SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 12, 2003
GLOBAL SEAFOOD TECHNOLOGIES, INC.
10,000,000 Shares of Common Stock
Attached hereto and hereby made part of the prospectus is the company's
Quarterly Report on Form 10-QSB for the quarter ended December 31, 2002, as
filed with the U.S. Securities and Exchange Commission on February 13, 2003.
__________________________
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 the prospectus or this prospectus supplement. Any
representation to the contrary is a criminal offense.
__________________________
The date of this Prospectus Supplement is February 21, 2003
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
December 31, 2002 Commission File No. 0-28495
GLOBAL SEAFOOD TECHNOLOGIES, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Nevada 93-1219887
- ------------------------------ ---------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 Bayview Avenue, Biloxi, Mississippi 39530
- ---------------------------------------- -----------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (228) 435-3632
Former name, former address and former fiscal year, if changed since last
report: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of February 3, 2003, there were 16,368,418 shares of Common Stock, $.001 par
value outstanding.
================================================================================
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2002
and March 31, 2002 3-4
Consolidated Statements of Operations for the three and nine
months ended December 31, 2002 and December 31, 2001 5
Consolidated Statements of Cash Flows for the nine months
ended December 31, 2002 and December 31, 2001 6
Consolidated Statement of Shareholders Equity 7
Notes to the financial statements 8-13
2
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
FYE
AUDITED UNAUDITED
March 31 December 31
2002 2002
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 334,580 $ 23,783
Accounts Receivable (net) $ 1,736,833 $ 998,563
Accounts Receivable - Related $ 375,112 $ 587,172
Income Taxes Receivable $ 92,680 $ 781
Pre-paid Expenses $ 39,000 $ 77,999
Inventories $ 1,215,458 $ 1,091,220
Deferred tax asset, current $ 454,201 $ 454,201
------------ ------------
TOTAL CURRENT ASSETS $ 4,247,864 $ 3,233,718
PROPERTY AND EQUIPMENT
Land $ 121,890 $ 121,890
Buildings and Improvements $ 1,650,839 $ 2,166,701
Furniture and Fixtures $ 26,645 $ 95,281
Machinery and Equipment $ 3,862,630 $ 4,238,088
Vehicles $ 67,325 $ 72,478
Water Well $ 121,441 $ 121,441
Idle Property $ 701,944 $ 701,944
------------ ------------
TOTAL FIXED ASSETS $ 6,552,714 $ 7,517,822
Less Accumulated Depreciation $ (2,894,446) $ (3,307,643)
------------ ------------
PROPERTY AND EQUIPMENT, NET $ 3,658,268 $ 4,210,179
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 $ 7,717,255
The accompanying notes are an integral part of these consolidated financial statements
3
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
FYE
AUDITED UNAUDITED
March 31 December 31
2002 2002
------------ ------------
CURRENT LIABILITIES
Accounts Payable $ 1,407,569 $ 651,424
Accounts Payable - Related $ 37,345 $ 191,186
Accrued expenses $ 29,232 $ 31,552
Notes Payable-Line of Credit $ - $ 873,000
Notes Payable, current portion $ 223,176 $ 78,614
Notes Payable - Related $ 101,000 $ 101,000
Obligations under capital leases $ 30,408 $ 29,679
------------ ------------
TOTAL CURRENT LIABILITIES $ 1,828,730 $ 1,956,455
LONG-TERM LIABILITIES
Deferred Tax Liability $ 319,823 $ 319,823
Notes Payable $ 1,147,467 $ 1,185,701
Obligations under capital leases $ 58,380 $ 43,299
------------ ------------
TOTAL LONG-TERM LIABILITIES $ 1,525,670 $ 1,548,822
TOTAL LIABILITIES $ 3,354,400 $ 3,505,277
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) $ (23,917)
Retained Earnings $ (773,539) $ (1,410,567)
------------ ------------
TOTAL STOCKHOLDER'S EQUITY $ 4,825,090 $ 4,211,978
TOT. LIAB. AND EQUITY $ 8,179,490 $ 7,717,255
The accompanying notes are an integral part of these consolidated financial statements
4
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED UNAUDITED
For Three Months Ending December 31 For Nine Months Ending December 31
----------------------------------- ----------------------------------
2001 2002 2001 2002
Processing Sales $ 273,925 $ 610,084 $ 999,436 $ 1,342,990
Sales of Product $ 3,087,788 $ 1,361,369 $ 9,621,931 $ 5,787,359
------------ ----------- ------------ ------------
NET SALES $ 3,361,713 $ 1,971,453 $ 10,621,367 $ 7,130,349
EXPENSES
Cost of Sales $ 2,663,573 $ 1,283,532 $ 7,453,409 $ 4,353,022
Non-compete covenant $ 7,972 $ 7,972 $ 23,917 $ 23,917
Depreciation & amortization $ 94,657 $ 177,067 $ 290,405 $ 418,535
Bad debt expense $ - $ - $ - $ -
Selling, general and administrative $ 898,974 $ 863,799 $ 3,199,140 $ 2,920,180
------------ ----------- ------------ ------------
TOTAL EXPENSES $ 3,665,177 $ 2,332,369 $ 10,966,870 $ 7,715,653
INCOME (LOSS) BEFORE OTHER ITEMS $ (303,464) $ (360,916) $ (345,503) $ (585,304)
Other income $ 10,917 $ 23,279 $ 48,751 $ 53,959
Interest income $ 465 $ 108 $ 9,769 $ 1,005
Gain of disposition of assets $ - $ 4,239 $ - $ 7,399
Interest expense $ (38,503) $ (33,047) $ (120,419) $ (113,465)
------------ ----------- ------------ ------------
TOTAL OTHER INCOME (EXPENSE) $ (27,121) $ (5,421) $ (61,899) $ (51,102)
NET INCOME (LOSS) BEFORE TAXES $ (330,585) $ (366,337) $ (407,403) $ (636,405)
PROVISION FOR TAXES $ (9,997) $ - $ 4,223 $ 627
NET INCOME (LOSS) $ (340,582) $ (366,337) $ (411,626) $ (637,033)
Basic Earnings (Loss) Per Share $ (0.02) $ (0.02) $ (0.03) $ (0.04)
Fully Diluted Earnings (Loss)
Per Share $ (0.02) $ (0.02) $ (0.03) $ (0.04)
The accompanying notes are an integral part of these consolidated financial statements
5
GLOBAL SEAFOOD TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For Nine Months Ending December 31
---------------------------------------------
2001 2002
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (411,626) $ (637,033)
Adjustments to Net Income:
Depreciation & Amortization $ 290,405 $ 418,535
Decrease in Prepaid Non-Compete $ 23,917 $ 23,917
(Gain) Loss on Sale of Assets $ - $ (7,399)
Bad Debts $ - $ -
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable
and Accounts Receivable Related $ (262,222) $ 526,210
(Increase) Decrease in Taxes Receivable $ - $ 91,899
(Increase) Decrease in Deferred Tax Asset $ - $ -
(Increase) Decrease in Inventories $ (857,483) $ 124,238
(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 $ (24,916) $ (602,304)
Increase (Decrease) in Taxes Payable $ 14,145 $ -
Increase (Decrease) in Accrued Expenses $ (19,315) $ 2,320
--------------- --------------
Net Cash Provided (Used) by Operating Activities $ (1,266,096) $ (98,616)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment $ - $ 2,066
Purchase of Property and Equipment $ (444,451) $ (965,108)
--------------- --------------
Net Cash Used in Investing Activities $ (444,451) $ (963,042)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional Capital Contributed $ 50,000 $ -
Insurance Advances $ 252,846 $ -
Payments on Notes Payable and Leases Payable $ (109,496) $ (169,993)
Proceeds From Notes Payable and Leases Payable $ 92,338 $ 920,854
--------------- --------------
Net Cash Provided (Used by) Financing Activities $ 285,687 $ 750,861
NET INCREASE (DECREASE) IN CASH $ (1,424,861) $ (310,797)
BEGINNING CASH AND CASH EQUIVALENTS $ 1,313,729 $ 334,580
ENDING CASH AND CASH EQUIVALENTS $ (111,132) $ 23,783
The accompanying notes are an integral part of these consolidated financial statements
6
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) ($773,534)
Amortization of Non-compete Agreement 23,917
Net income (loss) for nine months
ended December 31, 2002 (637,033)
Balance, December 31, 2002 0 0 16,368,418 16,368 5,630,095 (23,917) (1,410,567)
========= ========= =========== ========== =========== ========== ============
The accompanying notes are an integral part of these consolidated financial statements
7
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 nine months ended December 31, 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.
8
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. $76,000 was outstanding on December 31,
2001 and $873,000 was outstanding under the line of credit on December
31, 2002.
NOTE D COMMITMENTS AND CONTINGENCIES
COMMON STOCK CONTINGENCY
The Company has identified 2,435,401 shares of its common stock that
are held by The Depository Trust Company on behalf of banks and
brokers, which 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. In a related matter, the Company has been in
litigation to try to recover 1,700,000 common shares, which are
believed to be part of the 2,435,401 shares that have been identified.
On January 10, 2003 that litigation was decided in the Company's favor
by the Supreme Court of the State of New York. The Company is now
proceeding to recover those shares, although only 1,344,000 shares have
been specifically located.
Although no litigation is pending in relation to the remainder of these
shares, it is possible that the Company may have to honor from between
735,401 and 1,091,401 shares of its common stock in the future. These
shares have not been recorded as outstanding by the Company at March
31, 2002 or December 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 now being reported as issued and outstanding
as of March 31, 2002 and December 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.
9
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2002 and changes during the year and nine 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, December 31, 2002 1,270,000 $ 1.01 $ 1.01
At March 31, 2002, 1,295,000 shares were exercisable, and at December
31, 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.
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.
10
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E STOCK OPTIONS AND WARRANTS OUTSTANDING (Continued)
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 nine month periods ended December 31, 2002 and 2001.
WARRANTS
In connection with certain investor transactions and certain
acquisitions 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 December 31, 2002 and changes during the year and the nine
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, December 31, 2002 5,525,000 $ 1.20 $ 1.11
At March 31, 2002 and December 31, 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.
11
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 nine month
period ending December 31, 2002, as they are antidilutive.
March 31, December 31,
2002 2002 2001
------------- -------------- ----------------
Income or (Loss)
From Continuing Operations
Before Extraordinary Item $ (554,153) $ (637,033) $ (411,626)
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 Secruities- Numerator $ 372,888 $ (637,033) $ (411,626)
Weighted Average Number of Common
Shares Used in Basic EPS 15,843,403 16,368,418 15,755,687
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 15,755,687
12
GLOBAL SEAFOOD TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G 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 December 31, 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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following selected financial data, as of, and for each of the comparable
fiscal quarters and nine-month periods ended December 31, have been extracted
from the unaudited financial statements of the Company, a copy of which is
included herein. All such data should be read only in conjunction with, and is
qualified in their entirety by reference to, the Company's financial statements
and accompanying notes.
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
AS OF AND FOR THE
THREE MONTH PERIOD ENDED DECEMBER 31,
INCOME STATEMENT
Percentage Percentage
2002 of Net Sales 2001 of Net Sales
--------- ------------ --------- ------------
REVENUE: $ 1,971 100% $ 3,362 100 %
OPER. EXPENSES $ 2,332 118% $ 3,665 109 %
INCOME (LOSS) BEFORE
OTHER ITEMS $ (361) (18%) $ (303) (9%)
OTHER INC (EXP) $ (5) (0%) $ (27) (1%)
NET INCOME (LOSS)
BEFORE TAX $ (366) (19%) $ (330) (10%)
PROVISION FOR
INCOME TAX $ 0 $ 10
------- -------
NET INCOME (LOSS) $ (366) (19%) $ (340) (10%)
NET INCOME (LOSS)
PER SHARE (1) $ (0.02) $ (0.02)
14
AS OF AND FOR THE
NINE MONTH PERIOD ENDED DECEMBER 31,
INCOME STATEMENT
Percentage Percentage
2002 of Net Sales 2001 of Net Sales
--------- ------------ --------- ------------
REVENUE: $ 7,130 100% $10,621 100 %
OPER. EXPENSES $ 7,716 108% $10,967 103 %
INCOME (LOSS) BEFORE
OTHER ITEMS $ (585) (8%) $ (346) (3%)
OTHER INC (EXP) $ (51) (1%) $ (62) (1%)
NET INCOME (LOSS)
BEFORE TAX $ (636) (9%) $ (408) (4%)
PROVISION FOR
INCOME TAX $ 1 $ 4
------- -------
NET INCOME (LOSS) $ (637) (9%) $ (412) (4%)
NET INCOME (LOSS)
PER SHARE (1) $ (0.04) $ (0.03)
DECEMBER 31, 2002 MARCH 31, 2002
----------------- --------------
BALANCE SHEET:
TOTAL ASSETS: $7,717 $8,179
LONG-TERM OBLIGATIONS:(2) $1,459 $1,779
TOTAL STOCKHOLDERS' EQUITY $4,212 $4,825
(1) Net Income (Loss) per share from continuing operations includes the
weighted average number of shares of the Company's common capital
outstanding.
(2) Long-term Obligations includes the current portion of long-term debt and
capital leases of $253 ($000's) at March 31, 2002 and $254 ($000's) at
December 31, 2002.
15
Overview and Forward-Looking Statements
This report and other oral and written statements made by Global Seafood
Technologies, Inc. to the public contain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These statements may be identified by the use of words and
phrases such as "believe", "expect", "anticipate", "should", "planned",
"estimated", and "potential", among others. Forward-looking statements are based
on management's current expectations of beliefs and are subject to a number of
factors and uncertainties that could cause actual results, levels of activity,
performance or achievements to differ materially from those described.
Business Segments
Seafood Processing
Our core seafood packaging business, which is conducted through our Custom Pack
subsidiary, provided 67% and 76% of revenues in each of the first nine months
periods of the 2002 and 2001 fiscal years, respectively. The declining
contribution of Custom Pack revenues as a percentage of total revenues is a
function of a decrease in volume of 41% at Custom Pack when comparing these two
periods. This decline in revenues in our core business segment was entirely in
the Sales of Product portion of revenues, which declined 51%, reflecting a
change in the mix of our business, a market decline in commodity prices and a
fall-off in overall demand. The Processing Sales portion of revenues showed a
relative increase of 34%, but its effect on total revenues is less significant.
We believe that the overall weakness in shrimp prices was a function of the
generally slower economy in the U.S. Although we expect conditions to improve in
future periods, we can not predict the timing or strength of such an
improvement.
Recreational Fishing Bait
Revenue from our Killer Bee Bait subsidiary for the first nine months through
December 31, decreased 7% from $2,401,105 in the nine months through December
31, 2001 to $2,243,601 in the latest period. This resulted primarily from a
slower month of September, which saw increased tropical storm activity that
dampened sales. Sales for the three month period ending December 31, 2002 were
38% higher than in the comparable period in 2001. We expect a comparatively
strong season for the remainder of this fiscal year for Killer Bee because of
available inventory supplies. For the nine month period, Killer Bee accounted
for 31% of total revenues.
Freshwater Shrimp Aquaculture
Revenues from our aquaculture division were $114,461 for the first nine months
of the current fiscal year compared to $155,864 for the same period last year.
While this still represents only 2% of our total revenues, we continue to expect
further contributions from this business segment in future periods because of
the expanded interests of independent farmers to grow freshwater shrimp. Our
hatchery in Ocean Springs has supplied independent and joint venture farms in
the current growing season, and we plan to continue to expand this segment of
our business in the future. To that end, we are continuing to pursue potential
joint venture proposals and sales to contract growers to increase the growth in
this segment.
16
Results of Operations
We reported a consolidated net loss from operations for the nine months period
ending December 31, 2002 of ($637,033) compared to a net operating loss of
($411,626) in the same period last year. The operations of our core business
recorded a loss of ($876,875) that reflects the decline in volume discussed
above. Killer Bee reported a net profit of $303,745 for the nine-month period.
In the same nine-month period last year, Killer Bee recorded a loss of
($418,197). Our aquaculture business reported a ($56,949) loss for the nine
months ending December 31, 2002 compared to a loss of ($145,096) for the same
period last year.
Net Sales
Net sales primarily reflect the results of our core processing and packaging
operations (67%) and our recreational bait segment (31%). The amount of core
revenues recognized in any given year is a function of whether the products in
that business segment are either: a) purchased, processed, and packaged by 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
margins 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 the timing of purchasing decisions by supermarkets.
Total net sales for the nine months ended December 31, 2002 declined as compared
to the nine months ended December 31, 2001 from $10,621,367 to $7,130,349. The
comparative decline was a result of lower product sales in the core business
segment as well as slightly lower sales in the recreational bait segment.
Sales from Killer Bee decreased 7% from $2,401,105 to $2,243,601 in comparing
the respective nine month periods ending December 31. The lower sales were
largely a function of increased tropical storm activity in September 2002, which
hindered recreational fishing activities during that month.
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 the
Company's books. Approximately 14% of net sales in the core business segment is
typically reflected in processing for third parties, in which case we charge a
processing fee and do not maintain any inventory level of product for our own
account. In the nine month period ending December 31, 2002, processing revenues
accounted for 39% of core business revenues due to the effects of lower
commodity prices as well as lower demand.
The decrease in cost of sales from $7,453,409 to $4,353,022 (a 42% decrease in
the nine month comparable periods) reflects the lower volume of product sales.
However, overall gross profit decreased from $3,167,958 to $2,777,327 (a 12%
decline) as a result of a relatively greater contribution of processing sales to
the overall mix of business at Custom Pack as well as higher margins that came
from the Killer Bee business.
17
Selling, general and administrative expenses decreased by $ 278,960 (9%) in
comparing the nine-month periods ending December 31 2002 and 2001. The overhead
expenses benefited from efficiencies that were achieved from POS status at Wal
Mart in our Killer Bee segment, as discussed in previous reports.
Working Capital
As we continue to execute on our business plans for both Killer Bee and for our
aquaculture division, working capital requirements are expected to reflect
greater demands from those areas. Beginning with the acquisition of Killer Bee,
Inc. 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.
In the core business segment, inventories had been previously expanding as a
result of the need to purchase products in advance to fulfill customer needs.
However, with the decline in product sales, Custom Pack's inventories have shown
a decrease from $1,161,849 at December 31, 2001 to $435,447 at December 31,
2002. Killer Bee's inventories registered an increase from $560,635 to $655,770
in a similar comparison. The balance sheet as of December 31, 2002 reflects a
decrease in inventory to $1,091,220 from $1,722,486 at December 31, 2001 due
primarily to the lower level of operations of Custom Pack.
Sales in the core business segment are generally settled at the time of
wholesale delivery, so that accounts receivable have customarily been maintained
at relatively low levels. In comparing the nine months periods ending December
31, 2001 and 2002, respectively, accounts receivable at Custom Pack declined by
21%, reflecting the lower level of sales activities. Lower Killer Bee sales
generated lower levels of accounts receivable, as well. Killer Bee receivables
declined 25% from $234,719 to $175,186 from December 31, 2001 to 2002.
As of December 31, 2002 we maintained cash reserves of $ 23,783, and current
assets exceeded current liabilities by $ 1,277,263.
Seasonality
Because of the availability of seafood throughout the world markets, there is
only a modest seasonality factor for our core business. Typically, our operating
activities increase slightly during the spring and fall domestic shrimp
harvesting seasons, depending on the abundance of shrimp 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 a seasonal harvest of product, which is
recognized in the second and third quarters of our fiscal year.
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Inflation/Deflation
Our business is not significantly affected by inflation. 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
remained at their lowest levels in decades. This has been reflected in the
decline in our sales revenues.
New Products and Services
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. Through December 31, 2002 the revenues from these test products have not
had a significant impact on operations.
Cash Flow
Our operations have generated operating losses in the past, which had been
anticipated because of the start-up nature of our Killer Bee operations, and had
been funded in advance from financing activities. In the most recent nine months
ending December 31, 2002, we experienced an operating loss in our core business
due to the continued slow pace of the U.S. economy. Although the most recent
nine month period ended December 31, 2002 generated an operating loss for the
Company, we expect that profits will recover in the core segment and will
continue in the recreational bait segment in order to provide a source of funds
in the future to help offset the need for working capital that will be
occasioned by growth.
Operating Activities
Our Consolidated Statement of Cash Flows reported $ 98,616 in funds used by
operating activities in the nine months ended December 31, 2002 compared to
$1,266,096 used in operating activities in the December 31, 2001 period. The
decreases in both accounts receivable and inventory slightly exceeded the
decrease in accounts payable. The operating loss used $637,033 in funds, while
Depreciation and Amortization provided $418,535.
Investing Activities
Net investing activities in the nine months ended December 31, 2002 consumed
$963,042 in funds compared to $444,451 in funds used in the December 31, 2001
period. The activities included property and equipment additions to our core
processing facilities.
Financing Activities
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. As of December 31, 2002,
$873,000 was outstanding under this line of credit. We expect that activities
through our equity facility with Fusion Capital may also be a source of funds to
us in the near future.
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Critical Accounting Policies
The Company's accounting policies are described in Note A of the consolidated
financial statements included in Form 10-KSB filed with the Securities and
Exchange Commission. The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The following policies are considered by management to be the most critical in
understanding the judgments involved in preparing the financial statements and
the uncertainties that could impact the Company's results of operations,
financial condition and cash flows.
Revenue Recognition. The Company recognizes revenues at the time of delivery of
products and services. However, within the Freshwater Shrimp (Aquaculture)
business segment, there is no recognition of revenues for sales of larvae and
juveniles that are delivered to joint ventures. Management has chosen to
recognize those revenues at the time of harvest of mature shrimp because of the
potential uncertainty of the harvest yields.
Impairment of Goodwill. The Company has recorded goodwill of $273,000 that is
related to acquisitions within the Fishing Bait (Killer Bee) business segment.
Because this amount relates to the addition of productive and profitable assets,
there has been a determination that goodwill is not impaired and is not being
amortized.
ITEM 3. CONTROLS AND PROCEDURES
As of December 31, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2002. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to December 31, 2002.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were named defendants in a lawsuit filed in the Supreme Court of the State of
New York, County of New York, Index No. 605716-98. The plaintiff, Lawrence
Skolnick, had made a claim of breach of contract and was seeking to keep
1,700,000 shares of our common stock. We filed an answer and counterclaim
against the plaintiff and certain third parties seeking recovery of the shares
and specific performance. On October 23, 2002 we made a motion for summary
judgment seeking dismissal of the complaint and requesting judgment on our
counterclaims. On January 10, 2003, the court ruled in our favor on all counts
and granted us a judgment declaring that Skolnick has no right, title or
interest in any of the Company's shares, permanently enjoining Skolnick from
engaging in any efforts to obtain possession of any of the Company's shares, and
awarding the Company damages for attorney fees and costs. We are proceeding to
recover 1,344,000 shares that have been specifically identified.
Other than the lawsuit described above, neither the Company nor any of its
directors or executive officers, nor any controlling shareholder, is a party to
any pending legal or administrative proceeding having the potential for any
material affect upon any matter herein discussed, nor are any of the Company's
properties the subject of such a proceeding, and no such proceeding is known to
be overtly threatened.
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
(c) None
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
99.1 Certification pursuant to 18 U.S.C. Section 1350 by
the Company's Chief Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350 by
the Company's Chief Financial Officer
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
February 13, 2003 GLOBAL SEAFOOD TECHNOLOGIES, INC.
By: /s/ Brent Gutierrez
--------------------------------------
Brent Gutierrez,
President and Chief Executive Officer
23
CERTIFICATION
I, Brent Gutierrez, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Global
Seafood Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, is made
known to me by others, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
February 13, 2003 /s/ Brent Gutierrez
----------------------------
Brent Gutierrez, President,
President, CEO and CFO
24