants were not dilutive and, therefore, did not
impact loss per common share during the periods presented.
10. Dividends
Under the terms of the Construction Loan, the Company may not
declare or pay out any dividends to its shareholders during the term of
the loan. Accordingly, the Company did not pay cash dividends on its
common stock during the quarters ended October 31, 1999 and October
31, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Except for the historical financial information contained herein,
the following discussion and analysis may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such statements include declarations regarding the
intent, belief or current expectations of the Company and it's
management. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve
a number of risks and uncertainties. The Company's actual results could
differ materially from those indicated by such forward-looking
statements. Among the important factors that could cause actual results
to differ materially from those indicated by such forward-looking
statements are: 1) risks associated with the Company's working capital
position and the repayment or refinancing of its existing indebtedness;
2) risks associated with the Company's ability to obtain additional
financing for expansion and working capital needs under satisfactory
terms; 3) risks associated with high capital investment and related
carrying costs; 4) risks associated with unanticipated delays or
difficulties in the completion of the planned sorting, packaging, and
freezing facilities; 5) risks associated with the lack of adequate land for
expansion; 6) risks associated with unanticipated delays or difficulties in
the completion of ten to twelve additional shrimp ponds;7) risk of natural
disasters; 8) risks associated with environment, conservation, permits,
licenses, and other regulatory matters; 9) loss of key personnel; 10) risks
associated with changes in market conditions; 11) variability in quarterly
operating results; 12) other risks identified from time to time in the
Company's reports and registration statements filed with the Securities
and Exchange Commission.
The following discussion of results of operations and financial
condition should be read in conjunction with the Consolidated Condensed
Financial Statements and related Notes thereto contained in Item 1. -
Financial Statements.
Overview
In the third quarter, the Company has continued to concentrate
its efforts in two major areas, the first being the farming and sale of
premium quality shrimp from the Company's modern and unique
aquaculture pond system and the second being the breeding and
production of high health, selectively bred shrimp broodstock and seed
for the Company's farm and for sale to commercial breeders and
growers throughout the world. The shrimp farm operated its 20 grow out
ponds at full production capacity during the quarter, and per pond
production yields were very encouraging, occasionally exceeding by
more than 20% the yields projected at the inception of the venture.
However, production costs were significantly higher than anticipated, in
large measure due to increased feed and power costs caused by lengthy
delays in harvesting due to the unavailability of adequate facilities for
sorting, packaging and freezing full pond harvests. Furthermore, despite
strong demand for product, sales revenues were well short of
expectations for reasons which will be discussed below. As a result, the
Company continued to have operating losses, despite its current farm
operations being at full production capacity. Some of the losses from
farming operations were offset by revenue earned from sales of hatchery
products, especially broodstock, late in the quarter. For most of the
quarter, however, there were few sales of hatchery products due to the
ongoing adverse effects of disease at major shrimp farming operations
in other parts of the world which temporarily interrupted demand. As
shrimp farms in parts of Asia and South America resumed operations,
however, demand for the Company's broodstock returned and appears
to be increasing steadily entering the fourth quarter. The Company did
anticipate the increase in demand and is poised to take advantage of
growth in this highly profitable but volatile segment of the shrimp
aquaculture business.
Because of the experience of being able to operate at full
production, third quarter operating results have been instructive to
management as to the inherent requirements for converting the
Company's sophisticated but capital intensive aquaculture technology into
a profitable aquaculture enterprise. Management is confident that the
critical steps to enterprise success have now been properly identified. In
general terms, (i) the Company must develop and have a facility for
sorting, packaging and freezing its farm product which enables the
Company to handle farm harvests more efficiently and to respond
effectively to the distribution requirements of different segments of the
market for its product; (ii) the Company must construct and put into
production at least 12 more grow out ponds which will enable the
Company to significantly increase revenue generating product at
significantly lower incremental production costs; (iii) the Company must
continue to refine and develop marketing strategies and distribution and
sales arrangements for the sale of increased production anticipated from
the operation of more ponds; and (iv) the Company must continue its
aggressive efforts to expand the client base and highly profitable sales of
its hatchery broodstock lines. The severity of third quarter operating
losses added to the losses sustained over the past year dictates to
management that these steps be implemented at once, and management
is fully committed to doing so, provided sufficient capital resources can
be found.
As a result of hard lessons learned during the Company's
incipient production and marketing stages, the current marketing strategy
for farm raised shrimp differs markedly from the initially conceived plan
to sell virtually all of the Company's product to distributors and end
users on the U.S. mainland in fresh, chilled, whole (i.e., with head on)
form. The present marketing plan recognizes that, although fresh, chilled
whole shrimp is clearly the most profitable form of the product for sale,
the short "shelf life" of unfrozen whole shrimp makes it difficult and
highly risky for the Company at this stage of its development to market
fresh, chilled, whole shrimp on the U.S. mainland or abroad in any
significant quantities. Accordingly, for the time being, the marketing of
fresh, chilled, whole shrimp is concentrated in Hawaii, rather than in the
continental U.S. On the mainland, the Company actively pursues sales
of its product in fresh, chilled, tail-only form, which has a significantly
longer effective shelf life than fresh, chilled, whole shrimp. Fresh,
chilled tails are now being sold in specialty seafood stores and outlets in
several major west coast cities as well as a limited number of specialty
food outlets in the midwest and east coast. Management is vigorously
pursuing the market for fresh, chilled tails through various arrangements
with distributors and expects that this market will expand steadily
heading into the fourth quarter and beyond. So as not to undercut local
demand for fresh, chilled whole shrimp, the Company does not sell
fresh, chilled tail-only shrimp in the Hawaii market.
The present marketing plan also recognizes that although selling
shrimp in fresh chilled form serves the Company's effort to promote and
maintain recognition of its product as being of premium quality justifying
a premium price, the bulk of farm shrimp sales is and will continue to
be in frozen form. Currently, the Company sells frozen product both
locally and on the mainland, primarily the west coast. The Company has
received serious inquiries and is exploring potential sales of frozen
product in both Europe and Asia, Japan in particular. Relative to the size
of the Company's production, both now and in the foreseeable future,
the demand for high quality frozen product is inexhaustible, and there
has been no shortage of demand for the Company's production.
Management has taken a cautious approach to marketing its
shrimp in frozen form because of management's view that the
Company's long term growth and economic well-being depend upon
continued public differentiation of its product from shrimp generally
available in the commodity market. Management believes that it is
important to foster and maintain market acceptance of the Company's
shrimp, even in frozen form, as a premium product commanding a price
substantially higher than the price of shrimp generally available in the
commodity market. Accordingly, the Company is currently working with
the largest distributor of seafood products in the State of Hawaii
primarily because of this distributor's willingness to work closely with
management in product promotions designed to fetch premium pricing.
Similarly, management's selection of other distributors located on the
U.S. mainland has been and continues to be based primarily on
management's confidence that a particular distributor's customer base
and plan of distribution will compliment the Company's basic strategy
of marketing a premium product.
Even under the self-imposed marketing constraints described
above, there is ample demand for the Company's product, and the
Company has been able to sell all of its harvested production as premium
quality product, whether in fresh chilled or frozen condition.
Unfortunately, the first nine months of farm operations and marketing
results in 1999 have shown that production from the existing 20 ponds
is not enough to generate sufficient sales revenue to cover the
Company's recurring operational and administrative expenses and to
carry and amortize capital improvement debt. Moreover, generation of
sales revenues is hampered by lack of access to adequate facilities to
prepare freshly harvested shrimp for efficient and cost-effective delivery
to various segments of the market. Indeed, the lucrative markets in Asia
and Europe alluded to above are presently closed to the Company
because at current levels of production and processing capability, the
Company cannot supply enough product to gain access to those markets.
In view of the fact that the original business plan for the
Company projected that the most economically efficient farm size would
be 52 ponds or some larger multiple of 26, it is not surprising that
expansion of the farm beyond the present 20 ponds appears necessary for
the farm operation to reach a level of economic self-sufficiency.
Assuming healthy market acceptance of the end product, such larger
scale farm operations would enable the Company to take maximum
advantage of the economies of scale inherent in the capital intensive, but
extraordinarily labor efficient, shrimp production technologies upon
which the business is based. Given the per pond production levels and
apparent market acceptance of the Company's shrimp demonstrated in
the first nine months of operations and the third quarter in particular, it
is these same economies of scale which lead management to believe that
expansion of the farm will turn the Company into a successful and
profitable enterprise.
The Company currently has three separate land areas in the
Kekaha district of the Island of Kauai available for its use. Hatchery
operations are located on a 5.2 acre parcel under lease from the State of
Hawaii Department of Land and Natural Resources until 2029. From the
very outset, the facilities at this site were sized to be fully capable of
providing enough "seed" to sustain farm operations at the 52 pond level,
while at the same time continuing to meet outside sales demand for
hatchery products. Moreover, relatively minor and inexpensive
renovations to these facilities would enable the hatchery to provide seed
support for a farm of more than 100 ponds. The Company's existing 20
pond farm operation is located on 14 contiguous parcels of land
comprising 106 acres within a State owned and designated agricultural
park site known as the Kekaha Agricultural Park. These parcels are
leased from the State of Hawaii Department of Agriculture for a term of
45 years. Unused portions of the land already under lease will permit
expansion of the farm to 32 ponds. There are several more parcels
within the agricultural park which the Company might obtain and which
would permit expansion of the farm to 38 - 42 ponds depending on how
many and which of the parcels can be acquired. The Company also has
rights to a separate 313 acre site under a Revocable Permit with
Immediate Right of Entry from the aforesaid Department of Land and
Natural Resources, but management is not actively contemplating
expanding farm operations into this area at this time due to its distance
from existing operations.
Under these circumstances, management is giving immediate
consideration to expansion of the farm to 32 ponds on the agricultural
park land already under lease from the State of Hawaii, as such
expansion raises no land acquisition or permitted use issues and will
entail the least development costs. The Company currently estimates that
the development costs of this expansion will be approximately $1.5
million. In the intermediate term, management believes that expansion
to anywhere from 38 to 42 ponds on parcels also located within the
agricultural park would be the most cost effective and least risky pursuit,
since the parcels needed to be acquired for such expansion abut existing
operations. As part of a long term plan for expansion, the management
favors acquiring additional land adjacent to but not a part of the
agricultural park in order to take full advantage of the infrastructure
expenditures already incurred in the development of the present farm.
Expansion to land adjacent to the agricultural park site would raise
numerous acquisition and permitting issues which are beyond the useful
scope of discussion for the purposes of this report.
The development of more ponds would also benefit the Company
by enabling the Company to devote, if called for, more of its resources
to the production of high health broodstock in order to take full
advantage of the recent resurgence in the highly profitable market for
hatchery products. The Company is encouraged by signs that in response
to catastrophic crop losses suffered in the past year as a result of disease,
more and more shrimp operations around the world are moving to
combat introduction of disease into their systems by improving
biosecurity measures at their hatcheries, implementing more stringent
controls on the importation of live shrimp, such as broodstock and post
larvae seed animals, and increasingly relying on the importation of
proven SPF (specific pathogen free) broodstock and hatchery animals
selectively bred and raised in highly controlled disease free conditions.
Moreover, relative to the growing demand for SPF broodstock,
particularly in Asia, the Company has few competitors, and the
Company's animals are highly regarded by knowledgeable brokers and
commercial hatchery operators throughout the shrimp aquaculture
industry. In addition, the Company has developed a line of shrimp with
genetic resistance to a particular virus which has had a considerable and
widespread impact on the industry, and this line has displayed
exceptional resistance to the virus in clinical trials and produced good
results in field trials conducted in an area formerly affected by the virus.
The Company has also secured a USDA-APHIS Certification for
shipments of live, SPF animals to China, which to management's
knowledge is the first time such a certification has been given for marine
shrimp export. Thus, the Company occupies a strong position in the
market for broodstock and hatchery products, and expansion of its
facilities will enhance this position by affording the Company increased
capability and flexibility to capture a larger share of this market as it
expands.
As in the marketing of its food shrimp, the Company has adopted
a cautious approach to marketing its hatchery products by targeting
farms and commercial hatcheries which supply farms whose operations
are isolated from disease and/or whose aquaculture methods include
controls to prevent the introduction of disease. With this strategy, the
Company hopes to maintain the present high levels of user confidence
in the quality and performance of the Company's animals and to further
develop a solid core of repeat customers. Nevertheless, while
management is encouraged by the prospect of being able to increase
revenues through sales of hatchery products, especially broodstock,
vigorous pursuit of this market is necessarily tempered by the fact that
the market has been volatile and is laden with risks which are too great
for the Company to rely on this segment of the shrimp aquaculture
business as the Company's primary source of revenue.
Hence, increasing farm production to levels which will enable the
farm operation to become profitable remains the primary consideration
for expansion of the grow out facilities. To that end, expansion of the
farm site must be predicated on the Company's also having reasonable
access to adequate facilities for handling and preparing harvested shrimp
for distribution to the marketplace. As indicated previously, the original
business plan assumed that virtually all of the Company's product would
be marketed in fresh, chilled, whole form, and, therefore, no provisions
were made to develop and properly equip a facility for sorting, packing
and freezing high volumes of freshly harvested shrimp. Consequently,
as the unacceptable risks of trying to sell large quantities of fresh,
chilled whole shrimp became apparent soon after harvesting began in
January of 1999, the Company was forced to avail itself of whatever
facilities were immediately available to prepare and package harvested
shrimp in more widely marketable forms (i.e., fresh, chilled tails and
frozen whole and frozen tails). The sorting of shrimp (by size), de-
heading and packing for shipment to distributors or for shipment to Oahu
for freezing has been done in a small facility located in the nearby town
of Hanapepe on the Island of Kauai, which was formerly used for
processing and selling local fish products. Freezing has been done at a
small, independently owned freezing and packing plant in Honolulu,
whose limited size only allows the Company to freeze approximately
2,000 pounds of product per day, three days per week, and whose
schedule sometimes prevents the Company from freezing any product for
given periods of time.
The limited size of the Kauai preparation and packaging facility,
together with the limited availability of the Honolulu freezing and
packing plant, forms an operations bottleneck which greatly reduces
harvesting efficiency and thereby increases production costs. The
Company's pond system was designed so that at the end of a growing
cycle, which has been scientifically calculated (and proven) to optimize
production efficiency, the contents of an entire pond could be harvested
in a matter of hours. The preparation and packaging facility is not large
enough to safely handle the one time harvest of an entire pond, and the
freezing schedule imposed by the Honolulu freezing and packing plant
places additional constraints on quantities of shrimp that can be harvested
at any given time. As a consequence, the Company has not been able to
take advantage of the rapid, mechanically efficient harvesting methods
designed into the infrastructure of the farm and has been forced to
harvest in increments, using more labor intensive traditional methods.
Moreover, ponds that should have been harvested completely and then
immediately restocked to start a new crop cycle have had to be
maintained for much longer periods of time to complete harvesting,
thereby substantially increasing production expenses, especially for feed
and electric power. Obviously, transportation and storage costs
associated with having to ship freshly harvested shrimp to Honolulu for
freezing have also added significantly to the costs of preparing shrimp
for the market.
Furthermore, the limited availability and freezing capacity of the
Honolulu packing plant has adversely affected the Company's ability to
service certain customer's with high volume orders for frozen product,
in certain cases negatively affecting cash flow by slowing inventory
turnover, and in other cases altogether preventing the Company from
gaining access to lucrative markets. To fill a large order for frozen
product of a particular size, while at the same time continuing to meet
the ongoing requirements of its regular customer base, the Company
must stockpile as much product of suitable size as the limited freezing
schedule permits until it has accumulated enough inventory to complete
the order. The process of accumulating sufficient inventory may take
several weeks or more, and for many potential high volume customers,
such delay and uncertain timing of supply is unacceptable.
Thus, both the Kauai facility and the present arrangement with
the Honolulu packing plant are inadequate to efficiently handle the
production from the Company's existing 20 ponds and present an
absolute barrier to expanding production by constructing and operating
more ponds. In view of this dilemma, management has considered
alternative means of having its product frozen, such as shipping freshly
harvested, whole or deheaded shrimp to large freeze processing facilities
on the U.S. mainland. Management has concluded, however, that added
packing and transportation costs, increased risk of loss factors, and
especially potential inventory and marketing control problems, render
such alternatives unfeasible in both the near and long-term.
Instead, management has conducted a thorough search and has
now identified and entered negotiations for two alternative sites in
Hanapepe, Kauai at which the Company could develop its own fully
equipped facility for sorting, packing, freezing, storing and preparing for
shipment all of the Company's freshly harvested shrimp. The facility and
improvements being considered and planned would provide the Company
with the capability of efficiently and safely handling not just the volume
and frequency of full pond harvests from the existing 20 pond farm, but
the volume and frequency of full pond harvests generated by an
expanded farm with up to 100 ponds. The most obvious benefits of
having such capability would be (i) decreases in both production and
processing costs obtained by elimination of the harvesting/handling
bottleneck and the extra direct costs of handling and transporting product
to Honolulu for freezing, (ii) increases in overall farm production
achieved by enabling the farm to operate in strict accordance with
optimal grow out and harvesting schedules, and (iii) increases in sales
revenue gained through improving the Company's control of inventory
and ability to service large unit order clients. In addition, a larger
facility would enable the Company to use automated size sorting
machinery, which is far more accurate than the visual/hand sorting
methods now used and would greatly enhance the Company's ability to
obtain the best price for its product in each size classification.
Furthermore, while the initial plans for the facility call for installation
of "Individual Quick Freezing" (IQF) equipment, which is the freezing
method that best serves most of Company's present customer base, the
larger facility would allow the installation of "Block Freezing"
equipment as well which would facilitate the Company's entry into
certain large markets, particularly in Asia, which prefer product frozen
by this method. The Company currently estimates that the development
costs for such a facility will be approximately $500,000.
A preliminary analysis by management indicates that it is unlikely
that the costs of leasing, developing, equipping and operating its own
facility will be fully offset by gains in production and processing
efficiency, total production, and sales revenues attributable to having the
facility. In other words, it appears unlikely that such a facility would
"pay for itself," if the Company does not expand the farm beyond its
current 20 pond level. However, management is reasonably confident
that expansion of the farm to at least 32 ponds will enable the Company
to turn a profit, and it is absolutely certain that expansion of the farm
would be a futile exercise, unless the Company also finds or develops an
adequate facility for efficiently sorting, packing, freezing and preparing
for the market the maximum amount of product which an expanded farm
could produce.
Management's confidence in the long term efficacy of expanding
its facilities is actually buoyed by the experience of the Company's first
nine month's of operations, even in the face of continued operating
losses. It is management's belief that while the substantial losses
sustained during the Company's early stages of development and
operations have revealed several incorrect assumptions in the initial
business plan and much misdirected and costly wasted effort, early
operations have also proven that the fundamental assumptions underlying
this commercial application of advanced aquaculture science are sound.
The Company's modern, environmentally controlled, high intensity
farming methods, using only internally supplied, high-health, genetically
selected stock, do produce dramatically superior yields of a demonstrably
superior product. As indicated previously, farm production yields on a
per acre basis are unprecedented in the industry and have met and in
some cases exceeded the most optimistic initial projections. Perhaps
more importantly, consumer reaction to the product has been uniformly
positive and verifies that the shrimp produced by the Company's
sophisticated aquaculture methods is indeed readily distinguishable in
taste and texture as being of the highest quality.
There are other less tangible but equally encouraging signs which
also support management's confidence in the future of the Company.
There is abundant land in the area suitable for expansion and few
neighboring industries whose operations might compete for space or pose
an economic or environmental threat that might limit the Company's
growth. There is a more than adequate labor pool locally available to
service expanded farming and packaging activities when needed. The
venture is very well received and supported by the local community, and
the Company is viewed enthusiastically by both County and State
government leaders and officials for its potential to become a significant
export industry which will provide employment and broaden the
economic base of the County and the State as a whole. The favorable
geo-economic climate and such community, government and political
support will not provide the infusion of capital necessary for the
Company's growth but may help to mitigate other risk factors inherent
in the process of expansion. In that way, community and government
support locally and statewide provide advantages to the Company which
are far more than symbolic.
Results of Operations
General. The Company has sustained operating losses since
inception in January 1995 of approximately $3.5 million. Such losses
have generally been financed through a combination of internally
generated funds and funds provided through the sale of common stock
and Class A warrants. Based on current shrimp production levels and
near-term projected sales revenue, the Company will be required to
obtain additional financing in order to continue to fund operating losses
until such time as expanded production facilities are operational. Based
on current plans such expansion could require up to one year to
complete.
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the consolidated condensed financial statements, during the nine months
ended October 31, 1999 and 1998, the Company incurred losses of
$1,313,830 and $874,758, respectively. In addition, the Company
currently has no committed source of outside capital available to fund
future losses. These factors among others may indicate that the Company
will be unable to continue as a going concern for a reasonable period of
time.
The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of liabilities
that might be necessary should the Company be unable to continue as a
going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its existing
construction loan agreement, to obtain additional financing or refinancing
as may be required, and ultimately to attain positive operating cash flow.
The Company is actively pursuing a plan for additional equity financing
through a common stock offering to "accredited investors". In addition,
the Company has recently received a tentative offer from an existing
shareholder to provide up to $1.0 million in the form of a convertible
debenture. The Company is currently evaluating the terms and conditions
of the offer.
Management does not consider a comparison of period to period
results to be necessarily meaningful because the Company's production
facilities were still in the development stage during the first nine months
of 1998 and did not become operational until February 1999.
Product Sales. The Company's revenue from shrimp sales for the
quarter ended October 31, 1999 was $521,214 compared to $152,725 for
the quarter ended October 31, 1998. The increase in revenue is the result
of sales of farm shrimp in 1999 versus no such sales in 1998. During the
third quarter ended October 31, 1999, the Company sold approximately
84,500 pounds of farm shrimp at an average price of approximately
$5.16 per pound. There were no farm shrimp sales in the prior years'
third quarter as the Company was still constructing the shrimp grow-out
ponds and no farm shrimp were being produced.
Shrimp sales for the three quarters ended October 31, 1999
increased to $1,202,303 from $211,110 for the three quarters ended
October 31, 1998. This substantial increase in revenue was attributable
to the sale of farm shrimp in the first nine months 1999 as compared no
farm shrimp sales in the same period of 1998.
Cost of Sales. Cost of sales for the third quarter of fiscal year
1999 was $433,742 compared to $98,722 in the third quarter of fiscal
year 1998. This increase was principally the result of farm shrimp sales
in 1999 as compared to no sales in 1998. The gross profit during the
third quarter of 1999 was negatively impacted by lower of cost or
market adjustments to inventory of approximately $36,000. Such
adjustments reflect certain inventory costing issues which the Company
is continuing to resolve and refine given the unique, experimental, and
start-up nature of the Company's production and farming techniques. It
is anticipated, however, that when the sorting, freezing and packaging
facility is constructed and operational, most, if not all, of these inventory
costing issues will be resolved or mitigated.
Cost of sales for the three quarters ended October 31, 1999 was
$1,254,068 compared to $148,234 for the three quarters ended October
31,1998. This increase was primarily the result of farm shrimp sales in
1999 compared to no farm shrimp sales in 1998. During the three
quarters ended October 31, 1999, the Company's gross profit was
negatively impacted by lower of cost or market inventory adjustments as
discussed above totalling approximately $157,000.
General and Administrative Expenses. General and administrative
expenses for the third quarter ended October 31, 1999 were $323,476
compared to $383,877 for the third quarter ended October 31, 1998.
This decrease was mainly due to the impact of a cost reduction program.
During the third quarter of fiscal year 1999, the Company implemented
a comprehensive cost reduction and containment program which
included, among other things, payroll reductions of up to 40% for all
employees, a moratorium on all long-term contractual commitments, a
freeze on all new salaried hires, a comprehensive review of all existing
contracts and arrangements including insurance coverage, and a
reduction of outside professional services provided to the Company. The
Company intends to further scrutinize all expenditures in order to
identify additional cost savings areas.
Asset Impairment Loss. During the quarter ended October 31,
1999, the Company determined that certain non-inventory assets had no
value, and accordingly, recognized an asset impairment loss of $43,500.
Interest income (expense). During the quarter ended October 31,
1999, the Company incurred total interest costs of approximately
$76,000, of which approximately $46,200 was capitalized to the
Company's self-constructed real property improvements. Construction
of these assets is substantially complete. Therefore, interest incurred
will no longer be capitalized to such assets.
Liquidity and Capital Resources
On March 1,1999 and November 2, 1999, a shareholder and
officer of the Company advanced the Company $50,000 and $225,000,
respectively. Both promissory notes are due and payable on February 2,
2000, together with interest on any unpaid balance thereof at the rates
of 10% and 9.75% per annum, respectively. However, the Company
may, at its option, extend the maturity of the promissory notes for an
additional ninety days from such date. The promissory notes may be
prepaid in whole or in part at any time without penalty.
On May 5, 1998, the Company entered into a revolving credit
agreement, as amended, with Central Pacific Bank in the amount of
$235,000, secured by a $250,000 Central Pacific Bank certificate of
deposit At October 31, 1999 the outstanding balance on the line of credit
was $235,000. The expiration date on the revolving credit agreement, as
amended, is May 5, 2000, at which time the full unpaid principal
balance together with interest thereon, is due and payable in full. Interest
on the outstanding borrowing accrues at 1.50% above the Central Pacific
Bank certificate of deposit interest rate.
On September 9, 1998, the Company entered into a construction
loan agreement with the Bank of America which provided for advances
of up to a maximum principal amount of $3,000,000. The proceeds
from such loan were to be used to construct certain improvements on
real property owned in leasehold by the Company and located on the
island of Kauai in Hawaii. As of October 31, 1999, $2,964,701 was
outstanding on the loan and the improvements were substantially
complete. The Company intends to convert this Construction Loan to a
Permanent Loan in accordance with the loan agreement. The Permanent
Loan would provide for monthly payments over a period of seven years
and a balloon payment may be due at the end of the seven-year
amortization period. The interest rate on the Permanent Loan for the
first two year would be based on Bank of America's Reference Rate plus
2.0% per year. Such rate would be subject to quarterly adjustments.
From years three through seven, the interest rate would be based on the
most recently auctioned United States Treasury Bond or Note plus
2.75%.
The Company requires additional capital to construct a sorting,
packing and freezing facility and to expand its maturation facilities on
the island of Kauai in Hawaii. The Company currently estimates that the
costs of developing and equipping the sorting, packing and freezing
facility and constructing additional maturation ponds will be
approximately $500,000 and $1.5 million, respectively. In addition, the
Company currently believes its ability to generate sufficient funds
internally for working capital purposes is limited by the lack of such
facilities. As such, the Company may require an outside source of
working capital during the period of construction of these facilities,
currently estimated to take up to 12 months. Therefore, the Company is
aggressively exploring its available financing options including, but not
limited to, a private placement equity offering, additional debt financing
or some combination thereof. In addition, the Company has recently
received a tentative offer from an existing shareholder to provide up to
$1.0 million in the form of a convertible debenture. The Company is
currently evaluating the terms and conditions of the offer. The
Company's inability to obtain additional financing on acceptable terms
would have a material adverse effect on the Company. See Note 3. to
Consolidated Condensed Financial Statements.
Year 2000 Issue
Although the Company believes that its products and systems are
Year 2000 compliant, the Company utilizes third-party equipment and
software that may not be Year 2000 compliant. Failure of such third-
party equipment or software to operate properly with regard to the Year
2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse
effect on the Company's business, operating results and financial
condition.
Certain Factors That Might Affect Future Operating Results
In addition to other information contained in this Quarterly
Report on Form 10-QSB, the following are important factors that should
be considered in evaluating the Company and its business.
The availability of land for expansion of the Company's farm
facility poses risks which vary in accordance with the scope of intended
expansion. The existing 20 pond farm operation is located entirely within
the State-owned and designated agricultural park site known as the
Kekaha Agricultural Park ("Agripark"). The Company leases this land
from the State of Hawaii Department of Agriculture for a term of 45
years. Unused portions of the land already under lease will permit
expansion of the farm to 32 ponds, and management does not foresee
any use permit issues involved in expanding the farm on these lands.
There are several more parcels within the Agripark which the Company
might acquire and which would permit expansion of the farm to 38-42
ponds. The ability to acquire these parcels is not certain, as each of these
parcels is currently under lease to a third party. The Company does have
rights to acquire (by lease) all or portions of a separate 313 acre site that
could accommodate up to 100 production ponds, but management has not
actively explored expansion into this area due to its distance from
existing operations. For major expansion in the future, the Company
would more likely look to acquire some of the abundant acreage adjacent
to the Agripark, which was formerly planted in sugar cane but is now
vacant. Subdivision requirements, land use approval and permit issues
would be significant factors affecting the availability and ultimate
feasibility of expanding into these adjacent lands, but acquisition risks
are mitigated by the present lack of economically suitable uses for such
lands.
The geology, location and climate of Hawaii present certain risks
of natural disasters such as hurricanes, volcanic eruptions, flooding, and
tsunamis. In 1992 for example, Hurricane Iniki caused substantial
damage on the island of Kauai. Though the Company was not operating
during Hurricane Iniki, the prototype ponds, which were in place at the
time, sustained little damage during the storm. The majority of the
Company's infrastructure consists of low-profile basins that present little
vertical relief, and are expected to survive exposure to hurricane winds,
although no assurance can be made that such infrastructure would
survive. In addition, the Company's hatchery building is designed to
survive winds of up to 140 mph and storm waters from adjacent lands
are directed into existing drainage ditches. To the extent that natural
disasters such as hurricanes or severe storms occur on Kauai, the
Company's operations and financial condition may be adversely affected.
The business of the Company is subject to substantial local, state
and federal regulations, including, but not limited to, protecting health
and safety of food products, archeological preservation laws, and
environmental regulations. The Company believes that it currently has
acquired all necessary permits and licenses for its animals, seawater
wells, pumps, ponds, and buildings constructed to date. There can be no
assurance, however, that the Company will be able to obtain any
additional permits or licenses that may be required in the future.
Although the Company is not currently aware of any environmental
compliance issues, no assurance can be given that in the future such
issues will not have a material adverse effect on the Company's
operation in the future.
The Company's farming sites were formerly sites of agriculture
operations, which involved use of pesticides and other agriculture
chemicals. The use of lined ponds and seawater taken from below the
freshwater groundwater resource where residual agriculture chemicals
may temporarily reside is believed to avoid any reasonable likelihood
that such chemicals could affect product quality, and tests have
confirmed the absence of such pesticides in the incoming water. In
October 1999, the Hawaii State Department of Health granted the
Company a permit for discharge of farm effluents to the ocean. This
Permit is valid through April 2004, and allows a discharge volume to
support a farming operation consisting of 100 ponds. Establishment of
the new shrimp packaging/freezing facility on Kauai will require
approval of a facility design permit from the Department of Health. A
delay in the approval of the Company's planned packaging facility could
negatively affect the Company's operations. Although management is not
currently aware of any environmental compliance issues that are
expected to have a material adverse effect on the Company, no assurance
can be given that such regulations will not have a material adverse effect
on the Company's operation in the future.
The Company's personnel includes acknowledged authorities in
the field of shrimp aquaculture and high health shrimp breeding and
production systems. Although the Company performs cross-training
among its technical staff, maintains various operational protocol
documents, and carries insurance on several key employees, the
specialized nature of this marine bio-technical operation suggest that loss
of key personnel could have a material adverse affect on the Company.
Shrimp diseases have caused serious economic impacts to shrimp
aquaculture operations worldwide and the occurrence of an infection at
the Company's operations would have a material adverse affect on its
operations. The establishment of import bans on live shrimp by foreign
countries to which the Company markets its shrimp hatchery products,
or changes to air shipment regulations could negatively affect its ability
to sell into these markets. Commercially available feeds of appropriate
nutritional composition and acceptable price need to be shipped from off-
island to the farm. The unavailability of feeds, large price increases, or
the interruption of transport logistics would negatively impact the
Company's operations.
All of the potential vectors of the primarily viral shrimp
pathogens are not completely understood, but transmission from infected
parents to offspring and contamination from adjacent shrimp farms are
understood to be principal causes of infection. The Company has
aggressively pursued a disease prophylaxis strategy in a number of ways.
The farming location was sited in an arid, isolated portion of Kauai, an
island where no other shrimp farms exist, and seawater is drawn from
deep seawater wells rather than directly from the ocean to preclude the
incidental introduction of pathogens. When beginning operations, the
Company first established its hatchery operation with state-of- the-art
animals known to be free of diseases associated with shrimp aquaculture
elsewhere, and committed to the exclusive use of its high health seed in
all its farming operations. The Company established rigorous quarantine
and biosecurity procedures, a continuous pathological surveillance
program, animal health management protocols, and controls on the
transfer of materials, animals, vehicles and pedestrian traffic on its
hatchery. Although these are the most effective and sound means to
insure the health status of its animal stocks, there can be no assurance
that incident of infection might occur within one of its properties.
Because importation of infected broodstock is a key means of
infection, several countries where shrimp farming is practiced have
increased restrictions, instated special animal quality assurance
requirements, and in some cases temporarily instated bans on importation
of live animals. Generally, these actions work in favor of the
Company's marketing of its high health hatchery products because their
health quality can pass the most rigorous requirements, and the Company
recently attained United States Department of Agriculture-Animal Plant
Health Inspection Service's certification of its SPF animals for shipment
to a foreign country. A substantial proliferation in the number of shrimp
farming countries instituting overall bans on the importation of live
animals, or regulatory changes to the air shipment of live animals could
negatively affect the foreign sale of these products.
The capability to import appropriate feeds at acceptable prices is
a risk that the Company has attempted to address through the
establishment of relations with multiple feed vendors. Nonetheless, the
continued existence of these feed suppliers, substantial, industry-wide
changes to the economics to the feed industry, or the occurrence of
strikes which would interrupt shipping logistics could negatively impact
the Company's operations.
The sale price of the Company's premium shrimp is affected to
some degree by global market conditions. The Company's strategy is
to secure a price premium by differentiating its product from
commodity-grade products by virtue of its excellent taste, texture and
purity. Despite this effort, if the global shrimp market suddenly became
flooded with low priced commodity grade product, it is possible that the
premium paid for high-quality product could fall in the face of excessive
supply. The capability to secure sales of the premium shrimp and high
health hatchery products outside the limited Hawaiian markets is critical
to the Company's market strategy. The Company has received numerous
expressions of interest from large mainland clients to purchase its
premium Pacific white shrimp when its packing/freezing operation can
regularly supply sufficient volumes. Despite such willingness, the
present inability to secure contracts for such purchases represents an
uncertainty, which could adversely affect the Company's operation.
Increasing the sale of hatchery products entails continued penetration into
new markets and client bases in Asia and the Americas. The increased
year-over-year sales volume expected for 1999, and the expanded
customer base have been encouraging, but because this market relies
heavily on word of mouth endorsements from associates and exigencies
within the industry, it is difficult to predict the rate at which sales can
be expected to grow.
PART II. OTHER INFORMATION
Items 1,2,3,4, and 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule-Filed herewith.
(b) On October 13, 1999, the Company filed a report on
Form 8-K disclosing that at a meeting of the Board of Directors of the
Company, Mr. Ronald Ilsley was removed as the Company's Chief
Financial Officer, effective immediately, after he declined to accept the
Board's recommendation that he voluntarily resign from that position. At
the same meeting, the Board also voted to replace Mr. Ilsley as
Chairman of the Board, and elected Gordon J. Mau as the new
Chairman. Although he was removed as Chairman, Mr. Ilsley removed
as chairman, Mr. Ilsley remains as a member of the Company's Board
of Directors.
In a related matter, the Board authorized Mr. Mau
and Ernest K. Dias, the Company's Chief Operating Officer, to begin an
immediate search for a new Chief Financial Officer.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
CONTROLLED ENVIRONMENT AQUACULTURE TECHNOLOGY,
INC.
(Registrant)
By:/s/______________________________________
Ernest K. Dias
President and Chief Operating Officer
(principal executive officer)
Date: December 20, 1999
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