As filed with the Securities and Exchange Commission on January 13, 2002
Registration No. 333-100016
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBAL SEAFOOD TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 2092 93-1219887
- ----------------------------- ----------------------- ----------------------
(State or other (Primary Standard (IRS employer
jurisdiction of incorporation Industrial identification number)
or organization) Classification number)
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555 Bayview Avenue
Biloxi, Mississippi 39530
(228) 435-3632
(Address and telephone number of principal executive offices)
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555 Bayview Avenue
Biloxi, Mississippi 39530
(Address of principal place of business)
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The Prentice-Hall Corp. System, NV
502 E. John Street, #E,
Carson City, NV 89706
(775) 882-3072
(Name, address and telephone number of agent for service)
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Copies to:
David B. Epstein, Esq.
Elkins, P.L.C.
201 St. Charles Avenue
Suite 4400
New Orleans, Louisiana 70170
Telephone No. (504) 529-3600
Facsimile No. (504) 529-7163
depstein@elkinsplc.com
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum
Securities to be Proposed Amount to Offering Price Per Proposed Maximum Amount of Registration
Registered be Registered Share (1) Offering Price (1) Fee
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Common Stock, $.001 par
value................. 10,000,000 $0.43 $4,300,000.00 $395.60
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(1) This price is used solely for the purposes of computing the amount of
the registration fee pursuant to Rule 457 of the Securities Act and is
estimated, based on the average of the bid and asked prices of the
common stock on September 19, 2002.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION, DATED _____________
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
Global Seafood Technologies, Inc.
10,000,000 Shares of Common Stock
This prospectus relates to the sale of up to 10,000,000 shares of our common
stock by Fusion Capital Fund II, LLC. Fusion Capital is sometimes referred to in
this prospectus as the selling stockholder. The prices at which Fusion Capital
may sell the shares will be determined by the prevailing market price for the
shares or in negotiated transactions. We will not receive proceeds from the sale
of our shares by Fusion Capital.
Our common stock is quoted on the Nasdaq Over-The-Counter Bulletin Board under
the symbol "GSFT." On January __, 2003, the last reported sale price for our
common stock as reported on the Nasdaq Over-The-Counter Bulletin Board was $____
per share.
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The selling stockholder is an "underwriter" within the meaning of the Securities
Act of 1933, as amended.
The securities offered in this prospectus involve a high degree of risk. You
should consider the "risk factors" beginning on page 3 before purchasing our
common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is ________
Table of Contents
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Prospectus Summary...........................................................1
Risk Factors.................................................................3
Cautionary Note Regarding Forward-Looking Statements.........................6
Use of Proceeds..............................................................6
Market for Common Equity and Related Stockholder Matters.....................7
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................8
Description of Business.....................................................16
Our Management..............................................................23
Security Ownership of Certain Beneficial Owners and Management..............27
Description of Capital Stock................................................28
The Fusion Transaction......................................................31
Transactions with Affiliates................................................35
Selling Stockholder.........................................................36
Plan of Distribution........................................................36
Legal Opinion...............................................................38
Experts.....................................................................38
Additional Information......................................................38
Index to Financial Statements..............................................F-1
Unless otherwise specified, the information in this prospectus is set forth as
of December 31, 2002, and we anticipate that changes in our affairs will occur
after such date. We have not authorized any person to give any information or to
make any representations, other than as contained in this prospectus, in
connection with the offer contained in this prospectus. If any person gives you
any information or makes representations in connection with this offer, do not
rely on it as information we have authorized. This prospectus is not an offer to
sell our common stock in any state or other jurisdiction to any person to whom
it is unlawful to make such offer.
ii
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus and
may not contain all the information that is important to you. To understand our
business and this offering fully, you should read this entire prospectus
carefully, including the financial statements and the related notes beginning on
page F-1. When we refer in this prospectus to our "company," "we," "us," and
"our," we mean Global Seafood Technologies, Inc., a Nevada corporation, together
with our subsidiaries. This prospectus contains forward-looking statements and
information relating to Global Seafood Technologies, Inc. See Cautionary Note
Regarding Forward Looking Statements on page 6.
Our Company
We are Global Seafood Technologies, Inc., a Nevada corporation formed in 1986.
We process, package, grow and store shrimp and other seafood. Additionally, we
distribute recreational fishing bait. We began these business operations in
1988. Our principal executive offices are located at 555 Bayview Avenue, Biloxi,
Mississippi 39530. Our telephone number is (228) 435-3632. The address of our
website is www.globalsea.com. Information on our website is not part of this
prospectus.
The Offering
On February 19, 2002, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, as amended September 12, 2002, pursuant to which
Fusion Capital has agreed to purchase from us, on each trading day, $12,500 of
our common stock up to an aggregate, under certain conditions, of $10 million.
Fusion Capital has neither the right nor the obligation to purchase our common
stock at a price of less than $0.35 per share. Fusion Capital, the selling
stockholder under this prospectus, is offering for sale up to 10,000,000 shares
of our common stock that it has acquired, or may acquire, under the terms of the
common stock purchase agreement. As of December 31, 2002, there were 16,368,418
shares of our common stock outstanding, including the 442,152 shares that we
have issued to Fusion Capital as a commitment fee for its purchase obligations,
but excluding the other 9,557,848 shares offered by Fusion Capital pursuant to
this prospectus. The number of shares offered by this prospectus represents
61.09% of our total common stock outstanding as of December 31, 2002. Under the
terms of the common stock purchase agreement, Fusion Capital may not purchase
shares of our common stock if Fusion Capital, together with its affiliates,
would beneficially own more than 9.9% of our common stock outstanding at the
time of the purchase by Fusion Capital. Accordingly, based on the number of
shares outstanding as of December 31, 2002, Fusion Capital and its affiliates
could not beneficially own more than 1,620,473 shares of our common stock. The
number of shares ultimately offered for sale by Fusion Capital depends upon the
number of shares purchased by Fusion Capital under the common stock purchase
agreement and the number of additional commitment shares to be issued to Fusion
Capital under the common stock purchase agreement. See The Fusion Transaction on
page 31.
1
Summary Financial Information
The following summary financial information has been derived from our
consolidated financial statements that appear later in this prospectus and
should be read in conjunction with those consolidated statements and related
notes:
For the Year For the Year
Ended March 31, 2002 Ended March 31, 2001
Consolidated Statement
of Operations Data:
Revenues $13,741,779 $17,075,981
Net Loss From Continuing Operations $ (554,153) $ (395,656)
Loss From Discontinued Operations $ (89,475)
Extraordinary Item $ 927,041
Net Income (Loss) After Extraordinary
Item $ 372,888 $ (485,131)
Net Loss Per Share (Before
Extraordinary Item) $ (0.04) $ (0.04)
Extraordinary Item (Net of Tax) Per Share .06 --
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Basic Earnings (Loss) Per Share $ .02 $ (.04)
Consolidated Balance
Sheet Data:
Current Assets $ 4,247,864 $ 4,221,279
Total Assets $ 8,179,490 $ 7,423,548
Current Liabilities $ 1,828,730 $ 1,723,463
Total Liabilities $ 3,354,400 $ 3,053,235
Stockholders' Equity $ 4,825,090 $ 4,370,313
For the Six Months For the Six Months
Ended September 30, 2002 Ended September 30, 2001
Consolidated Statement
of Operations Data:
Revenues $ 5,156,642 $ 7,403,637
Net Income (Loss) From
Continuing Operations $ (219,382) $ (48,361)
Basic Earnings (Loss) Per Share $ (.01) $ (.00)
Consolidated Balance
Sheet Data:
Current Assets $ 3,627,438 $ 4,614,849
Total Assets $ 8,193,805 $ 8,040,335
Current Liabilities $ 2,179,425 $ 2,364,465
Total Liabilities $ 3,572,153 $ 3,652,333
Stockholders' Equity $ 4,621,652 $ 4,388,002
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RISK FACTORS
An investment in our common stock is highly speculative, involves a high degree
of risk, and should be made only by investors who can afford a complete loss.
You should carefully consider the following risk factors, together with the
other information in this prospectus, including our financial statements and the
related notes, before you decide to buy our common stock. Our most significant
risks and uncertainties are described below; however, they are not the only
risks we face. If any of the following risks actually occur, our business,
financial condition, or results of operations could be materially adversely
affected, the trading price of our common stock could decline, and you may lose
all or part of your investment in our common stock.
WE HAVE SUFFERED SIGNIFICANT OPERATING LOSSES FOR SEVERAL YEARS IN OUR HISTORY
AND WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
We had an accumulated deficit of approximately ($992,921) as of September 30,
2002. Our company has reported a net loss from operations in each of the last
two fiscal years ending March 31, 2002 and 2001. These losses have been
primarily attributable to start up operations of two subsidiaries, Killer Bee,
Inc. and Aquaculture Corporation of America, as well as an inventory adjustment
at Killer Bee relating to the conversion to a point of sale system in our
dealings with Wal-Mart. Additionally, since December 2001, our core seafood
processing business has reported operating losses due to an economic slowdown in
the commodity shrimp markets. It is possible that we will never be able to
sustain or develop the revenue levels necessary to attain profitability.
EVEN WITH OUR FINANCING ARRANGEMENT WITH FUSION CAPITAL, WE WILL REQUIRE
ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS. WE MAY NOT BE ABLE TO OBTAIN
SUCH FINANCING.
Excluding an extraordinary gain of $927,041 (net of income tax), we had a cash
flow deficit from continuing operations of ($313,883) for the fiscal year ending
March 31, 2002, and an operating cash flow deficit of ($239,676) for the fiscal
year ending March 31, 2001. For the six month period ending September 30, 2002,
we had a cash flow deficit from operating activities of ($134,033). We will need
additional funds for business operations, including the purchase of inventories
and reduction of accounts payable.
We only have the right to receive $12,500 per trading day under the agreement
with Fusion Capital unless our stock price equals or exceeds $5.00, in which
case the daily amount may be increased at our option. Fusion Capital shall not
have the right or obligation to purchase any shares of our common stock on any
trading days that the market price of our common stock is less than $0.35. Since
we initially registered 9,115,696 shares for sale by Fusion Capital pursuant to
this prospectus (excluding the total of 884,304 shares issuable to Fusion
Capital as a commitment fee), the selling price of our common stock to Fusion
Capital will have to average at least $1.10 per share for us to receive the
maximum proceeds of $10 million without registering additional shares of common
stock. Assuming a minimum purchase price of $0.35 per share (which is greater
than the $0.32 closing sale price of our common stock on December 31,2002) and
the purchase by Fusion Capital of the full 9,115,696 shares under the common
stock purchase agreement, proceeds to us would only be $3,190,493.60, unless we
choose to register more than 9,115,696 shares, which we have the right, but not
the obligation, to do. See The Fusion Transaction on page 31.
The extent we rely on Fusion Capital as a source of funding will depend on a
number of factors, including the prevailing market price of our common stock and
the extent to which we are able to secure working capital from other sources. If
obtaining sufficient financing from Fusion Capital were to prove prohibitively
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expensive, we will need to secure another source of funding in order to satisfy
our working capital needs. Even if we are able to access the full $10 million
under the common stock purchase agreement with Fusion Capital, we may still need
additional capital to fully implement our business, operating and development
plans. Our ability to raise additional financing depends on many factors beyond
our control, including the state of capital markets, the market price of our
common stock and the prospects for our business. Because our common stock is not
listed on a major stock exchange, many investors may not be willing or allowed
to purchase it or may demand steep discounts. The necessary additional financing
may not be available to us or may be available only on terms that would result
in further dilution to the current owners of our common stock. If the financing
we require to sustain our working capital needs is unavailable or prohibitively
expensive when we require it, the consequences would be a material adverse
effect on our business, operating results, financial condition and prospects.
RAPID FLUCTUATIONS IN SUPPLIES OF IMPORTED SEAFOOD AND RESULTING COMMODITY
SHRIMP PRICES CAN ADVERSELY AFFECT OUR REVENUES.
Increased availability of imported shrimp, particularly shrimp grown in
aquaculture in Asia, can affect our business by lowering commodity prices. This
can reduce the value of inventories, held both by us and by our customers, and
cause many of our customers to reduce their orders for new products until they
can dispose of their higher cost inventories. Our revenues can decline as a
result of both a decrease in processing volume at Custom Pack, our core business
segment, as well as a general decrease in sales that results from lower prices.
During the period from March 2000 to October 2001, shrimp prices declined 40%,
which negatively affected our operations. Alternatively, large decreases in
supplies can result in increased commodity prices and increased prices at the
consumer level. A resulting slowdown in consumer spending occasioned by these
relatively higher prices can result in lower processing sales at Custom Pack. We
cannot predict whether commodity shrimp prices will again recover to previous
levels or whether rapid fluctuations in supply (whether increases or decreases)
will be repeated.
WE WILL BE ADVERSELY AFFECTED IF WE LOSE ONE OF OUR MAJOR CUSTOMERS.
For the fiscal year ending March 31, 2002, one company accounted for more than
thirty percent of our sales, and three others each accounted for ten percent or
more of our sales. If for some reason any of these companies made their
purchases elsewhere, or were unable to continue to purchase from us, we would be
materially adversely affected.
A LOW MARKET PRICE MAY SEVERELY LIMIT THE POTENTIAL MARKET FOR OUR COMMON STOCK.
Our common stock is currently trading at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions (a "penny stock"). Such rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and institutional or wealthy investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market maker, the
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broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The additional burdens imposed upon broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our common stock.
THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE.
The market price of our common stock has been and is expected to continue to be
highly volatile. Factors, including announcements of innovations by us or other
companies, regulatory matters, new or existing products or procedures, concerns
about our financial position, operating results, litigation, government
regulation, or developments or disputes relating to proprietary rights may have
a significant impact on the market price of our stock. In addition, potential
dilutive effects of future sales of shares of common stock by stockholders and
by our company, including Fusion Capital pursuant to this prospectus and
subsequent sale of common stock by the holders of warrants and options for our
Company's common stock, could have an adverse effect on the price of our common
stock.
OUR COMMON STOCK IS TRADED OVER THE COUNTER, WHICH MAY DEPRIVE STOCKHOLDERS OF
THE FULL VALUE OF THEIR SHARES.
Our common stock is quoted via the Over The Counter Bulletin Board (OTCBB). As
such, our common stock may have fewer market makers, lower trading volumes and
larger spreads between bid and asked prices than securities listed on an
exchange such as the New York Stock Exchange or the NASDAQ. These factors may
result in higher price volatility and less market liquidity for the common
stock.
THE SALE OF OUR COMMON STOCK TO FUSION CAPITAL MAY CAUSE DILUTION AND THE SALE
OF THE SHARES OF COMMON STOCK ACQUIRED BY FUSION CAPITAL COULD CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE.
The purchase price for the common stock to be issued to Fusion Capital pursuant
to the common stock purchase agreement will fluctuate based on the price of our
common stock. All shares in this offering are freely tradable. Fusion Capital
may sell none, some or all of the shares of common stock purchased from us at
any time. We expect that the shares offered by this prospectus will be sold over
a period of up to 40 months from the date of this prospectus. Depending upon
market liquidity at the time, a sale of shares under this offering at any given
time could cause the trading price of our common stock to decline. The sale of a
substantial number of shares of our common stock under this offering, or
anticipation of such sales, could make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we
might otherwise wish to effect sales.
WE MAY HAVE DIFFICULTY RETAINING QUALIFIED PERSONNEL AND OUR BUSINESS MAY SUFFER
IF WE DO NOT.
Losing any senior member of the management team could have an adverse effect on
our operations. Our success depends on our ability to retain management
personnel with expertise and experience in the seafood processing, fishing bait,
and freshwater shrimp production businesses. None of our management personnel
have employment contracts or other agreements which would prevent them from
leaving our employ or from competing with us if they decided to leave our
company.
5
SOME PROVISIONS OF OUR ORGANIZATIONAL AND GOVERNING DOCUMENTS MAY HAVE THE
EFFECT OF DETERRING THIRD PARTIES FROM MAKING TAKEOVER BIDS FOR CONTROL OF OUR
COMPANY OR MAY BE USED TO HINDER OR DELAY A TAKEOVER BID.
Our certificate of incorporation authorizes the creation and issuance of "blank
check" preferred stock. Our Board of Directors may divide this stock into one or
more series and set their rights. The Board of Directors may, without prior
stockholder approval, issue any of the shares of "blank check" preferred stock
with dividend, liquidation, conversion, voting or other rights, which could
adversely affect the relative voting power or other rights of the common stock.
Preferred stock could be used as a method of discouraging, delaying, or
preventing a take-over of our company. If we issue "blank check" preferred
stock, it could have a dilutive effect upon our common stock. This would
decrease the chance that our stockholders would realize a premium over market
price for their shares of common stock as a result of a takeover bid, should one
occur.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains 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 forward-looking statements
include statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, performance, or achievements to be
materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. In addition to the information
expressly required to be included in this filing, we will provide such further
material information, if any, as may be necessary to make the required
statements, in light of the circumstances under which they are made, not
misleading.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by Fusion Capital. We will receive no proceeds from the
sale of shares of common stock in this offering. However, we may receive up to
$10 million in proceeds from the sale of our common stock to Fusion Capital
under the common stock purchase agreement. We contemplate using these funds to
improve cash liquidity, pay down debt and to fund possible acquisitions.
We have operated at a loss in recent years, and the availability of conventional
financing through banks or other sources has been limited because of this
operating history. Although we have available a bank line of credit of up to
$1,000,000 for working capital purposes, this line of credit has been fully
6
utilized at times and cannot be expanded, given our history of operating losses.
Moreover, our consolidated cash balances have been reduced to $47,038 as of
September 30, 2002. We presently intend, over a two to four month period
commencing on the date of this Prospectus, to sell up to $500,000 of our common
stock to Fusion Capital to improve cash liquidity, repay bank debt, and reduce
accounts payable. By paying a portion of bank debt, we will also be able to
reduce interest charges, which totaled $144,445 in the last fiscal year ending
March 31, 2002. After this initial sale, if our management considers it
advantageous based on conditions at the time, we may sell additional shares of
our stock to Fusion Capital in the future to be applied in a similar manner.
Additionally, we may sell our stock to Fusion Capital in order to finance the
acquisition of strategic companies that might enhance our overall position in
the industry. The seafood industry is highly fragmented with many small sized
companies competing at all levels of operation from procurement to processing to
wholesale distribution. One or more of these companies may make attractive
acquisition targets for us, although no specific acquisition has been currently
identified, and it is possible that none will be found. Given the size of our
company and the length of time required to put any other form of equity
financing in place, we believe that having the ability to sell our stock to
Fusion Capital in order to raise funds for such an acquisition is strategically
advantageous.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the Over-the-Counter Bulletin Board under the trading
symbol "GSFT." The prices set forth below reflect the quarterly high, low and
closing sales prices for shares of our common stock during the last two fiscal
years as reported by Commodity Systems, Inc. These quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
represent actual transactions.
High Low Close
---- --- -----
Nine Month period ending
December 31, 2002
First Quarter (4/1/02-6/30/02) $.91 $.30 $.37
Second Quarter (7/1/02-9/30/02) $.51 $.30 $.41
Third Quarter (10/1/02-12/31/02) $.51 $.25 $.32
Fiscal Year ending March 31, 2002
First Quarter (4/1/01-6/30/01) 1.05 1.59 2.45
Second Quarter (7/1/01-9/30/01) 2.00 1.13 1.15
Third Quarter (10/1/01-12/31/01) 1.15 .51 .53
Fourth Quarter (1/1/02-3/31/02) 1.35 .53 .81
Fiscal Year ending March 31, 2001
First Quarter (4/1/00-6/30/00) 1.03 .52 .75
Second Quarter (7/1/00-9/30/00) 1.00 .52 .88
Third Quarter (10/1/00-12/31/00) .95 .281 .30
Fourth Quarter (1/1/01-3/31/01) 3.093 .34 2.22
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On December 31, 2002, our common stock closed at $0.32 per share. As of December
31, 2002, we had approximately 334 holders of record of our common stock. We
estimate that there are approximately 4,200 beneficial owners of our common
stock held in "street name."
We have not paid any dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future. We intend to retain any earnings to
finance the growth of our business. We cannot assure you that we will ever pay
cash dividends. Whether we pay cash dividends in the future will be at the
discretion of our Board of Directors and will depend upon our financial
condition, results of operations, capital requirements and any other factors
that the Board of Directors decides is relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our Financial Statements
and the Notes related to those statements, as well as the other financial
information included in this Form SB-2. Some of our discussion is
forward-looking and involves risks and uncertainties. For information regarding
risk factors that could have a material adverse effect on our business, refer to
the Risk Factors section of this Form SB-2.
BUSINESS SEGMENTS
Our three business segments are seafood processing, recreational fishing bait,
and aquaculture.
Seafood Processing
Our core seafood packaging business, which is conducted through our Custom Pack
subsidiary, provided 87% of our total company revenues in the fiscal year ending
March 31, 2001, 78% of our total company revenues in the fiscal year ending
March 31, 2002, and 62% for the six month period ending September 30, 2002. The
declining contribution of Custom Pack revenues as a percentage of total revenues
is a function of increased revenue in our recreational fishing bait business
segment as well as a decrease in volume of 28% at Custom Pack when comparing the
last two fiscal years, and a decrease of 33% in volume when comparing the six
month periods ending September 30, 2001 and 2002, respectively. Custom Pack
revenues had increased by 19% from the year ending March 31, 2000 to the year
ending March 31, 2001. An overall weakness in the shrimp market globally has
contributed to the lower volume since March 31, 2001. We believe that this
weakness is a function of increased supplies of imported seafood, and the
generally slower economy in the U.S., as well as the effects on consumers of the
September 11, 2001 terrorist attacks. We have seen a slight recovery in shrimp
prices and demand, but cannot predict the duration or strength of such an
improvement in the future. All of our sales were in the United States for the
last two fiscal years. Foreign sales from present operations are not expected to
be a material factor in future revenues.
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Recreational Fishing Bait
For the fiscal year ending March 31, 2002, Killer Bee, our recreational fishing
bait business, accounted for 21% of our total revenues compared to 13% for the
fiscal year ending March 31, 2001. For the six month period ending September 30,
2002, Killer Bee accounted for 36% of total company revenues. Revenue from
Killer Bee is fundamentally strong, although our conversion to a "Point Of Sale"
(POS) settlement with Wal-Mart in September, 2001 deflated recorded revenues in
the second quarter and in the third quarter of our fiscal year ending March 31,
2002. Killer Bee distributes to approximately 150 Wal-Mart stores, and the
conversion to POS had the effect of our buying back approximately one month of
inventory on hand at those stores. Despite this adjustment, sales for the March
31, 2002 fiscal year increased 30% to $2,881,549 from $2,215,887 in the March
31, 2001 fiscal year. This increase resulted primarily from the growth in sales
outlets from our acquisition of certain assets of Natural Bait Brokers, Inc. in
February, 2001. Killer Bee revenues increased 97% in the fiscal year ending
March 31, 2001 over recorded levels in the fiscal year ending March 31, 2000,
which was the first year of Killer Bee operations. The Wal-Mart POS system has
greatly enhanced our efficiency and is a significant factor in the recorded
reduction in operating overhead discussed below. Because of tropical storm
activity in September, 2002, sales in September 2002 were lower than in the
preceding September, which resulted in an overall 13% decrease in Killer Bee
revenue for the six month period ending September 30, 2002 compared to the same
six month period in the prior year. We expect a comparatively strong season for
the remainder of the fiscal year for Killer Bee, subject to the availability of
inventory supplies, which have been adequate so far this year.
Freshwater Shrimp Aquaculture
Aquaculture supplied revenues of only $164,709 and $72,593, respectively, in the
fiscal years ended March 31, 2002 and 2001, and $113,851 for the six months
ending September 30, 2002. While this represented only 1% of our total revenues
for the fiscal year ended March 31, 2002, we continue to expect further
contributions from this business segment in future periods because of the
expanded interest of independent farmers to grow freshwater shrimp. Our hatchery
in Ocean Springs, Mississippi, supplies independent and joint venture farms, and
we are continuing our expansion in the current season. As an example, in
February 2002 we entered into an agreement with AquaPro Corporation to supply
shrimp for up to 300 acres of catfish ponds which AquaPro intends to convert to
freshwater shrimp production.
RESULTS OF OPERATIONS
Net Income (Loss)
We reported a consolidated net profit of $372,888 for the March 31, 2002 fiscal
year, or $0.02 per share, compared to a net loss of ($485,131), or ($0.04) per
share, in the same period in the preceding fiscal year. We incurred losses from
continuing operations of ($554,153) that were offset by an extraordinary gain
from insurance proceeds. On a business segment basis, Custom Pack, our core
business, showed an operating loss of ($189,708) before taxes and before
recognition of the $927,041 net extraordinary gain from insurance proceeds.
These operations were affected by a decline of 28% in Custom Pack's volume.
Killer Bee reported an operating loss of ($316,286) which resulted primarily
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from the Wal-Mart POS adjustments described above, which lead to a ($234,450)
loss during the third quarter of the fiscal year ending March 31, 2002. Killer
Bee had recorded a loss of ($668,782) for the fiscal year ending March 31, 2001.
Our aquaculture business reported a loss of ($328,085) from operations for the
fiscal year ending March 31, 2002, as compared to a loss of ($248,358) from
operations for the preceding fiscal year.
We reported a consolidated net loss from operations for the six month period
ending September 30, 2002 of ($219,382) compared to a net loss of ($48,361) in
the same period of the preceding fiscal year. The loss was attributable to
operations of Custom Pack, our core seafood processing business, which lost
($429,243). Declines in processing volume and commodity prices were factors that
lead to this loss. This business is beginning to experience a recovery in volume
that may be reflected in the remaining quarters of this current fiscal year.
Killer Bee contributed a profit of $320,954 for the six month period ended
September 30, 2002, compared to a reported loss of ($146,962) for the six month
period ended September 30, 2001. This operating profit was achieved through a
reduction in operating expenses. Our aquaculture business reported a ($104,140)
loss for the six month period.
Net Sales
In our latest fiscal year, net sales primarily reflected the results of our core
processing and packaging operations (78%) and our recreational bait segment
(21%). The amount of core revenues recognized in any given year is a function of
whether the products in these business segments are either: a) purchased,
processed, and packaged by us, or b) processed and packaged for third parties on
a consignment basis. In the first instance, revenues would be higher, reflecting
the cost of the product, and in the latter case revenues would only reflect a
processing charge. Gross profits are relatively unaffected by either scenario,
but the reported net sales figures can be greatly affected. Core revenues are
also affected by consumer spending patterns and by purchasing decisions by
supermarkets.
Total net sales for the March 31, 2002 fiscal year decreased 20% as compared to
the March 31, 2001 year, falling from $17,075,981 to $13,741,779. The decrease
was related to a decline in product sales and processing sales in Custom Pack,
our core business segment, which were a function of the weak shrimp markets
during the year. Sales of product at Custom Pack declined 28% when comparing the
March 31, 2002 fiscal year to the preceding fiscal year, and this is in line
with commodity price declines of up to 40% which occurred during the two year
period ending March 31, 2002. Total net sales had increased 26% when comparing
fiscal years ending March 31, 2001 to March 31, 2000 as a result of growth in
both Custom Pack and Killer Bee. Killer Bee has expanded its number of corporate
and independent accounts to over 700 in number, primarily with the addition of
83 Wal-Mart and other locations as part of our acquisition of certain assets of
Natural Bait Brokers, Inc. in February, 2001.
Continuing the trend of declining sales that took place from the 2001 to the
2002 fiscal years, our net sales for the six months ended September 30, 2002
decreased 30% as compared to the six month period ended September 30, 2001 from
$7,403,637 to $5,156,642, resulting from decreases both in product sales and
processing sales in the core seafood business segment as well as lower sales in
the fishing bait segment.
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Expenses
Cost of sales includes processing and packaging costs, including plant labor,
in-bound and out-bound freight, and the raw material (seafood) costs where the
products are processed for our own account. Where processing is done for
third-party accounts, the raw material (seafood) costs are not carried on our
books. Approximately 10% of net sales in the fiscal year ending March 31,2002 in
the seafood processing business segment represents processing for third parties,
in which case we charge a processing fee and do not maintain any inventory level
of product for our own account.
The decrease in cost of sales from $14,719,345 to $10,703,485 (a 27% decrease in
the fiscal year ending March 31, 2002 compared with the same period ending March
31, 2001) reflects the lower costs of product in our seafood processing segment.
However, overall gross profit increased from $2,356,636 to $3,038,294 as a
result of increased sales with higher margins available from our recreational
fishing bait operations. Between the fiscal years March 31, 2001 and 2000, cost
of sales increased 42% while net sales increased only 26%. The difference
reflected a reduction in consignment processing that was not fully made up
through production activity for our own account.
Cost of sales for the six month period ended September 30, 2002 decreased to
$3,066,859 from $4,920,105 in the comparable period of the preceding fiscal year
(a 38% decline) reflecting the lower volume of product sales in both the core
seafood processing segment and the fishing bait segment. The gross margin in our
processing business was adversely affected because of market weakness. Overall
gross profit declined by 16% to a level of $2,089,783 for the six month period
ended September 30, 2002. Our Killer Bee operations were able to increase the
level of gross profit in the six month period ending September 30, 2002 by
$185,526 (or 23%), when compared with the six month period ending September 30,
2001. This increase in Killer Bee gross profit resulted from higher pricing and
lower costs of product.
Selling, general and administrative expenses increased by $476,190 (17%) from
the March 31, 2001 fiscal year to the March 31, 2002 fiscal year. There was a
slightly greater increase in the Custom Pack core business component than at
Killer Bee, which experienced a 13% increase. Although we initially added
overhead expenses in conjunction with Killer Bee's acquisition of Natural Bait
customers in February, 2001, we were ultimately able to reduce expenses later in
the year through consolidation and efficiencies brought about by the POS
conversion with Wal-Mart. Selling, general and administrative expenses had
declined by 3% to a level of $2,870,998 comparing fiscal years March 31, 2001 to
March 31, 2000.
Selling, general and administrative expenses decreased by 12% in comparing the
six-month periods ending September 30, 2002 and 2001. Overhead expenses
benefited from efficiencies that were achieved in our Killer Bee segment. We do
not anticipate the need to incur administrative expenses in excess of their
current level in the near future.
Extraordinary Items and Other Income (Expenses)
We sustained significant fire damage to our headquarters offices and a part of
our processing plant on March 30, 2001, which resulted in the rebuilding of our
facilities during the last year. The facilities were fully insured for
replacement value, with the result that we recognized a $927,041 gain, net of
income tax of $477,567, as the insurance proceeds were in excess of the book
value of the replaced (destroyed) assets. We reported other income (expense) of
($66,158), which excludes any gain on disposition of assets, compared to
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$134,362 of other income recorded in the year ended March 31, 2001. Other income
(expense) reflects lease payments received from rental of our property, interest
income and interest expense.
Income Tax Expense (Benefit)
For the last two fiscal years ended March 31, 2001 and 2002, we have recognized
an income tax benefit from continuing operations of $357,260 and $279,926,
respectively. As of March 31, 2002, we had a net operating loss carryforward of
$1,943,000 that may be offset against future taxable income through 2022. This
benefit will be realized only as operating profits, if any, are realized.
Working Capital
We expect our requirements for working capital to increase as we continue to
execute our business plans for both Killer Bee and for our aquaculture division.
Historically, Custom Pack, our core business segment, has not required
significant inventories for its operations, because products were either sold
immediately after processing or were packaged for third-party accounts. In order
to satisfy customer demands, we have been required to package more product for
our own account, thus resulting in an increase in inventories. As a result,
Custom Pack inventories have shown an increase from $427,277 at March 31, 2001
to $797,711 at March 31, 2002. Additionally, beginning with the acquisition of
Killer Bee, Inc. in 1999, we began packaging and distributing frozen bait
products for the recreational fishing industry. The nature of this business
segment requires that we acquire, process, and have available for distribution
an adequate supply of product in inventory. As this business expands, our
relative levels of inventory will also expand. Killer Bee inventories stabilized
at $417,748 as of March 31, 2002 compared to $437,725 as of the end of the
previous fiscal year. Our total company inventories have increased from $641,708
at March 31, 2000, to $865,003 at March 31, 2001, to $1,215,458 at March 31,
2002. At September 30, 2002 total company inventories were $1,202,268, a
decrease of 1% from March 31, 2002 year-end levels and a decrease of 27% from
the amount as of September 30, 2001.
Historically, sales for Custom Pack have generally been settled at the time of
wholesale delivery, so that accounts receivable have customarily been maintained
at relatively low levels. As we have begun to process more product for our own
account, however, our sales invoices have increased, as they include both our
carrying costs and costs of processing. Additionally, Custom Pack has
experienced an increase in accounts receivable in line with the overall market
weakness. Accordingly, total Custom Pack receivables (including those from both
related and unrelated parties) grew from $1,311,864 to $1,753,392 over the last
fiscal year, despite the decline in sales volume. As of September 30, 2002,
total Custom Pack net receivables were $1,438,642. Even though Killer Bee
experienced an increase in sales of 30% during the last fiscal year, its
accounts receivable declined from $413,158 to $326,141, resulting from
improvements in corporate account collections. As of September 30, 2002, total
Killer Bee receivables were $248,770, which reflects the seasonal level of sales
that typically occurs in this period. Our total company net accounts receivable
from unrelated parties have increased from $851,718 at March 31, 2000 to
$1,719,136 at March 31, 2001 to $1,736,833 at March 31, 2002. At September 30,
2002 this amount totaled $1,681,527 compared with $2,384,490 as of September 30,
2001. Our total company net accounts receivable from related parties totaled
$350,451 at March 31, 2000, $299,918 at March 31, 2001, and $375,112 at March
31, 2002. At September 30, 2002, related party accounts receivable had been
reduced to $71,726. Our total net accounts receivable, from all parties, have
increased from $1,202,169 at March 31, 2000 to $2,019,054 at March 31, 2001 and
to $2,111,945 at March 31, 2002. Total net accounts receivable, from all
parties, stood at $1,753,253 as of September 30, 2002, compared to $2,701,330 as
of September 30, 2001.
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We had cash balances of $334,580, $1,313,729, and $1,303,120 as of March 31,
2002, March 31, 2001, and March 31, 2000, respectively. At September 30, 2002 we
reported cash balances of $47,038, compared to cash balances of $243,632 as of
September 30, 2001. Additionally, we maintain a line of credit of up to
$1,000,000 with a bank for working capital purposes. Although the line of credit
has a maximum limit of $1,000,000, the amount we can actually borrow at any time
may be less than that, based on the level of accounts receivable and inventory.
See Description of Business - Loans on page 20.
As of March 31, 2000, 2001 and 2002, we did not have any outstanding borrowings
under the line of credit. The outstanding balance on the line of credit on
September 30, 2002 was $853,000 compared to $0 as of September 30, 2001. During
the two fiscal years ending March 31, 2001 and March 31, 2002, the maximum
amount outstanding at any one time on the line of credit was $680,000 and the
average daily balance outstanding on the line of credit was $115,288 in fiscal
year 2002 and $18,729 in fiscal year 2001.
Seasonality
Because of the availability of seafood throughout the world markets, there is
only a modest seasonal factor for our Custom Pack seafood processing business
volume as measured in pounds. Typically, our operating activities increase
slightly during the spring and fall domestic shrimp harvesting seasons,
depending on the abundance of the crop that is found in the wild. The revenues
of Killer Bee demonstrate seasonality that reflects the higher recreational
fishing activities in the warmer months of the year from April through
September. We expect that approximately two-thirds of Killer Bee's annual
revenues will be recognized during this period of time. Future revenues of the
aquaculture division will reflect the sale of juvenile shrimp in the first
quarter and a seasonal harvest of product, which is recognized in the second and
third quarters of our fiscal year, or at the time of product sale when product
is carried in inventory.
Commodity Prices
Our business has not historically maintained large inventory levels of commodity
seafood that would be affected by rapid increases or decreases in commodity
seafood prices (primarily shrimp prices). However, our customers often maintain
substantial inventory supplies. In commodity markets, where prices rise or fall
rapidly, the demand for our processing and packaging services can be affected by
the inventory decisions of our customers. Between the market peak in March 2000
to a low point in October 2001, a weighted average price for shrimp of all sizes
declined 40% over the 19 month period. Our company experienced a decline in
processing volume over the same period, but because our charges are based on a
fixed price per pound (rather than a percentage of the commodity price) we were
impacted to a much lesser degree of magnitude on this business.
Inflation/Deflation
Our business is not significantly affected by inflation on the cost side, as we
anticipate that any increased costs can be passed on to our customers. Our
business has been affected more by deflation over the last year, as commodity
shrimp prices have fallen to the lowest levels in decades, which has been
reflected in the decline in our sales revenues.
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New Products and Services
Our recreational fishing bait business, Killer Bee, has introduced several
non-bait products and shelf stable (non-frozen) bait products into distribution
to the fishing industry on a trial basis. The products include a motion sickness
relief band, designer logo apparel and other fishing products. We have also
offered customized advertising on the packaging of seafood we process for
customers. To date, the revenues from these test products have not had a
significant impact on operations, and we do not expect that they will have a
material effect on revenues in the short term.
We do not anticipate, in the foreseeable future, that it will be necessary to
expand our plant and equipment, which is sufficient for our business operations.
Cash Flow
Our operations have generated operating losses in the past, which were
anticipated and were funded from financing activities, as described below.
Although we expect that profits will ultimately provide a source of funds in the
future to help fund the need for working capital that will be occasioned by
growth, we cannot assure you that we will be successful in generating operating
profits.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, SFAS No. 142, Goodwill and Other Intangible Assets, and
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 141 revises
the guidance for business combinations and eliminates the pooling-of-interests
method. SFAS No. 142 eliminates the amortization requirement for goodwill and
certain other intangible assets and requires an annual impairment assessment.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. None of these standards, which are effective for fiscal
years beginning after December 15, 2001 (SFAS Nos. 141 and 142) and for fiscal
years beginning after June 30, 2002 (SFAS No. 143), are anticipated to have any
impact on our financial condition or results from operations, except for the
adoption of SFAS 142, which resulted in no amortization of goodwill for the year
ended March 31, 2002. In addition, in August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This standard, which is effective
for fiscal years beginning after December 15, 2001, is not anticipated to have
any impact on our financial condition or results of operations.
Operating Activities
Our Consolidated Statement of Cash Flows reported $613,158 in funds provided by
operating activities in the March 31, 2002 fiscal year, compared to $239,676 in
funds used in operating activities in the prior fiscal year. Net proceeds and
deferred taxes resulting from our insurance gain offset increases in both
accounts receivable and inventory to provide positive cash flow in the March 31,
2002 fiscal year. The operating loss in the March 31, 2001 year used $395,656 in
funds. Depreciation and Amortization provided $391,183 and $317,717,
respectively, in the March 31, 2002 and March 31, 2001 fiscal years.
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We reported $134,033 in funds used by operating activities in the six month
period ended September 30, 2002 compared to $1,071,764 used in operating
activities in the September 30, 2001 period. Both accounts payable and accounts
receivable were reduced in the period. The operating loss of ($219,382) in the
six month period ending September 30, 2002 was offset by non-cash charges of
depreciation and amortization totaling $257,412 for that period.
Investing Activities
Net investing activities in the March 31, 2002 fiscal year consumed $1,539,441
in funds, as we substantially rebuilt our corporate offices and a portion of our
processing plant. In the prior fiscal year, we used $549,460 in funds, which
included investment in property and equipment additions to our aquaculture
facilities.
Net investing activities in the six month period ended September 30, 2002
consumed $873,049 in funds compared to $408,860 in funds used in the six month
period ended September 30, 2001. The activities included the completion of
property and equipment additions that had been destroyed by fire and were
rebuilt from insurance proceeds, which accounts for the large increase over the
prior year period.
Financing Activities
Our financing activities for the fiscal year ending March 31, 2002 were limited
primarily to payments on loans and leases in the amount of $274,445 and new
borrowings and lease obligations of $171,579. We also received $50,000 in common
stock proceeds. The conversion of outstanding preferred stock to common stock,
which took place in June, 2001 had no effect on cash flows in that period. In
the six month period ending September 30, 2002, financing activities provided
$719,540, compared with $410,526 in the same period ending September 30, 2001.
This increase resulted primarily from borrowings of $853,000 under our line of
credit.
In the fiscal year ending March 31, 2001, financing activities were a
significant source of cash flow for us. Financing activities provided $799,745
in the fiscal year ending March 31, 2001, consisting of $1,000,000 in additional
capital contributed from the exercise of stock options, less $200,255 in
payments on note and lease obligations.
On February 19, 2002, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, as amended September 12, 2002, for the issuance and
purchase of our common stock. Under the common stock purchase agreement, Fusion
Capital committed to purchase up to $10 million of our common stock over a
forty-month period that commences when this Registration Statement becomes
effective. Once the Registration Statement is declared effective, Fusion Capital
is to purchase $12,500 of our common stock on each trading day during the term
of the agreement, subject to our right to increase, decrease or suspend
purchases by Fusion Capital. The purchase price of the shares of common stock
will be equal to a price based upon the future market price of the common stock
without any fixed discount to the market price. However, Fusion Capital does not
have the right and is not obligated to purchase our stock in the event that the
purchase price is below $0.35. Consequently, the amount and timing of proceeds
under the agreement with Fusion Capital is uncertain. See The Fusion Transaction
on page 31. We intend to use the proceeds from the sale of our common stock to
Fusion Capital, if any, to improve cash liquidity, pay down debt, and fund
possible acquisitions, if market conditions are favorable and if we determine
that sales of our common stock are not having a significant negative impact on
the share price of our common stock.
15
We cannot assure you that the additional capital we may require to finance
operations will be available on acceptable terms, if at all. Any failure to
secure additional financing will force us to modify our business plan. In
addition, we cannot assure you that we will achieve profitability in the future.
OUTLOOK
In the near term, we plan to continue product innovation within our core seafood
processing business. We do not, however, anticipate substantial growth in this
business segment, and anticipate that this business segment will report a small
operating profit in the fiscal year ending March 31, 2003. We anticipate solid
growth in our recreational fishing bait business, as we have reduced our unit
costs as a result of our acquisition of certain assets of Natural Bait Brokers,
Inc. in 2001, and as our sales are expanding through Wal-Mart and other outlets.
The recreational fishing bait segment posted an operating loss in the fiscal
year ending March 31, 2002, but it was profitable in the final quarter of that
fiscal year, and in the first six months of the current fiscal year. We expect
that it will be profitable in the full fiscal year ending March 31, 2003.
Although our aquaculture business does not constitute a substantial part of our
revenues, we see long term potential in this business segment. Because sales in
this early stage of this business are not sufficiently high to provide
operational efficiency, the aquaculture business segment did not post a profit
for the fiscal year ending March 31, 2002, but we do expect it to post a small
profit in the fiscal year ending March 31, 2003. Overall, we reported a profit
in the fiscal year ending March 31, 2002, arising from a substantial
non-recurring gain on fixed assets that exceeded operating losses. We reported a
loss in the first six months of the current fiscal year, but we expect to report
a small operating profit in the full fiscal year ending March 31, 2003. We can,
however, offer no assurances to you that we will in fact report a profit.
As a longer term strategy, we will entertain strategic mergers and acquisitions
of both processing and sales entities, which would increase market share,
improve profit margins, and facilitate unified marketing efforts that create
brand identification.
DESCRIPTION OF BUSINESS
We were founded as Custom Pack, Inc., which was incorporated under the laws of
the State of Mississippi in 1988. Through a reverse merger completed in 1995,
Custom Pack became a wholly-owned subsidiary of International Custom Pack, Inc.,
the successor in name to Enviro Solutions International, Inc., which in turn was
successor in name to Rue de Rivoli Perfumeries of America, Ltd., a Nevada
corporation organized in 1986. In December, 1998, our company changed its name
to Global Seafood Technologies, Inc. to reflect the expansion of business
activities beyond the core business of seafood processing and packaging. The
expanded activities include the processing, packaging, and distribution of bait
products for recreational fishing and the aquaculture production of seafood.
During the last three years, we have worked to improve our processing business,
which is conducted through Custom Pack, Inc., through production of value-added
products. Our recreational fishing bait business, operated by our wholly-owned
subsidiary, Killer Bee, Inc., has expanded rapidly since inception three years
ago, and currently distributes bait products in the Southeastern United States.
We started to develop our freshwater shrimp production business during this
three-year period, which now includes a commercial hatchery and nursery facility
and joint venture farms in the United States and Guyana. We have actively
solicited independent growers to purchase post-larvae shrimp and juvenile
shrimp. In some cases, these independent growers provide grown product to our
processing and packaging facilities.
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Custom Pack
Our principal line of business is the full-service processing, packaging, and
storage of shrimp and other seafood. This business is conducted through a
wholly-owned subsidiary, Custom Pack, Inc. The products are distributed, using
contract carriers, to many of the nation's largest seafood restaurant chains and
retail grocery outlets. For the last three fiscal years ending March 31, 2002,
March 31, 2001, and March 31, 2000, Custom Pack operations accounted for 78%,
87% and 93% of total company revenues, respectively.
We provide an increasing variety of seafood items, which are conveniently
packaged for commercial or consumer use. Frozen, headless shrimp (with shell on)
is the principal product processed, which is frequently packaged in one-pound
and two-pound packages. Peeled shrimp is also processed under private labels for
customers or for distribution to restaurants. A small volume of frozen fish
fillets are packaged for distribution, as well.
We continue to focus on packaging innovations and value-added specialty entrees
to expand sales and increase margins in our packaging business. The IQF
(individual quick freeze) processing method has contributed to many innovations
in bringing seafood products to the consumer. Custom Pack has developed a shrimp
stir fry product for the Aurora Foods "Chef's Choice" brand, and continues to
package cooked shrimp rings (with cocktail sauce) and other value-added,
ready-to-cook, ready-to-eat seafood products.
Seafood consumption is a large and growing market in the United States and
worldwide. The United Nations Food and Agricultural Organization estimates the
annual worldwide market for seafood products to be in excess of $50 billion, of
which the United States market is approximately $8 billion. The world market for
shrimp alone is $30 billion, with the United States portion about $3 billion.
Consumption of all seafood products, and particularly shrimp, has risen steadily
throughout the last two decades.
The seafood industry is very fragmented. It is characterized by thousands of
suppliers and middlemen throughout the distribution chain from product
procurement, wholesale distributors, and retail food stores or restaurants.
Seafood is sold fresh, or frozen in blocks or by IQF (individual quick freeze)
methods. Custom Pack is one of the largest IQF processors of seafood in the
United States.
There is no major player in the seafood industry that commands a significantly
large market share, creates a nationally recognized brand name, or establishes
descriptive product standards. Products like shrimp are sold on a commodity-type
basis with little uniformity of size or species. Restaurants, supermarkets, and
other outlets buy a variety of products from a variety of suppliers. Product
availability and consistency of quality are important factors in the service
provided.
In our most recent fiscal year ending March 31, 2002, our principal customers
providing seafood for processing were Choice Canning, providing 19% of product
processed (based on cost) and G & G Trading (which is partially owned, and is
controlled by, two officers of our company), providing 11% of product. Three
customers of Custom Pack, our core business segment, accounted for more than ten
percent of our total company sales in our most recent fiscal year - Aurora
Foods, Inc., which accounted for 31% of our Company's revenues, H.T. Hackney,
which accounted for 14%, and GNS Seafood, which accounted for 12%.
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Killer Bee Bait
We package and distribute recreational fishing bait products through our Killer
Bee, Inc. subsidiary, which was acquired in April, 1999. These products include
varieties of bait shrimp, catfish bait, eels, cut squid, whole squid, cigar
minnows, ballyhoo, frozen chum, and menhaden oil. The products are primarily
packaged in frozen form in our own facilities and in contracted facilities in
Pascagoula, MS.
In contrast to our Custom Pack operations, this segment of our business
concentrates on an entirely different demand segment for products of the sea.
However, we utilize many of our supply sources for our seafood business to
supply the "Killer Bee Bait" line as well. Because of these established sources
of supply, we believe we are in a position to acquire adequate supplies of
recreational fishing bait products to support this business.
We acquired the assets and brand name of Drag N Bait, Inc. in June 1999 to
strengthen our source of supply for the key bait product, ballyhoo, and we have
further strengthened our ballyhoo supply sources with contacts in Mexico and
Nicaragua. In February, 2001 we acquired the assets and distribution rights of
Natural Bait Brokers, Inc., which added 86 Wal-Mart locations and solidified our
distribution in the Florida market. Integration of the business from these two
former competitors has now given us a leading position in the bait market in the
Southeast United States. Our principal customer is Wal-Mart, which accounted for
approximately 60% of Killer Bee's sales in the fiscal year ending March 31,
2002. On a company-wide basis, Wal-Mart accounted for 12% of our total company
sales in the fiscal year ending March 31, 2002.
The "Killer Bee" name is a registered trade name, and the products are sold
through Wal-Mart, K-Mart, and other large retail outlets, and at independent
marinas and bait shops. At the end of the 2000 fiscal year - the first year of
introduction to the market - Killer Bee products were being sold in over 100
large retail outlets and to over 200 independent outlets in a 10 state area from
Texas to Virginia. At the conclusion of the 2001 fiscal year, distribution had
expanded to over 700 locations. This customer base has remained stable
throughout our last fiscal year ending March 31, 2002.
The recreational bait industry represents a $1.0 Billion sales market annually
in the United States, according to 1996 Department of Commerce Wildlife and
Fisheries data, which includes both freshwater and saltwater fishing. We have
chosen to focus initially on establishing ourselves in the saltwater market
primarily in the Southeastern United States, but we expect to further develop
our customer base to include other saltwater fishing states as well as the
inland freshwater market. To that end, we also look for certain non-bait
products that can utilize the developing Killer Bee(C) brand.
We are not aware of any single dominant company or nationally recognized brand
name for bait products, and we have the objective of establishing Killer Bee
Bait in that position over time.
Aquaculture
We are engaged in the development of farm grown freshwater shrimp through our
wholly-owned subsidiary, Aquaculture Corporation of America ("ACA"), which last
year operated as a division of Custom Pack. In February, 2001 we completed an
expansion of our hatchery and nursery facility in Ocean Springs, MS, which was
acquired in 1997 as a tilapia farm. The facility has been converted to a
hatchery and nursery for freshwater shrimp for stocking in ponds that are
18
operated in joint ventures or by independent growers. We control the spawning of
eggs in our hatchery. The eggs hatch into microscopic "nauplii," which then
mature into "post-larvae", and then into "juveniles." Both the post-larvae and
the juveniles are marketable. Our hatchery is currently producing commercial
quantities of post-larvae and juveniles. We derive revenues from the sale of
post-larvae and juveniles, and from the sale of mature shrimp in joint ventures.
Our seafood processing division, Custom Pack, may realize increased processing
volumes in the future, as the farm grown shrimp may be purchased from growers
for processing. The revenues from this segment are not presently significant,
accounting for less than 1% in the last fiscal year, but further expansion is
anticipated in the current fiscal year. We are actively exploring further
opportunities for commercial production arrangements with several independent
third parties.
In 2001 we entered into a joint venture to establish a freshwater shrimp farm in
the Republic of Guyana, whose tropical location is expected to produce
year-round production. Our commitment to the enterprise is in the form of
technology transfer and the delivery of post-larvae shrimp as seed stock. We
have no capital commitments, and will share in 20% of the net profits, if any.
The joint venture will initially develop up to 300 acres, and some minor
contribution to revenues is possible in the fiscal year ending March 31, 2003.
In February 2002 we entered into a joint venture agreement with AquaPro
Corporation, an operator of catfish farms in Mississippi. AquaPro will initially
convert approximately 300 acres of catfish ponds to shrimp production. We will
contribute juvenile shrimp to stock the ponds at our cost and will share in the
net profits, if any.
Approximately 75% of the shrimp consumed worldwide are caught in the oceans, and
about 25% are grown in aquaculture. Shrimp grown in freshwater have been
produced overseas and imported to the United States on a relatively limited
basis. Custom Pack processed approximately 4 million pounds of this product in
the fiscal year ending March 31, 2002. There is very little production of
freshwater shrimp in the United States. Given the demand for shrimp and the
limitations on future supplies from the oceans, we believe there is the
potential for substantial growth in the freshwater farming of shrimp.
We have developed certain business knowledge and practices relating to the
commercial production of freshwater shrimp, which we deem to be proprietary.
Patents do not protect this intellectual property, but our company relies upon
common law rights and contracts to establish and protect its interests. There
can be no assurance that our measures to protect our intellectual property will
deter or prevent its unauthorized use, but we believe that we have, at a
minimum, established an advantage in the initial commercial production of this
product. If we are unable to protect our intellectual property rights, it could
negatively affect the results of future operations through increased
competition.
Statutory and Regulatory Changes
The terms and conditions under which we prepare, pack and distribute our seafood
products are subject to government regulation. Federal laws and Federal Trade
Commission regulations apply to interstate distribution of frozen seafood
products, while particular state regulatory authorities have jurisdiction over
seafood distribution and sale within their borders. Hazard Analysis and Critical
Control Point ("HACCP") regulations took effect in the seafood processing
industry in December 1997. These regulations are intended to identify, evaluate
and control potential hazards to food safety at each stage of food processing.
Our facilities have been in compliance continuously since the effective date.
19
The discharge of water wastes from our facilities is in full compliance with
existing government regulations and standards. We do not envision that any
significant capital expenditures will be required for environmental control
procedures in the foreseeable future.
Employees
We employ approximately 120 persons during the year, of which approximately 85
persons are employed on a full-time basis. This number does not include
independent commission salesmen, who we classify as independent contractors
rather than employees. Our employees are not unionized.
Our Property
We own all of our processing facilities. The seafood processing and packaging
business is conducted through our Custom Pack subsidiary at its plant located at
555 Bayview Avenue, Biloxi, MS. The plant facility occupies over 42,766 square
feet of floor space, including processing areas, coolers, and freezers and is on
3.74 acres of property. This facility also contains our corporate offices, which
we have rebuilt and expanded to meet our future needs in the aftermath of a
fire.
We discontinued operations during 2000 at our CoMar Foods, Inc. plant located at
10200 Cody Driskell Road, Irvington, AL. We dissolved CoMar Foods, Inc. in
December, 2000. The products which had been processed in Irvington are now
processed in Biloxi at the Custom Pack facility. The CoMar location, consisting
of 12,800 square feet of processing space on 10 acres of property, is currently
offered for sale or lease.
Our aquaculture business is conducted at our facility located at 8300 Pickering
Forest Road in Ocean Springs, MS, which occupies 25 acres and includes three
geothermal water wells. This property houses our freshwater shrimp hatchery,
which was recently constructed. We have also recently expanded this facility.
We maintain insurance for physical loss on all properties described above, and
we believe that the amount of this insurance coverage provides adequate
protection. On March 30, 2001, our administrative offices, certain office
equipment, and a portion of our plant were destroyed by fire, which otherwise
did only minimal damage to our processing areas and processing equipment. We
were fully insured for total replacement cost and have rebuilt our offices and
damaged portions of our plant facility. Because insurance proceeds exceeded the
net book value of property that was destroyed, we realized a $927,041 gain, net
of income tax of $477,567.
Should our freezing and storage capacity be affected by widespread municipal
power shortages, we would have a period of five to seven days to address such
loss of power through alternative means before any losses would be experienced.
All of our properties are in good condition.
Loans
The Company has a line of credit arrangement with SouthTrust Bank, Biloxi,
Mississippi. The rate of interest on the line of credit is variable, equal to
the base rate of SouthTrust Bank, which was 4.75 percent as of December 31,
2002. The line of credit matures on October 16, 2003. We may borrow up to
$1,000,000 under the line of credit, subject to a "borrowing base" limitation,
which provides that we may not borrow an amount in excess of the sum of (i)
20
eighty percent of our accounts receivable outstanding for less than 90 days from
unrelated parties plus (ii) seventy-five percent of our inventory. Applying
these restrictions, as of October 31, 2002, the maximum amount we could borrow
was $972,809, while as of November 30, 2002, we could borrow the full amount of
$1,000,000. The actual balance outstanding on the line of credit fluctuates
daily, and as of December 31, 2002, was $873,000.
We also have a term loan in the amount of $1,115,000 from SouthTrust Bank. The
loan is payable in 35 monthly payments of approximately $9,000 each, together
with a balloon payment of approximately $963,000, due on November 14, 2005. The
rate of interest on the term loan is variable, equal to one quarter percent
above the base rate of SouthTrust Bank.
Our loans with SouthTrust Bank are secured by a security interest in all of our
accounts receivable and inventory, and a deed of trust encumbering our real
estate.
Legal Proceedings
We are involved in litigation regarding our common stock. The events that
precipitated the dispute regarding our common stock occurred before our current
management took control of our company. Based on the information available to
us, before the reverse merger of Custom Pack, Inc. into our predecessor by
change in name, Enviro Solutions International, Inc., a person then in control
of our Company, or his agent, transferred an aggregate of 1,700,000 shares of
our common stock, apparently without consideration, to Mr. Larry Skolnick. The
seller of the shares sued to rescind the sale, alleging that Mr. Skolnick did
not pay the seller for the shares. Prior to the filing of the suit, Mr. Skolnick
apparently disposed of approximately 356,000 of the 1,700,000 shares originally
issued to him, leaving him with ownership of approximately 1,344,000 shares.
Because of the potential impact of the dispute on our company, we acquired the
original seller's interest in the suit. Our company and Mr. Skolnick
subsequently agreed to settle their dispute. Under the terms of the settlement
agreement, we paid the sum of $175,000 to acquire the shares owned, either
directly or beneficially, by Mr. Skolnick. Although we paid the settlement
amount of $175,000 to Mr. Skolnick or his representative, he did not deliver to
us the shares at issue, substantially all of which are held for the account of
two Swiss financial institutions. On November 24, 1998, Mr. Skolnick filed suit
in the Supreme Court of the State of New York in New York City (Proceeding
number 98605716) against Brown Brothers Harriman & Co., in its capacity as
custodian for one of the Swiss institutions holding approximately 945,000
shares. Alleging that we breached the settlement agreement, Mr. Skolnick claimed
that he was entitled to all of the shares of our company held by Brown Brothers
Harriman, and requested that the court require Brown Brothers Harriman to
commence an interpleader action, which is a proceeding to determine the rightful
owner of the shares at issue. We then intervened in the suit, alleging, among
other matters, that it was Mr. Skolnick, and not our company, that breached the
settlement agreement, and Mr. Skolnick had no right to the shares held by Brown
Brothers Harriman. We also filed third party complaints against other
institutions holding claims on the shares that Mr. Skolnick agreed to transfer
to us under the settlement agreement. Although we do not expect Mr. Skolnick to
prevail in his direct claims against us, it is possible that the Swiss
institutions to whom Mr. Skolnick transferred shares will assert lien or other
claims against the shares that a court could determine are superior to any
claims of our company on such shares. These institutions have not asserted the
basis of any such claims, so we are not able to assess the validity of these
claims, if they are in fact asserted. In any event, we have issued stop transfer
orders with our transfer agent on all of the 1,700,000 shares originally issued
to Mr. Skolnick, and we do not consider them to be outstanding. If we do not
prevail in these proceedings, the various financial institutions that hold the
shares could require us to recognize their shares. If so, this would cause
21
dilution for existing shareholders, because the approximately 1,344,000 shares
at issue would increase by more than 8% the number of outstanding shares of our
company. Similarly, the holder or holders of the approximately 356,000 shares
transferred by Mr. Skolnick before we signed the settlement agreement (and
therefore not covered by the terms of the settlement agreement) could bring an
action to require recognition of those shares. If such a holder prevailed in
that action, dilution of existing shareholders' interests would occur.
Additionally, we are aware of possible unasserted claims of persons or entities
that have received share certificates that purport to represent approximately
850,000 shares of our common stock. We believe these shares were not validly
issued, and do not consider the shares of stock purportedly represented by these
share certificates to be outstanding. We also have reason to believe that some
or all of these shares may be included among the 1,700,000 shares purportedly
issued by us to Mr. Skolnick, as discussed above. Although no litigation is
pending, or to our knowledge, threatened, in connection with these invalid share
certificates, if a holder of these invalid certificates were to successfully
bring an action seeking to recognize the validity of the holder's shares, we
would be required to recognize those shares as validly issued, resulting in
dilution of existing shareholders' interests.
Other than as described above, neither our company nor any of our directors or
executive officers, nor any controlling shareholder, is a party to any pending
legal or administrative proceeding having the potential for any material affect
on our business, nor are any of our properties the subject of such a proceeding,
and we know of no such proceeding that is threatened to be brought.
22
OUR MANAGEMENT
Directors and Executive Officers
The table below contains a list of the members of the Board of Directors and
Executive Officers of our Company:
Years of
Service in
Position with
Name Age Position Company*
- ---- --- -------- ----------------
Brent Gutierrez 40 Director (Chairman of the Board
of Directors), Chief Executive 14
Officer, and President
Clayton F. Gutierrez 38 Director, Senior Vice 14
President and Secretary
Frank C. Gutierrez 68 Director 14
Anita K. Gutierrez 61 Director, Treasurer 14
Lance McNeill 46 Director 1
*includes service with our company after the 1995 acquisition of Custom Pack,
Inc. by our company and with Custom Pack, Inc. before the 1995 acquisition.
23
Mr. Brent Gutierrez is a founder of Custom Pack, Inc. and has served as its
Chairman of the Board of Directors, Chief Executive Officer and President since
it began doing business in February 1988 as Custom Pack, Inc. Mr. Gutierrez has
held the same positions with our company since the reverse merger in 1995. Prior
to his involvement with Custom Pack, he attended Millsaps College in Jackson,
Mississippi and Mississippi State University in Starkville, Mississippi, where
he graduated summa cum laude in 1984 with a bachelor of science degree in food
science and engineering. Mr. Gutierrez is a director and vice president of Gulf
Transport, Inc., which is a service company with minimal revenues. He is a
director and vice-president of G&G Trading Company, Inc., which is a seafood
trading company, and is vice-president and director of Custom Cold Storage,
Inc., a cold storage company. He is also a member of B&C Holding, L.L.C., which
is a holding company for real estate investments.
Mr. Clayton F. Gutierrez is also a founder of Custom Pack, Inc. and has served
as a member of the Board of Directors and as Senior Vice President and Secretary
since 1988. Mr. Gutierrez has held the same positions with our company since the
reverse merger in 1995. Prior to his involvement with our company, he attended
24
the University of Southern Mississippi, where he graduated in 1986 with a degree
in management information systems. Mr. Gutierrez is a director and president of
Gulf Transport, Inc. He is also a director, secretary and treasurer of G&G
Trading Company, Inc., is president and director of Custom Cold Storage, Inc.,
and is a member of B&C Holding, L.L.C.
As a founder, Mr. Frank Gutierrez has served as a member of Custom Pack, Inc.'s
Board of Directors since 1988 and a member of the Board of Directors of our
company since the reverse merger in 1995. Prior to his involvement with Custom
Pack, he was an owner and manager of Biloxi Freezing Company. Mr. Gutierrez
attended Mississippi State College and Mississippi Southern University from
1952-1955. Mr. Gutierrez serves on the Board of Directors of Custom Cold
Storage, Inc., and Gulf Transport, Inc.
As a founder, Ms. Anita Gutierrez has served as a member of Custom Pack, Inc.'s
Board of Directors since 1988 and a member of the Board of Directors of our
company since the reverse merger in 1995. She is Treasurer of our company. Prior
to her involvement with Custom Pack, she served as Controller of Biloxi Freezing
Company. Ms. Gutierrez serves on the Board of Directors of Custom Cold Storage,
Inc., and Gulf Transport, Inc.
Mr. McNeill was elected to the Board of Directors in February 2001. Since
February, 2001, he has been President and CEO of Viasys, a company based in
Lakeland, Florida, which is engaged in the transportation and utility
construction business, with offices in fifteen locations throughout the
southeastern United States. From 1997 to 2001, he was President and CEO of
Outback Sports, a hospitality and entertainment division of Outback Steakhouse,
Inc. From 1982 to 1997, Mr. McNeill was President and Chief Executive Officer of
McNeill & Company, a private investment firm. Mr. McNeill graduated from the
University of South Florida in 1979 with a bachelor of arts degree, with majors
in Accounting and Marketing.
Anita and Frank Gutierrez are married, and are the parents of Clayton and Brent
Gutierrez. All of the members of the Board of Directors serve for concurrent one
year terms, expiring at our annual meeting held in July. All of the executive
officers of our company also serve on the Board of Directors of our company.
Each of our principal officers is elected by and serves at the pleasure of the
Board of Directors. None of our executive officers have employment agreements
with us.
25
Executive Compensation
Summary Compensation Table
The following table sets forth certain information for the last three fiscal
years concerning the annual and long-term compensation of our Chief Executive
Officer and our other two executive officers having annual compensation in
excess of $100,000 during the last fiscal year (the Named Executives).
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------------------------------------------------------------------
Fiscal Securities
Name and Year Other Restricted Underlying All Other
Principal ending Compen- Stock Options/ LTIP Compen-
Position March 31 Salary Bonus sation Awards SAR's Payouts sation
- ----------------------------------------------------------------------------------------------------------------
Brent 2002 $156,000 $0 $0 $0 0 $0 $0
Gutierrez 2001 $156,000 $0 $252,500(1) $0 0 $0 $0
(Chief Executive 2000 $139,500 $0 $0 $0 0 $0 $0
Officer)
- ----------------------------------------------------------------------------------------------------------------
Clayton 2002 $156,000 $0 $0 $0 0 $0 $0
Gutierrez 2001 $156,000 $0 $252,500(1) $0 0 $0 $0
(Senior Vice 2000 $139,500 $0 $0 $0 0 $0 $0
President)
- ----------------------------------------------------------------------------------------------------------------
Anita 2002 $156,000 $0 $0 $0 0 $0 $0
Gutierrez 2001 $156,000 $0 $252,500(1) $0 0 $0 $0
(Treasurer) 2000 $139,500 $0 $0 $0 0 $0 $0
- ----------------------------------------------------------------------------------------------------------------
(1) Represents the fair market value at time of grant of incentive stock
options entitling the holder to purchase 250,000 shares of our common
stock. The Company estimates the fair value of each stock option award
at the date of the grant by using the Black-Scholes options pricing
model with the following assumptions. The risk free interest rate used
is the U.S. Treasury rate for the period equal to the expected life of
the options. The expected life of the options is 5 to 10 years. The
volatility used is 1.2486% based upon our historical share prices.
There are no expected dividends. Based on these assumptions, the grant
date fair value was $1.01 per option, or $252,500.
26
There were no individual grants of stock options to executive officers during
the last fiscal year. There were no grants of stock appreciation rights (SARs)
to any executive officers or directors during the last fiscal year and there
were no stock options or SARs that were exercised by any executive officers or
directors during the last fiscal year.
Compensation of Directors
No director is specially compensated for the performance of duties in that
capacity or for his/her attendance at Board of Directors meetings or Board
Committee meetings, but directors are reimbursed for their directly related
expenses for such meetings.
Termination Benefit Agreements
Although we do not have employment agreements with any of our employees, we have
signed Termination Benefit Agreements with the following executive officers:
Brent Gutierrez, Clayton Gutierrez and Anita Gutierrez. Under the terms of the
Termination Benefit Agreements, if we terminate the employment of the executive
officer without cause within three years after a "change in control" of our
Company occurs, we are obligated to pay the executive an amount equal to 299% of
the executive's annual average taxable compensation over the most recent five
calendar years preceding termination. We are not obligated to make any payment
to the executive if we terminate the executive's employment for cause or because
the executive dies, becomes permanently disabled, or reaches 65 years of age. We
are also obligated to make this payment if the executive resigns within this
three year period for "good reason", which generally means any detrimental
change in status or compensation of the executive. Under the Termination
Benefits Agreements, "cause" is generally defined as an act of dishonesty
constituting a felony and resulting in personal gain to the executive at our
expense.
27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2002, certain information
with respect to the beneficial ownership of shares of our common stock by (i)
each person known to us to be the beneficial owner of more than 5 percent of the
outstanding shares of common stock, (ii) each Director or nominee for a Director
of our company, (iii) each of our Named Executives (see Our Management on page
23), and (iv) our company's Directors and executive officers as a group.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Owner Class
------------------- --------------------- -----------
Brent Gutierrez 3,411,917 (1) 19.93%
555 Bayview Avenue
Biloxi, MS 39530
Clayton Gutierrez 3,300,677 (2) 19.28%
555 Bayview Avenue
Biloxi, MS 39530
Frank and Anita Gutierrez 2,794,676 (3) 16.82%
555 Bayview Avenue
Biloxi, MS 39530
Lance McNeill 545,000 (4) 3.23%
135 Horizon Court
Lakeland, FL 33813
All officers and directors
As a group (4 persons) 10,052,270 (1)(2)(3)(4) 53.99%
William Schofield 3,464,005 (5) 18.86%
15340 Fiddlesticks Blvd.
Ft. Myers, FL 33912
(1) Includes 750,000 shares that may be acquired by Brent Gutierrez upon
the exercise of warrants and stock options he owns.
(2) Includes 750,000 shares that may be acquired by Clayton Gutierrez upon
the exercise of warrants and stock options he owns.
28
(3) Includes 1,000,000 shares owned by Frank Gutierrez, 544,676 shares
owned jointly by Frank Gutierrez and Anita Gutierrez, 1,000,000 shares
owned by Anita Gutierrez, and 250,000 shares that may be obtained by
Anita Gutierrez upon the exercise of stock options she owns.
(4) Includes 500,000 shares that may be acquired by Lance McNeill upon the
exercise of stock options he owns.
(5) Includes 2,000,000 shares which may be acquired by William Schofield
upon the exercise of warrants he owns.
DESCRIPTION OF CAPITAL STOCK
Authorized and Issued Stock
This table summarizes our capital structure:
Title of Class Number of Shares as of December 31, 2002
Authorized Outstanding Reserved for Future Issuance
----------- ----------- ----------------------------
Common Stock, $0.001 par value 50,000,000 16,368,418* 18,115,000
Preferred Stock, $0.001 par value 25,000,000 -0- -0-
* Does not include 850,000 shares that our Company considers issued
without consideration. This amount also does not include 1,700,000
shares held by Mr. Larry Skolnick. (See Description of Business -Legal
Proceedings on page 21)
Common Stock Dividends
Each share of common stock is entitled to receive an equal dividend, if one is
declared, which is unlikely. We have never paid dividends on our common stock
and do not intend to do so in the foreseeable future. We intend to retain any
future earnings to finance our growth.
Liquidation
If our company is liquidated, any assets that remain after the creditors are
paid and the owners of preferred stock receive any liquidation preferences will
be distributed to the owners of our common stock pro-rata.
Voting Rights
Each share of our common stock entitles the owner to one vote. There is no
cumulative voting. Therefore, a simple majority can elect all of the directors
at a given meeting and the minority would not be able to elect any directors at
that meeting.
29
Preemptive Rights
Owners of our common stock have no preemptive rights. Accordingly, we may sell
shares of our common stock to third parties without first offering it to current
stockholders.
Redemption Rights
Owners of our common stock do not ordinarily have the right to require us to buy
their common stock. We do not have a sinking fund to provide assets for any buy
back.
Conversion Rights
Shares of our common stock cannot be converted into any other kind of stock
except in extraordinary transactions, such as mergers and court approved
bankruptcy reorganizations.
Warrants And Options
This table summarizes the options and warrants to purchase our common stock that
are currently outstanding:
Type As of December 31, 2002
Shares Underlying
Warrants or Options Exercise Price Expiration
------------------- -------------- ----------
Stock Purchase Warrants: 2,000,000 $1.00 7/15/09
1,500,000 $1.56 4/1/09
1,000,000 $1.00 2/1/06
500,000 $1.50 2/1/06
500,000 $1.00 1/12/06
25,000 $2.00 3/19/05
Total Warrants: 5,525,000 $1.20
(weighted average)
Stock Purchase Options: 1,270,000 $1.01 1/11/11
30
Preferred Stock
Our certificate of incorporation authorizes our Board of Directors to issue up
to 25,000,000 shares of "blank check" preferred stock. The Board of Directors
may divide this stock into series and set their rights. To date, our Board of
Directors has created one series of preferred stock. 1,000,000 shares of
preferred stock have been designated as Series A Redeemable and Convertible
Preferred Stock. 200,000 shares were issued, but the owner has converted them to
common shares. None of these shares of preferred stock is currently outstanding.
The Board of Directors may, without prior stockholder approval, issue shares of
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
common stock. Preferred stock could be used as a method of discouraging,
delaying, or preventing a take-over of our company. Although we have no present
intention of issuing any shares of preferred stock, our Board of Directors may
do so in the future. If we do issue preferred stock in the future, it could have
a dilutive effect upon the common stock. See Risk Factors on page 3.
Series A Preferred Stock Redemption
We may redeem any Series A Preferred Stock outstanding at a price equal to
$10.00 per share, together with accrued but unpaid dividends. Presently, none of
the Series A Preferred Stock is outstanding. We are not required to create a
sinking fund to provide assets for a redemption.
Dividend
Each owner of Series A Preferred Stock is entitled to receive a minimum
quarterly dividend of $1.00 per share.
Election Of Directors
If we do not perform certain of our obligations in favor of the holders of the
Series A Preferred Stock, then the owners of Series A Preferred Stock, voting as
a class, could elect two directors.
Liquidation
If our company is liquidated and any shares of our Series A Preferred Stock are
outstanding at that time, the holders of the Series A Preferred Stock will
receive a preferred liquidation payment of $10.00 per share.
Priority
Series A Preferred Stock is senior to common stock.
Voting
Series A Preferred Stock does not generally entitle the holder to vote, except
in extraordinary circumstances.
Anti-Dilution
The redemption price, dividend, liquidation price and voting rights will be
adjusted to reflect splits and combinations of, and common stock dividends on,
the common stock after the date of issuance of any shares of the Series A
Preferred Stock.
31
Anti-Takeover Charter Provisions and Laws
In addition to the blank check preferred stock described above, some features of
the Nevada Revised Statutes, which are further described below, may have the
effect of deterring third parties from making takeover bids for control of our
company or may be used to hinder or delay a takeover bid. This would decrease
the chance that our stockholders would realize a premium over market price for
their shares of common stock as a result of a takeover bid. See Risk Factors on
page 3.
We are incorporated in Nevada, and as such are subject to Sections 78.411 et
seq. of the Nevada Revised Statutes, which provide that a corporation may not
engage in any business combination with an interested stockholder during the
three years after he becomes an interested stockholder unless:
o the corporation's Board of Directors approved in advance either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or
o the business combination is approved by the corporation's Board of
Directors.
An interested stockholder is anyone who owns 10 percent or more of a
corporation's voting stock, or who is an affiliate or associate of the
corporation and was the owner of 10 percent or more of the corporation's voting
stock at any time within the previous three years, and the affiliates and
associates of any of those persons. These provisions of Nevada law make it more
difficult for an interested stockholder to implement various business
combinations with our company for a three-year period, although our stockholders
may vote to exclude us from the law's restrictions.
THE FUSION TRANSACTION
General
On February 19, 2002, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, as amended September 12, 2002, pursuant to which
Fusion Capital agreed to purchase on each trading day during the term of the
agreement, $12,500 of our common stock or up to an aggregate of $10 million, to
be purchased over a forty-month period, subject to a six month extension or
earlier termination at our discretion. The purchase price of the shares of
common stock will be equal to a price based upon the future market price of the
common stock without any fixed discount to the market price. Fusion Capital does
not have the right nor the obligation to purchase our common stock at a price of
less than $0.35 per share.
32
Purchase of shares under the Common Stock Purchase Agreement
Under the common stock purchase agreement, on each trading day Fusion Capital is
obligated to purchase a specified dollar amount of our common stock. Subject to
our right to suspend such purchases at any time, and our right to terminate the
agreement with Fusion Capital at any time, each as described below, Fusion
Capital shall purchase on each trading day during the term of the agreement,
$12,500 of our common stock. This daily purchase amount may be decreased, in any
amount, by us at any time. We also have the right to increase the daily purchase
amount at any time, provided, however, we may not increase the daily purchase
amount above $12,500 unless our stock price is above $5.00 per share for five
consecutive trading days. The purchase price per share is equal to the lesser
of:
o the lowest sale price of our common stock on the purchase date; or
o the average of the three (3) lowest closing sale prices of our common
stock during the twelve (12) consecutive trading days prior to the date
of a purchase by Fusion Capital.
The purchase price will be adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, or other similar transaction occurring during
the trading days in which the closing sale price is used to compute the purchase
price. Fusion Capital may not purchase shares of our common stock under the
common stock purchase agreement if Fusion Capital, together with its affiliates,
would beneficially own more than 9.9% of our common stock outstanding at the
time of the purchase by Fusion Capital. However, even though Fusion Capital may
not receive additional shares of our common stock in the event that the 9.9%
limitation is ever reached, Fusion Capital is still obligated to pay to us
$12,500 on each trading day, unless the common stock purchase agreement is
suspended, an event of default occurs or the agreement is terminated. Under
these circumstances, Fusion Capital would have the right to acquire additional
shares in the future should its ownership subsequently become less than the
9.9%. Fusion Capital has the right at any time to sell any shares purchased
under the common stock purchase agreement that would allow it to avoid the 9.9%
limitation. Therefore, we do not believe that Fusion Capital will ever reach the
9.9% limitation.
The following table sets forth the number of shares of our common stock that
would be sold to Fusion Capital under the common stock purchase agreement at
varying purchase prices, without considering the 9.9% limitation:
Number of Percentage Outstanding Proceeds from the Sale of
Shares to be After Giving Effect to the 9,115,696 Shares to Fusion
Assumed Average Issued if Full Issuance to Fusion Capital Under the Common Stock
Purchase Price Purchase Capital(1) Purchase Agreement
---------------- --------------- --------------------------- -------------------------------
$0.35(2) 9,115,696 35.2% $3,190,493.60
$1.00 9,115,696 35.2% $9,115,696.00
$1.25 8,000,000 32.2% $10,000,000.00
$2.00 5,000,000 22.9% $10,000,000.00
- --------------------
(1) Based on 16,368,418 shares outstanding as of December 31, 2002. Includes
the issuance of 884,304 shares of common stock that have already been
issued and are issuable in the future to Fusion Capital as a commitment fee
and the number of shares issuable at the corresponding assumed purchase
price set forth in the adjacent column.
33
(2) The minimum purchase price is $0.35 per share. The closing sale price of
our common stock on December 31, 2002 was $0.32, which is less than the
minimum.
- --------------------
We estimate that we will issue no more than 10,000,000 shares to Fusion Capital
under the common stock purchase agreement, including the shares issuable as a
commitment fee, all of which are included in this offering. If more than
10,000,000 shares are issuable to Fusion Capital under the common stock purchase
agreement, we have the right to terminate the agreement without any payment or
liability to Fusion Capital.
Minimum Purchase Price
We have the right to set a minimum purchase price "floor price" at any time.
Currently, the floor price is $0.50. We can increase or decrease the floor price
at any time upon one trading day prior notice to Fusion Capital. However, the
floor price cannot be less than $0.35. Fusion Capital shall not be permitted or
obligated to purchase any shares of our common stock in the event that the
purchase price is less than the then applicable floor price.
Our Right to Suspend Purchases
We have the unconditional right to suspend purchases by Fusion Capital under the
common stock purchase agreement at any time for any reason effective upon one
trading day's notice. Any suspension would remain in effect until our revocation
of the suspension. To the extent we need to use the cash proceeds of the sales
of common stock under the common stock purchase agreement for working capital or
other business purposes, we do not intend to restrict purchases under the common
stock purchase agreement.
Our Right to Increase and Decrease the Daily Purchase Amount
We have the unconditional right to decrease the daily amount to be purchased by
Fusion Capital at any time for any reason effective upon one trading day's
notice. We also have the right to increase the daily purchase amount at any time
for any reason; provided however, we may not increase the daily purchase amount
above $12,500 unless our stock price has been at or above $5.00 per share for
five consecutive trading days. For any trading day that the sale price of our
common stock is below $5.00, the daily purchase amount shall not be greater than
$12,500.
Our Termination Rights
We have the unconditional right at any time for any reason to give notice to
Fusion Capital terminating the common stock purchase agreement. Such notice
shall be effective one trading day after Fusion Capital receives such notice.
Effect of Performance of the Common Stock Purchase Agreement on our Stockholders
All shares registered in this offering will be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to 40 months from the date of this prospectus. The sale of a significant
amount of shares registered in this offering at any given time could cause the
trading price of our common stock to decline and to be highly volatile. Fusion
Capital may ultimately purchase all of the shares of common stock issuable under
34
the common stock purchase agreement, and it may sell some, none or all of the
shares of common stock it acquires upon purchase. Therefore, the purchases under
the common stock purchase agreement may result in substantial dilution to the
interests of other holders of our common stock. However, we have the right at
any time for any reason to: (1) reduce the daily purchase amount, (2) suspend
purchases of the common stock by Fusion Capital and (3) terminate the common
stock purchase agreement.
No Short-Selling or Hedging by Fusion Capital
Fusion Capital has agreed that neither it nor any of its affiliates shall engage
in any direct or indirect short-selling or hedging of our common stock during
any time prior to the termination of the common stock purchase agreement.
Events of Default
Generally, Fusion Capital may terminate the common stock purchase agreement
without any liability or payment to our company upon the occurrence of any of
the following events of default:
o the effectiveness of the registration statement of which this
prospectus is a part of lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to Fusion
Capital for sale of our common stock offered hereby and such lapse or
unavailability continues for a period of ten (10) consecutive trading
days or for more than an aggregate of thirty (30) trading days in any
365-day period;
o suspension by our principal market of our common stock from trading for
a period of three consecutive trading days;
o the de-listing of our common stock from our principal market, provided
our common stock is not immediately thereafter trading on the Nasdaq
National Market, the Nasdaq National Small Cap Market, the New York
Stock Exchange or the American Stock Exchange;
o the transfer agent`s failure for five trading days to issue to Fusion
Capital shares of our common stock which Fusion Capital is entitled to
under the common stock purchase agreement;
o any material breach of the representations or warranties or covenants
contained in the common stock purchase agreement or any related
agreements which has or which could have a material adverse effect on
us, subject to a cure period of ten trading days;
o a default by us of any payment obligation in excess of $1.0 million; or
o any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us.
Commitment Shares Issued to Fusion Capital
Under the terms of the common stock purchase agreement Fusion Capital has
received 442,152 shares of our common stock as a commitment fee. In addition,
Fusion Capital will receive up to an additional 442,152 shares of our common
stock as a commitment fee. The additional commitment shares will be issued to
Fusion Capital in connection with each purchase of our common stock. The number
35
of additional commitment shares issuable in connection with each purchase by
Fusion Capital is based on a formula whereby 442,152 is multiplied by a
fraction, the numerator of which is the dollar amount of our common stock
purchased by Fusion Capital and the denominator of which is $10.0 million.
Unless an event of default occurs, all commitment shares must be held by Fusion
Capital until 40 months from the date of the common stock purchase agreement or
the date the common stock purchase agreement is terminated.
No Variable Priced Financings
Until the termination of the common stock purchase agreement, we have agreed not
to issue, or enter into any agreement with respect to the issuance of, any
variable priced equity or variable priced equity-like securities unless we have
obtained Fusion Capital's prior written consent.
TRANSACTIONS WITH AFFILIATES
Except as set forth below, there have neither occurred within the last two
years, nor are there any pending or proposed, direct or indirect material
transactions between our company and any of our directors, executive officers or
controlling shareholders outside the ordinary course of our business.
On January 12, 2001, we granted warrants to purchase 500,000 shares of common
stock at an exercise price of $1.00 to Lance McNeill in consideration for
current and future services as a consultant to our company. The warrants expire
January 12, 2006. On February 1, 2001, Mr. McNeill was elected to our Board of
Directors.
On May 2, 2001, we issued 1,464,005 shares of our common stock to Mr. William F.
Schofield, who was a member of our Board of Directors at the time. We issued
these shares because Mr. Schofield converted into common shares 200,000 shares
of preferred stock which Mr. Schofield had purchased in April, 1999. In
February, 2002 Mr. Schofield resigned from the Board of Directors for personal
reasons.
We purchase some of our product from a related company, G & G Trading Company,
and derive a portion of our revenues from sales to that related company. Brent
Gutierrez, Director, President & CEO, and Clayton Gutierrez, Director, Senior
Vice President and Secretary, each own 33% of G & G Trading. All transactions
are at the same prices as with unaffiliated companies. Sales to this related
company for the fiscal year ending March 31, 2002 totaled $733,400, or 5.3% of
our total company revenues for the period, and for the fiscal year ending March
31, 2001, sales totaled $572,281, or 3.4% of our total company revenues for that
period.
We owe $101,000 to Anita Gutierrez, an officer and director of our company. This
obligation is evidenced by a promissory note, bearing interest at ten percent
per annum. We paid interest on this note of $11,350 in each of the fiscal years
ending March 31, 2002 and March 31, 2001.
During the calendar years ending March 31, 2002, and March 31, 2001, we paid
storage fees totaling $17,129, and $97,570, respectively, to Custom Cold
Storage, Inc., which is owned and controlled by members of our management.
36
SELLING STOCKHOLDER
The following table presents information regarding the selling stockholder.
Neither the selling stockholder nor any of its affiliates has held a position or
office, or had any other material relationship, with us.
Shares Percentage of
Beneficially Outstanding Shares Shares to Percentage of Outstanding
Selling Owned Before Beneficially Owned be Sold in Shares Beneficially Owned
Stockholder Offering Before Offering (1) the Offering After Offering
- --------------------- --------------- --------------------- -------------- ---------------------------
Fusion Capital Fund
II, LLC (1) (2) 442,152 2.7% 10,000,000 0%
- ----------------------
(1) As of the date hereof, 442,152 shares of Fusion Capital have been acquired
by Fusion Capital under the common stock purchase agreement. Fusion Capital
may acquire up to an additional 9,557,848 shares under the common stock
purchase agreement. Percentage of outstanding shares is based on 16,368,418
shares of common stock outstanding as of December 31, 2002. Fusion Capital
may not purchase shares of our common stock under the common stock purchase
agreement if Fusion Capital, together with its affiliates, would
beneficially own more than 9.9% of our common stock outstanding at the time
of the purchase by Fusion Capital. However, even though Fusion Capital may
not receive additional shares of our common stock in the event that the
9.9% limitation is ever reached, Fusion Capital is still obligated to pay
to us $12,500 on each trading day, unless the common stock purchase
agreement is suspended, an event of default occurs or the agreement is
terminated. Under these circumstances, Fusion Capital would have the right
to acquire additional shares in the future should its ownership
subsequently become less than the 9.9%. Fusion Capital has the right at any
time to sell any shares purchased under the common stock purchase
agreement, which would allow it to avoid the 9.9% limitation. Therefore, we
do not believe that Fusion Capital will ever reach the 9.9% limitation.
(2) Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion
Capital, are deemed to be beneficial owners of all of the shares of common
stock owned by Fusion Capital. Messrs. Martin and Scheinfeld have shared
voting and investment power over the shares being offered under this
prospectus.
PLAN OF DISTRIBUTION
The common stock offered by this prospectus is being offered by Fusion Capital
Fund II, LLC, the selling stockholder. The common stock may be sold or
distributed from time to time by the selling stockholder directly to one or more
purchasers or through brokers, dealers, or underwriters who may act solely as
agents at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. The sale of the common stock offered by this prospectus may be effected
in one or more of the following methods:
37
o ordinary brokers' transactions;
o transactions involving cross or block trades;
o through brokers, dealers, or underwriters who may act solely as agents;
o "at the market" into an existing market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
o in privately negotiated transactions; or
o any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable,
the shares may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the shares may not be sold unless they have been
registered or qualified for sale in the state or an exemption from the
registration or qualification requirement is available and complied with.
Brokers, dealers, underwriters, or agents participating in the distribution of
the shares as agents may receive compensation in the form of commissions,
discounts, or concessions from the selling stockholder and/or purchasers of the
common stock for whom the broker-dealers may act as agent. The compensation paid
to a particular broker-dealer may be less than or in excess of customary
commissions.
Fusion Capital is an "underwriter" within the meaning of the Securities Act.
Neither we nor Fusion Capital can presently estimate the amount of compensation
that any agent will receive. We know of no existing arrangements between Fusion
Capital, any other stockholder, broker, dealer, underwriter, or agent relating
to the sale or distribution of the shares offered by this prospectus. At the
time a particular offer of shares is made, a prospectus supplement, if required,
will be distributed that will set forth the names of any agents, underwriters,
or dealers and any compensation from the selling stockholder and any other
required information.
We will pay all of the expenses incident to the registration, offering, and sale
of the shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Fusion Capital and
related persons against specified liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Fusion Capital and its affiliates have agreed not to engage in any direct or
indirect short selling or hedging of our common stock during the term of the
common stock purchase agreement.
We have advised Fusion Capital that while it is engaged in a distribution of the
shares included in this prospectus it is required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes the selling stockholder, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
38
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered by this prospectus.
This offering will terminate on the date that all shares offered by this
prospectus have been sold by Fusion Capital.
LEGAL OPINION
The validity of the shares offered hereby has been passed upon for us by Elkins,
P.L.C., 201 St. Charles Avenue, Suite 4400, New Orleans, Louisiana 70170.
EXPERTS
The consolidated financial statements of Global Seafood Technologies, Inc. as of
March 31, 2001 and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of HJ & Associates, LLC, of
Salt Lake City, Utah, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing. The
consolidated financial statements of Global Seafood Technologies, Inc. as of
March 31, 2002 and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of LaPorte, Sehrt, Romig &
Hand, a professional accounting corporation, of Metairie, Louisiana, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, and file quarterly and annual reports, proxy statements and
other information with the Securities and Exchange Commission. These reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of these
materials from the Public Reference Section of the Securities and Exchange
Commission upon payment of fees prescribed by the Securities and Exchange
Commission. You may obtain information on the operation of the Public Reference
Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission's Web site contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov.
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission under the Securities Act with respect to the securities
offered in this prospectus. This prospectus, which is filed as part of a
registration statement, does not contain all of the information set forth in the
registration statement, some portions of which have been omitted in accordance
with the Securities and Exchange Commission's rules and regulations. Statements
made in this prospectus as to the contents of any contract, agreement or other
document referred to in this prospectus are not necessarily complete and are
qualified in their entirety by reference to each such contract, agreement or
other document which is filed as an exhibit to the registration statement. The
registration statement may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission, and copies of
such materials can be obtained from the Public Reference Section of the
Securities and Exchange Commission at prescribed rates.
39
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Global Seafood Technologies, Inc.
Independent Auditors' Report (for March 31, 2002 fiscal year) F-2
Independent Auditors' Report (for March 31, 2001 and
March 31, 2000 fiscal years) F-3
Consolidated Balance Sheets as of March 31, 2002 and
March 31, 2001 F-4
Consolidated Statements of Operations for the years ended
March 31, 2002, 2001, and 2000 F-6
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2002, 2001, and 2000 F-8
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001, and 2000 F-9
Notes to the Consolidated Financial Statements F-11
Consolidated Financial Statements of Global Seafood Technologies, Inc. for the
six month period ended September 30, 2002 (Unaudited)
Consolidated Balance Sheets as of September 30, 2002 and
March 31, 2002 F-29
Consolidated Statements of Operations for the six month
periods ended September 30, 2002 and September 30, 2001 F-31
Consolidated Statements of Cash Flows for the six month
periods ended September 30, 2002 and September 30, 2001 F-32
Consolidated Statements of Shareholders' Equity for the
six month period ended September 30, 2002 and fiscal
year ended March 31, 2002 F-33
Notes to the Consolidated Financial Statements F-34
F-1
Board of Directors and Shareholders
Global Seafood Technologies, Inc. and Subsidiaries
Biloxi, Mississippi
Independent Auditor's Report
We have audited the accompanying consolidated balance sheet of GLOBAL
SEAFOOD TECHNOLOGIES, INC. & SUBSIDIARIES, as of March 31, 2002, and the related
consolidated statement of operations, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of GLOBAL SEAFOOD TECHNOLOGIES, INC. &
SUBSIDIARIES as of March 31, 2001 and 2000 were audited by other auditors whose
report dated May 25, 2001, except Note 16 which is dated March 11, 2002,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GLOBAL
SEAFOOD TECHNOLOGIES, INC. & SUBSIDIARIES at March 31, 2002, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
May 30, 2002
Metairie, Louisiana
F-2
INDEPENDENT AUDITORS' REPORT
Board of Directors
Global Seafood Technologies, Inc. and Subsidiaries
Biloxi, Mississippi
We have audited the accompanying consolidated balance sheets of Global Seafood
Technologies, Inc. and Subsidiaries as of March 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended March 31, 2001, 2000 and 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Global
Seafood Technologies, Inc. and Subsidiaries as of March 31, 2001 and 2000 and
the consolidated results of their operations and their cash flows for the years
ended March 31, 2001, 2000 and 1999, in conformity with generally accepted
accounting principles.
As discussed in Note 16 to the consolidated financial statements, certain errors
were discovered regarding the depreciation of fixed assets which resulted in
understatements of the assets and equity as well as overstating the net loss for
the year ended March 31, 2001.
/s/ HJ & Associates, LLC
Salt Lake City, Utah
May 25, 2001, except Note 16 which is March 11, 2002
F-3
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
--------------------------------------
2002 2001
---------------- ----------------
CURRENT ASSETS
Cash and Cash Equivalents $ 334,580 $ 1,313,729
Accounts Receivable - Net of Allowance
for Doubtful Accounts of $5,886 at
March 31, 2002 and 2001 1,736,833 1,719,136
Accounts Receivable, Related Parties - Net 375,112 299,918
Income Taxes Receivable 92,680 23,493
Prepaid Expenses 39,000 -
Inventories 1,215,458 865,003
Deferred Tax Asset, Current 454,201 -
---------------- ----------------
Total Current Assets 4,247,864 4,221,279
---------------- ----------------
PROPERTY AND EQUIPMENT - Net 3,658,268 2,345,716
---------------- ----------------
OTHER ASSETS
Goodwill - Net of Accumulated Amortization
of $-0- at March 31, 2002 and 2001 273,000 273,000
Deferred Tax Asset - 426,700
Assets Recoverable Under Insurance Policy - 147,896
Deposits 358 8,957
---------------- ----------------
Total Other Assets 273,358 856,553
---------------- ----------------
Total Assets $ 8,179,490 $ 7,423,548
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
F-4
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
--------------------------------------
2002 2001
---------------- ----------------
CURRENT LIABILITIES
Accounts Payable - Trade $ 1,407,569 $ 1,346,557
Accounts Payable - Related Parties 37,345 -
Accrued Expenses 29,232 43,382
Notes Payable, Current Portion 223,176 199,144
Notes Payable to Related Parties 101,000 113,500
Obligations Under Capital Leases, Current Portion 30,408 20,880
---------------- ----------------
Total Current Liabilities 1,828,730 1,723,463
---------------- ----------------
LONG-TERM LIABILITIES
Deferred Tax Liability 319,823 -
Notes Payable 1,147,467 1,296,405
Obligations Under Capital Leases 58,380 33,367
---------------- ----------------
Total Long-Term Liabilities 1,525,670 1,329,772
---------------- ----------------
Total Liabilities 3,354,400 3,053,235
---------------- ----------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred Stock: 25,000,000 Shares Authorized
of $0.001 Par Value, -0- and 200,000 Shares
Issued and Outstanding, Respectively - 200
Common Stock: 50,000,000 Shares Authorized
of $0.001 Par Value, 16,368,418 and 14,233,861
Shares Issued and Outstanding, Respectively 16,368 14,234
Additional Paid-in Capital 5,630,095 5,628,515
Prepaid Non-Compete Agreement (47,834) (79,723)
Subscription Receivable - (46,486)
Retained Earnings (Deficit) (773,539) (1,146,427)
---------------- ----------------
Total Stockholders' Equity 4,825,090 4,370,313
---------------- ----------------
Total Liabilities And Stockholders' Equity $ 8,179,490 $ 7,423,548
================ ================
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31,
------------------------------------------------------
2002 2001 2000
--------------- --------------- ----------------
NET SALES $ 13,741,779 $ 17,075,981 $ 13,592,163
COST OF SALES 10,703,485 14,719,345 10,358,681
--------------- --------------- ----------------
GROSS PROFIT 3,038,294 2,356,636 3,233,482
OPERATING EXPENSES
Non-Complete Covenant 31,889 31,889 31,888
Depreciation Expense 391,183 317,717 374,278
Bad Debt Expense 35,955 23,310 -
Selling, General and Administrative 3,347,188 2,870,998 2,964,148
--------------- --------------- ----------------
Total Operating Expenses 3,806,215 3,243,914 3,370,314
--------------- --------------- ----------------
LOSS BEFORE OTHER
INCOME (EXPENSES) (767,921) (887,278) (136,832)
--------------- --------------- -----------------
OTHER INCOME (EXPENSES)
Other Income 68,277 246,330 61,028
Interest Income 10,010 40,817 27,658
Loss on Disposition of Assets - - (48,338)
Asset Impairment Loss - - (775,000)
Interest Expense (144,445) (152,785) (116,664)
--------------- ---------------- ----------------
Total Other Income (Expenses) (66,158) 134,362 (851,316)
---------------- --------------- ----------------
NET LOSS BEFORE INCOME TAXES (834,079) (752,916) (988,148)
INCOME TAX BENEFIT (279,926) (357,260) -
---------------- --------------- ----------------
NET LOSS FROM CONTINUING OPERATIONS (554,153) (395,656) (988,148)
LOSS FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAX BENEFIT OF
$-0-, $54,840 AND $-0-, RESPECTIVELY - (89,475) (47,945)
--------------- ---------------- -----------------
NET LOSS BEFORE
EXTRAORDINARY ITEM (554,153) (485,131) (1,036,093)
EXTRAORDINARY ITEM - GAIN ON
PROCEEDS FROM FIRE DAMAGE (NET
OF INCOME TAX OF $477,567) 927,041 - -
--------------- --------------- ----------------
NET INCOME (LOSS) $ 372,888 $ (485,131) $ (1,036,093)
=============== =============== ================
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended March 31,
-------------------------------------------------------
2002 2001 2000
--------------- --------------- ----------------
BASIC EARNINGS (LOSS) PER SHARE
Continuing Operations Before Extraordinary Item $ (0.04) $ (0.03) $ (0.08)
Discontinued Operations (Net of Tax) - (0.01) -
Extraordinary Item (Net of Tax) .06 - -
--------------- --------------- ----------------
Basic Earnings (Loss) Per Share $ 0.02 $ (0.04) $ (0.08)
=============== =============== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,843,403 13,281,970 12,633,545
=============== =============== ===============
FULLY DILUTED EARNINGS (LOSS)
PER SHARE
Continuing Operations $ (0.03) $ (0.04) $ (0.08)
Discontinued Operations (Net of Tax) - (0.01) -
Extraordinary Item (Net of Tax) .05 - -
--------------- --------------- ----------------
Fully Diluted Earnings (Loss) Per Share $ 0.02 $ (0.05) $ (0.08)
=============== =============== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 16,930,122 13,281,970 12,633,545
=============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Additional Retained
------------------ ------------------------ Paid-in Subscription Earnings
Shares Amount Shares Amount Capital Receivable (Deficit)
--------- -------- ------------ ---------- ------------ ---------- -----------
BALANCE, MARCH 31, 1999 30,000 $ 30 11,678,082 $ 11,678 $ 1,367,316 $ - $ 374,797
Common Stock Issued for Cash - - 846,600 847 523,238 (46,486) -
Common Stock Issued as Prepaid
Non-Compete Agreement - - 114,800 115 143,385 - -
Common Stock Issued for Services - - 32,000 32 39,968 - -
Conversion of Preferred Shares
to Common (30,000) (30) 300,000 300 (270) - -
Common Stock Issued to Purchase
Killer Bee, Inc. - - 152,564 152 237,848 - -
Preferred Stock Issued for Cash 200,000 200 - - 1,999,800 - -
Additional Capital Contributed - - - - 100,000 - -
Net Loss for the Year Ended
March 31, 2000 - - - - - - (1,036,093)
------- ------ ------------ --------- ------------ ---------- -----------
BALANCE, MARCH 31, 2000 200,000 200 13,124,046 13,124 4,411,285 (46,486) (661,296)
Common Stock Issued in Conversion
of Debt at $0.62 Per Share - - 109,815 110 82,230 - -
Common Stock Issued Upon Conversion
of Warrants at $1.00 Per Share - - 1,000,000 1,000 999,000 - -
Additional Cost of Natural Bait Brokers, Inc.
Assets through Granting of Warrants - - - - 136,000 - -
Net Loss for the Year Ended
March 31, 2001 - - - - - - (485,131)
------- ------ ------------ --------- ------------ ---------- -----------
BALANCE, MARCH 31, 2001 200,000 200 14,233,861 14,234 5,628,515 (46,486) (1,146,427)
Outstanding Preferred Stock
Converted to Common Stock (200,000) (200) 1,464,005 1,464 (1,264) - -
Common Stock Issued for Cash - - 25,000 25 49,975 - -
Common Stock Issued Under Common
Stock Purchase Agreement - - 442,152 442 (442) - -
Adjustment for Common Stock Issued
In 1999 - - 203,400 203 (46,689) 46,486 -
Net Income for the Year Ended
March 31, 2002 - - - - - - 372,888
------- ------ ------------ --------- ------------ ---------- -----------
BALANCE, MARCH 31, 2002 - $ - 16,368,418 $ 16,368 $ 5,630,095 $ - $ (773,539)
======== ====== ============ ========= ============ ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-8
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31,
--------------------------------------------------
2002 2001 2000
-------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing Operations:
Net Income (Loss) $ 372,888 $ (395,656) $ (988,148)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used In) Continuing Operations:
Depreciation 391,183 317,717 374,278
(Gain) Loss on Sale of Assets (7,799) - 48,338
Asset Impairment Loss - - 775,000
Common Stock Issued for Services - - 40,000
Increase in Accounts Receivable and
Accounts Receivable - Related Parties (92,891) (816,885) (571,151)
(Increase) Decrease in Taxes Receivable (69,187) 22,618 -
Increase in Inventories (350,455) (223,295) (217,569)
(Increase) Decrease in Prepaid Expenses (7,110) 33,716 108,061
(Increase) Decrease in Deferred Taxes 292,322 (412,100) -
Increase (Decrease) in Accounts Payable and
Accounts Payable - Related Parties 98,357 1,299,609 (712,170)
Decrease in Taxes Payable - - (918)
Increase (Decrease) in Accrued Expenses (14,150) 14,333 1,864
-------------- -------------- ---------------
Net Cash Provided by (Used in)
Continuing Operations 613,158 (159,943) (1,142,415)
-------------- -------------- ---------------
Discontinued Operations:
Net Loss - (89,475) (47,945)
Adjustments to Reconcile Net Loss to Net Cash
Used In Discontinued Operations:
Depreciation and Amortization - 9,742 37,491
Gain on Sale of Assets - - (56,662)
-------------- -------------- ---------------
Net Cash Used in Discontinued Operations - (79,733) (67,116)
-------------- -------------- ---------------
Net Cash Provided by (Used in)
Operating Activities 613,158 (239,676) (1,209,531)
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Goodwill Acquired - (137,000) -
(Increase) Decrease in Deposits 8,599 3,271 (1,084)
Proceeds from the Sale of Property and Equipment 20,768 - 170,421
Purchases of Property and Equipment (1,568,808) (415,731) (823,023)
-------------- -------------- ---------------
Net Cash Used In Investing Activities (1,539,441) (549,460) (653,686)
-------------- -------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements.
F-9
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended March 31,
--------------------------------------------------
2002 2001 2000
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Capital Contributed $ - $ - $ 100,000
Proceeds from Sale of Preferred and Common Stock 50,000 1,000,000 2,477,599
Repayments on Notes and Leases Payable (274,445) (200,255) (234,980)
Proceeds of Notes and Leases Payable 171,579 - 80,000
-------------- -------------- ---------------
Net Cash (Used in) Provided by
Financing Activities (52,866) 799,745 2,422,619
-------------- -------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (979,149) 10,609 559,402
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 1,313,729 1,303,120 743,718
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 334,580 $ 1,313,729 $ 1,303,120
============== ============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $ 144,445 $ 150,096 $ 162,704
Income Taxes $ - $ - $ 918
NON CASH FINANCING ACTIVITIES
Property and Equipment Purchased Under
Capital Leases $ 79,241 $ - $ 3,665
Property and Equipment Purchased Under
Notes Payable $ 92,338 $ 142,289 $ -
Common Stock Issued for the Purchase of
Subsidiary $ - $ - $ 238,000
Common Stock Issued for Services $ - $ - $ 40,000
Common Stock Issued as Prepaid Non-Compete
Agreement $ - $ - $ 143,500
Common Stock Issued in Lieu of Outstanding Debt $ - $ 82,340 $ -
Warrants Granted for Asset Purchase $ - $ 136,000 $ -
The accompanying notes are an integral part of these consolidated financial statements.
F-10
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The consolidated financial statements include those of Global
Seafood Technologies, Inc. (GST) and its wholly-owned subsidiaries,
Custom Pack, Inc., Aquaculture Corporation of America and Killer Bee,
Inc. Collectively, they are referred to as "the Company".
GST was incorporated under the laws of the State of Nevada on
May 29, 1986. GST was incorporated for the purpose of creating a
vehicle to obtain capital to seek out, investigate and acquire
interests in products and businesses that may have a potential for
profit.
In 1995, the Company completed an Agreement and Plan of
Reorganization whereby GST issued 8,000,000 shares of its common stock
in exchange for all of the outstanding common stock of Custom Pack,
Inc. (Custom) in a reverse merger transaction. Custom, a Mississippi
corporation, is a full service processor, packager, and storage
provider of shrimp and other seafood.
In 1997, the Company purchased CoMar Foods, Inc. for
$1,500,000 comprised of 422,492 shares of its common stock valued at
$933,707, $300,000 in cash and assumed liabilities of $266,293. CoMar's
operations were discontinued during the year ended March 31, 2001 and
in December 2000, CoMar was dissolved (see Note O).
On April 1, 1999, the Company issued 152,564 shares of its
common stock to acquire 100% of a related company, Killer Bee, Inc.
(Killer Bee) for $238,000 ($1.56 per share). The acquisition was
accounted for by the purchase method. Killer Bee, a Mississippi
corporation, is a full service processor, packager and distributor of
bait and other recreational fishing products.
On June 25, 1999, the Company purchased the assets and brand
name of Drag N Bait, Inc., a recognized supplier of recreational
fishing bait in the Southeastern United States, and particularly in
Florida, for $339,000. The operations of Drag N Bait are included with
those of Killer Bee, Inc.
On January 22, 2001, the Company purchased certain assets from
Natural Bait Brokers, Inc., a Florida Corporation, for $200,000 cash
and 1,500,000 GST common stock warrants, exercisable through January
22, 2006 as follows: 1,000,000 warrants are exercisable into shares of
common stock at $1.00 per share, and 500,000 warrants are exercisable
into shares of common stock at $1.50 per share. Goodwill on the
purchase represents the excess of acquisition costs over the fair
market value of the net assets acquired and is accounted for under the
provisions of FASB Statement 142.
During the year ended March 31, 2001, the Company incorporated
a new subsidiary, Aquaculture Corporation of America (Aqua) for the
development of farm grown freshwater shrimp, which prior to
incorporation, operated as a division of Custom.
F-11
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of Global
Seafood Technologies, Inc. and its wholly-owned subsidiaries, Custom
Pack, Inc., Aquaculture Corporation of America and Killer Bee, Inc. In
consolidation, significant inter-company accounts, transactions, and
profits have been eliminated.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventory supplies are stated at the lower of cost (computed
on a first-in, first-out basis) or market. The inventory consists of
seafood, bait products, seafood storage bags, packing boxes and other
miscellaneous packaging materials.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are calculated on the straight-line and accelerated
methods over the estimated useful lives of the assets. Maintenance,
repairs and small tools are charged to expense as incurred, while
expenditures that substantially increase the useful life of the assets
are capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in income.
EARNINGS (LOSS) PER SHARE
The earnings (loss) per share calculations are based on the
weighted average number of shares of common stock outstanding and
common stock equivalents, unless their effect would be antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform
to the March 31, 2002 financial statement presentation.
NON-DIRECT RESPONSE ADVERTISING
The Company expenses advertising costs as incurred.
Advertising cost totaled $35,503 in 2002, $19,758 in 2001, and $77,486
in 2000.
F-12
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related to differences between the
basis of assets and liabilities for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141 (SFAS
141), "Business Combinations" supersedes APB Opinion 16 and FASB 38.
This statement provides accounting for business combinations using the
purchase method and eliminating the pooling of interest method. The
adoption of this pronouncement had no effect on the financial position
and results of operations of the Company.
Statement of Financial Accounting Standards No. 142 (SFAS
142), "Goodwill and Other Intangible Assets" supersedes APB Opinion 17.
This statement provides accounting and reporting standards for
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination). The
adoption of this pronouncement resulted in no amortization of goodwill
for the year ended March 31, 2002.
Statement of Financial Accounting Standards No. 144 (SFAS
144), "Accounting for the Impairment or Disposal of Long-Lived Assets"
a replacement of SFAS 121. This statement provides accounting and
reporting standards for the recognition and measurement of the
impairment of long-lived assets to be held and used and the measurement
of long-lived assets to be disposed of by abandonment or sale. This
statement requires that long-lived assets (excluding goodwill) to be
held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable and requires a probability-weighted cash
flow estimation approach, and introduces a "primary-asset" approach to
determine the cash flow estimation period. In addition, this statement
requires that long-lived assets to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, and includes
accounting guidance for disposal of a segment of a business that is
considered a discontinued operation. This statement is effective for
financial statements issued for fiscal years beginning after December
15, 2001. The adoption of this pronouncement had no effect on the
financial position and results of operations of the Company.
F-13
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
The Company entered into a covenant-not-to-compete for
$492,000 during the year ended March 31, 1991. During the year ended
March 31, 2000, the Company issued 114,800 shares of its outstanding
common stock in lieu of the future payments required under the
non-compete agreement. These shares were valued at $143,500 or $1.25
per share. The agreement, as amended, is being amortized through
September 2003. Accumulated amortization on the prepaid agreement at
March 31, 2002 and 2001 was $95,666 and $63,777, respectively.
Amortization expense totaling $31,889 was recorded during the years
ended March 31, 2002, 2001 and 2000.
NOTE B PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2002 and 2001 consisted of
the following:
March 31,
--------------------------------
2002 2001
-------------- ---------------
Land $ 121,890 $ 105,717
Buildings and Improvements 1,650,839 1,276,505
Furniture and Fixtures 26,645 8,098
Machinery and Equipment 3,862,630 3,322,471
Vehicles 67,325 20,600
Water Well 121,441 121,441
Idle Property 701,944 -
-------------- ---------------
Total 6,552,714 4,854,832
Less Accumulated Depreciation (2,894,446) (2,509,116)
--------------- ---------------
Property and Equipment - Net $ 3,658,268 $ 2,345,716
============== ===============
Depreciation expense for the years ended March 31, 2002, 2001
and 2000 was $391,183, $317,717 and $411,769, respectively.
During the year ended March 31, 2000, the Company recorded an
impairment loss of $775,000 on building and improvements of the former
CoMar Foods, Inc. based upon the decline in market value of the
building during the year.
F-14
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B PROPERTY AND EQUIPMENT (Continued)
On March 30, 2001, the Company's principal building and
certain office equipment were damaged in a fire. The fire completely
destroyed the portion of the plant where the corporate offices were
located but did minimal damage to the processing area or the processing
equipment and machinery. The extraordinary gain of $927,041 ($.06 per
share), net of income tax of $477,567, represents that portion of the
insurance proceeds in excess of the loss incurred by the Company. As of
March 31, 2002 the property has been substantially reconstructed.
As of March 31, 2001, the net book value of the assets
affected by the fire were separately disclosed as "Assets Recoverable
Under Insurance Policy" during the reconstruction period.
NOTE C NOTES PAYABLE
Notes payable at March 31, 2002 and 2001 consisted of the
following:
March 31,
--------------------------------
2002 2001
-------------- --------------
Note payable, secured by property, interest at 8.05%,
interest and principal payments of $16,124 due
monthly, matures on July 5, 2003. $ 954,255 $ 1,064,857
Note payable, secured by property, interest at 9.0%,
interest and principal payments of $1,497 due
monthly, matures on July 1, 2012. 124,607 131,051
Note payable, secured by property, interest at 8.0%,
interest and principal payments of $702 due
monthly, matures on May 23, 2003. 12,685 19,784
Note payable, secured by property, interest at 7.5%,
interest and principal payments of $399 due
monthly, matures on November 15, 2002. 3,106 7,478
Note payable, secured by property, interest at 7.5%,
interest and principal payments of $737 due
monthly, matures on October 15, 2002. 5,038 13,152
Note payable to a bank, secured by property and equipment,
interest at 9.25%, interest and principal payments of $440
due monthly, matures in September 2002. 2,577 7,379
F-15
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C NOTES PAYABLE (Continued)
March 31,
--------------------------------
2002 2001
-------------- --------------
Note payable to a bank, secured by property and equipment,
interest at 8.0%, interest and principal payments of $492
due monthly, matures in January 2004. 10,137 15,079
Note payable to a bank, secured by property, interest
at 8.0%, interest and principal payments of $1,531
due monthly, matures in June 2004. 37,677 52,310
Note payable to a bank, secured by property, interest at
8.0%, interest and principal payments of $1,369 due
monthly, matures in September 2005. 46,745 59,739
Note payable to a bank, secured by property, interest at
8.50%, interest and principal payments of $739 due
monthly, matures in March 2004. 15,765 23,360
Note payable to a bank, secured by property, interest at
8.50%, interest plus principal payments of $1,124 due
monthly, matures in January 2005. 38,227 51,682
Note payable to a bank, secured by property, interest at
8.0%, interest and principal payments of $1,447 due
monthly, matures June 2004. 35,611 49,442
Note payable, secured by equipment, interest at 9.4%,
interest and principal payments of $813 due monthly,
matures May 2006 32,314 -
Note Payable, secured by property, interest at 6.5%,
interest and principal payments of $470 due monthly,
matures September 2006 51,899 -
Other notes payable - 236
-------------- --------------
Total notes payable 1,370,643 1,495,549
Less: current portion (223,176) (199,144)
-------------- --------------
Long-term notes payable $ 1,147,467 $ 1,296,405
============== ==============
F-16
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C NOTES PAYABLE (Continued)
Maturities of long-term debt are as follows:
Year Ending
March 31, Amount
--------------- --------------
2003 $ 223,176
2004 928,579
2005 56,346
2006 28,575
2007 51,723
2008 and Thereafter 82,244
--------------
Total $ 1,370,643
==============
NOTE D LINE OF CREDIT
The Company has available a line of credit with a bank
totaling $1,000,000, bearing interest at prime, maturing June 3, 2002.
The line of credit is secured by property, equipment, accounts
receivable, and inventory, and is guaranteed by three of the Company's
shareholders. There were no notes payable outstanding against the line
of credit at March 31, 2002 and 2001.
NOTE E CAPITAL LEASES
The Company leases certain equipment with lease terms through
June 2004. Obligations under these capital leases have been recorded in
the accompanying consolidated financial statements at the present value
of future minimum lease payments.
At March 31, 2002, the total cost of these assets included in
property and equipment was $141,738 and the accumulated depreciation on
these assets totaled $29,297.
Obligations under capital leases at March 31, 2002 and 2001
consisted of the following:
March 31,
----------------------------
2002 2001
------------ ------------
Total $ 88,788 $ 54,247
Less: Current Portion (30,408) (20,880)
------------ ------------
Long-Term Portion $ 58,380 $ 33,367
============ ============
F-17
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E CAPITAL LEASES (Continued)
The future minimum lease payments under these capital leases
and the net present value of the future minimum lease payments are as
follows:
Year Ending
March 31, Amount
--------------- --------------
2003 $ 38,563
2004 26,478
2005 40,905
-------------
Total Future Minimum Lease Payments 105,946
Less: Amount Representing Interest (17,158)
-------------
Present Value of Future Minimum Lease Payments $ 88,788
=============
NOTE F MAJOR CUSTOMERS AND SUPPLIERS
The following information is given concerning certain
customers who generated sales that were in excess of 10% of total sales
in the years ended March 31, 2002, 2001 and 2000, respectively:
Number of Respective %
Year End Customers of Total Sales
--------- --------- --------------------
2002 4 31%, 14%, 12%, 12%
2001 2 47%, 29%
2000 2 34%, 13%
All of the significant sales exceeding 10% of total sales for
the company were in the seafood processing and packaging business
segment, except that in 2002 one customer in the recreational bait
segment accounted for 12% of total sales.
The Company purchases product from many suppliers, some of
whom generate costs that are in excess of 10% of the Company's total
product costs. Purchases from these suppliers for the years ended March
31, 2002, 2001 and 2000, respectively, is shown below:
Number of Respective %
Year End Suppliers of Total Production Costs
--------- --------- -------------------------
2002 2 19%, 11%
2001 2 22%, 13%
2000 2 27%, 20%
All significant purchases that exceeded 10% during these years
were suppliers to the seafood processing and packaging segment.
F-18
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G INCOME TAXES
The provision for income taxes for March 31, 2002, 2001 and
2000 consists of the following:
March 31,
------------------------------------------------------
2002 2001 2000
--------------- ---------------- ----------------
Current:
Federal Income Taxes $ (92,681) $ - $ -
State Income Taxes - - -
Deferred 290,322 (412,100) -
--------------- ---------------- ----------------
Total Provision for Income Taxes $ 197,641 $ (412,100) $ -
=============== =============== ===============
A reconciliation of income taxes at the federal statutory rate
to the effective tax rate is as follows:
March 31,
------------------------------------------------------
2002 2001 2000
--------------- ---------------- ----------------
Income Taxes Computed at the
Federal Statutory Rate $ 193,980 $ (427,777) $ -
Other Non-Deductible Items 3,661 15,677 -
--------------- --------------- ----------------
Income Tax Expense (Benefit) $ 197,641 $ (412,100) $ -
=============== =============== ================
At March 31, 2002, the Company had net operating loss
carryforwards of approximately $1,943,000 that may be offset against
future taxable income through 2022.
The components of deferred tax assets and liabilities were as
follows:
March 31,
------------------------------
2002 2001
------------ ------------
Deferred Tax Assets:
Net Operating Loss Carryforward $ 660,605 $ 426,700
Deferred Tax Liabilities:
Property and Equipment (319,823) -
------------- ------------
Net Deferred Tax Assets 340,782 426,700
Deferred Tax Valuation Reserve (206,404) -
------------- ------------
Total Net Deferred Tax Assets $ 134,378 $ 426,700
============ ============
As of March 31, 2002 and 2001, the Company had income taxes
receivable of $92,680 and $23,493, respectively.
F-19
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H COMMITMENTS AND CONTINGENCIES
COMMON STOCK CONTINGENCY
The Company is aware of numerous possible claims by
individuals that received either through purchase or otherwise, 850,000
forged shares of the Company's common stock that purport to represent
issued and outstanding shares. The shares are not listed on the
Company's shareholder records and do not represent duly issued and
outstanding shares of the Company's common stock. Although no
litigation is pending in relation to these shares, it is possible that
the Company may have to honor these 850,000 shares of common stock in
the future. The shares have not been recorded by the Company at March
31, 2002 since the ultimate outcome is currently not estimatable.
The Company is in the process of trying to recover 1,700,000
common shares. The holder of the shares is claiming breach of contract
and claims that he is entitled to the shares. The claim is currently in
litigation and management intends on vigorously contesting the claim.
The Company has filed an answer and a counterclaim against the holder
seeking specific performance of a settlement agreement previously
entered into. While the possibility that an unfavorable outcome exists,
the Company has determined that the potential loss is remote and fully
intends on recovering the entire 1,700,000 shares. It is remotely
possible, however, that the Company may have to honor these shares in
the future, although the shares have not been recorded by the Company
as outstanding shares as of March 31, 2002.
COMMON STOCK OUTSTANDING
The Company has recognized 203,400 shares that were previously
noted as a contingency and were not recorded by the Company as
outstanding shares as of March 31, 2001. These shares, which had been
issued for no consideration in 1999, are being reported as issued and
outstanding as of March 31, 2002.
TERMINATION BENEFITS AGREEMENT
The Company has entered into a termination benefits agreement
with its three key executive officers. In the event there is a change
of control of the Company (as defined by the agreement) and the
employment of the executive terminates under certain conditions
described in the agreement at any time during the three year period
following the change of control of the Company, the executive will
receive severance pay equal to 299% of the average of the five most
recent years annual compensation.
LEASES
The Company leases certain machinery and equipment used in
operations under operating leases expiring in 2006. The minimum future
payments required under non-cancelable operating leases having
remaining terms in excess of one year appear below:
Year Ending
March 31, Amount
--------------- --------------
2003 $ 111,839
2004 77,838
2005 30,100
2006 7,500
--------------
Total $ 227,277
==============
F-20
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H COMMITMENTS AND CONTINGENCIES
LEASES (Continued)
Rent expense charged to operations for the years ended March
31, 2002, 2001 and 2000 was $302,743, $282,685, and $241,151,
respectively.
NOTE I RELATED PARTY TRANSACTIONS
During the years ended March 31, 2002, 2001, and 2000, the
Company made sales to affiliates in the amounts of $733,400, $572,281,
and $158,477, respectively. In addition, the Company has advanced funds
to related companies for operating expenses. Amounts due from
affiliates totaled $375,112 and $299,918 at March 31, 2002 and 2001,
respectively. Amounts due to affiliates totaled $37,345 and $-0- at
March 31, 2002 and 2001, respectively.
Notes Payable to a shareholder is unsecured, payable on
demand, bearing interest at 10%, with interest payable quarterly.
Interest paid to shareholder totaled $11,350, $11,350, and $11,038 for
the years ended March 31, 2002, 2001 and 2000, respectively.
During the years ending March 31, 2002, 2001 and 2000, the
Company paid storage fees to an affiliate totaling $17,129, $97,570,
and $-0-, respectively.
NOTE J OFF-BALANCE SHEET RISK
During the year ended March 31, 2002, the Company maintained
cash balances in a financial institution in excess of federally insured
limits.
NOTE K STOCK OPTIONS AND WARRANTS OUTSTANDING
STOCK OPTIONS
During the year ended March 31, 2001, the Company adopted the
2000 Equity Incentive Plan under which 3,000,000 shares of common stock
have been reserved for issuance as incentive stock options or
non-qualified stock options to employees of the Company, exercisable
one year after the grant date. The exercise price of any stock option
granted under the Plan to an eligible employee will be equal to the
fair market value of the shares on the date of grant for incentive
stock options and not less that 80% of the fair market value of the
shares on the date of grant for non-qualified stock options.
F-21
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K STOCK OPTIONS AND WARRANTS OUTSTANDING (Continued)
STOCK OPTIONS (Continued)
A summary of the status of the Company's stock options as of
March 31, 2002 and 2001 and changes during the years ending on those
dates is presented below:
Weighted Weighted
Average Average
Exercise Grant Date
Shares Price Fair Value
------------ ------------- ----------------
Outstanding, March 31, 2000 - $ - $ -
Granted 1,295,000 1.01 1.01
Exercised - - -
Expired/Canceled - - -
------------ ----------- --------------
Outstanding, March 31, 2001 1,295,000 1.01 1.01
Granted - - -
Exercised - - -
Expired/Canceled - - -
------------ ----------- --------------
Outstanding, March 31, 2002 1,295,000 $ 1.01 $ 1.01
============ =========== ==============
At March 31, 2002 and 2001, 1,295,000 and -0- shares,
respectively, were exercisable. These options expire ten years after
the grant date.
The Company applies Accounting Principles Board (APB) 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for all stock option plans. Under APB 25, compensation
cost is recognized for stock options granted to employees when the
option price is less than the market price of the underlying common
stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation"
(ASFAS No. 123"), requires the Company to provide proforma information
regarding net income (loss) and net income (loss) per share as if
compensation costs for the Company's stock option plans and other stock
awards had been determined in accordance with the fair value based
method prescribed in SFAS No. 123. The Company estimates the fair value
of each stock award at the grant date by using the Black-Scholes
options pricing model using the following assumptions. The U.S.
Treasury rate for the period equal to the expected life of the options
was used as the risk-free interest rate. The expected life of the
options is 5 to 10 years. The volatility used was1.2486% based upon the
historical price per share of shares sold. There are no expected
dividends.
Under the accounting provisions of SFAS 123, the Company's net
income (loss) would have been unchanged for the years ended March 31,
2002, 2001 and 2000.
F-22
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K STOCK OPTIONS AND WARRANTS OUTSTANDING (Continued)
WARRANTS
In connection with certain investor transactions and certain
acquisitions described in Note A, GST has granted warrants for the
purchase of the Company's common stock. These warrants expire on
various dates through July 2009.
A summary of the status of the Company's stock warrants as of
March 31, 2002 and 2001 and changes during the years ending on those
dates is presented below:
Weighted Weighted
Average Average
Exercise Grant Date
Warrants Price Fair Value
------------- ------------- ----------------
Outstanding, March 31, 2000 5,500,000 $ 1.20 $ 1.11
Granted 25,000 2.00 1.78
Exercised - - -
Expired/Canceled - - -
------------- ----------- --------------
Outstanding, March 31, 2001 5,525,000 $ 1.20 $ 1.11
Granted - - -
Exercised - - -
Expired/Canceled - - -
------------- ----------- --------------
Outstanding, March 31, 2002 5,525,000 $ 1.20 $ 1.11
============= =========== ==============
At March 31, 2002 and 2001, 5,525,000 shares were exercisable.
The Company estimates the fair value of each stock warrant at
the grant date by using the Black-Scholes pricing model. The following
assumptions were used: risk-free interest rate of 6%, five to ten year
expected life, 1.2486% expected volatility, and no expected dividends.
Under the accounting provisions of SFAS 123, the Company's net income
(loss) would have been unchanged for the years ended March 31, 2002,
2001 and 2000. However, additional goodwill of $136,000 was recorded
for warrants granted on the asset purchase of Natural Bait Brokers,
Inc. during the year ended March 31, 2001 as a result of the 1,500,000
warrants granted pursuant to SFAS 123 (Note A).
F-23
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L BASIC AND FULLY DILUTED EARNINGS PER SHARE
The computations of basic earnings per share of common stock
are based on the weighted average number of shares outstanding during
the period of the consolidated financial statements. Common stock
equivalents, consisting of the preferred shares, options and warrants
are not included in the fully diluted earnings per share for the years
ended March 31, 2001 and 2000, as they are antidilutive.
For the Years Ended
March 31,
-----------------------------------------------------
2002 2001 2000
------------- -------------- ----------------
Loss from Continuing Operations
Before Extraordinary Item $ (554,153) $ (395,656) $ (988,148)
Discontinued Operations (Net of Tax) - (89,475) (47,945)
Extraordinary Item (Net of Tax) 927,041 - -
------------- -------------- ----------------
Income (Loss) Available to Common
Stockholders Used in Basic EPS
And After Assumed Conversions
Of Dilutive Securities- Numerator $ 372,888 $ (485,131) $ (1,036,093)
============= ============== ================
Weighted Average Number of Common
Shares Used in Basic EPS 15,843,403 13,281,970 12,633,545
Effect of Dilutive Securities:
Stock Options 256,862 - -
Warrants 829,857 - -
------------- -------------- ----------------
Weighted Average Number of
Common Shares and Dilutive
Potential Common Stock Used
in Diluted EPS - Denominator 16,930,122 13,281,970 12,633,545
============= ============== ================
NOTE M JOINT PARTICIPATION AGREEMENTS
On March 20, 2000, the Company entered into a joint
participation agreement for the allocation and distribution of profit
to be derived from participation in an aquaculture farming operation in
the State of Mississippi. As part of the agreement, the other
participant paid a $100,000 participation fee to the Company that was
recorded as additional capital contributed for the year ended March 31,
2000. In addition, the participant loaned the Company $80,000 to be
used for working capital in the operation of the farm. The Company is
to provide the agricultural land lease, expertise in producing
freshwater prawns, macrobrachia post-larvae to seed the ponds,
equipment and housing for the operation of the farm. The Company issued
106,667 shares of common stock during the year ended March 31, 2001 to
the participant in lieu of the $80,000 debt.
F-24
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M JOINT PARTICIPATION AGREEMENTS (Continued)
Profits derived from the operation of the farm will be
allocated 51% to the Company and 49% to the other participant. No
profit had been earned as of March 31, 2002.
During the year ended March 31, 2001, the Company entered into
a joint venture to establish a freshwater shrimp farm in the Republic
of Guyana. The Company is to provide the technology and the delivery of
post-larvae as seed stock, and will share in 20% of the net profits. No
profit had been earned as of March 31, 2002.
On February 5, 2002 the Company entered into a Joint Profit
Participation Agreement with AquaPro Corporation for the production of
freshwater shrimp in up to 300 acres of ponds that are owned and
managed by AquaPro. The Company is to provide the technology and the
delivery of post-larvae as seed stock, and will share in the net
profits.
NOTE N SEGMENT REPORTING
Global Seafood Technologies, Inc.'s reportable segments are
business units that offer different products and services. They are
managed separately, because each segment requires different technology,
industry knowledge and marketing strategies.
The Company has three reportable business segments: seafood,
fishing bait and freshwater shrimp. The seafood segment performs
full-service processing, packaging and storage of shrimp and other
seafood products. The fishing bait segment packages and distributes
recreational fishing bait products. The freshwater shrimp segment is
engaged in the development and harvesting of farm-grown, freshwater
shrimp through its hatchery and nursery facility.
The policies applied to determine the segment information are
the same as those described in the summary of significant accounting
policies (Note A). All significant intersegment transactions have been
eliminated in the consolidated financial statements.
Management evaluates the performance of each segment based on
profit or loss from operations before income taxes, exclusive of
nonrecurring gains and losses.
F-25
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N SEGMENT REPORTING (Continued)
Financial information as of and for the year ended March 31,
2002, 2001 and 2000 with respect to the reportable segments is as
follows:
Fishing Freshwater
Seafood Bait Shrimp Total
-------------- --------------- ------------ -----------------
External Revenues
2002 $ 10,695,521 $ 2,881,549 $ 164,709 $ 13,741,779
2001 14,787,501 2,215,887 72,593 17,075,981
2000 12,410,426 1,124,345 57,392 13,592,163
Cost of Goods Sold
2002 8,849,658 1,507,677 346,150 10,703,485
2001 12,972,760 1,560,747 185,838 14,719,345
2000 9,778,683 543,944 36,054 10,358,681
Other Income (Expenses)
2002 (2,035,571) (1,690,158) (146,644) (3,872,373)
2001 (1,650,516) (1,323,923) (135,113) (3,109,552)
2000 (2,932,867) (1,212,845) (75,918) (4,221,630)
Segment Profit (Loss) from
Continuing Operations
Before Income Taxes
2002 (189,708) (316,286) (328,085) (834,079)
2001 164,224 (668,782) (248,358) (752,916)
2000 (301,125) (632,443) (54,580) (988,148)
Extraordinary Item (Net of Tax)
2002 927,041 - - 927,041
2001 - - - -
2000 - - - -
Net Earnings (Loss)
2002 1,017,259 (316,286) (328,085) 372,888
2001 432,009 (668,782) (248,358) (485,131)
2000 (349,070) (632,443) (54,580) (1,036,093)
Total Assets
2002 5,637,415 1,746,504 795,571 8,179,490
2001 4,923,668 1,789,108 710,772 7,423,548
2000 3,168,968 1,828,224 487,622 5,484,814
Total Liabilities
2002 2,215,195 950,014 189,191 3,354,400
2001 2,303,814 575,227 174,194 3,053,235
2000 1,454,111 182,667 242,821 1,879,599
Other Income (Expenses) in the seafood segment for the year
ended March 31, 2000 included a $775,000 impairment loss (Note B).
F-26
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O DISCONTINUED OPERATIONS
Effective December 2000, the Company discontinued the
operations of CoMar Foods, Inc. The following is a summary of the loss
from discontinued operations resulting from the dissolution of this
subsidiary for the years ended March 31, 2001, and 2000, including the
tax effect attributable to the discontinued operations.
March 31,
------------------------------
2001 2000
------------ ------------
NET SALES $ - $ 613,439
EXPENSES:
Cost of Sales - 108,462
Depreciation Expense 9,742 37,491
Selling, General and Administrative 134,573 526,234
------------ ------------
Total Expenses 144,315 672,187
------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES) (144,315) (58,748)
------------ ------------
OTHER INCOME (EXPENSES):
Other Income - 181
Gain on Disposition of Assets - 56,662
Interest Expense - (46,040)
------------ ------------
Total Other Income (Expenses) - 10,803
------------ ------------
NET LOSS BEFORE INCOME TAXES (144,315) -
INCOME TAX (BENEFIT) (54,840) -
------------ ------------
LOSS FROM DISCONTINUED
OPERATIONS NET OF TAX EFFECT $ (89,475) $ (47,945)
============ ============
NOTE P COMMON STOCK PURCHASE AGREEMENT
On February 19, 2002, the Company entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC pursuant to which
Fusion Capital agreed to purchase on each trading day during the term
of the agreement $12,500 of the Company's common stock or an aggregate
of $10 million. The $10 million of common stock is to be purchased over
a forty-month period, subject to a six month extension or earlier
termination at the Company's discretion. The purchase price of the
shares of common stock will be equal to a price based upon the future
market price of the common stock without any fixed discount to the
market price. The Company has the right to set a minimum purchase price
at any time.
F-27
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P COMMON STOCK PURCHASE AGREEMENT (Continued)
Details of this agreement are included in the registration
statement that the Company will file with the Securities and Exchange
Commission on Form SB-2 for the sale of up to 8,884,304 shares of its
common stock to Fusion Capital. The 16,368,418 shares of common stock
outstanding as of March 31, 2002, includes 442,152 shares that were
issued to Fusion Capital as a commitment fee for its purchase
obligations, and the other 8,442,152 shares remain to be offered to
Fusion Capital pursuant to the common stock purchase agreement. The
Company estimates that the maximum number of shares it will sell to
Fusion Capital under the common stock purchase agreement will be
8,000,000 shares, exclusive of up to 442,152 shares that may be issued
to Fusion Capital as a future commitment fee.
F-28
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
FYE
AUDITED UNAUDITED
March 31 September 30
2002 2002
---------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 334,580 $ 47,038
Accounts Receivable (net) $ 1,736,833 $ 1,681,527
Accounts Receivable - Related $ 375,112 $ 71,726
Income Taxes Receivable $ 92,680 $ 92,680
Pre-paid Expenses $ 39,000 $ 77,999
Inventories $ 1,215,458 $ 1,202,267
Deferred tax asset, current $ 454,201 $ 454,201
---------------- ----------------
TOTAL CURRENT ASSETS $ 4,247,864 $ 3,627,438
PROPERTY AND EQUIPMENT
Land $ 121,890 $ 121,890
Buildings and Improvements $ 1,650,839 $ 2,148,879
Furniture and Fixtures $ 26,645 $ 35,427
Machinery and Equipment $ 3,862,630 $ 4,226,681
Vehicles $ 67,325 $ 67,325
Water Well $ 121,441 $ 121,441
Idle Property $ 701,944 $ 701,944
---------------- ----------------
TOTAL FIXED ASSETS $ 6,552,714 $ 7,423,587
Less Accumulated Depreciation $ (2,894,446) $ (3,130,578)
---------------- ----------------
PROPERTY AND EQUIPMENT, NET $ 3,658,268 $ 4,293,009
OTHER ASSETS
Deferred tax asset $ - $ -
Goodwill $ 273,000 $ 273,000
Deposits $ 358 $ 358
---------------- ----------------
Total Other Assets $ 273,358 $ 273,358
TOTAL ASSETS $ 8,179,490 $ 8,193,805
The accompanying notes are an integral part of these consolidated financial statements
F-29
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
FYE
AUDITED UNAUDITED
March 31 September 30
2002 2002
---------------- ----------------
CURRENT LIABILITIES
Accounts Payable $ 1,407,569 $ 939,538
Accounts Payable - Related $ 37,345 $ -
Accrued expenses $ 29,232 $ 32,821
Notes Payable-Line of Credit $ - $ 853,000
Notes Payable, current portion $ 223,176 $ 223,091
Notes Payable - Related $ 101,000 $ 101,000
Obligations under capital leases $ 30,408 $ 29,975
----------------- -----------------
TOTAL CURRENT LIABILITIES $ 1,828,730 $ 2,179,425
LONG-TERM LIABILITIES
Deferred Tax Liability $ 319,823 $ 319,823
Notes Payable $ 1,147,467 $ 1,031,811
Obligations under capital leases $ 58,380 $ 41,094
----------------- -----------------
TOTAL LONG-TERM LIABILITIES $ 1,525,670 $ 1,392,728
TOTAL LIABILITIES $ 3,354,400 $ 3,572,153
STOCKHOLDER'S EQUITY
Preferred stock $ - $ -
(Issued and outstanding)
Common stock $ 16,368 $ 16,368
(Issued and outstanding) 16,368,418 16,368,418
Additional Paid-in Capital $ 5,630,095 $ 5,630,095
Prepaid Non-compete $ (47,834) $ (31,890)
Retained Earnings $ (773,539) $ (992,921)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY $ 4,825,090 $ 4,621,652
TOT. LIAB. AND EQUITY $ 8,179,490 $ 8,193,805
The accompanying notes are an integral part of these consolidated financial statements
F-30
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED UNAUDITED
For Three Months Ending September 30 For Six Months Ending September 30
------------------------------------ ----------------------------------
2001 2002 2001 2002
Restated Restated
------------- ------------ ------------ -------------
Processing Sales $ 397,210 $ 612,547 $ 724,313 $ 732,906
Sales of Product $ 3,295,771 $ 1,651,378 $ 6,679,324 $ 4,423,736
------------- ------------ ------------ -------------
NET SALES $ 3,692,981 $ 2,263,926 $ 7,403,637 $ 5,156,642
EXPENSES
Cost of Sales $ 2,579,123 $ 1,218,920 $ 4,920,105 $ 3,066,859
Non-compete covenant $ 7,972 $ 7,972 $ 15,944 $ 15,944
Depreciation & amortization $ 96,726 $ 135,565 $ 195,747 $ 241,468
Bad debt expense $ - $ - $ - $ -
Selling, general and administrative $ 1,255,906 $ 969,364 $ 2,277,102 $ 2,005,444
------------- ------------ ------------ -------------
TOTAL EXPENSES $ 3,939,728 $ 2,331,821 $ 7,408,899 $ 5,329,716
INCOME BEFORE OTHER ITEMS $ (246,747) $ (67,896) $ (5,262) $ (173,074)
Other income $ 26,478 $ 18,822 $ 37,833 $ 30,681
Interest income $ 7,145 $ 432 $ 9,304 $ 897
Gain of disposition of assets $ - $ (293) $ - $ 3,160
Interest expense $ (28,876) $ (40,411) $ (76,016) $ (80,418)
------------- ------------ ------------ -------------
TOTAL OTHER INCOME (EXPENSE) $ 4,747 $ (21,450) $ (28,879) $ (45,681)
NET INCOME BEFORE TAXES $ (242,000) $ (89,346) $ (34,141) $ (218,755)
PROVISION FOR TAXES $ - $ - $ 14,220 $ 627
NET INCOME $ (242,000) $ (89,346) $ (48,361) $ (219,382)
Basic Earnings (Loss) Per Share $ (0.02) $ (0.01) $ - $ (0.01)
Fully Diluted Earnings (Loss) Per Share $ (0.02) $ (0.01) $ (0.00) $ (0.01)
The accompanying notes are an integral part of these consolidated financial statements
F-31
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For Six Months Ending September 30
--------------------------------------------
2001 2002
Restated
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (48,361) $ (219,382)
Adjustments to Net Income:
Depreciation & Amortization $ 211,691 $ 257,412
(Gain) Loss on Sale of Assets $ - $ (3,160)
Bad Debts $ - $ -
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable
and Accounts Receivable Related $ (676,390) $ 358,692
(Increase) Decrease in Taxes Receivable $ - $ -
(Increase) Decrease in Deferred Tax Asset $ - $ -
(Increase) Decrease in Inventories $ (778,276) $ 13,191
(Increase) Decrease in Pre-paid Expenses $ (9,000) $ (38,999)
(Increase) Decrease in Deposits $ (10,000) $ -
Increase (Decrease) in Accounts Payable
and Accounts Payable Related $ 239,380 $ (505,376)
Increase (Decrease) in Taxes Payable $ 14,145 $ -
Increase (Decrease) in Accrued Expenses $ (14,953) $ 3,589
-------------- --------------
Net Cash Provided (Used) by Operating Activities $ (1,071,764) $ (134,033)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment $ -
Purchase of Property and Equipment $ (408,860) $ (873,049)
-------------- --------------
Net Cash Used in Investing Activities $ (408,860) $ (873,049)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Capital Contributed $ 50,000 $ -
Insurance Advances $ 378,766 $ -
Payments on Notes Payable and Leases Payable $ (123,780) $ (133,460)
Proceeds From Notes Payable and Leases Payable $ 105,541 $ 853,000
-------------- --------------
Net Cash Provided (Used by)Financing Activities $ 410,526 $ 719,540
NET INCREASE (DECREASE) IN CASH $ (1,070,097) $ (287,542)
BEGINNING CASH AND CASH EQUIVALENTS $ 1,313,729 $ 334,580
ENDING CASH AND CASH EQUIVALENTS $ 243,632 $ 47,038
The accompanying notes are an integral part of these consolidated financial statements
F-32
GLOBAL SEAFOOD TECHNOLOGIES, INC.
Consolidated Statements of Shareholders' Equity
Preferred Stock Common Stock Additional Retained
-------------------- ---------------------- Paid-in Pre-paid Earnings
Shares Amount Shares Amount Capital Non-compete (Deficit)
--------- --------- ----------- ---------- ----------- ----------- -----------
Balance, March 31, 2002 0 $0 16,368,418 $16,368 $5,630,095 ($47,834) ($773,539)
Amortization of Non-compete Agreement 15,944
Net income (loss) for six months
ended September 30, 2002 (219,382)
Balance, September 30, 2002 0 0 16,368,418 16,368 5,630,095 (31,890) (992,921)
========= ========= =========== ========== =========== ========== ============
The accompanying notes are an integral part of these consolidated financial statements
F-33
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
The consolidated financial statements include those of Global Seafood
Technologies, Inc. and its wholly-owned subsidiaries, Custom Pack,
Inc., Aquaculture Corporation of America and Killer Bee, Inc.
Collectively, they are referred to as "the Company". In consolidation,
significant inter-company accounts, transactions, and profits have been
eliminated.
The accompanying unaudited consolidated financial statements of the
Company for the six months ended September 30, 2002 and 2001 have been
prepared on the same basis as the audited financial statements. In the
opinion of management, such unaudited information includes all
adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of this interim information. Operating results
and cash flows for interim periods are not necessarily indicative of
results for the entire year. Additionally, certain information and
footnote disclosures normally included in a full set of financial
statements have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations. The information included
in this report should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended March 31, 2002 previously
filed with the Securities and Exchange Commission.
NOTE B PROPERTY AND EQUIPMENT
On March 30, 2001, the Company's principal building and certain office
equipment were damaged in a fire. The fire completely destroyed the
portion of the plant where the corporate offices were located but did
minimal damage to the processing area or the processing equipment and
machinery. As of March 31, 2002 the property had been substantially
reconstructed, and the extraordinary gain of $927,041 ($.06 per share),
net of income tax of $477,567, represented that portion of the
insurance proceeds in excess of the loss incurred by the Company.
Subsequent to March 31, 2002 the Company acquired] $280,624 in fixed
assets from the remaining portion of insurance proceeds.
F-34
NOTE C LINE OF CREDIT
The Company has available a line of credit with a bank totaling
$1,000,000, bearing interest at prime, maturing October 6, 2003. The
line of credit is secured by property, equipment, accounts receivable,
and inventory, and is guaranteed by three of the Company's
shareholders. There were no notes payable outstanding against the line
of credit at March 31, 2002 or September 30, 2001. $853,000 was
outstanding under the line of credit on September 30, 2002.
NOTE D COMMITMENTS AND CONTINGENCIES
COMMON STOCK CONTINGENCY
The Company is aware of numerous possible claims by individuals that
received either through purchase or otherwise, 850,000 forged shares of
the Company's common stock that purport to represent issued and
outstanding shares. The shares are not listed on the Company's
shareholder records and do not represent duly issued and outstanding
shares of the Company's common stock. Although no litigation is pending
in relation to these shares, it is possible that the Company may have
to honor these 850,000 shares of common stock in the future. The shares
have not been recorded by the Company at March 31, 2002 since the
ultimate outcome is currently not estimatable.
The Company is in the process of trying to recover 1,700,000 common
shares. The holder of the shares is claiming breach of contract and
claims that he is entitled to the shares. The claim is currently in
litigation and management intends on vigorously contesting the claim.
The Company has filed an answer and a counterclaim against the holder
seeking specific performance of a settlement agreement previously
entered into. While the possibility that an unfavorable outcome exists,
the Company has determined that the potential loss is remote and fully
intends on recovering the entire 1,700,000 shares. It is remotely
possible, however, that the Company may have to honor these shares in
the future, although the shares have not been recorded by the Company
as outstanding shares as of March 31, 2002 or September 30, 2002.
COMMON STOCK OUTSTANDING
The Company has recognized 203,400 shares that were previously noted as
a contingency and were not recorded by the Company as outstanding
shares as of March 31, 2001. These shares, which had been issued for no
consideration in 1999, are being reported as issued and outstanding as
of March 31, 2002 and September 30, 2002.
TERMINATION BENEFITS AGREEMENT
The Company has entered into a termination benefits agreement with its
three key executive officers. In the event there is a change of control
of the Company (as defined by the agreement) and the employment of the
executive terminates under certain conditions described in the
agreement at any time during the three year period following the change
of control of the Company, the executive will receive severance pay
equal to 299% of the average of the five most recent years annual
compensation.
F-35
NOTE E STOCK OPTIONS AND WARRANTS OUTSTANDING
STOCK OPTIONS
During the year ended March 31, 2001, the Company adopted the 2000
Equity Incentive Plan under which 3,000,000 shares of common stock have
been reserved for issuance as incentive stock options or non-qualified
stock options to employees of the Company, exercisable one year after
the grant date. The exercise price of any stock option granted under
the Plan to an eligible employee will be equal to the fair market value
of the shares on the date of grant for incentive stock options and not
less that 80% of the fair market value of the shares on the date of
grant for non-qualified stock options.
A summary of the status of the Company's stock options as of March 31,
2002 and September 30, 2002 and changes during the year and six months
ending on those dates, respectively, is presented below:
Weighted Weighted
Average Average
Exercise Grant Date
Shares Price Fair Value
------------ ------------- ----------------
Outstanding, March 31, 2001 1,295,000 $ 1.01 $ 1.01
Granted
Exercised - - -
Expired/Canceled - - -
------------ ----------- --------------
Outstanding, March 31, 2002 1,295,000 1.01 1.01
Granted - - -
Exercised - - -
Expired/Canceled 25,000 - -
------------ ----------- --------------
Outstanding, September 30, 2002 1,270,000 $ 1.01 $ 1.01
============ =========== =============
At March 31, 2002, 1,295,000 shares were exercisable, and at September
30, 2002, 1,270,000 shares were exercisable. These options expire ten
years after the grant date.
The Company applies Accounting Principles Board (APB) 25, "Accounting
for Stock Issued to Employees," and related interpretations in
accounting for all stock option plans. Under APB 25, compensation cost
is recognized for stock options granted to employees when the option
price is less than the market price of the underlying common stock on
the date of grant.
F-36
NOTE E STOCK OPTIONS AND WARRANTS OUTSTANDING(Continued)
FASB Statement 123, "Accounting for Stock-Based Compensation" (ASFAS
No. 123"), requires the Company to provide proforma information
regarding net income (loss) and net income (loss) per share as if
compensation costs for the Company's stock option plans and other stock
awards had been determined in accordance with the fair value based
method prescribed in SFAS No. 123. The Company estimates the fair value
of each stock award at the grant date by using the Black-Scholes
options pricing model using the following assumptions. The U.S.
Treasury rate for the period equal to the expected life of the options
was used as the risk-free interest rate. The expected life of the
options is 5 to 10 years. The volatility used was1.2486% based upon the
historical price per share of shares sold. There are no expected
dividends.
Under the accounting provisions of SFAS 123, the Company's net income
(loss) would have been unchanged for the year ended March 31, 2002, and
the six month periods ended September 30, 2002 and 2001.
WARRANTS
In connection with certain investor transactions and certain
acquisitions described in Note A, GST has granted warrants for the
purchase of the Company's common stock. These warrants expire on
various dates through July 2009.
A summary of the status of the Company's stock warrants as of March 31,
2002 and September 30, 2002 and changes during the year and the six
months ending on those dates, respectively, is presented below:
Weighted Weighted
Average Average
Exercise Grant Date
Warrants Price Fair Value
------------- ------------- ----------------
Outstanding, March 31, 2001 5,525,000 $ 1.20 $ 1.11
Granted - - -
Exercised - - -
Expired/Canceled - - -
------------- ----------- --------------
Outstanding, March 31, 2002 5,525,000 $ 1.20 $ 1.11
Granted - - -
Exercised - - -
Expired/Canceled - - -
------------- ----------- --------------
Outstanding, September 30, 2002 5,525,000 $ 1.20 $ 1.11
============= =========== =============
F-37
At March 31, 2002 and September 30, 2002, 5,525,000 shares were
exercisable.
The Company estimates the fair value of each stock warrant at the grant
date by using the Black-Scholes pricing model. The following
assumptions were used: risk-free interest rate of 6%, five to ten year
expected life, 1.2486% expected volatility, and no expected dividends.
Under the accounting provisions of SFAS 123, the Company's net income
(loss) would have been unchanged for the years ended March 31, 2002,
2001 and 2000. However, additional goodwill of $136,000 was recorded
for warrants granted on the asset purchase of Natural Bait Brokers,
Inc. during the year ended March 31, 2001 as a result of the 1,500,000
warrants granted pursuant to SFAS 123 (Note A).
F-38
NOTE F BASIC AND FULLY DILUTED EARNINGS PER SHARE
The computations of basic earnings per share of common stock are based
on the weighted average number of shares outstanding during the period
of the consolidated financial statements. Common stock equivalents,
consisting of the preferred shares, options and warrants are not
included in the fully diluted earnings per share for the six month
period ending September 30, 2002, as they are antidilutive.
September 30,
March 31, ----------------------------------
2002 2002 2001
------------- -------------- ----------------
Income or (Loss)
From Continuing Operations
Before Extraordinary Item $ (554,153) $ (219,382) $ (48,361)
Discontinued Operations (Net of Tax) -
Extraordinary Item (Net of Tax) 927,041 - -
------------- -------------- ----------------
Income (Loss) Available to Common
Stockholders Used in Basic EPS
And After Assumed Conversions
Of Dilutive Securities - Numerator $ 372,888 $ (219,382) $ (48,361)
============= ============== ================
Weighted Average Number of Common
Shares Used in Basic EPS 15,843,403 16,368,418 15,117,742
Effect of Dilutive Securities:
Stock Options 256,862 - -
Warrants 829,857 - -
------------- -------------- ----------------
Weighted Average Number of
Common Shares and Dilutive
Potential Common Stock Used
in Diluted EPS - Denominator 16,930,122 16,368,418 15,117,742
============= ============== ================
F-39
NOTE N COMMON STOCK PURCHASE AGREEMENT
On February 19, 2002, the Company entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC pursuant to which Fusion
Capital agreed to purchase on each trading day during the term of the
agreement $12,500 of the Company's common stock or an aggregate of $10
million. The $10 million of common stock is to be purchased over a
forty-month period, subject to a six month extension or earlier
termination at the Company's discretion. The purchase price of the
shares of common stock will be equal to a price based upon the future
market price of the common stock without any fixed discount to the
market price. The Company has the right to set a minimum purchase price
at any time.
Details of this agreement are included in the registration statement
that the Company has filed with the Securities and Exchange Commission
on Form SB-2 for the sale of up to 10,000,000 shares of its common
stock to Fusion Capital. The 16,368,418 shares of common stock
outstanding as of March 31, 2002 and September 30, 2002, includes
442,152 shares that were issued to Fusion Capital as a commitment fee
for its purchase obligations, and the other 9,557,848 shares remain to
be offered to Fusion Capital pursuant to the common stock purchase
agreement. The Company estimates that the maximum number of shares it
will sell to Fusion Capital under the common stock purchase agreement
will be 9,115,696 shares, exclusive of up to 442,152 shares that may be
issued to Fusion Capital as a future commitment fee.
F-40
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 78.7502 of the Nevada Revised Statutes provides that directors and
officers of Nevada corporations may, under certain circumstances, be indemnified
against expenses (including attorneys' fees) and other liabilities actually and
reasonably incurred by them as a result of any suit brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful. Section 78.7502
also provides that directors and officers may be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
Article VIII of our company's Articles of Incorporation contains language
similar to Section 78.7502, and Article VI, Section 6.4 of our company's by-laws
requires us to indemnify our officers and directors to the extent authorized by
Section 78.7502.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than any underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities being registered. These expenses
will all be paid by our company.
SEC Registration.............................. $ 395.60
Legal Fees and Expenses*...................... $ 50,000.00
Edgarizing and Printing Fees*................. $ 5,000.00
Total......................................... $ 55,395.60
- ------------------
* Estimated
II-1
Item 26. Recent Sales of Unregistered Securities
The following sets forth certain information regarding the sale of equity
securities of our company since December 31, 1999 that were not registered under
the Securities Act of 1933, as amended (the Securities Act).
On February 16, 2000, we issued 152,564 common shares to G&G Trading Company,
Inc. in connection with the acquisition of certain assets of Killer Bee, Inc.
Messrs. Clayton and Brent Gutierrez, officers and directors of our company, are
shareholders of G&G Trading Company.
On October 16, 2000, we issued 106,667 common shares to B. Dean Williams, D.D.S.
in connection with the conversion of $80,000 in debt that was originally owed to
Dr. Williams in connection with the financing of our aquaculture activities.
On October 16, 2000, we issued 3,120 common shares to Mr. Jay Capouch
representing payment of certain fees valued at $2,340 due by us to Mr. Capouch.
On January 12, 2001, we granted warrants to purchase 500,000 shares of common
stock at an exercise price of $1.00 to Lance McNeill in consideration for
current and future services as a consultant to our company. The warrants expire
January 12, 2006. On February 1, 2001, Mr. McNeill was elected to our Board of
Directors.
On January 22, 2001, our company purchased certain assets from Natural Bait
Brokers, Inc., a Florida Corporation, for $200,000 cash and 1,500,000 warrants
to purchase the common stock of our company, exercisable through February 1,
2006 as follows: 1,000,000 warrants are exercisable into shares of common stock
at $1.00 per share, and 500,000 warrants are exercisable into shares of common
stock at $1.50 per share.
On January 31, 2001, we issued, pursuant to our 2000 Equity Incentive Plan,
options to purchase 1,295,000 shares of our common stock at an exercise price of
$1.01. The options expire January 11, 2011.
On May 2, 2001, we issued 1,464,005 common shares to Mr. William Schofield, a
director of our company, in connection with the conversion of 200,000 shares of
convertible preferred shares.
On June 13, 2001, we issued 12,500 common shares to Mr. Donald Ford and 12,500
common shares to Mr. Gerald Holaday for cash consideration of $50,000 in
connection with the development of controlled environment aquaculture facilities
in Mississippi. We also issued to each of these parties warrants to purchase
12,500 shares of common stock, exercisable through March 19, 2005, at a price of
$2.00 per share.
All of these transactions were exempt pursuant to the provisions of Section 4(2)
of the Securities Act, as not involving any public offering. In each case, (i)
the securities were sold subject to transfer restrictions, (ii) the certificates
evidencing the securities contain a legend providing that the securities have
not been registered under the Securities Act and may not be offered or sold
without registration or pursuant to an exemption from registration, and (iii)
neither our company nor anyone acting on its behalf engaged in general
solicitation in connection with the issuance of these securities.
II-2
Item 27. Exhibits.
Exhibit Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation dated May 29, 1986, and
filed with the Secretary of State of Nevada on May
29, 1986 (filed as Exhibit 3.0 to the Company's Form
10-KSB filed December 14, 1999 and incorporated
herein by reference).
3.2 Certificate of Amendment of Articles of Incorporation
dated July 13, 1994, and filed with the Secretary of
State of Nevada on July 18, 1994 (filed as Exhibit
3.1 to the Company's Form 10-KSB filed December 14,
1999 and incorporated herein by reference).
3.3 Certificate of Amendment of Articles of Incorporation
dated November 18, 1994, and filed with the Secretary
of State of Nevada on November 21, 1994 (filed as
Exhibit 3.2 to the Company's Form 10-KSB filed
December 14, 1999 and incorporated herein by
reference).
3.4 Certificate of Amendment of Articles of Incorporation
dated November 21, 1995, and filed with the Secretary
of State of Nevada on November 22, 1995 (filed as
Exhibit 3.3 to the Company's Form 10-KSB filed
December 14, 1999 and incorporated herein by
reference).
3.5 Certificate of Amendment of Articles of Incorporation
dated August 30, 1997, and filed with the Secretary
of State of Nevada on November 25, 1997 (filed as
Exhibit 3.4 to the Company's Form 10-KSB filed
December 14, 1999 and incorporated herein by
reference).
3.6 Certificate of Amendment of Articles of Incorporation
dated December 15, 1998, and filed with the Secretary
of State of Nevada on December 22, 1998 (filed as
Exhibit 3.5 to the Company's Form 10-KSB filed
December 14, 1999 and incorporated herein by
reference).
3.7 Restated Articles of Incorporation of Global Seafood
Technologies, Inc. dated as of March 20, 2001, filed
with the Nevada Secretary of State on April 19, 2001
(filed as Exhibit 3.7 to the Company's Registration
Statement on Form SB-2 (Registration number
333-100016) filed September 23, 2002 and incorporated
herein by reference).
II-3
3.8 Bylaws of Global Seafood Technologies, Inc. dated
August 15, 2000 (filed as Exhibit B to the Company's
Definitive Schedule 14A filed July 14, 2000 and
incorporated herein by reference).
5.1 Opinion of Elkins, P.L.C. (filed as Exhibit 5.1 to
the Company's Registration Statement on Form SB-2
(Registration number 333-100016) filed September 23,
2002 and incorporated herein by reference).
10.1 Common Stock Purchase Agreement dated as of February
19, 2002, between Global Seafood Technologies, Inc.
and Fusion Capital Fund II, LLC (filed as Exhibit
10.2 to the Company's Annual Report on Form 10-KSB
filed June 28, 2002 and incorporated herein by
reference).
10.2 First Amendment to Common Stock Purchase Agreement
between Global Seafood Technologies, Inc. and Fusion
Capital Fund II, LLC, dated as of September 12, 2002
(filed as Exhibit 10.2 to the Company's Registration
Statement on Form SB-2 (Registration number
333-100016) filed September 23, 2002 and incorporated
herein by reference).
10.3 Form of Termination Benefits Agreement entered into
between Global Seafood Technologies, Inc. and Brent
Gutierrez, Clayton Gutierrez, and Anita Gutierrez
(filed as Exhibit 10.1 to the Company's Annual Report
on Form 10-KSB filed June 28, 2002 and incorporated
herein by reference).
10.4 2000 Equity Incentive Plan (filed as Exhibit A to the
Company's Definitive Schedule 14A filed July 14, 2000
and incorporated hereby by reference.)
10.5 Promissory Note dated October 17, 2002, in the
principal amount of $1,000,000, by Custom Pack, Inc.
in favor of SouthTrust Bank.
10.6 Promissory Note dated November 14, 2002, in the
principal amount of $1,115,000, by Custom Pack, Inc.
in favor of SouthTrust Bank.
10.7 Commercial Guaranty dated November 14, 2002, by
Global Seafood Technologies, Inc. in favor of
SouthTrust Bank.
10.8 Business Loan Agreement dated November 14, 2002, by
Custom Pack, Inc. and SouthTrust Bank.
II-4
10.9 Deed of Trust dated September 13, 2001, by Custom
Pack, Inc. in favor of SouthTrust Bank.
10.10 Deed of Trust dated November 14, 2002, by Custom
Pack, Inc. in favor of SouthTrust Bank.
10.11 Hazardous Substances Certificate and Indemnity
Agreement dated November 14, 2002 by Custom Pack,
Inc. in favor of SouthTrust Bank.
10.12 Commercial Security Agreement dated October 17, 2002
by Custom Pack, Inc. in favor of SouthTrust Bank.
10.13 Commercial Security Agreement dated November 14,
2002, by Custom Pack, Inc. in favor of SouthTrust
Bank.
21 List of Subsidiaries (filed as Exhibit 21 to the
Company's Registration Statement on Form SB-2
(Registration number 333-100016) filed September 23,
2002 and incorporated herein by reference).
23.1 Consent of HJ & Associates, LLC
23.2 Consent of Laporte, Sehrt, Romig & Hand
23.3 Consent of Elkins, P.L.C. (included in Exhibit 5.1)
Item 28. Undertakings.
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any additional or changed material information on
the plan of distribution.
II-5
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the registrant's directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
Signatures
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of Biloxi,
Mississippi, on December 31, 2002.
Global Seafood Technologies, Inc.
By: /s/ Brent Gutierrez
-------------------------------
Brent Gutierrez, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Brent Gutierrez President, Chief Executive December 31, 2002
- ---------------------------- Officer and Chairman of the
Brent Gutierrez Board of Directors (principal
executive officer and principal
financial officer)
/s/ Clayton F. Gutierrez Senior Vice President and December 31, 2002
- ---------------------------- Secretary (principal
Clayton F. Gutierrez accounting officer)
/s/ Frank C. Gutierrez Director December 31, 2002
- ----------------------------
Frank C. Gutierrez
/s/ Anita K. Gutierrez Director and Treasurer December 31, 2002
- ----------------------------
Anita K. Gutierrez
/s/ Lance McNeill Director December 31, 2002
- ----------------------------
Lance McNeill
II-7