Attached files
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EX-4.1 - Umami Sustainable Seafood Inc. | v179941_ex4-1.htm |
EX-10.2 - Umami Sustainable Seafood Inc. | v179941_ex10-2.htm |
EX-10.4 - Umami Sustainable Seafood Inc. | v179941_ex10-4.htm |
EX-10.1 - Umami Sustainable Seafood Inc. | v179941_ex10-1.htm |
EX-10.3 - Umami Sustainable Seafood Inc. | v179941_ex10-3.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): June 30, 2010
Lions
Gate Lighting Corp.
(Exact
name of registrant as specified in its charter)
Nevada
|
000-52401
|
47-0930829
|
(State
or Other Jurisdiction
|
(Commission
File
|
(I.R.S.
Employer
|
of
Incorporation)
|
Number)
|
Identification
Number)
|
405
Lexington Avenue
26th Floor,
Suite 2640
New York, NY
10174
(Address
of principal executive offices) (zip code)
212-907-6492
(Registrant’s
telephone number, including area code)
(Former
name or former address, if changed since last report)
Copies
to:
Louis A.
Brilleman, Esq.
110 Wall
Street, 11th
Floor
New York,
New York 10005
Phone:
(212) 709-8210
Fax:
(212) 943-2300
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
FORWARD
LOOKING STATEMENTS
Some of
the statements contained in this Form 8-K that are not historical facts are
“forward-looking statements” which can be identified by the use of terminology
such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,”
“intends,” or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of
the forward-looking statements, in that such statements, which are contained in
this Form 8-K, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties, and other factors affecting our
operations, market growth, services, products, and licenses. No
assurances can be given regarding the achievement of future results, as actual
results may differ materially as a result of the risks we face, and actual
events may differ from the assumptions underlying the statements that have been
made regarding anticipated events. Such statements reflect our
current view with respect to future events and are subject to risks,
uncertainties, assumptions and other factors (including the risks contained in
the section of this report entitled “Risk Factors”) relating to our industry,
operations and results of operations and any businesses that we may acquire, and
include, without limitation:
1. Our
ability to attract and retain management, and to integrate and maintain
technical information and management information systems;
2. Our
ability to generate customer demand for our products;
3. The
intensity of competition; and
4.
General economic conditions.
Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or
planned.
All
written and oral forward-looking statements made in connection with this Form
8-K that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
In this
report, unless otherwise specified, all dollar amounts are expressed in United
States dollars and all references to “common shares” refer to shares of our
common stock. The following discussion should be read in conjunction with the
audited annual financial statement, unaudited interim financial statements and
pro forma financial statements and the related notes filed herein.
Unless
otherwise indicated or the context otherwise requires, all references below in
this current report on Form 8-K to “we”, “us”, “our”, and “the Company”, refer
to Lions Gate Lighting Corp, a Nevada corporation, and its wholly-owned
subsidiaries, Bluefin Acquisition Group Inc. and Kali Tuna d.o.o.
Item
1.01 Entry into a Material Definitive Agreement.
Share
Exchange Agreement
As
disclosed previously, on May 3, 2010, the Company entered into a Share Exchange
Agreement (the “Exchange Agreement”) with Atlantis Group HF, an Icelandic
company and the sole indirect shareholder (the “Shareholder”) of Kali Tuna
d.o.o., a Croatian limited liability company (“Kali Tuna”), pursuant to which
the Company purchased from the Shareholder all issued and outstanding shares of
Bluefin Acquisition Group Inc., a New York company and wholly owned subsidiary
of the Shareholder that was created for the specific purpose of holding the Kali
Tuna shares, in consideration for the issuance to the Shareholder of 30,000,000
shares of common stock of the Company (the “Share Exchange”).
Also, as
disclosed previously, completion of the Share Exchange Agreement was subject to
a number of conditions, including the deposit into escrow of a minimum of
$15,000,000 by private investors. This condition was waived by the
Shareholder as permitted under the Exchange Agreement, and the minimum funding
requirement was reduced to $6,000,000.
-2-
Subscription
Agreements
On June
30, 2010, the Company entered into a series of identical subscription agreements
with a number of accredited investors (the “Investors”), pursuant to which the
Investors purchased from the Company 7,300,000 units (the “Units”), with each
Unit consisting of one share of common stock of the Company and a five-year
warrant to purchase 0.2 shares of the Company’s common stock at $2.00 per whole
share (the “Warrants”). The purchase price per Unit was
$1.00. Total gross proceeds to the Company resulting from the
financing transaction (the “Financing”) were $7,300,000.
Endeavor
Holdings, Inc. (“Endeavor”), which served as the Company’s exclusive placement
agent in connection with the offer and sale of the Units, will receive aggregate
placement agent fees of approximately $73,000 as well as five-year warrants to
purchase 730,000 shares of common stock at $2.00 per
share.
In
addition to Endeavor, Jones Gable & Company Limited
(“Jones
Gable”) also acted as a placement agent in connection with the offer and sale of
the Units and will receive placement agent fees through the issuance of
approximately 511,000 shares of common stock of the
Company.
The
Company claims an exemption from the registration requirements of the Securities
Act of 1933, as amended (the “Act”), for the securities issued in the Share
Exchange and the Financing pursuant to Section 4(2) of the Act and/or Regulation
D promulgated there under since, among other things, the transaction did not
involve a public offering, the Investors are accredited investors and/or
qualified institutional buyers, the Investors had access to information about
the Company and their investment, the Investors took the securities for
investment and not resale, and the Company took appropriate measures to restrict
the transfer of the securities. As such, none of these securities may be offered
or sold in the United States unless they are registered under the Act, or an
exemption from the registration requirements of the Act is
available. No registration statement covering these securities has
been filed with the Securities Exchange Commission or with any state securities
commission.
Item
2.01 Completion of Acquisition or Disposition of Assets
On June
30, 2010, the Company completed the transactions contemplated under the Exchange
Agreement and the Financing. The Share Exchange resulted in a change
in control of the Company with the Shareholder owning 30,000,000 shares of
common stock of the Company out of a total of 45,261,000 issued and outstanding
shares after giving effect to the Share Exchange and the
Financing. In connection with the Share Exchange, Robert Fraser and
William Grossholz, being all of the directors and officers of the Company prior
to the Share Exchange, resigned their positions effective at the closing of the
Share Exchange, and the Shareholder’s nominees were elected directors of the
Company and appointed as its executive officers.
Pursuant
to the Exchange Agreement, the Shareholder transferred to the Company all of the
issued and outstanding shares of common stock of Bluefin Acquisition Group Inc.,
a New York corporation (“Bluefin”). Bluefin is the holder of all
issued and outstanding shares of Kali Tuna. In consideration for the
transfer of the shares of Bluefin, the Company issued 30,000,000 shares of
common stock of the Company to the Shareholder.
As a
result of the Exchange Agreement, (i) Kali Tuna became an indirect wholly-owned
subsidiary of the Company and (ii) the Company succeeded to the business of Kali
Tuna as its sole business. The Company intends to change its name to
“Umami Sustainable Seafood Inc.”, subject to regulatory approvals.
For
accounting purposes, the Share Exchange was treated as an acquisition of the
Company and a recapitalization of Bluefin. Bluefin is the accounting
acquirer and the results of its operations will be the results of the Company’s
operations going forward.
Immediately prior to the completion of the Share Exchange, the
Company divested itself of its wholly-owned subsidiary, LG Lighting Corp., in
consideration for the satisfaction of debt owed to affiliated parties.
DESCRIPTION
OF KALI TUNA’S BUSINESS
NOTE: The discussion contained
in this Item 2.01 relates primarily to Kali Tuna. Information
relating to the business and results of operations of the Company and all other
information relating to the Company prior to the Share Exchange has been
previously reported in its Annual Report on Form 10-K for the year ended
February 28, 2010, and subsequent periodic filings with the Securities and
Exchange Commission and is herein incorporated by reference to those
reports.
Company
Overview
Through
our indirect wholly-owned subsidiary, Kali Tuna, a limited liability company
organized under the laws of the Republic of Croatia, we own and operate
facilities and equipment in Croatia where we farm Northern Bluefin Tuna for sale
mostly into the Japanese sushi and sashimi market. The Company
believes that Kali Tuna is considered one of the most respected and trusted
suppliers of premium sushi and sashimi grade tuna in Japan and sells almost all
of its products to large Japanese trading houses.
-3-
Kali Tuna
was organized in 1996 under the laws of the Republic of Croatia by individuals
who had gained considerable experience in the area of tuna fishing, farming and
trading in Southern Australia for a period of approximately 30 years before
moving their operations to Croatia.
In 2005,
Kali Tuna was acquired by Atlantis, an Iceland based holding company that seeks
to produce and distribute high quality, healthy and sustainable seafood to
satisfy the world’s growing protein need in an economical, efficient and
environmentally friendly manner. In March 2010, Atlantis created
Bluefin, a New York based holding company and wholly owned subsidiary of
Atlantis, for the sole purpose of holding the shares of Kali Tuna.
Kali
Tuna’s activities consist of: (a) tuna farming and processing,
(b) sales and exports of tuna products, and (c) processing of fish
feed for its tuna farming operations. Through an affiliated entity,
it also operates a fleet of seven fishing vessels that typically catch Northern
Bluefin Tuna and small pelagic fish used for tuna feed in the Adriatic and
transport the live tuna back to its farming sites off the Croatian coast for
further cultivation.
Recently,
Atlantis has entered into an agreement with Daito Gyouri of Japan (the “Daito
Agreement”) for the sale and delivery of at least 500 metric tons of frozen
Northern Bluefin Tuna on an annual basis. On June 30, 2010, the
Company entered into a sales agency agreement with Atlantis. Under
the terms of the agreement, Atlantis will be granted the exclusive right to
sell, on the Company’s behalf, all of the Company’s Northern Bluefin Tuna
products into the Japanese market. As a result of the sales agency
agreement, it is contemplated that tuna to be delivered under the Daito
Agreement by Atlantis will be filled by fish that was farmed by
us. We have agreed to pay Atlantis an agency commission of 2% of all
sales to be made under this agency agreement.
Our
objective is to become a world leader in the Northern Bluefin Tuna
industry. In addition, we will seek to create a self sustaining farm
environment where tuna fish spawn, and the resultant eggs are hatched in
captivity, without having to rely on the capture of fish in the open seas
thereby depleting the natural stock of Bluefin Tuna.
Industry
Overview
Aquaculture
Industry
Aquaculture is the farming
of aquatic organisms including fish, molluscs, crustaceans and aquatic plants.
Farming implies some form of intervention in the rearing process to enhance
production, such as regular stocking, feeding, protection from predators, etc.
Farming also implies individual or corporate ownership of the stock being
cultivated. For statistical purposes, aquatic organisms which are harvested by
an individual of corporate body which has owned them throughout their rearing
period contribute to aquaculture while aquatic organisms which are exploitable
by the public as a common property resource, with or without appropriate
licenses, are the harvest of fisheries. Aquaculture production specifically
refers to output from aquaculture activities, which are designated for final
harvest for consumption.
Aquaculture
is the world’s fastest growing segment in the food production system and has
been for the past two decades. According to a recent study by the
Food and Agriculture Organization of the United Nations (herein, the “FAO”)
published on March 2, 2009, world fisheries production reached a high of
143.6 million metric tons in 2006. The contribution of
aquaculture to the world fisheries production
in 2006 was 51.7 million tons of fish, which is 36% of world fisheries
production, up from 3.6% in 1970. Global aquaculture accounted for 6%
of the fish available for human consumption in 1970. In 2006, global
aquaculture accounted for 47% of the fish available for human consumption
according to the FAO. The FAO report also describes that over half of
the global aquaculture in 2006 was freshwater finfish. Based on the
FAO’s projections, it is estimated that in order to maintain the current level
of per capita consumption, global aquaculture production will need to reach in
excess of 80 million tons of fish by 2050.
According
to the FAO, per capita supply from aquaculture increased from 0.7 kg in 1970 to
7.8 kg in 2006, an average annual growth rate of 6.9%. It is set to overtake
capture fisheries as a source of food fish. From a production of less than 1
million tons per year in the early 1950s, production in 2006 was reported to be
51.7 million tons with a value of US$78.8 billion, representing an annual growth
rate of nearly 7%.
As the
availability of sites for aquaculture is becoming increasingly limited and the
ability to develop non-agricultural land is restricted, the competition to
develop additional aquaculture production systems is intensifying. As the
intensification for aquaculture production systems increases, the demand for
institutional support, services and skilled persons is anticipated to increase,
along with the demand for more knowledge-based aquaculture education and
training as aquaculture becomes more important worldwide.
Tuna
Industry
Tuna and
tuna-like species are of great economic importance and represent a significant
source of food. They include approximately forty species occurring in the
Atlantic, Indian and Pacific Oceans and in the Mediterranean Sea. Their global
production has increased from less than 0.6 million tons in 1950 to almost six
million tons in 2006.
-4-
The
so-called principal market tuna species are the most economically important
among the tuna and tuna-like species. They are landed in numerous
locations around the world, traded on a nearly global scale and also processed
and consumed in many locations worldwide. According to the FAO, in 2007, their
catch was approximately four million tons, which represents about 65% of the
total catch of all tuna and tuna-like species. Most catches of the principal
market tuna species are taken from the Pacific (69.0% of the total catch of
principal market tuna species in 2007), with the Indian contributing much more
(21.7% in 2007) than the Atlantic and the Mediterranean Sea (9.5% in
2007).
Approximate
contributions of individual principal market tuna species to their 2007 total
catch is given below.
Principal
market tunas
|
||
Albacore
(ALB)
|
5.4%
|
|
Atlantic
bluefin tuna (BFT)
|
less
than 1%
|
|
Bigeye
tuna (BET)
|
10.0
%
|
|
Pacific
bluefin tuna (PBF)
|
less
than 1%
|
|
Southern
bluefin tuna (SBF)
|
less
than 1%
|
|
Skipjack
tuna (SKJ)
|
59.1%
|
|
Yellowfin
tuna (YFT)
|
24.0%
|
Source:
FAO (http://www.fao.org/fishery/statistics/tuna-catches/en)
Bluefin
Tuna Trade
The
bluefin trade includes three species of tuna: the Pacific Bluefin, the Southern
Bluefin and the Atlantic or Northern Bluefin. In 2007, the total
global bluefin trade was estimated to be in excess of US$1 billion on a
wholesale basis.
The
Northern Bluefin Tuna (Thunnus thynnus) is native to both the western and
eastern Atlantic Ocean, the Mediterranean and the Black Sea. It can live up to
30 years and can reach weights of over 1,100 pounds.
The
following graph shows catches for each species of bluefin in metric tons per
year.
-5-
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3416)
As
concerns over depleting the natural stock of bluefin tuna have increased in
recent years, international organizations have increased regulation relating to
and imposed strict quota on bluefin catches. The main
international body that regulates fishing activities and trade in the Atlantic
Bluefin is the International Commission for the Conservation of Atlantic Tunas
or ICCAT. It describes itself as an inter-governmental fishery
organization responsible for the conservation of tunas and tuna-like species in
the Atlantic Ocean and its adjacent seas. Its primary tool in its
conservation efforts is its ability to impose quotas. The
organization was established in 1966 and covers 30 species of tuna, including
the Atlantic or Northern Bluefin Tuna.
In
November 2006, the ICCAT reached an agreement to reduce the bluefin tuna quota
in the Mediterranean Sea from 32,000 metric tons in 2006 to 25,500 metric tons
in 2010. In November 2008, the ICCAT set the annual quota at 22,000
metric tons, gradually reducing it to 18,500 tons by
2011. Environmentalist groups claim that this quota is too high and
that 15,000 tons should have been set as an appropriate level. In
October 2009 at an ICCAT meeting in Brazil it was agreed to shorten the fishing
period to one month and reduce the quotas to 13,500 tonnes annually. The
quota is now close to the figure supported by the company. Following this,
to reduce further pressure on the stock, Italy decided not to catch any tuna in
2010 - reducing this number to roughly 11,500 tonnes.
In 2008,
the ICCAT adopted measures which include a 15 year recovery plan for bluefin
tuna starting in 2007 and running through
2022. Among other things, the plan calls for 6-month off seasons for
specific types of boats, bans the use of aircraft in spotting tuna, forbids the
capture of tuna under 30 kg except in certain specific circumstances, and
requires better reporting of tuna catches. It also allows tuna to
only be offloaded at designated ports and obliges countries to place observers
on fishing boats to monitor their adherence to regulations.
In March
2010, at a meeting of the Conference of the Parties to the Convention on
International Trade in Endangered Species of Wild Fauna and Flora, or CITES, in
Doha, Qatar, a proposal for a total ban on the trade in Atlantic Bluefin was
defeated by a wide majority of participants. As a result, for the
foreseeable future, fishing regulation regarding the species will remain in the
hands of ICCAT.
-6-
Japan has
traditionally been one of the largest consumers of tuna, especially the bluefin
tuna which is used as a premium ingredient for sushi and sashimi. The
following table details the annual Japanese imports of various species of fresh
and chilled tuna.
Fresh/chilled Tuna: Imports Japan
(1000 tonnes)
|
||||||||||||||||||||||||
2004
|
2005
|
2006
|
2007
|
Jan - Jun
2008
|
Jan - Jun
2009
|
|||||||||||||||||||
Yellowfin
|
24,1 | 21,4 | 19 | 16,9 | 9,2 | 8 | ||||||||||||||||||
Bigeye
|
18,9 | 16,8 | 15,8 | 14,5 | 7,2 | 7,5 | ||||||||||||||||||
Skipjack
|
10 | 9,9 | 7,4 | 5,1 | 2,6 | 1,9 | ||||||||||||||||||
S.
Bluefin
|
3,1 | 2,5 | 1,8 | 1,2 | 0,2 | 0,5 | ||||||||||||||||||
Albacore
|
0,4 | 0,2 | 0,3 | 0,3 | 0,1 | 0,1 | ||||||||||||||||||
N.
Bluefin
|
0,1 | 0 | 0 | 0,1 | 0 | 0 | ||||||||||||||||||
Total
|
56,6 | 50,8 | 44,3 | 38,1 | 19,3 | 18 |
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3595)
The
following table details the annual Japanese imports of various species of frozen
whole tuna. Annual tuna imports have been declining as a result of
international regulations and the imposition of strict quotas by the ICCAT and
other similar organizations.
Frozen Tuna: Imports Japan (1000 tonnes)
|
||||||||||||||||||||||||
2004
|
2005
|
2006
|
2007
|
Jan - Jun
2008
|
Jan - Jun
2009
|
|||||||||||||||||||
Yellowfin
|
109,2 | 123,5 | 90,3 | 58,7 | 31,4 | 27 | ||||||||||||||||||
Bigeye
|
116,3 | 101,9 | 86,3 | 86,8 | 41,7 | 45 | ||||||||||||||||||
Skipjack
|
81,2 | 52 | 50,5 | 31,3 | 11,2 | 16,9 | ||||||||||||||||||
S.
Bluefin
|
8,2 | 7,2 | 7,9 | 8,4 | 0,1 | 0 | ||||||||||||||||||
Albacore
|
6,5 | 6,1 | 6,2 | 6 | 4,7 | 1,9 | ||||||||||||||||||
N.
Bluefin
|
6,6 | 4,2 | 5,2 | 6,3 | 1,3 | 3,9 | ||||||||||||||||||
Total
|
328 | 294,9 | 246,4 | 197,5 | 90,4 | 94,7 |
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3595)
The
following table details the annual Japanese imports of various species of frozen
tuna fillets and loins processed from whole fish.
Japan Imports of Frozen Tuna Fillets, Loins &
Meat (in MT)
|
||||||||||||||||||||||||||||||||||||
Jan - Jun
2008
|
Jan -
Jun
2007
|
Jan
- Jun
2006
|
Jan - Jun
2005
|
Annual
2007
|
Annual
2006
|
Annual
2005
|
Annual
2004
|
Annual
2003
|
||||||||||||||||||||||||||||
Tuna*
|
8932 | 8376 | 9103 | 7296 | 18369 | 17402 | 16222 | 13292 | 11919 | |||||||||||||||||||||||||||
Bluefin
|
10899 | 9679 | 9810 | 7865 | 13451 | 15542 | 10456 | 8841 | 5906 | |||||||||||||||||||||||||||
Bluefin
(meat)
|
268 | 216 | 218 | 153 | 284 | 365 | 191 | 126 | 101 | |||||||||||||||||||||||||||
Southern
Bluefin
|
0,58 | 2 | 26 | 128 | 5 | |||||||||||||||||||||||||||||||
Total
|
20099 | 18271 | 19131 | 15314 | 32125 | 33311 | 26895 | 22387 | 17931 |
*Excluding
Bluefin and Southern Bluefin
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3595)
-7-
The
Company’s focus has been on sales of bluefin tuna into Japan where a single
large size bluefin tuna can fetch as much as $100,000 in Tsukiji fish
market. The Company believes that it is regarded by the Japanese as a
highly reputable wholesaler of premium fish products. Its reputation
was further enhanced following the acquisition of the Company by Atlantis Group
in 2005 as a result of that entity’s solid ties in the Japanese fish market
which is built on strong personal relationships with key players in the Japanese
fish market.
The
following table sets forth fresh bluefin tuna imports into Japan by
country.
Fresh Bluefin imports into Japan (in
tonnes)
|
||||||||||||||||||||
2003
|
2004
|
2005
|
Jan-Nov
2005
|
Jan-Nov
2006
|
||||||||||||||||
Mexico
|
1896 | 3849 | 4097 | 3318 | 2359 | |||||||||||||||
Australia
|
2769 | 2839 | 2343 | 2343 | 1693 | |||||||||||||||
Spain
|
2537 | 2693 | 2277 | 1757 | 1643 | |||||||||||||||
Rep.
of Korea
|
2579 | 667 | 1479 | 1464 | 1001 | |||||||||||||||
Italy
|
366 | 346 | 314 | 304 | 254 | |||||||||||||||
Turkey
|
896 | 1011 | 522 | 273 | 190 | |||||||||||||||
Croatia
|
226 | 123 | 240 | 101 | 162 | |||||||||||||||
Tunisia
|
221 | 144 | 212 | 180 | 106 | |||||||||||||||
Malta
|
647 | 449 | 180 | 122 | 97 | |||||||||||||||
Others
|
1487 | 909 | 729 | 862 | 559 | |||||||||||||||
Total
|
13624 | 13030 | 12393 | 10724 | 8064 |
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3416)
The
following table sets forth whole frozen bluefin tuna imports into Japan by
country.
Frozen
Atlantic Bluefin imports into Japan (in
tonnes)
|
||||||||||||||||||||
2003
|
2004
|
2005
|
Jan-Nov
2005
|
Jan-Nov
2006
|
||||||||||||||||
Croatia
|
2294 | 3492 |
2013
|
2013
|
3056 | |||||||||||||||
Tunisia
|
236 | 274 | 452 | 414 | 452 | |||||||||||||||
Spain
|
514 | 417 | 336 | 336 | 278 | |||||||||||||||
Turkey
|
477 | 1094 | 464 | 456 | 273 | |||||||||||||||
Malta
|
39 | 85 | 250 | 240 | 208 | |||||||||||||||
Others
|
1232 | 1263 | 705 | 668 | 631 | |||||||||||||||
Total
|
4792 | 6625 | 4220 | 4127 | 4898 |
Source:
Fish Info Network (http://www.eurofish.dk/dynamiskSub.php4?id=3416)
In recent
years, many Japanese vessel operators have gone out of business as a result of
high fuel prices and scarce fishing resources. There is a national
effort by Japanese authorities underway to scrap or buy out the old long liners
which have found themselves deep in debt and have become a burden to their
communities.
-8-
Fish
Supply
We
procure live bluefin tuna primarily through MB Lubin, a company owned by Dino
Vidov, our General Manager. MB Lubin owns and operates a fleet of
seven vessels. They catch fish primarily off the coast of
Croatia. Occasionally, we may purchase live tuna from other local and
foreign based suppliers that catch tuna off the coast of Malta and Libya and
other Mediterranean locations. The tuna is deposited into special
towing cages that are towed back to our two farming sites off the Croatian coast
for transfer into permanent holding cages. Fishing takes place during
the months of May and June only as permitted by international
regulations. Transport of the catch to our farms is a slow process
that can take many weeks to complete with speeds of the transport rarely
exceeding one mile per hour to ensure survival of the live fish.
MB Lubin
sells its live fish to us under an exclusive arrangement as memorialized in the
Live Tuna Supply Contract dated July 1, 2009. Under the terms of the
agreement, MB Lubin has undertaken to sell all its bluefin tuna catches to
us. Under the agreement, which has a term of 20 years, all deliveries
of tuna will be made at the market price prevailing at the time of
delivery.
In
addition, we have entered into an agreement with MB Lubin that provides for the
sale and delivery to us of small fish that are used for feeding the
tuna.
A portion
of our farmed tuna production is performed jointly with our partner, Bluefin
Tuna Hellas A.E., a Greece based entity. Together, we purchase live
bluefin tuna from various international suppliers. In addition, we
are partners with Bluefin Tuna Hellas in a 50-50 joint venture under the name
Kali Tuna Trgovina, which purchases from us and exports our tuna
products.
Although
we do not believe that any of our suppliers of live tuna or fish feed are
critical to our business, if for any reason we would be unable to procure fish
from a particular supplier, this would likely lead to a temporary interruption
in the supply of fish at least until we find another entity that can provide
these services for us.
Customers
and Marketing
We sell
our fish mainly to three large Japanese importers who account for more than 90%
of our sales. In March 2009, Atlantis entered into the Daito
Agreement for the sale and delivery of at least 500 metric tons of frozen
Northern Bluefin Tuna annually. We believe that we will benefit from
this arrangement and are confident that the relationship with each of our
customers is of a long term nature, whether or not there is a written
agreement.
On June
30, 2010, the Company entered into a sales agency agreement with
Atlantis. Under the terms of the agreement, Atlantis will be granted
the exclusive right to sell, on the Company’s behalf, all of the Company’s
Northern Bluefin Tuna products into the Japanese market. As a result
of the sales agency agreement, it is contemplated that tuna to be delivered
under the Daito Agreement by Atlantis will be filled by fish that was farmed by
us. We have agreed to pay Atlantis an agency commission of 2% of all
sales to be made under this agency agreement.
Harvesting
the tuna from the cages occurs typically during the months of December and
January when low outside temperatures facilitate optimal firmness of tuna
meat. When selling frozen fish, each customer typically sends its own
specially equipped freezer vessels to pick up the product from our farming site
for freezing and transport to Japan. When selling fresh fish, we will
ship the processed fish by overnight delivery to the requested
location.
Research
and Development
We
conduct extensive research and development in two specific areas:
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We
research the feeding habits of the bluefin tuna for the purpose of
determining the optimal way of feeding the fish on our
sites. Improving the so-called Food Conversion Ratio or FCR,
which represents the number of kilograms of feed needed to produce one
kilogram of fish, facilitates achieving maximum feeding efficiencies and
cost savings.
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We
have also been conducting research and testing in the area of spawning the
bluefin in captivity with the objective of closing the full circle farming
process, i.e. farming bluefin tuna that is born and raised in
captivity. In June 2009, we reached a major breakthrough when
some of our tuna spawned in our farm facility. We believe that this
was the first time tuna has spawned naturally in captivity without any
hormone injections. In collaboration with the Institute of
Oceanography and Fisheries in Split, Croatia, we managed to hatch the
resultant eggs in a laboratory environment. We are in the final
stages of preparing a hatchery for use during the next spawning season to
allow us to advance our research.
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As a
result of our recent successes in researching the creation of a closed life
cycle in the Bluefin Tuna farming process, we believe that we will become less
dependent on the capture of wild tuna. Therefore, we believe that we
will be uniquely positioned to address the expected shortage in the supply of
tuna, especially as it relates to the Japanese market.
-9-
Our
Principal Competitive Strengths
We
believe that we have the following competitive strengths:
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We have the most seasoned operation in
our geographic area. We were the first commercial tuna
farm in the Mediterranean and Adriatic areas. The farm was
built by émigrés from Australia who had previously been leaders in the
tuna farming business in Port Lincoln, Australia. All farm
operations were set up according to the high standards used in
Australia. Most of the key crew members have been with us from
inception.
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We have strong personal
relationships within our target market. Following the
acquisition of the Company by Atlantis Group in 2005, we were able to
enhance our already considerable reputation in the Japanese fish market as
a result of strong personal relationships between Atlantis executives and
Japanese market leaders. Japanese business is generally built
on personal trust, extensive knowledge regarding product quality assurance
and a high level of expertise. Oli Steindorsson, Atlantis’s and
our Chairman, is fluent in Japanese and has spent extended periods of time
residing in that country. This has allowed us to
capitalize on his experience, together with the team at Atlantis’s
Japanese subsidiary, and further solidify our position as a trusted source
of high quality fish products.
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We have a unique farming
cycle. Following the catch of fish, they are transferred
into cages where they are fed and nurtured for up to three
years. As a result, our output is less impacted by quota
reductions and each wild caught fish (between 20-300 pounds) can be
leveraged by a factor of up to 10 times given livestock gains over the
period. We also have full traceability on the tuna feed, which
means that every batch of feed we purchase may be tracked from the area
where it was caught, to the boat catching it and to any other
intermediaries until its delivery to our farm sites. Most of
our competitors have shorter farming cycles (up to six months) or they
practice “catch and kill”.
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We operate in a unique farming
environment. The waters where our farming sites are
located are pristine with no cases of red or blue tide caused by the
damaging build up of algae. There are no predators, such as sea
otters, sea lions or sharks, in Adriatic waters that might be attacking
the fish in captivity. With the islands surrounding the farm
sites, we are sheltered naturally against storms. In addition,
the salt and oxygen levels and the water temperature offer the best
combination of conditions for sustainable growth of our
tuna.
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We have an experienced and
knowledgeable workforce and a very low employee
turnover. A number of our employees have been working
for us for more than 10 years. Our employees have regularly
been requested to assist in external operations worldwide as far as
Australia and Mexico. All of the management in Croatia is
fluent in English while a number of our key marketing people have
multilingual skills that include
Japanese.
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We have reached major
breakthroughs in our research and development efforts to close the full
circle farming process. If our success in spawning and hatching in
captivity can be sustained, we will become less dependent on wild catches
of tuna.
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Our
Growth Strategies
International
concerns have been focused on over-catching and poaching of various tuna
species, primarily concentrating on the Bluefin Tuna’s diminishing stock in the
Mediterranean.
In
response, ICCAT has been taking measures to regulate the catching of the
Atlantic-Mediterranean territory covering the migration of Northern Bluefin Tuna
looking at its “colleague organization”, the Commission for the Conservation of
Southern Bluefin Tuna or CCSBT, and its measures taken to promote the
conservation of Southern Bluefin Tuna in the southern hemisphere.
We
endorse the efforts of these organizations and believe that it is critical to
create world-wide industry leadership that will regulate the fishing for
endangered species. Short term profit considerations will result in a
failure to act and conserve and will lead to extinction of the bluefin tuna and
the demise of our industry. We believe that we have an important role
to play in the adoption of rules aimed at ensuring the long-term survival of the
bluefin tuna. We further believe that we can be active in this area
while generating profits for our shareholders, as reducing the supply of bluefin
tuna will increase its price.
We
believe that the following will be some of the critical elements in fulfilling
our strategy to become the world leader in the bluefin tuna trade:
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Build up enough livestock to
create carry-over inventories. Our objective has been to
lengthen the farming cycle. This is expected to result in the
greatest weight growth and an increase in the price paid per kilo of fish
by our buyers (the bigger the fish, the better the price). In
addition, it will mitigate the effects of short-term fluctuations in
catching due to weather or other abnormal situations that may
occur.
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-10-
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Strategic
investments. We will seek to acquire stakes in tuna
farming and fisheries with farming
and/or fishing licenses in selected areas in countries with successful
bluefin tuna farming history. We have already identified a
number of targets.
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Cooperate closely with
regulators. With the assistance of scientists, we
intend to assist regulators in formulating regulatory proposals aimed at
the conservation of the bluefin tuna. We might also lobby for
distribution of individual transferable quotas, or ITQs, and monitoring
systems based on the experiences of leading countries in the seafood
industry that have historically had to rely on sustainable usage of their
fishery by strictly regulating and controlling the volume of
catching.
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Consolidating and upgrading of
the fleet. We intend to reduce the existing catching
capacity to fewer and more efficient vessels as the quota system
develops. One of the important factors in sustainable fisheries
management is to avoid overcapacity of fleet which is caused by
underdevelopment in regulatory environments, for example with Olympic
catch systems (first in gets the fish), versus the highly controlled ITQ
system.
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Increase our research and
development. We intend to increase our efforts on
closing the Northern Bluefin Tuna cycle in cooperation with leading
research institutes in this field (i.e. intense farming) as well as
enhancing feeding techniques to reduce the FCR of Tuna. We also intend to
establish and fund a research centre in Kali, Croatia to focus on these
issues.
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Upgrade and invest in feed
procurement. We intend to achieve greater cost efficiency in
feed procurement by focusing on our catching activities. We
expect this to result in greater profitability, especially in light of our
efforts to lengthen the farming
cycle.
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We expect
that these factors will enhance sustainability and traceability of the final
products that we are offering to the market. These actions will also
help prevent a collapse in the natural fish stocks and ensure food security for
one of the most popular sashimi grade products of the world.
Sustainable
Farming
The
concept of sustainable development has been popularized by the 1987 World
Commission on Environment and Development. It defined “sustainable
development” as meeting the needs of the present generation, without
compromising the needs of future generations. The idea of
sustainability has caught up with aquaculture partly because of pressure from
environmental groups. In 1998, the Holmenkollen Guidelines for
Sustainable Aquaculture were formulated. These guidelines
recommended, among other things, that new technologies and management procedures
should be utilized so that the quality and quantity of aquaculture products is
improved and the risk of adverse effects on the environment and on the
livelihood of other people, including future generations, is
reduced. The guidelines also recommended (1) strict compliance
with the internationally agreed food safety, environmental safety and ethical
criteria if genetically modified organisms or hormones are utilized in the
production, as well as (2) giving priority to the development of integrated
fish farming and of sources for animal feed other than fish protein and fish
lipid.
We fully
endorse the idea of sustainable farming. Our scientists have achieved
some encouraging results in the area of breeding tuna in
captivity. We are committed to continuing this research project with
the ultimate goal of commercializing the full circle farming
process. We have consistently worked closely with the local fisheries
Ministry to formulate rules governing the industry.
Competition
In
general, the aquaculture industry is intensely competitive and highly
fragmented. We compete with various companies, many of which are
developing or can be expected to develop products similar to ours in the
future. However, we believe that the competition from such producers
is minimal because, to the best of our knowledge, there are no competitors in
Croatia or other places in the Mediterranean that have a similar operating
scale, production capacity, brand recognition, long history and as much market
representation as we have.
We are
aware of competitors in the Adriatic and Mediterranean that produce bluefin
tuna, including Fuentes e Hijos (Spain), Aquadem (Turkey), Azzopardi (Malta),
Sagun (Turkey) and Balfego (Spain). However, we are one of the
largest operations in the area. In addition, we have strong
relationships with Japanese purchasers. We also produce a premium
product “toro” tuna which is a high fat content belly tuna commanding the
highest prices at auction in Tokyo, with a consistently spotless record for 14
years in the market in maintaining quality and traceability of products. We also
enjoy close ties with regulators responsible for bluefin quota implementation
and have developed a viable business plan for long term growth against a
background of declining quota worldwide.
Some of
our foreign competitors may be more established than we are, and have
significantly greater financial, technical, marketing and other resources than
we presently possess. Some of our competitors may have a larger
customer base. These competitors may be able to respond more quickly
to new or changing opportunities and customer requirements, and may be able to
undertake more extensive promotional activities, offer more attractive terms to
customers, and adopt more aggressive pricing policies.
-11-
With
respect to potential new competitors, although there are no formal barriers to
entry for engaging in similar aquaculture processing production and activities
in Croatia, we believe that it will be very difficult and costly to start an
operation comparable to ours. The principal barrier to entry is the
shortage of available sites for farms in the local Croatian
waters. As a result, concessions for such sites are almost impossible
to obtain. In addition, our labor force is highly specialized and
individuals with the requisite expertise who could manage this type of business
are in short supply. Finally, to build a consistent farming cycle of
three years like we have already achieved is highly capital intensive, time
consuming and can only be done with high expertise, experience and
research.
Regulation
Our
company is subject to international quotas and to various national, provincial
and local environmental protection laws and regulations, as well as
certifications and inspections relating to the quality control of our
production.
Internationally,
ICCAT regulates Atlantic bluefin tuna quotas that are allocated to and enforced
by individual states, including Croatia.
Our
farming sites are operated under concessions granted by the local
authorities. These concessions are of a long term temporary nature
and are subject to renewal from time to time. Currently, we operate a
1,240 metric ton farm site and a 500 metric ton farm site under concessions that
expire in 17 years and 10 years, respectively.
In
addition, Croatian governmental agencies require commercial fishing vessels to
be licensed. Individual operators of the vessels are also
subject to permit requirements.
We
believe that we, and our suppliers are currently in compliance with all material
aspects of these quota and licensing requirements.
Employees
As of
July 1, 2009, we had 72 full-time employees. None of our employees is
represented by a labor union, and we consider our employee relations to be
excellent.
Facilities
We own
approximately 75,000 square feet of land in Lamjana Bay, Community of Kali,
Croatia, consisting of approximately 53,000 square feet of working area, housing
the main office building, cold storage building processing plant and two
warehouses. We also have the right of use of a ship wharf located
adjacent to the property. We believe that suitable additional space
to accommodate our anticipated growth will be available in the future on
commercially reasonable terms.
Our
properties have been mortgaged as collateral security for a working capital
facility in the amount of approximately $13,500,000.
Legal
Proceedings
From time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings or claims are pending against or involve us that
could reasonably be expected to have a material adverse effect on our business
and financial condition.
There was
pending against Kali Tuna a tax enforcement action commenced by the Croatian Tax
Authority, potentially subjecting us to a liability of approximately $1,600,000
plus interest and penalties for purported unpaid value added and income taxes
for calendar year 2006. We argued that the Authority’s claim was without
merit and the Croatian Appellate Institution ruled in our favor. It
ordered the Authority to reevaluate all evidence against us. The
Croatian Tax Authority has since reinstated the enforcement action based on the
same claim notwithstanding the Appellate Institution’s ruling. We
intend to defend ourselves vigorously against this action.
-12-
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The
following discussion and analysis relates to the results of Kali Tuna only and
should be read in conjunction with the consolidated financial statements and the
related notes thereto and other financial information contained elsewhere in
this Form 8-K.
General
Overview
We are a
leader in long term farming of Northern Bluefin Tuna in the Mediterranean with
farming facilities located in Kali, Croatia, along with a processing plant,
freezing storage and wharf. We cultivate our tuna with special
reliance on technology and experience to grow the tuna for two to three years
following their capture in the wild. Our operations include farming,
feeding and harvesting Northern Bluefin Tuna that was caught in the
Mediterranean and the Adriatic Sea. The fishing process is outsourced
to an affiliated party. During the past three years, we have been
increasing our carry-over stock of tuna to increase output quantities each
year. We will seek to expand our operations by acquiring additional
licenses, vessels and/or companies in the years to come, both in the
Mediterranean and other regions suitable for sustainable catching and farming
methods.
Our
objective is to create a self sustaining farm environment where tuna fish spawn,
and the resultant eggs are hatched, in captivity, without having to rely on the
capture of fish in the open seas thereby depleting the natural stock of Bluefin
Tuna.
We have
marketed our products mainly in Japan through our ultimate parent company,
Atlantis. In addition, during the past year, we have increased sales
of fresh tuna to Europe and the US. We intend to increase our total
production worldwide to 5,000 metric tons per year which will be marketed into
Japan, the US and the EU.
Recently,
Atlantis has entered into the Daito Agreement for the sale and delivery of at
least 500 metric tons of frozen Northern Bluefin Tuna on an annual
basis. On June 30, 2010, the Company entered into a sales agency
agreement with Atlantis. Under the terms of the agreement, Atlantis
will be granted the exclusive right to sell on the Company’s behalf all of its
Northern Bluefin Tuna products into the Japanese market. As a result
of the sales agency agreement, it is contemplated that tuna to be delivered
under the Daito Agreement by Atlantis will be filled by fish that was farmed by
us. We have agreed to pay Atlantis an agency commission of 2% of all
sales to be made under this agency agreement.
Recent
Developments
We share
the concern of international organizations and others as it relates to the
depletion of bluefin tuna stocks in the Mediterranean. We have been
lobbying strongly with various industry associations and national governments to
reduce existing catch quotas that will enable wild tuna stocks to recover to
sustainable levels. We have focused on building our business based on
a model of sustainable fishery development. We believe that our
longer farming cycle (up to three years) and the higher biomass of our stock set
us apart from and offer a distinct advantage over the business practices of
competitors such as “catch and kill” operators and farming companies with
shorter growth cycles.
During
the past three years, annual catch quotas for Bluefin Tuna have been reduced by
approximately 60% from 30,000 metric tons to 13,500 metric tons with increased
monitoring being imposed on fisheries worldwide. We support these
restrictions and have lobbied for the imposition of even smaller
quotas. As a result of the quotas that are currently in effect, we
foresee increased scarcity in the supply of Bluefin Tuna in the Japanese
market. The Japanese are estimated to consume between 70% to 80% of the
world supply of Bluefin Tuna.
We have
been conducting research on the reproduction of tuna in captivity which, in June
2009, resulted in a major breakthrough when some of our tuna spawned in our farm
facility. We believe this to have been the first time tuna has spawned
naturally in captivity without any hormone injections. In collaboration
with a local research institution, we managed to hatch the resultant eggs in a
laboratory environment. We are currently constructing a hatchery for use
during the next spawning season to allow us to advance our
research.
As a
result of recent successes in our quest to create a closed life cycle in the
Bluefin Tuna farming process, we believe that we will become less dependent on
the capture of wild tuna. Therefore, we believe that we will be
uniquely positioned to address the expected shortage in the supply of tuna,
especially as it relates to the Japanese market.
Critical
Accounting Policies and Estimates
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments
made. Management bases its estimates and judgments on historical
experience and on various factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
-13-
The
following critical accounting policies affect the more significant judgments and
estimates used in the preparation of the Company’s consolidated financial
statements.
Inventories
Inventories
are stated at the lower of cost and net realizable value. Cost is calculated on
a weighted average basis and includes all costs to acquire and to bring the
inventories to their present location and condition. Tuna weighing less than
30kg is stated at cost value, as international regulations prohibit the sales of
tuna under 30kg. The Company evaluates the net realizable value of its
inventories on a regular basis and records a provision for loss to reduce the
computed weighted average cost if it exceeds the net realizable
value.
Consolidation
The
Company has determined that (i) Kali Tuna Trgovina d.o.o., a joint venture owned
50% each by the Company and Bluefin Tuna Hellas A.E, ( the “BTH Joint Venture”)
and (ii) MB Lubin d.o.o., an entity owned by one of the Kali Tuna’s executive
officers, are variable interest entities of which the Company is the primary
beneficiary. These entities are therefore consolidated in the
Company’s financial statements. The 50% of the BTH Joint Venture
owned by Bluefin Tuna Hellas A.E. has been reflected as non-controlling interest
in the financial statements. All material inter-company transactions
and balances have been eliminated in consolidation.
Related
Parties
Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate
entities.
Revenue
recognition
The
Company recognizes revenue when the significant risks and rewards of ownership
have been transferred to the customer, including factors such as when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is
fixed and determinable, and collectability is probable. The Company recognizes
sales when its tuna inventory is shipped, title has passed to the customers and
collectability is reasonably assured.
Concentration
of credit risk
Financial
instruments that potentially subject our company to significant concentrations
of credit risk consist primarily of trade accounts receivable. We perform
ongoing credit evaluations with respect to the financial condition of our
debtors, but do not require collateral. In order to determine the value of our
accounts receivable, we record an allowance for doubtful accounts to cover
probable credit losses. Our management reviews and adjusts this allowance
periodically based on historical experience and their evaluation of the
collectability of outstanding accounts receivable.
Results
of Operations
Year
Ended June 30, 2009 Compared to Year Ended June 30, 2008
Sales. For the year ended June 30,
2009, sales increased by $12,405,000 from $11,665,000 to $24,070,000, an
increase of 106% compared to the year ended June 30, 2008. This
increase in sales resulted from an increase in carry over stock that has been
built up through the gradual lengthening of the farming cycle described
above. Stock sold during the period accounted for significantly
higher biomass compared with previous years as the average cycle of farmed fish
reached approximately 30 months.
Cost of
Sales. The cost of sales as a percentage of sales decreased
from 86.5% of sales in 2008 to 72% in 2009. This was due to an increase in
the total size of the biological assets from a total of approximately
738,000 kilograms on July 1, 2007 to approximately 1,316,000 kilograms on
June 30, 2009. While variable costs such as bait increase in proportion to
the size of the biological assets, there are economies of scale that reduce the
total production cost per kilogram.
Administrative
and General Expenses. Administrative costs
remained at a similar level in the 2009 fiscal year as was incurred in the 2008
fiscal year, despite the increases in sales volume and size of the biological
assets.
-14-
Operating
Profit. During the year
ended June 30, 2009, we generated an operating profit of $5,834,000, an increase
of $5,390,000 compared to the operating profit for the year ended June 30,
2008. The increase is the result of higher sales levels, better
margins on those sales and control of administration expenses.
Foreign Currency
Gains and Losses. The financial
meltdown during late 2008 and the ensuing currency exchange turmoil between EUR
and JPY led to a loss of $2,893,000 on the maturity of our JPY denominated
liabilities. This liability consisted of advances received from customers for
contracted sales. During the previous financial year, we had a net foreign
exchange gain of $470,000.
Interest Expense.
Interest expenses increased to $710,000 during the year ended June 30,
2009, an increase of $198,000 compared to the prior year. This was
caused by increased borrowings and higher interest rates resulting from an
extension of the farming cycle.
Income Before
Income Taxes and Minority Interests. Profit before income taxes
for the year ended June 30, 2009 was $2,010,000, an increase of $1,053,000, or
110%, compared to the year ended June 30, 2008.
Income Tax
Expense. Deferred income tax liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The deferred tax liabilities increased by $20,000 during
the year ended June 30, 2009. Income tax expense was $510,000 for the
year ended June 30, 2009.
Net
Income. Net
income increased to $1,331,000 for the year ended June 30, 2009, compared to a
profit of $455,000 for the previous year.
Three
and Nine Months Ended March 31, 2010 Compared to Three and Nine Months Ended
March 31, 2009
Sales. Sales of tuna typically
occur in winter (November to March) when the sea temperature is lowest to
maximize the quality and value of the product. During the nine months
ended March 31, 2010, approximately 28% of our net sales occurred in
the three months ended December 31, 2009 and 72% in the three months ended March
31, 2010. In the year ended June 30, 2009, 49% of the net sales
occurred in the three months ended December 31, 2008 and 51% in the three months
ended March 31, 2009.
During
the quarter ended March 31, 2010, the Company’s net revenue and cost of goods
sold included $7,935,000 and $5,974,000, respectively, in connection with
transactions that involved the purchase of tuna from another Croatian farming
operation and the immediate sale of the product to one of the Company’s
customers.
As a
result, net sales for the nine month period ended March 31, 2010 increased by
$2,894,000 to $25,172,000 from $22,278,000 in the corresponding period of the
previous year.
Excluding
the sale transaction involving the other tuna farming operation, net sales from
the Company’s own farms decreased by $5,041,000 to $17,237,000. This
was caused by a decline in the volume of sales to 924 metric tons in the nine
months ended March 31, 2010 from 1,055 metric tons in the corresponding nine
months ended March 31, 2009. There was also a decline in the average
sales price from $21.11 per kg to $18.65 per kg.
Cost of
Sales. The cost of sales as a percentage of sales from the
Company’s farming operations increased from 69% of sales in the nine months
ended March 31, 2009 to 84% in the corresponding period ended March 31,
2010. This was partly due to the reduction in average sales price per kg
of 12% which increased the cost of goods sold percentage by approximately 10%,
and partly due to a loss of $236,000 in Lubin which increased the percentage by
2%.
Gross
Profit. The gross profit generated from the sale of tuna
decreased by $2,215,000 in the nine month period ended March 31, 2010 compared
with the corresponding period in 2009. The gross profit from the
Company’s farmed products was reduced by $4,176,000 due to the reduction in the
volume of sales, the reduction in selling price achieved and the losses in
Lubin.
Other operating
income (expenses). Other operating income improved from a net
expense of $24,000 in the nine months ended March 31, 2009 to income of $427,000
for the corresponding period in 2010. This was mainly due to Croatian
Government grants received in the nine months ended March 31, 2010.
Administrative
and General Expenses. Administrative costs in the
nine months to March 31, 2010 were at a similar level to those incurred in the
same period in the previous year. The reduction was from $1,351,000
in the nine months ended March 31, 2009 to $1,340,000 in the nine months ended
March 31, 2010.
-15-
Foreign Currency
Gains and Losses. We suffered
during the financial meltdown of late 2008 and the ensuing currency exchange
turmoil between EUR and JPY led to a loss of $3,021,000 for the nine month
period ended March 31, 2009. In the nine months ended March 31, 2010,
our net losses in foreign currency were $1,353,000 of which $1,036,000 was
incurred in the three months ended March 31, 2010 primarily as a result of the
Euro decreasing in value against major currencies, especially the US Dollar and
the Japanese Yen, due to the current economic crisis in Europe related to Greece
and potentially other countries in Europe.
Interest Expense.
Interest expense increased from $663,000 in the nine months ended March
31, 2009 to $796,000 in the corresponding period of the current
year. This was due to an increase in the borrowings of the
Company.
Liquidity
and Capital Resources
Years
ended June 30, 2009 and 2008
At June
30, 2009, we reported working capital of approximately $1,577,000 compared to
approximately $1,600,000 at June 30, 2008. At June 30, 2009, we had
cash and cash equivalents in the amount of $1,421,000.
Cash
Flows
The
following table summarizes our cash flows for the years ended June 30, 2009 and
2008:
Years
Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
Total
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | (5,494,000 | ) | $ | (1,613,000 | ) | ||
Investing
activities
|
(1,466,000 | ) | (192,000 | ) | ||||
Financing
activities
|
5,736,000 | 4,786,000 | ||||||
Effects
of exchange rate changes
|
(375,000 | ) | (24,000 | ) | ||||
Increase/(Decrease)
in cash and cash equivalents
|
$ | (1,599,000 | ) | $ | 2,957,000 |
Net cash
used in operating activities for the year ended June 30, 2009 totaled
$5,494,000, compared to $1,613,000 provided by operating activities for the year
ended June 30, 2008. The change is primarily due to the increase in
the size of the inventory and the repayment of a loan relating to an advance
payment received in connection with a sale completed in fiscal year
2009.
Cash used
in investing activities for the year ended June 30, 2009 was $1,466,000 compared
to $192,000 for the year ended June 30, 2008. The change is due
primarily to higher investment in new tangible assets, including a new boat for
MB Lubin d.o.o.
Cash
provided by financing activities for the year ended June 30, 2009 totaled
$5,736,000, compared to $4,786,000 of cash provided by financing activities for
the year ended June 30, 2008. The change is due primarily to an
increase in bank loans from Erste & Steirmaerkische of HRK 29,000,000
($5,438,000)
Nine
months ended March 31, 2010 and 2009
At March
31, 2010, we had working capital of approximately $2,570,000 compared to
approximately $2,948,000 (after the reclassification of $1,371,000 of related
parties liabilities to non-controlling interest in variable interest entities
(VIE), as described in Note 2 to the consolidated financial statements) at June
30, 2009. At March 31, 2010, we had cash and cash equivalents in the
amount of $1,079,000.
Cash
Flows
The
following table summarizes our cash flows for the nine months ended March 31,
2010 and 2009:
Nine
months ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Total
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | (751,000 | ) | $ | (3,616,000 | ) ) | ||
Investing
activities
|
(2,267,000 | ) | (2,483,000 | ) ) | ||||
Financing
activities
|
2,533,000 | 4,364,000 | ||||||
Effects
of exchange rate changes
|
143,000 | (265,000 | ) | |||||
Increase/(Decrease)
in cash and cash equivalents
|
$ | (342,000 | ) | $ | (2,000,000 | ) |
-16-
Net cash
used in operating activities for the nine months ended March 31, 2010 totaled
$751,000 compared to $3,616,000 used in operating activities for the nine months
ended March 31, 2009. In the nine months ended March 31, 2010, the
Company decreased its net inventory by $2,498,000. Fish feed and
supplies were reduced by $1,068,000 as a result of lower quantity of fish feed
on hand at March 31, 2010. The live stock inventory had approximately
the same quantity of biomass but the cost per kg of biomass was lower primarily
due to the purchase of 330 metric tons of live tuna from another Croatian
farming entity at favorable prices which brought the average cost per kg of
carrying value down.
Cash used
in investing activities for the nine months ended March 31, 2010 was $2,267,000
compared to $2,483,000 for the nine months ended March 31,
2009. These investments included additional infrastructure to
increase the capacity of freezing and storing of fish feed primarily involving
the purchase of specialized freezer equipment to improve the handling and
efficiency of the stock feeding system.
Cash
provided by financing activities for the nine months ended March 31, 2010
totaled $2,533,000, compared to $4,364,000 of cash provided by financing
activities for the nine months ended March 31, 2009. The sources of
the new funding were a new bank loan from Erste & Steirmaerkische of JPY
180,000,000 ($1,939,000) and additional loans from Atlantis of
$439,000.
Sources
of Liquidity
Our most
significant sources of liquidity have been cash generated by operations as well
as lines of credit with commercial banks and by advances made by
Atlantis. Additionally, Atlantis has provided loan guarantees and
other credit support through its banking relationships.
Sales of
tuna occur during the winter when the sea temperature is lowest to maximize the
quality and value of the product (November to February). There are
generally no sales generated during the rest of the
year. Accordingly, the Company needs to finance its operations with
available capital during the non-selling months.
We raised
initial net proceeds of approximately $7.3 million in a financing transaction
that was completed on June 30, 2010. Additionally, we have an
agreement in principle with Atlantis providing for a $15 million line of
credit. The details of this line of credit are being negotiated and
we expect to enter into a definitive agreement with Atlantis
shortly. We believe that the proceeds from the financing, the
proposed Atlantis line of credit and cash generated by operations will be
sufficient to continue to finance our present operations through the harvest
season and for the remainder of our fiscal year ending June 30,
2011.
We will
need to obtain additional capital in order to expand operations and remain
profitable. We plan to pursue sources of additional capital by
issuing securities through various financing transactions or arrangements,
including joint venturing of projects, debt financing, equity financing or other
means. We may also consider advance sales of tuna to
customers. Additionally, we are pursuing increases in available bank
lines and borrowings that may be available to us once we have completed this
Offering and/or raised additional capital. There can be no assurance
that any additional financing on commercially reasonable terms or at all will be
available when needed. The inability to obtain additional capital may
reduce our ability to continue to conduct business operations as currently
contemplated. Any additional equity financing may involve substantial
dilution to our then existing stockholders.
Seasonality
As
explained above, sales of tuna occur during the winter when the sea temperature
is lowest to maximize the quality and value of the product (November to
March). There are generally no sales generated during the rest of the
year.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our consolidated financial condition, revenues,
results of operations, liquidity or capital expenditures.
-17-
Pro
Forma Balance sheet at March 31, 2010 - Unaudited
(In
thousands of USD)
The
following pro-forma balance sheet gives effect to the completion of the reverse
merger of Kali Tuna into the Company in exchange for 30,000,000 common shares
and the effect of a private placement of 7,300,000 Units for $1.00 per Unit
consisting of 7,300,000 shares of common stock and warrants to purchase
1,460,000 shares of common stock for $2.00 per share. It also reflects issuance
of 511,000 shares as placement agent compensation.
Pro-forma Adjustments
|
||||||||||||||||||||||||
Lions Gate
Lighting Corp.
at February 28,
2010 -
Historical
(Unaudited)
|
Kali Tuna at
March 31, 2010
- Historical
(Unaudited)
|
Settlement
of Liabilities
|
Reverse
Merger
|
Proceeds of
offering
|
Pro-forma
adjusted at
March 31,
2010
|
|||||||||||||||||||
Cash
|
14 | 1,079 | (14 | )(1) | 7,300 | (3) | 8,206 | |||||||||||||||||
(173 | )(3) | |||||||||||||||||||||||
Inventory
|
16,948 | 16,948 | ||||||||||||||||||||||
Receivable
from related party for advance received by related party
|
5,897 | 5,897 | ||||||||||||||||||||||
Other
Current Assets
|
2,959 | 2,959 | ||||||||||||||||||||||
Total
Current Assets
|
14 | 26,883 | (14 | ) | 7,127 | 34,010 | ||||||||||||||||||
Property
and equipment, net
|
9,626 | 9,626 | ||||||||||||||||||||||
Other
assets
|
13 | 13 | ||||||||||||||||||||||
Total
assets
|
14 | 36,522 | (14 | ) | 7,127 | 43,649 | ||||||||||||||||||
Accounts
payable
|
2,257 | 2,257 | ||||||||||||||||||||||
Due
to related parties
|
132 | 290 | (132 | )(1) | 1,000 | (3) | 1,790 | |||||||||||||||||
500 | (4) | |||||||||||||||||||||||
Loan
from shareholder
|
957 | 957 | ||||||||||||||||||||||
Borrowings
|
13,557 | 13,557 | ||||||||||||||||||||||
Liability
for advance received by related party
|
5,897 | 5,897 | ||||||||||||||||||||||
Other
current liabilities
|
1,355 | 1,355 | ||||||||||||||||||||||
132 | 24,313 | (132 | ) | 1,500 | 25,813 | |||||||||||||||||||
Non-current
liabilities
|
34 | 34 | ||||||||||||||||||||||
Total
liabilities
|
132 | 24,347 | (132 | ) | 1,500 | 25,847 | ||||||||||||||||||
Common
Stock
|
||||||||||||||||||||||||
Authorized:
100,000,000 common shares, par value $0.001 per share
|
||||||||||||||||||||||||
Issued
and outstanding: 7,450,000 shares historical; 45,261,000
pro-forma
|
7 | 30 | (2) | 8 | (3) | 45 | ||||||||||||||||||
Capital
|
4 | (4 | )(2) | - | ||||||||||||||||||||
Additional
Paid in Capital
|
46 | (79 | )(2) | 6,119 | (3) | 6,086 | ||||||||||||||||||
Accumulated
comprehensive income (loss)
|
(2 | ) | 3,593 | 2 | (2) | 3,593 | ||||||||||||||||||
Retained
Earnings (Deficit)
|
(169 | ) | 9,185 | 118 | (1) | 51 | (2) | (500 | )(4) | 8,685 | ||||||||||||||
Total
Stockholders' equity (deficiency)
|
(118 | ) | 12,782 | 118 | - | 5,627 | 18,409 | |||||||||||||||||
Noncontrolling
interest
|
(607 | ) | (607 | ) | ||||||||||||||||||||
Total
Equity (deficit)
|
(118 | ) | 12,175 | 118 | - | 5,627 | 17,802 | |||||||||||||||||
Total
liabilities and equity
|
14 | 36,522 | (14 | ) | 7,127 | 43,649 |
(1)
|
Represents
settlement of all liabilities in accordance with the share exchange
agreement.
|
(2)
|
To
adjust for the issuance of 30,000,000 shares of common stock in exchange
for 100% of the ownership interest of Kali Tuna and to eliminate the
historical equity accounts of Lions Gate as Kali Tuna is the successor to
Lions Gate for accounting purposes.
|
(3)
|
To
adjust for the issuance of 7,300,000 units for cash proceeds of
$7,300,000, net of estimated offering costs of $1,173,000 comprised of
Placement Fees of $73,000 and other expenses of $1,100,000. Also includes
issuance of 511,000 shares as placement agent
compensation.
|
(4)
|
To
adjust for an estimated $500,000 in pre-startup and formation costs
incurred by Atlantis that are to be reimbursed by Umami upon the
successful completion of the Exchange and
Offering.
|
-18-
RISK
FACTORS
An
investment in our securities involves a high degree of risk. In
determining whether to purchase our securities, you should carefully consider
all of the material risks described below, together with the other information
contained in this current report on Form 8-K before making a decision to
purchase our securities. You should only purchase our securities if you
can afford to suffer the loss of your entire investment.
RISKS
RELATED TO OUR BUSINESS
Proceeds
from the Financing may not be sufficient to sustain our operations
We
anticipate, based on currently proposed plans and assumptions relating to our
ability to market and sell our products, that our cash on hand including the
proceeds from the Financing and amounts expected to be made available by
Atlantis under a proposed line of credit facility will satisfy our operational
and capital requirements for the next 12 months. However, without
additional capital we will be unable to significantly expand our markets or make
significant acquisitions. Also, if we fail to finalize the agreement
providing for the line of credit and if we are unable to realize satisfactory
revenue in the near future, we will be required to seek additional financing to
continue our operations beyond that period. There can be no assurance that any
additional financing on commercially reasonable terms will be available when
needed. The inability to obtain additional capital may reduce our
ability to continue to conduct business operations as currently
contemplated. Any additional equity financing may involve substantial
dilution to our then existing stockholders.
Regulation
of our industry may have an adverse impact on our business.
For
years, the international community has been aware of and concerned with the
worldwide problem of depletion of natural fish stocks. In the past,
these concerns have resulted in the imposition of quotas that subject individual
countries to strict limitations on the amount of fish they are allowed to
catch. Environmental groups have been lobbying to have additional
limitations on fishing imposed and have even made suggestions that would limit
the activities of fish farms. If international organizations or
national governments were to impose additional limitations on fishing and fish
farm operations, this could have a negative impact on our results of
operations.
Our lack of diversification may
increase the risk of an
investment in Kali Tuna, and our financial condition and
results of operations may deteriorate if we fail to
diversify.
Our
business focus is on the farming and processing of Northern Bluefin Tuna in
Croatia. We lack diversification, in terms of both the nature and
geographic scope of our business. As a result, we will likely be
impacted more acutely by factors affecting our industry or the regions in which
we operate than we would if our business were more diversified, enhancing our
risk profile. If we fail to diversify our operations either through
natural growth or through acquisitions, our financial condition and results of
operations could deteriorate.
Concerns
about the state of the bluefin tuna population may lead some customers to look
for alternatives.
In the
Mediterranean, large quantities of bluefin tuna are taken for on-growing in fish
cages. Statistics for culturing are even less accurate than official catch
statistics. Experts estimated the total Atlantic bluefin aquaculture
production during 2006 at between 20,000 and 30,000 metric tons.
Responding
to fears of a collapse of bluefin tuna stock in the Mediterranean, a number of
tuna buyers have occasionally threatened boycotts unless drastic measures are
taken to protect the threatened tuna stock. In addition, some
restaurants in Europe have stopped buying Mediterranean bluefin tuna and
replaced the bluefin with other tuna species, such as yellowfin, albacore and
bigeye. If these boycotts become more widespread, they may have a
negative impact on our results of operations.
The
growth of our business depends on our ability to secure fishing licenses
directly or through third parties and concessions for our farm
locations.
Fish
farming is a highly regulated industry. Our operations require
licenses, permits and in some cases renewals of licenses and permits from
various governmental authorities. For example, commercial fishing
operations are subject to government license requirements that permit them to
make their catch. In addition, our offshore farms that harbor the
cages containing our tuna livestock are constructed pursuant to concessions
granted by the local government that has jurisdiction over the waters where our
farms are located. Our ability to obtain, sustain or renew such
licenses and permits on acceptable terms is subject to change in regulations and
policies and to the discretion of the applicable governments, among other
factors. Our inability to obtain, or a loss of or denial of extension, to any of
these licenses or permits could hamper our ability to produce revenues from our
operations.
-19-
We
are dependent on an affiliate for our fishing and towing
operations.
A large
portion of our fishing and towing operations is conducted by M.B. Lubin, an
affiliated entity because it is owned by Dino Vidov, our General
Manager. M.B. Lubin owns a fleet of seven fishing vessels that catch
fish, typically in the Adriatic, store them in cages and tow those cages back to
our farming locations where they are transferred into permanent holding
pens. We do not have our own fishing vessels and, moreover, do not
possess the requisite licenses to catch our own fish. If for any reason, M.B.
Lubin would be unable or unwilling to continue to provide its services to us,
this would likely lead to a temporary interruption in the supply of
fish at least until we find another entity that can provide these services for
us. Failure to find a replacement for M.B. Lubin even on a temporary
basis, may have an adverse effect on our results of operations.
Almost
all our products are sold to only three customers.
We have
derived, and over the near term we expect to continue to derive, all of our
sales from a small number of customers. All of our products are sold
to only three trading houses for further sale into the Japanese
market. The loss of any of these customers or non-payment of
outstanding amounts due to the Company by any of them could materially and
adversely affect our business in terms of results of operations, financial
position and liquidity.
It
may be difficult to effect service of process and enforcement of legal judgments
upon our company and our officers and directors because some of them reside
outside the United States.
As our
operations are presently based in Croatia and our key directors and officers
reside outside the United States, service of process on our key directors and
officers may be difficult to effect within the United States. Also,
substantially all of our assets are located outside the United States and any
judgment obtained in the United States against us may not be enforceable outside
the United States.
We
may be adversely affected by the fluctuation in raw material prices and selling
prices of our products.
The
products and raw materials we use may experience price volatility caused by
events such as market fluctuations, weather conditions or changes in
governmental programs. The market price of these raw materials may also
experience significant upward adjustment, if, for instance, there is a material
under-supply or over-demand in the market. These price changes may
ultimately result in increases in the selling prices of our products, and may,
in turn, adversely affect our sales volume, revenue and operating
profit.
We
may not be able to effectively manage our growth, which may harm our
profitability.
Our
strategy envisions expanding our business. If we fail to effectively manage our
growth, our financial results could be adversely affected. Growth may place a
strain on our management systems and resources. We must continue to refine and
expand our business development capabilities, our systems and processes and our
access to financing sources. As we grow, we must continue to hire, train,
supervise and manage new employees. We cannot assure you that we will be
able to:
|
·
|
meet
our capital needs;
|
|
·
|
expand
our systems effectively or efficiently or in a timely
manner;
|
|
·
|
allocate
our human resources optimally;
|
|
·
|
identify
and hire qualified employees or retain valued employees;
or
|
|
·
|
incorporate
effectively the components of any business that we may acquire in our
effort to achieve growth.
|
If we are
unable to manage our growth, our operations and our financial results could be
adversely affected by inefficiency, which could diminish our
profitability.
Loss
of Oli Steindorsson, our Chairman, could impair our ability to
operate.
If we
lose Oli Steindorsson, our Chairman, our business could suffer. Our success is
highly dependent on our ability to attract and retain qualified management
personnel. We have entered into an employment agreement with Mr.
Steindorsson. The loss of Mr. Steindorsson could have some effect on
our operations. If we were to lose our Chairman, we may experience
temporary difficulties in competing effectively, developing our
technology and implementing our business strategies. We do not have key man
life insurance in place for any of our key personnel.
-20-
Our
business may suffer if we do not attract and retain talented
personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion, integrity and good faith of our management and other personnel in
conducting the business of the Company. We have a small management team, and the
loss of a key individual or inability to attract suitably qualified staff could
materially adversely impact our business.
Our
success depends on the ability of our management and employees to interpret
market and aqua-biological data correctly and to interpret and respond to
economic, market and other conditions in order to locate and adopt appropriate
investment opportunities, monitor such investments, and ultimately, if required,
to successfully divest such investments. Further, no assurance can be given that
our key personnel will continue their association or employment with us or that
replacement personnel with comparable skills can be found. We have sought to and
will continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable to
attract and retain key personnel, our business may be adversely
affected.
Our
management team has limited experience in public company matters, which could
impair our ability to comply with legal and regulatory
requirements.
Our
management team has only limited public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable
federal securities laws including filing required reports and other information
required on a timely basis. There can be no assurance that our management will
be able to implement and affect programs and policies in an effective and timely
manner that adequately respond to increased legal, regulatory compliance and
reporting requirements imposed by such laws and regulations. Our failure to
comply with such laws and regulations could lead to the imposition of fines and
penalties and further result in the deterioration of our business.
Penalties
we may incur could impair our business.
Failure
to comply with government regulations could subject us to civil and criminal
penalties, could require us to forfeit property rights, and may affect the value
of our assets. We may also be required to take corrective actions, such as
installing additional equipment or taking other actions, each of which could
require us to make substantial capital expenditures. We could also be required
to indemnify our employees in connection with any expenses or liabilities that
they may incur individually in connection with regulatory action against
them. As a result, our future business prospects could deteriorate due to
regulatory constraints, and our profitability could be impaired by our
obligation to provide such indemnification to our employees.
Our
insurance may be inadequate to cover liabilities we may incur.
Our
involvement in the fish farming industry may result in our becoming subject to
liability for pollution, property damage, personal injury or other hazards.
Although we will obtain insurance in accordance with industry standards to
address such risks, such insurance has limitations on liability that may not be
sufficient to cover the full extent of such liabilities. In addition, such risks
may not, in all circumstances, be insurable or, in certain circumstances, we may
choose not to obtain insurance to protect against specific risks due to the high
premiums associated with such insurance or for other reasons. The payment of
such uninsured liabilities would reduce the funds available to us. If we suffer
a significant event or occurrence that is not fully insured, or if the insurer
of such event is not solvent, we could be required to divert funds from capital
investment or other uses towards covering our liability for such
events.
Some
consumers may refrain from purchasing tuna because it has been found to contain
mercury,
Research
has shown that tuna contains relatively high levels of mercury, a toxic
substance. Studies have suggested that mercury may cause health
problems, including an increased risk of cardiovascular disease and neurological
symptoms.
The high
mercury concentration in tuna relative to other fish species is due to its large
size and resulting high position in the food chain and the subsequent
accumulation of heavy metals from its diet. As awareness of the real
or perceived risks associated with the consumption of a fish that contains this
substance spreads, increasing numbers people may refrain from consuming
tuna. If this were to occur, this will have an adverse impact on our
business.
Fluctuations
in Foreign Exchange Rates Could Have an Adverse Effect on the Company’s Results
of Operations.
The
Company’s operations through its subsidiary are conducted in foreign
currencies. For example, most of its sales are paid for in Japanese Yen
while most of its expenses are paid for in Croatian Kuna and
Euros. The value of these currencies fluctuate relative to the U.S.
dollar. As a result, the Company is exposed to exchange rate fluctuations,
which could have an adverse effect on its results of operations in a given
period.
-21-
RISKS
RELATED TO OUR COMMON STOCK
There
has been a limited trading market for our Common Stock and no market for the
warrants.
It is
anticipated that there will be a limited trading market for the Common Stock on
the Over-the-Counter Bulletin Board. The lack of an active market may
impair your ability to sell your shares at the time you wish to sell them or at
a price that you consider reasonable. The lack of an active market may also
reduce the fair market value of your shares. An inactive market may also
impair our ability to raise capital by selling shares of capital stock and may
impair our ability to acquire other companies or technologies by using Common
Stock as consideration.
You
may have difficulty trading and obtaining quotations for our Common
Stock.
The
Common Stock may not be actively traded, and the bid and asked prices for our
Common Stock on the NASD Over-the-Counter Bulleting Board may fluctuate widely.
As a result, investors may find it difficult to dispose of, or to obtain
accurate quotations of the price of, our securities. This severely limits the
liquidity of the Common Stock, and would likely reduce the market price of our
Common Stock and hamper our ability to raise additional capital.
The
market price of our Common Stock may be, and is likely to continue to be,
highly volatile and subject to wide fluctuations.
The
market price of our Common Stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a number of factors that are beyond
our control, including:
|
·
|
dilution
caused by our issuance of additional shares of Common Stock and other
forms of equity securities, which we expect to make in connection with
future acquisitions or capital financings to fund our operations and
growth, to attract and retain valuable personnel and in connection with
future strategic partnerships with other
companies;
|
|
·
|
announcements
of new acquisitions or other business initiatives by our
competitors;
|
|
·
|
our
ability to take advantage of new acquisitions or other business
initiatives;
|
|
·
|
quarterly
variations in our revenues and operating
expenses;
|
|
·
|
changes
in the valuation of similarly situated companies, both in our industry and
in other industries;
|
|
·
|
changes
in analysts’ estimates affecting our company, our competitors and/or our
industry;
|
|
·
|
changes
in the accounting methods used in or otherwise affecting our
industry;
|
|
·
|
additions
and departures of key personnel;
|
|
·
|
announcements
by relevant governments pertaining to additional quota restrictions;
and
|
|
·
|
fluctuations
in interest rates and the availability of capital in the capital
markets.
|
These and
other factors are largely beyond our control, and the impact of these risks,
singly or in the aggregate, may result in material adverse changes to the market
price of our Common Stock and/or our results of operations and financial
condition.
Our
operating results may fluctuate significantly, and these fluctuations may cause
our stock price to decline.
Our
operating results will likely vary in the future primarily as the result of
fluctuations in our revenues and operating expenses, expenses that we incur,
prices of feed used in our business, the price that customer are willing and
able to pay for our products and other factors. If our results of operations do
not meet the expectations of current or potential investors, the price of our
Common Stock may decline.
We
do not expect to pay dividends in the foreseeable future.
We do not
intend to declare dividends for the foreseeable future, as we anticipate that we
will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their Common
Stock, and stockholders may be unable to sell their shares on favorable terms or
at all. Investors cannot be assured of a positive return on investment or that
they will not lose the entire amount of their investment in the Common
Stock.
-22-
Directors
and officers of the Company will have a high concentration of Common Stock
ownership.
Based on
the 45,261,000 shares of Common Stock that are estimated to be outstanding
(excluding shares underlying Warrants) as of the date hereof, our officers and
directors will beneficially own approximately 74.8% of our outstanding Common
Stock. Such a high level of ownership by such persons may have a
significant effect in delaying, deferring or preventing any potential change in
control of the Company. Additionally, as a result of their high level
of ownership, our officers and directors might be able to strongly influence the
actions of the Company’s board of directors (the “Board”) and the outcome of
actions brought to our shareholders for approval. Such a high level of ownership
may adversely affect the voting and other rights of our
shareholders.
Applicable
SEC rules governing the trading of “penny stocks” limit the trading and
liquidity of our Common Stock, which may affect the trading price of our Common
Stock.
Shares of
Common Stock may be considered a “penny stock” and be subject to SEC rules and
regulations which impose limitations upon the manner in which such shares may be
publicly traded and regulate broker-dealer practices in connection with
transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules which may increase the
difficulty investors may experience in attempting to liquidate such
securities.
-23-
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of the Company’s Common Stock giving effect to the Share Exchange and
the issuance of 7,300,000 Units. The table sets forth the beneficial
ownership of (i) each person who, to our knowledge, beneficially owns more than
5% of the outstanding shares of Common Stock; (ii) each of the nominees for
director and executive officer of the Company; and (iii) all of our executive
officers and nominees for director as a group. The number of shares
owned includes all shares beneficially owned by such persons, as calculated in
accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and such information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares of Common Stock as to which a
person has sole or shared voting power or investment power and any shares of
Common Stock which the person has the right to acquire within 60 days of June
30, 2010, 2010 through the exercise of any option, warrant or right, through
conversion of any security or pursuant to the automatic termination of a power
of attorney or revocation of a trust, discretionary account or similar
arrangement. The address of each executive officer and director is
c/o the Company, 405 Lexington Avenue, 26th Floor,
Suite 2640, New York, NY 10174.
Name of Beneficial Owner
|
Number of Shares
|
Percentage(1)
|
||||||
Atlantis
Group hf
Storhofda 15
110 Reykjavik
Iceland
|
30,000,000 | 66.3 | % | |||||
Oli
Valur Steindorsson (2)
|
34,453,333 | 74.8 | % | |||||
Frederick
Charles Kempson
|
-0- | N/A | ||||||
Michael
David Gault (3)
|
30,000,000 | 66.3 | % | |||||
Dan
Zang (4)
|
50,000 | * | ||||||
Executive Officers and Directors as a
Group
(four persons)
|
34,503,333 | 74.8 | % |
* Denotes
less than 1%
(1)
|
Beneficial
ownership percentages gives effect to the completion of the Share
Exchange, and are calculated based on 45,261,000 shares of Common Stock
issued and outstanding as of July 1, 2010. Beneficial ownership
is determined in accordance with Rule 13d-3 of the Exchange Act. The
number of shares beneficially owned by a person includes shares of Common
Stock underlying options or warrants held by that person that are
currently exercisable or exercisable within 60 days of July 1,
2010. The shares issuable pursuant to the exercise of those
options or warrants are deemed outstanding for computing the percentage
ownership of the person holding those options and warrants but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. The persons and entities named in the table have sole
voting and sole investment power with respect to the shares set forth
opposite that person’s name, subject to community property laws, where
applicable, unless otherwise noted in the applicable
footnote.
|
(2)
|
Includes
30,000,000 shares owned by Atlantis Group HF (“Atlantis”) of which Mr.
Steindorsson may be deemed to be the beneficial owner in his capacity as
Chief Executive Officer of that entity. Mr. Steindorsson
disclaims beneficial ownership in the shares owned by
Atlantis. In addition, includes 400,000 shares and 80,000
shares issuable upon exercise of warrants held by Aur Capital Inc. of
which Mr. Steindorsson may be deemed a control person. It
further includes 3,200,000 shares and 640,000 shares issuable upon
the exercise of warrants held by Aurora Investments Ltd. of which Mr.
Steindorsson may be deemed a control person. Also includes
133,333 shares issuable upon currently exercisable
options. Does not include 666,667 shares issuable upon exercise
of unvested options.
|
(3)
|
Includes
30,000,000 shares owned by Atlantis of which Mr. Gault may be deemed to be
the beneficial owner in his capacity as Chairman of that
entity. Mr. Gault disclaims beneficial ownership in the shares
owned by Atlantis.
|
(4)
|
Consists
of shares issuable upon exercise of currently exercisable
options. Does not include 250,000 shares issuable upon exercise
of unvested options.
|
-24-
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive
Officers and Directors
Below are
the names and certain information regarding the Company’s executive officers and
directors. Officers are appointed annually by the Company’s board of directors
(the “Board”). Each of the following officers and directors were appointed on
June 30, 2010.
Name
|
Age
|
Position
|
||
Oli
Valur Steindorsson
|
36
|
Chairman, President and Chief Executive Officer
|
||
Daniel Zang
|
56
|
Chief Financial Officer and Secretary
|
||
Frederick Charles Kempson
|
67
|
Director
|
||
Michael David Gault
|
43
|
Director
|
Oli Steindorsson has been a
director of Kali Tuna since 2005. Since 2004, he has been the Chief
Executive Officer of Atlantis Group, a seafood trading company. In
addition, he has been a director and executive officer in the following
entities: Atlantis Chile: 2004 – 2007 (holding company for salmon
farming company divested in 2006, subsidiary closed 2007); Atlantis Miami: 2004
– 2007 (seafood trading company, divested in 2007); Atlantis Japan: 2006 –
current (seafood sales company); Atlantis Resources Australia: 2004 –
current (seafood trading, holding company); Coral Sea Fishing PTY
ltd: 2007 – current (seafood processor, patent holder); KT doo Finance PTY ltd:
2004 – current (holding company); Havtorsk Sales AS; 2004 – current (seafood
export company, cod farming); Kali Tuna Doo; 2006 – current (seafood export,
tuna and pelagic fisheries, tuna farming); Baja Aquafarms SA de CV: 2004 - 2006
(seafood export, tuna farming, vessel operations). He has also been
involved in the following real estate activities: Phoenix Investments ltd
(Iceland) 2004 – 2006 (developed several commercial and residential
properties in Iceland, sold out April 2006); Phoenix Real Estate AS (Norway)
2004 - current (small scale real estate); Atlito PTY
Ltd (Australia) 2004 – current (small scale real estate, assets sold
out 2007, 2008); Valkyrie Investments Pty Ltd (Australia) 2004 – current,
Adiantum (Lithuania) 2008 – current (developing several commercial and
residential land plots); Aurora Investments 2006 – current (holding company for
shares in Atlantis Group, various financing activities to Atlantis
Group). Mr. Steindorsson attended the University of Iceland where he earned
a B.Sc. degree in Business Administration in 1998.
Daniel G. Zang became Chief
Financial Officer at the completion of the Share Exchange. He had
been a consultant to Kali Tuna since January 2010. Prior to joining us, he
served as Controller and Treasurer since October 2007 and Controller since
June 2007 of General Moly, Inc. Mr. Zang served as Chief Financial
Officer of Hubble Homes from June 2004 to April 2007.
Mr. Zang also served in various accounting positions for PeopleSoft/J.D.
Edwards from June 1996 to June 2004. Mr. Zang has over 30
years experience in Accounting, Auditing and Finance. Mr. Zang was
also employed by M.D.C. Holdings, Inc., Cyprus Minerals Company, Price
Waterhouse and Fox & Company. He holds a Bachelor of Science
in Accountancy and he is a certified public accountant in the state of
Colorado.
Frederick Charles Kempson has
been a Managing Director of Kempson Capital Pty Ltd., a business consulting firm
based in Sydney, Australia, since December 2001. He has also been the
Chairman of Millhouse IAG Ltd, a financial services firm based in Brisbane,
Australia, since July 2004. In addition, he has been the Chairman of
Simple Trade Pty Limited, an internet service provider based in Sydney,
Australia, since January 2008. He is also a member of the board of
directors of the following entities: Southland Advisory Services Pty Ltd,
Willowbreeze Pty Limited, Wine Capital Pty Limited, TH Capital Pty Limited, Aqua
Foods Resources Limited, Eng Steel Pty Ltd. and KT Doo Finance Pty
Ltd. Mr. Kempson holds a Bachelor of Commerce from the University of
New South Wales.
Michael David Gault is one of
the co-founders of Atlantis Group and has been the Chairman of that entity since
2006. Since August 2008, he has been the Chief Executive Officer of
Guardtime Ltd., a software company maintaining an infrastructure which allows
electronic data to be used as evidence in court. He was a Managing
Director at Barclays Capital from April 2005 until August 2008 where he
was responsible for developing financial products for the Japanese market.
From 1997 until 2005 he was a director at Credit Suisse. Mr.Gault
brings over 20 years diverse experience including stints in the military,
academia, engineering and financial derivatives. He received a PhD in
Electronic Engineering from the University of Wales.
-25-
Employment
Agreements
Effective
as of the closing date of the Share Exchange, the Company has entered into
three-year employment agreements with Oli Valur Steindorsson, the Company’s
President and Chief Executive Officer, and Dan Zang, the Company’s Chief
Financial Officer.
The term
of each employment agreement will automatically be renewed for successive
one-year terms unless either the Company or the employee provides, at least 90
days before the expiration day of the agreement, written notice to the other
party that the agreement will not be renewed.
Mr.
Steindorsson’s annual base salary is fixed at $250,000 and Mr Zang’s is fixed at
$179,000 which, in Mr. Zang’s case, includes a $9,000 allowance for health
insurance until such time that the Company offers its own health plan to its
employees. Annual reviews of both the base salary and bonuses, if any, are made
at the Board’s discretion. Mr. Steindorsson and Mr. Zang were also
granted five-year options to purchase 800,000 shares and 300,000 shares,
respectively, exercisable at $1.00 per share.
Each
agreement includes standard termination provisions that cover both “for cause”
and “without cause” termination circumstances. In addition, each
agreement provides that in the event of termination as a result of a change of
control (as defined in the agreement), the Company will be required to pay the
employee two times his annual salary in addition to fulfilling its obligations
under the agreement.
Mr.
Steindorsson’s agreement provides that he will spend no less than 80% of his
time working for the Company.
Compensation
of Directors
It is
anticipated that each non-executive director will be granted five-year
options to purchase 500,000 shares of common stock at $1.00 per
share. One sixth of the options vest immediately, with an additional
one sixth vesting on the first anniversary of the date of grant. One
third of the options will vest on the second anniversary and the balance
vest on the third anniversary. Non-executive directors do not
currently receive any other fees for their service on the Board. The
Company reimburses the non-management directors for reasonable travel
expenses to attend Board meetings. It is anticipated that the Company
will establish a compensation plan for non-executive directors. Such
plan may include both a cash and equity component.
Stock
Option Plan
The
Company does not currently have a option plan. However, it is expected that the
Board will adopt a stock option plan that will provide for the issuance of
up to 5,000,000 shares of common stock (the “Plan”). Assuming that
the Plan is ratified by the Company’s shareholders in accordance with applicable
law, it is anticipated that under the Plan, options may be granted which are
intended to qualify as Incentive Stock Options under Section 422 of the Internal
Revenue Code of 1986 or which are not intended to qualify as Incentive Stock
Options thereunder.
The
primary purpose of the Plan is to attract and retain the best available
personnel for the Company in order to promote the success of the Company’s
business and to facilitate the ownership of the Company’s stock by
employees. In the event that the Plan is not ratified by
shareholders, the Company may have considerable difficulty in attracting and
retaining qualified personnel, officers, directors and consultants.
-26-
Certain
Relationships and Related Transactions
Call
Option Agreement
Contemporaneously
with the completion of the Share Exchange, the Company entered into a call
option agreement that grants the Company, until December 1, 2010, the right to
purchase from Atlantis the following assets at the prices set forth
below:
Asset
|
Option Exercise Price
|
|||
The
patent and the U.S. ownership rights to Freshtec, a method to treat food,
fish and meat to improve storage durability of the food being
treated. The patent application is pending and is expected to
be issued within the next 4 months.
|
$ | 2,300,000 | ||
Farming
Concession for up to 1,000 tons stocking rights for for striped
sea bass, yellow tail tuna and king fish with necessary farming
equipments, at Todos Santos, Mexico.
|
$ | 1,500,000 | ||
Factory
equipment for food processing, packaging and processing using the Freshtec
method.
|
$ | 1,500,000 | ||
The
entire share capital in Havetorsk AS, Mausund, Norge, a Norwegian cod
farming company.
|
$ | 7,000,000 |
The
options are exercisable at the Company’s sole discretion and may be exercised as
to each individual asset or all of the listed assets on a combined
basis.
Sales
Agency Agreement
Contemporaneously
with the completion of the Share Exchange, the Company entered into a sales
agency agreement with Atlantis. Under the terms of the agreement,
Atlantis will be granted the exclusive right to sell, on the Company’s behalf,
all of its Northern Bluefin Tuna products into the Japanese market. As a result,
the agreement requires the Company to make all sales into Japan through
Atlantis. Because of Atlantis’s agreement with Daito Gyouri of Japan,
the Daito Agreement, the Company believes that it will realize significant sales
volume as a result of the sales agency agreement.
The
Company will pay to Atlantis a commission of 2% of all net sale proceeds under
the agreement. The agreement may be terminated at any time by either
party upon six months prior notice. In addition, it may be terminated
immediately by the Company if Atlantis defaults in its obligations under the
agreement following a 21-day notice and cure period.
Oli Valur
Steindorsson, the Company’s President and Chief Executive Officer, and Michael
David Gault, a director of the Company, are shareholders and executive officers
of Atlantis.
As of
June 30, 2010, parties related to Atlantis, our principal shareholder, have
advanced approximately $4,900,000 in payment of the purchase price of an
anticipated corporate acquisition by us. We are continuing to negotiate
with this target. It is expected that any funds advanced will be repaid by
us following the completion of the acquisition. No assurance can be
provided at this time that the acquisition will be completed. In case the
transaction is not completed, the target company has agreed to repay to the
Atlantis affiliate all advances.
Items 1.01 and 2.01, above, are responsive
to this Item 3.02 and are incorporated herein by reference.
Item
5.01 Changes in Control of Registrant.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
As a
result of the Share Exchange described under Item 1.01, the Company’s fiscal
year end is being changed from February 28 to Kali Tuna’s fiscal year
end, June 30. Because of the Company’s status as a shell company
prior to the completion of the Share Exchange, Kali Tuna is deemed to be the
surviving entity for accounting purposes.
Section
5.06 Change in Shell Company Status.
As a
result of the Share Exchange, the Company has ceased to be a shell company as
such term is defined in Rule 12b-2 promulgated under the Securities Exchange Act
of 1934, as amended.
-27-
Attached
hereto
(b) Pro
forma financial information.
Not
applicable.
Exhibit
Number
|
Description
|
|
2.1
|
Share
Exchange Agreement (1)
|
|
4.1
|
Form
of Common Stock Warrant
|
|
10.1
|
Employment
Agreement dated July 1, 2010 with Oli Valur
Steindorsson
|
|
10.2
|
Employment
Agreement dated July 1 2010 with Dan Zang
|
|
10.3
|
Sales
Agency Agreement dated June 30, 2010 with Atlantis Group
hf
|
|
10.4
|
Call
Option Agreement dated June 30, 2010 with Atlantis Group
hf
|
|
(1)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed May 3,
2010.
|
-28-
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
LIONS
GATE LIGHTING CORP.
|
|||
July7,
2010
|
By:
|
/s/ Daniel
G. Zang
|
|
Chief
Financial Officer
|
-29-
Kali Tuna d.o.o.
Consolidated
Financial Statements
as
of and for the years ended
June
30, 2009 and 2008
Table
of Contents
|
|||
Report
of Independent Registered Public Accounting Firm
|
3 | ||
Consolidated
Statements of Operations
|
4 | ||
Consolidated
Balance Sheets
|
5 | ||
Consolidated
Statements of Changes in Equity
|
6 | ||
Consolidated
Statements of Cash Flows
|
7 | ||
Notes
to the Financial Statements
|
8-16 |
2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members of Kali Tuna d.o.o.
Kali,
Croatia
We have
audited the accompanying consolidated balance sheets of Kali Tuna d.o.o.
(Company) as of June 30, 2009 and 2008 and the related consolidated statements
of operations, changes in equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). 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 Kali Tuna
d.o.o. as of June 30, 2009 and 2008, and the results of its operations and cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
RAMIREZ
INTERNATIONAL
Financial
& Accounting Services, Inc
Irvine,
California
December
17, 2009
3
Consolidated
Statements of Operations
for
the years ended June 30, 2009 and 2008 (in thousands of USD)
2009
|
2008
|
|||||||
Net
revenue
|
24,070 | 11,665 | ||||||
Cost
of tuna sold
|
(17,380 | ) | (10,099 | ) | ||||
Gross
profit
|
6,690 | 1,566 | ||||||
Other
operating income
|
619 | 512 | ||||||
Administrative
and general expenses
|
(1,475 | ) | (1,634 | ) | ||||
Operating
profit
|
5,834 | 444 | ||||||
Investment
income
|
62 | 555 | ||||||
Gain
(loss) from foreign currency transactions
|
(3,176 | ) | 470 | |||||
Interest
expense
|
(710 | ) | (512 | ) | ||||
Profit
before taxes
|
2,010 | 957 | ||||||
Income
tax expense
|
(510 | ) | (163 | ) | ||||
Minority
interest
|
(169 | ) | (339 | ) | ||||
Net
income
|
1,331 | 455 |
The notes
on pages 8 to 16 are an integral part of these Consolidated Financial
Statements
4
Consolidated
Balance Sheets
June
30, 2009 and 2008 (in thousands of USD)
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Inventories
|
20,324 | 19,431 | ||||||
Trade
accounts receivable
|
238 | 62 | ||||||
Accounts
receivable from related parties
|
0 | 264 | ||||||
Other
current assets
|
1,374 | 1,361 | ||||||
Cash
and cash equivalents
|
1,421 | 3,020 | ||||||
Total
current assets
|
23,357 | 24,138 | ||||||
Non-current
assets
|
||||||||
Property
and equipment, net
|
8,561 | 9,200 | ||||||
Other
assets
|
18 | 27 | ||||||
Total
Assets
|
31,936 | 33,365 | ||||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities
|
||||||||
Trade
accounts payable
|
2,918 | 1,614 | ||||||
Accounts
payable to related parties
|
4,900 | 4,004 | ||||||
Borrowings
|
12,076 | 6,574 | ||||||
Loan
from shareholder
|
560 | 0 | ||||||
Liability
for advance received
|
0 | 9,192 | ||||||
Income
taxes payable
|
483 | 121 | ||||||
Deferred
income tax liabilities
|
201 | 181 | ||||||
Other
current liabilities
|
642 | 852 | ||||||
Total
current liabilities
|
21,780 | 22,538 | ||||||
Non-current
liabilities
|
||||||||
Loan
from shareholder
|
0 | 669 | ||||||
Obligation
under capital lease
|
19 | 31 | ||||||
Total
Liabilities
|
21,801 | 23,238 | ||||||
Minority
interest
|
3 | 257 | ||||||
Commitments
and contingencies
|
||||||||
Stockholder's
equity
|
||||||||
Capital
|
4 | 4 | ||||||
Retained
earnings
|
7,073 | 4,943 | ||||||
Negative
equity of VIE
|
(909 | ) | (100 | ) | ||||
Accumulated
currency translation adjustments
|
3,966 | 5,023 | ||||||
Total
stockholder's equity
|
10,134 | 9,870 | ||||||
Total
liabilities and stockholder's equity
|
31,936 | 33,365 |
The notes
on pages 8 to 16 are an integral part of these Consolidated Financial
Statements
5
Consolidated
Statements of Changes in Equity for the years ended June 30, 2009 and 2008 (in
thousands of USD)
Accumulated
|
||||||||||||||||||||
Currency
|
||||||||||||||||||||
Retained
|
Negative
|
Translation
|
Total
|
|||||||||||||||||
Capital
|
earnings
|
equity
of VIE
|
Adjustments
|
equity
|
||||||||||||||||
Equity
July 1, 2007
|
4 | 11,076 | (634 | ) | 2,653 | 13,099 | ||||||||||||||
Dividends
paid
|
(6,054 | ) | (6,054 | ) | ||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||
Net
income (loss)
|
(79 | ) | 534 | 455 | ||||||||||||||||
Translation
adjustments
|
2,370 | 2,370 | ||||||||||||||||||
Total
comprehensive income
|
2,825 | |||||||||||||||||||
Equity
June 30, 2008
|
4 | 4,943 | (100 | ) | 5,023 | 9,870 | ||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||
Net
income (loss)
|
2,130 | (799 | ) | 1,331 | ||||||||||||||||
Translation
adjustments
|
(10 | ) | (1,057 | ) | (1,067 | ) | ||||||||||||||
Total
comprehensive income
|
264 | |||||||||||||||||||
Equity
June 30, 2009
|
4 | 7,073 | (909 | ) | 3,966 | 10,134 |
The notes
on pages 8 to 16 are an integral part of these Consolidated Financial
Statements
6
Consolidated
Statements of Cash Flows
for
the years ended June 30, 2009 and 2008 (in thousands of USD)
2009
|
2008
|
|||||||
Operating
activities
|
||||||||
Net
income
|
1,331 | 455 | ||||||
Adjustments
to reconcile to net cash used in operating activities:
|
||||||||
Minority
interest
|
169 | 339 | ||||||
Depreciation
and amortization
|
959 | 1,078 | ||||||
Deferred
income tax
|
40 | (65 | ) | |||||
Changes
in assets and liabilities:
|
||||||||
Inventories
|
(3,007 | ) | (2,836 | ) | ||||
Accounts
receivable
|
50 | 5,191 | ||||||
Other
current assets
|
57 | (645 | ) | |||||
Accounts
payable
|
(6,368 | ) | (5,250 | ) | ||||
Income
taxes payable
|
228 | (290 | ) | |||||
Other
current liabilities
|
1,047 | 410 | ||||||
Net
cash used in operating activities
|
(5,494 | ) | (1,613 | ) | ||||
Investing
activities
|
||||||||
Purchases
of fixed assets
|
(1,561 | ) | (311 | ) | ||||
Proceeds
from sale of equipment
|
95 | 0 | ||||||
Short
term financial investments
|
0 | 119 | ||||||
Net
cash used in investing activities
|
(1,466 | ) | (192 | ) | ||||
Financing
activities
|
||||||||
Dividends
paid
|
(220 | ) | (7,457 | ) | ||||
Repayments
of long-term liabilities
|
(9 | ) | (8 | ) | ||||
Repayments
of shareholder loans
|
(33 | ) | (25 | ) | ||||
Repayments
of borrowings
|
(5,000 | ) | (16,781 | ) | ||||
Escrow
deposit in connection with letter of credit
|
(83 | ) | 0 | |||||
New
borrowings
|
11,080 | 19,845 | ||||||
Advance
received
|
0 | 9,212 | ||||||
Net
cash provided by financing activities
|
5,736 | 4,786 | ||||||
Subtotal
|
(1,224 | ) | 2,981 | |||||
Effects
of exchange rate changes on the balance of cash held in foreign
currencies
|
(375 | ) | (24 | ) | ||||
Cash
and cash equivalents at beginning of year
|
3,020 | 63 | ||||||
Cash
and cash equivalents at end of year
|
1,421 | 3,020 | ||||||
Supplemental
Cash Flow Information
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
610 | 427 | ||||||
Income
taxes
|
314 | 1,104 |
The notes
on pages 8 to 16 are an integral part of these Consolidated Financial
Statements
7
|
Notes
to the Financial
Statements
|
1.
|
General
information
|
Kali Tuna
d.o.o. (Company or KT) is incorporated as a limited liability company and
operates in the Republic of Croatia. The Company´s core business activity is
farming and selling bluefin tuna. The Company farms two different types of
bluefin tuna: Mediterranean tuna and Adriatic tuna. The production is seasonal
as tuna is caught mostly during May and June. Mediterranean tuna has an average
farming period of six months and Adriatic tuna requires a farming period between
1.5 years and 3 years.
2.
|
Significant
accounting policies
|
Basis
of presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP). Items included have been measured in Croatian Kunas, Kali Tuna's
functional currency, and the financial statements have been translated into
United States dollars (USD), which is the presentational currency of the
Company.
All
amounts are stated in thousands of USD, unless indicated otherwise.
Transactions
in foreign currencies are initially recorded at the rates of exchange prevailing
on the dates of the transactions. Assets and liabilities are translated at the
rates prevailing on each balance sheet date. Revenue and expenses are translated
at average exchange rates in effect during the period. The results of
transaction gains and losses are reflected in the Statements of Operations.
Equity is translated at historical rates and the resulting translation
adjustments are reflected as accumulated other comprehensive
income.
Accounting
estimates
The
preparation of financial statements in conformity with US GAAP requires that
management 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 may differ from those
estimates.
Management
exercises significant judgment in estimating both the quantities and the fair
value of tuna inventories.
Basis
of consolidation
The
Company has had relationships, through common control and various business
transactions (renting of ships, buying and farming of live tuna) with two
companies, Kali Tuna Trgovina d.o.o. (KTT) and MB Lubin d.o.o. (Lubin). Lubin is
owned by Mr. Dino Vidov, a manager for Kali Tuna; however, it is controlled by
the Company's ultimate parent, Atlantis Group hf.
The
Company owns a 50% interest in KTT. The remaining 50% interest in KTT is owned
by Bluefin Tuna Hellas (BTH). In accordance with its joint venture agreement
with BTH, the Company has historically sold tuna inventory to KTT at its cost,
and KTT in turn has sold the tuna to unrelated third parties. However, as a
result of the tax contingency matter described in Note 17, the Company and BTH
modified their joint venture agreement during the year ended June 30, 2009 so
that the joint venture activity is conducted entirely within Kali Tuna rather
than through KTT. As more fully described in Notes 6 and 16, BTH continued to
provide financing for the joint venture activities and participate in the
profits derived there from. The BTH share of profits from the joint venture has
been reflected as minority interest in these consolidated financial
statements.
The
fiscal year of KTT is from May 1 to April 30. Its operations are mostly in July
to January each year. Therefore, the difference in fiscal year has no material
effects on the results reported in the consolidated financial
statements.
Based
upon the guidance of FASB interpretation No. 46 “Consolidation of Variable
Interest Entities” (FIN No. 46R) the Company has determined that KTT and Lubin
are variable interest entities of which the Company is the primary beneficiary.
These companies are therefore consolidated in Kali Tuna's financial
statements.
All
material inter-company transactions and balances have been eliminated in
consolidation.
8
|
Notes
to the Financial Statements
|
2.
|
Significant
accounting policies (continued)
|
Risk
management
The
Company is exposed to financial risks arising from changes in tuna prices. The
Company does not anticipate that tuna prices will decline significantly in the
foreseeable future and, therefore, has not entered into derivative or other
contracts to manage the risk of a decline in tuna prices. The Company reviews
its outlook for tuna prices regularly in considering the need for active
financial risk management.
Revenue
recognition
Revenue
is recognized when tuna inventory is delivered and the Company has transferred
to the buyer the significant risks and rewards of ownership. Revenue is
presented net of value added taxes collected.
Fair
value of financial instruments
The
carrying value of the Company‘s accounts receivable, advances, short term
borrowings and accounts payable approximates fair value because of the
short-term maturity of these instruments. The Company does not hold any
financial instrument for trading purposes.
Leases
Leases
are classified as capital leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases. Assets held under capital leases are
recognized as assets of the Company at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease payments. The
corresponding liabilities are included in the balance sheet as obligations under
capital lease.
Long
lived assets
The
Company reviews its long-lived assets for possible impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its eventual disposition
are less than its carrying amount. The Company has identified no such impairment
losses as of June 30, 2009.
Income
taxes
Deferred
income taxes are provided under the liability method and reflect the net tax
effects of temporary differences between the tax bases of assets and liabilities
and their reported amounts in the consolidated financial statements, using the
enacted tax rates expected to be in effect when those differences reverse. The
Company establishes valuation allowances when the realization of specific
deferred tax assets is subject to uncertainty.
Property
and equipment
Property
and equipment are stated at cost and depreciated over the estimated useful lives
of the related assets, which generally range from 2 to 50 years, using the
straight line method. Maintenance and repairs, which do not extend asset lives,
are expensed as incurred. The gain or loss arising on the disposal or retirement
of an item of property and equipment is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in profit
or loss.
Inventories
Inventories
consist primarily of live tuna stock that the Company farms until the tuna
reaches desirable market size. Management systematically monitors the size,
growth and growth rate of the tuna to estimate the quantity at each balance
sheet date. Live stock inventories are stated at the lower of cost or market
value using the average cost method. Inventories of fish feed and supplies are
stated at the lower of cost or market, using the average cost
method.
Management
periodically reviews inventory balances and purchase commitments to estimate if
inventories will be sold at amounts (net of estimated selling costs) less than
carrying value. If expected net realizable value is less than carrying value,
the Company adjusts its inventory balances through a charge to cost of tuna
sold.
9
|
Notes
to the Financial Statements
|
2.
|
Significant
accounting policies (continued)
|
Trade
accounts receivable
Trade
accounts receivable represents the balance owed to the Company by its customers
in connection with sales transactions. An allowance for uncollectible accounts
is determined by management based on a review of the Company’s accounts, with
consideration of historical losses, industry circumstances and general economic
conditions. Accounts are charged against the allowance when all attempts to
collect have failed.
Cash
and cash equivalents
For
purposes of the statements of cash flows, the Company considers all highly
liquid cash investments that mature in three months or less when purchased, to
be cash equivalents. The Company’s bank deposits are generally not covered by
deposit insurance.
Reclassifications
Certain
items in the 2008 financial statement have been reclassified to conform with the
2009 presentation, with no effects on the previously reported net loss or
equity.
3.
|
Significant
concentrations
|
Sales of
tuna to two customers in Japan accounted for approximately 99% and 97% of the
Company's net revenue for the years ended June 30, 2009 and 2008,
respectively.
4.
|
Income
taxes
|
Income
tax expense for the years ended June 30, 2009 and 2008 is comprised as
follows:
2009
|
2008
|
|||||||
Current
expense
|
(470 | ) | (228 | ) | ||||
Deferred
benefit (expense)
|
(40 | ) | 65 | |||||
(510 | ) | (163 | ) |
The
variations between the calculated effective tax rates of 25.4% and 17% for the
years ended June 30, 2009 and 2008 and the statutory tax rate of 20% are
primarily attributable to tax benefits of MB Lubin’s loss carry forward that
were fully offset by a valuation allowance in 2009, and the previously
unrecognized benefits of MB Lubin’s loss carry forwards that were utilized in
2008.
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that includes the
enactment date. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized.
Deferred
tax liabilities and assets have been recognized as of June 30, 2009 and 2008 in
the following amounts based upon the indicated temporary
differences:
2009
|
2008
|
|||||||
Inventories
|
210 | 300 | ||||||
Tax
loss carry forwards
|
0 | (92 | ) | |||||
Other
items
|
(9 | ) | (27 | ) | ||||
201 | 181 |
At June
30, 2009, MB Lubin has tax loss carry forwards available for offset against
future profits as follows:
Available
through June 30, 2014
|
855 | |||
855 |
10
|
Notes
to the Financial Statements
|
5.
|
Property
and equipment
|
The
Company´s property and equipment as of June 30, 2009 and 2008 were as
follows:
2009
|
2008
|
|||||||
Cost:
|
||||||||
Buildings
|
3,301 | 3,720 | ||||||
Vessels
|
7,292 | 8,178 | ||||||
Machinery
and equipment
|
7,480 | 7,215 | ||||||
Fixtures
and office equipment
|
121 | 119 | ||||||
18,194 | 19,232 | |||||||
Less
accumulated depreciation:
|
||||||||
Buildings
|
893 | 838 | ||||||
Vessels
|
3,972 | 4,040 | ||||||
Machinery
and equipment
|
4,694 | 5,090 | ||||||
Fixtures
and office equipment
|
74 | 65 | ||||||
9,633 | 10,032 | |||||||
Property
and equipment, net
|
8,561 | 9,200 |
6.
|
Variable
interest entities
|
The
company has determined that it and its affiliates provided the majority of
financial support to Lubin and KTT through various sources including the
purchase and sale of inventory, rental income and unsecured loans. In addition,
the company is a co-signatory of a Finance Agreement based on the bill of
exchange concluded between Erste Factoring d.o.o. and Lubin as guarantor for
repayment of Lubin´s liabilities to Erste Factoring d.o.o. in the amount of HRK
3.4 million (USD 655).
Financial
support provided by the Company and its affiliates to Lubin and KTT for the
years ended June 30, 2009 and 2008 follows:
Lubin
|
KTT
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Rental
income and sale of inventory
|
1,860 | 3,002 | 0 | 0 | ||||||||||||
Purchase
of inventory
|
26 | 92 | 0 | 10,854 | ||||||||||||
Unsecured
loans
|
5,597 | 4,427 | 61 | 3 |
Selected
information from the balance sheets of Lubin and KTT as of June 30, 2009 and
2008, and the results of operations for the years then ended
follow:
Lubin
|
KTT
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Total
assets
|
5,835 | 6,170 | 67 | 518 | ||||||||||||
Total
liabilities
|
6,744 | 6,270 | 62 | 3 | ||||||||||||
Stockholders’
equity
|
(909 | ) | (100 | ) | 5 | 514 | ||||||||||
Net
sales
|
1,623 | 2,949 | 0 | 1,113 | ||||||||||||
Net
income (loss)
|
(799 | ) | 637 | 1 | 472 |
11
|
Notes
to the Financial Statements
|
6.
|
Variable
interest entities (continued)
|
As
described in Note 2, the BTH joint venture activities previously conducted
through KTT were conducted within the Company during the year ended June 30,
2009. BTH provided financing for these activities, as described in Note 16, and
its 50% share in the profits generated has been reflected as minority interest
within these consolidated financial statements. Selected balance sheet
information related to these activities as of June 30, 2009, and the results of
its operations for the year then ended were as follows:
Total
assets
|
1,985 | |||
Total
liabilities
|
1,341 | |||
Venturers'
equity
|
644 | |||
Net
sales
|
3,844 | |||
Net
income
|
336 |
7.
|
Inventories
|
Inventories
are comprised as follows as of June 30, 2009 and 2008:
2009
|
2008
|
|||||||
Live
stock inventories:
|
||||||||
Adriatic
tuna
|
||||||||
0-30
kg.
|
10,587 | 5,862 | ||||||
30-60
kg.
|
5,953 | 13,048 | ||||||
Mediterranean
tuna + 60kg.
|
2,128 | 0 | ||||||
18,668 | 18,910 | |||||||
Fish
feed and supplies
|
1,656 | 521 | ||||||
Total
inventories
|
20,324 | 19,431 |
Inventories
are stated at the lower of cost and net realizable value. Cost is calculated on
a weighted average basis and includes all costs to acquire and to bring the
inventories to their present location and condition. Tuna weighing less than
30kg is stated at cost, as international regulations prohibit the sales of tuna
under 30kg. The Company evaluates the net realizable value of its
inventories on a regular basis and records a provision for loss to reduce
the computed weighted average cost if it exceeds the net realizable
value.
The fair
value of live tuna stock inventories at June 30, 2009 and June 30, 2008 is
estimated at 22,152 and 21,166, respectively. Live tuna stock weighing 30kg or
more is traded in Japan, with observable market prices that are based on the
price that an unrelated third party is willing to pay for the inventory.
As there is no market for tuna less than 30kg, the fair value for this category
is estimated to equal its cost.
8.
|
Other
current assets
|
The
company´s other current assets as of June 30, 2009 and 2008 were comprised as
follows:
2009
|
2008
|
|||||||
Refundable
value added tax
|
736 | 675 | ||||||
Prepaid
expenses
|
282 | 9 | ||||||
Refundable
income taxes
|
141 | 636 | ||||||
Deposits
at Erste & Steiermaerkische bank
|
0 | 22 | ||||||
Escrow
balance related to letter of credit
|
85 | 0 | ||||||
Other
receivables
|
130 | 19 | ||||||
1,374 | 1,361 |
12
|
Notes
to the Financial Statements
|
9.
|
Cash
and cash equivalents
|
The
Company´s cash and cash equivalents as of June 30, 2009 and 2008 were comprised
as follows:
2009
|
2008
|
|||||||
Domestic
account balance
|
566 | 2,929 | ||||||
Foreign
currency account balance
|
842 | 78 | ||||||
Cash
on hand
|
13 | 13 | ||||||
1,421 | 3,020 |
10.
|
Equity
|
The
subscribed capital of the Company consists of four unequal stakes, all owned by
KT DOO Finance Pty, Ltd. Australia (KTT DOO). Due to the unequal ownership
stakes, calculations of earnings per share are not meaningful, and therefore not
presented.
11.
|
Obligation
under capital lease
|
The
Company leases equipment under an arrangement classified as a capital lease, and
had the following obligations as of June 30, 2009 and 2008:
2009
|
2008
|
|||||||
Total
obligation under capital lease
|
28 | 40 | ||||||
Current
maturities
|
(9 | ) | (9 | ) | ||||
Non-current
obligation
|
19 | 31 | ||||||
Aggregated
annual maturities under capital lease as of June 30, 2009 were as
follows:
|
||||||||
Year
ending June 30, 2010
|
10 | |||||||
Year
ending June 30, 2011
|
11 | |||||||
Year
ending June 30, 2012
|
11 | |||||||
32 | ||||||||
Less
interest
|
(4 | ) | ||||||
Total
obligation under capital lease
|
28 |
12.
|
Trade
accounts payable
|
2009
|
2008
|
|||||||
Domestic
trade payables
|
1,367 | 838 | ||||||
Foreign
trade payables
|
1,551 | 776 | ||||||
2,918 | 1,614 |
13
|
Notes
to the Financial Statements
|
13.
|
Borrowings
|
The
Company's borrowings as of June 30, 2009 and 2008 were comprised as
follows:
Facility
|
Interest rate
|
2009
|
2008
|
||||||||
Erste&Steiermaerkische
bank d.d.
|
HRK
29,240,000
|
5%
|
3,705 | 6,348 | |||||||
Erste&Steiermaerkische
bank d.d.
|
HRK
30,000,000
|
5%
|
5,777 | 216 | |||||||
Erste&Steiermaerkische
bank d.d.
|
EUR
1,375,000
|
EURIBOR+5.5%
|
1,930 | 0 | |||||||
Erste
Factoring d.o.o.
|
HRK
3,400,000
|
3M
CHF LIBOR
|
655 | 0 | |||||||
+
5.75%
|
|||||||||||
Current
maturities of capital lease obligation
|
9 | 9 | |||||||||
12,076 | 6,574 |
Kali Tuna
has a credit facility with Erste&Steiermaerkische bank. d.d. that consists
of three revolving credit lines amounting to HRK 29,240,000 (USD 6,348), HRK
30,000,000 (USD 6,513) and EUR 1,375,000 (USD 1,931), which mature on September
1, 2009, September 15, 2009, and March 1, 2010, respectively. Lubin´s liability
to Erste Factoring is payable on October 1, 2009.
All of
the Company's fixed assets are pledged to the bank in connection with these
loans.
14.
|
Liability
for advance received
|
Kali Tuna
signed an agreement for sale of 700 tons of Adriatic tuna to one of its
customers at February 27, 2008. An advance payment of JPY 975 million (USD
9,192) was made by the customer, with annual interest of 3.0%. Based on market
prices at the selling date in January 2009, the transaction was completed for an
aggregate value of USD 11,490. In connection with this transaction, the Company
realized a foreign currency exchange loss of USD 2,724 during the year ended
June 30, 2009.
15.
|
Other
current liabilities
|
2009
|
2008
|
|||||||
Income
taxes payable
|
0 | 238 | ||||||
Salaries
and related expenses payable
|
314 | 359 | ||||||
Other
liabilities
|
328 | 255 | ||||||
642 | 852 |
14
|
Notes
to the Financial Statements
|
16.
|
Related
parties
|
Related
parties are those parties which have influence with the Company, directly or
indirectly, either through common ownership or other relationship.
The
Company has no share options or contracts with managers, its employees and other
related parties to the Company. None of the managers, employees or other related
parties holds shares in the Company except for K.T.DOO Finance, which holds 100%
of shares in the Company. There are also no loans to managers, directors or
board members. Board members do not receive payment for their work as board
members.
Related
parties transactions during the years ended June 30, 2009 and 2008 were as
follows:
2009
|
||||||||
Purchases
of
|
Sales
of
|
|||||||
goods/services
|
goods/services
|
|||||||
Bluefin
Tuna Hellas, co owner of Kali Tuna Trgovina
|
0 | 93 |
2008
|
||||||||
Purchases
of
|
Sales
of
|
|||||||
goods/services
|
goods/services
|
|||||||
Bluefin
Tuna Hellas, co owner of Kali Tuna Trgovina
|
265 | 44 | ||||||
Atlantis,
parent company of K.T. DOO Finance
|
319 | 0 | ||||||
K.T.
DOO Finance
|
0 | 191 | ||||||
584 | 235 |
Related
party balances as of June 30, 2009 and 2008 were as follows:
2009
|
2008
|
|||||||
Accounts
receivable from related parties – Bluefin Tuna Hellas
|
0 | 264 | ||||||
Accounts
payable to related parties:
|
||||||||
Bluefin
Tuna Hellas
|
1,341 | 242 | ||||||
K.T.
DOO Finance
|
3,552 | 3,762 | ||||||
Atlantis,
parent company of K.T. DOO Finance
|
7 | 0 | ||||||
4,900 | 4,004 |
Principal
|
Interest rate
|
||||||||||
KT
DOO Finance Pty. Ltd, Australia
|
AUD
696,000
|
interest
free
|
560 | 669 |
The note
payable to KT DOO is scheduled for repayment on December 24, 2009.
15
|
Notes
to the Financial Statements
|
17.
|
Commitments
and contingencies
|
Tax
contingency
During
June 2008, the Financial Police of Ministry of Finance of the Republic of
Croatia (FP) concluded an inspection of certain of the Company’s transactions
and alleged the following underpayments of taxes and related
interest:
Underpayment
of value added taxes for calendar year 2006 and related interest, which total
approximately 1.45 million USD, in connection with sales of tuna inventory by
the Company to its 50%-owned subsidiary, Kali Tuna Trgovina, at its purchase
cost.
Underpayment
of tax on profit for the year ended June 30, 2007 and related interest, which
total approximately 135 USD, in connection with sales of tuna inventory by the
Company to Atlantis Resources ehf (an Icelandic subsidiary of Atlantis Group,
which is the Company’s ultimate parent).
Any
underpayments that are ultimately upheld at the conclusion of a permitted appeal
process would also be subject to liability for additional interest penalties. In
addition, the Company could potentially be held liable for similar transactions
in subsequent years; as the applicable amounts of additional taxes and interest
for those periods are dependent upon assessment of the Company´s transactions by
FP, such amounts cannot be reasonably estimated.
The
Company filed an appeal to contest these allegations. In July 2009
the claim was dismissed by the Appellate Body of Ministry of Finance.
Dismissal did not terminate the process, but has obliged the Financial Police to
repeat the performed procedure taking into account all facts and proofs being
proposed and disclosed by KT in their appeal. The new process has not started
yet, but management is confident, based upon the facts and circumstances of the
relevant transactions, that it will ultimately prevail and incur no material
liability. Accordingly, the accompanying consolidated financial statements do
not reflect any adjustments related to this contingency.
Other
matters
As
collateral for payments of its liabilities based on the Concession agreement for
maritime demesne concluded with the County of Zadar, for a period of ten years
through 2018, the Company has given a guarantee to Erste&Steiermarkische
bank d.d., Rijeka number 540147627 dated January 12, 2009 amounting to HRK
707,000 (USD 136) valid until July 31, 2009.
18.
|
Subsequent
event
|
The
Company signed an agreement for the sale of 350 tons of tuna to one of its
customers at October 27, 2009. An advance payment of 5 million USD was made by
the customer. The advance payment bears an annual interest of 6.9%. KT shall
also pay the customer 750 as a fee for the advance payment. The selling price
for the tuna has not been determined; it is to be negotiated no later than March
31, 2010. The agreement also provided the customer a right to purchase 1.82% of
the Company’s equity for 1 million USD; this right is exercisable within a
five-year period; however, in the event that the Company completes a merger
transaction with a publicly traded shell company in the United States, the right
will expire and be replaced by a right to purchase warrants for 1 million shares
of the shell company at $1.00 per share within a three-year period.
Subsequent
events were evaluated through December 17, 2009, the date the financial
statements were available to be issued.
16
Kali
Tuna d.o.o.
Consolidated
Financial Statements
for
the periods ended
March
31, 2010 and 2009
(Unaudited)
Table
of Contents
Consolidated
Statements of Operations (Unaudited)
|
3
|
Consolidated
Balance Sheets (Unaudited)
|
4
|
Consolidated
Statements of Cash Flows (Unaudited)
|
5
|
Notes
to the Financial Statements
|
6 -
13
|
2
Consolidated
Statements of Operations for the periods
ended
March
31, 2010 and 2009 (in thousands of USD)
(Unaudited)
Three
months ended
|
Nine
months ended
|
|||||||||||||||
March
31, 2010
|
March
31, 2009
|
March
31, 2010
|
March
31, 2009
|
|||||||||||||
Net
revenue from tuna sold
|
20,358 | 11,326 | 25,172 | 22,278 | ||||||||||||
Cost
of goods sold
|
(16,868 | ) | (7,824 | ) | (20,529 | ) | (15,420 | ) | ||||||||
Gross
profit
|
3,490 | 3,502 | 4,643 | 6,858 | ||||||||||||
Other
operating income (expenses)
|
31 | 69 | 427 | (24 | ) | |||||||||||
Administrative
and general expenses
|
(401 | ) | (493 | ) | (1,340 | ) | (1,351 | ) | ||||||||
Operating
profit
|
3,120 | 3,078 | 3,730 | 5,483 | ||||||||||||
Interest
income
|
3 | 46 | 3 | 51 | ||||||||||||
Gain
(loss) from foreign currency transactions
|
(1,036 | ) | (492 | ) | (1,353 | ) | (3,021 | ) | ||||||||
Interest
expense
|
(283 | ) | (124 | ) | (796 | ) | (663 | ) | ||||||||
Income
before taxes
|
1,804 | 2,508 | 1,584 | 1,850 | ||||||||||||
Income
tax (expense)
|
(547 | ) | (551 | ) | (568 | ) | (495 | ) | ||||||||
Net
income
|
1,257 | 1,957 | 1,016 | 1,355 | ||||||||||||
Add: Net
losses (income) attributable to the noncontrolling
interests
|
||||||||||||||||
Lubin
|
591 | 467 | 912 | 771 | ||||||||||||
BTH
Joint Venture
|
71 | (221 | ) | 184 | (138 | ) | ||||||||||
Net
income attributable to Kali Tuna d.o.o. shareholder
|
1,919 | 2,203 | 2,112 | 1,988 | ||||||||||||
Other
comprehensive income
|
||||||||||||||||
Foreign
currency translation adjustments
|
(438 | ) | (726 | ) | (373 | ) | (1,773 | ) | ||||||||
Comprehensive
income
|
1,481 | 1,477 | 1,739 | 215 |
The notes on pages 6 to 14 are an
integral part of these Consolidated Financial Statements
3
Consolidated
Balance Sheets
March 31, 2010 and June 30, 2009 (in
thousands of USD)
(Unaudited)
ASSETS
|
March
31, 2010
|
June
30, 2009
|
||||||
Current
assets
|
||||||||
Inventories
|
16,948 | 20,324 | ||||||
Trade
accounts receivable
|
143 | 238 | ||||||
Receivable
from related party for advance received by related party
|
5,897 | - | ||||||
Other
current assets
|
2,816 | 1,374 | ||||||
Cash
and cash equivalents
|
1,079 | 1,421 | ||||||
Total
current assets
|
26,883 | 23,357 | ||||||
Non-current
assets
|
||||||||
Property
and equipment, net
|
9,626 | 8,561 | ||||||
Other
assets
|
13 | 18 | ||||||
Total
assets
|
36,522 | 31,936 | ||||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities
|
||||||||
Trade
accounts payable
|
2,257 | 2,888 | ||||||
Accounts
payable to related parties
|
290 | 3,559 | ||||||
Borrowings
|
13,557 | 12,076 | ||||||
Liability
for advance received by related party
|
5,897 | - | ||||||
Income
taxes payable
|
630 | 483 | ||||||
Deferred
income tax liabilities
|
110 | 201 | ||||||
Loan
from shareholder
|
957 | 560 | ||||||
Other
current liabilities
|
615 | 642 | ||||||
Total
current liabilities
|
24,313 | 20,409 | ||||||
Non-current
liabilities
|
||||||||
Obligations
under capital leases
|
34 | 19 | ||||||
Total
liabilities
|
24,347 | 20,428 | ||||||
Commitments
and contingencies
|
||||||||
Equity
|
||||||||
Kali
Tuna d.o.o. shareholder's equity
|
||||||||
Capital
|
4 | 4 | ||||||
Retained
earnings
|
9,185 | 7,073 | ||||||
Accumulated
currency translation adjustments
|
3,593 | 3,966 | ||||||
Total Kali Tuna d.o.o.
shareholder's equity
|
12,782 | 11,043 | ||||||
Noncontrolling
interest
|
||||||||
Negative
equity of VIE - Lubin
|
(1,748 | ) | (909 | ) | ||||
Noncontrolling
interest in VIE - BTH Joint Venture
|
1,141 | 1,374 | ||||||
Total
noncontrolling interest
|
(607 | ) | 465 | |||||
Total
equity
|
12,175 | 11,508 | ||||||
Total
liabilities and equity
|
36,522 | 31,936 |
The notes on pages 6 to 14 are an
integral part of these Consolidated Financial Statements
4
Consolidated
Statements of Cash Flows for the periods ended March 31, 2010 and
2009
(in thousands of
USD)
(Unaudited)
Nine
months ended
|
||||||||
Operating
activities
|
March
31, 2010
|
March
31, 2009
|
||||||
Net
income attributable to Kali Tuna d.o.o. shareholder
|
2,112 | 1,988 | ||||||
Adjustments
to reconcile to net cash used in operating activities:
|
||||||||
Noncontrolling
interest - Lubin
|
(912 | ) | (771 | ) | ||||
Noncontrolling
interest - BTH Joint Venture
|
(184 | ) | 138 | |||||
Depreciation
and amortization
|
832 | 733 | ||||||
Deferred
tax
|
(61 | ) | 495 | |||||
Inventories
|
2,498 | 4,697 | ||||||
Accounts
receivable
|
92 | (168 | ) | |||||
Accounts
receivable related parties
|
- | 242 | ||||||
Other
current assets
|
(1,447 | ) | 91 | |||||
Accounts
payable
|
(557 | ) | (8,542 | ) | ||||
Income
taxes payable
|
49 | 119 | ||||||
Accounts
payable to related parties
|
(3,164 | ) | (2,352 | ) | ||||
Other
current liabilities
|
(9 | ) | (286 | ) | ||||
Net
cash used in operating activities
|
(751 | ) | (3,616 | ) | ||||
Investing
activities
|
||||||||
Purchases
of fixed assets
|
(2,274 | ) | (1,246 | ) | ||||
Sale
of fixed assets
|
7 | - | ||||||
Short
term financial investments
|
- | (1,237 | ) | |||||
Net
cash used in investing activities
|
(2,267 | ) | (2,483 | ) | ||||
Financing
activities
|
||||||||
Dividends
paid
|
- | (183 | ) | |||||
Long-term
liabilities (repayments)
|
17 | (7 | ) | |||||
Shareholder's
loans
|
7,339 | - | ||||||
Shareholder's
loans (repayments)
|
(6,900 | ) | (27 | ) | ||||
Borrowings
|
2,077 | 4,581 | ||||||
Net
cash provided by financing activities
|
2,533 | 4,364 | ||||||
Subtotal
|
(485 | ) | (1,735 | ) | ||||
Effects
of exchange rate changes on the balance of cash held
|
||||||||
in
foreign currencies
|
143 | (265 | ) | |||||
Cash
and cash equivalents at beginning of period
|
1,421 | 3,020 | ||||||
Cash
and cash equivalents at end of period
|
1,079 | 1,020 | ||||||
Supplemental
Cash Flow Information
|
||||||||
Non
cash financing activities:-
|
||||||||
BTH
livestock contribution to Joint Venture
|
2 | 3,463 | ||||||
Advance
received by related party (Note 11)
|
5,000 | - | ||||||
Cash
paid (received) during the period for:
|
||||||||
Interest
|
701 | 365 | ||||||
Income
taxes
|
581 | (119 | ) |
The notes on pages 6 to 14 are an integral part of
these Consolidated Financial Statements
5
Notes to the Financial
Statements
1.
|
General
information
|
Kali
Tuna d.o.o. (Company or KT) is incorporated as a limited liability company and
operates in the Republic of Croatia. The Company´s core business activity is
farming and selling bluefin tuna. The Company farms two different types of
bluefin tuna: Mediterranean tuna and Adriatic tuna. The production is seasonal
as tuna is caught mostly during May and June. Mediterranean tuna has an average
farming period of six months and Adriatic tuna requires a farming period between
1.5 years and 3 years.
The
majority of the Company‘s sales transactions occur during the winter months,
November to February.
During
the quarter ended March 31, 2010, the Company’s net revenue and cost of goods
sold included $7,935 and $5,974, respectively, in connection with transactions
that involved the purchase of tuna from another Croatian farming operation and
the immediate sale of the product to one of the Company’s
customers. While the Company will seek to benefit from individual
transactions of this type, there is no guarantee that a similar transaction will
occur in the future.
2.
|
Significant
accounting policies
|
Basis of presentation |
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP). Items included have been measured in Croatian Kunas (HRK), Kali Tuna's
functional currency, and the financial statements have been translated into
United States dollars (USD) which is the presentational currency of the
Company.
All
amounts are stated in thousands of USD, unless indicated otherwise.
Transactions
in foreign currencies are initially recorded at the rates of exchange prevailing
on the dates of the transactions. Assets and liabilities are translated at the
rates prevailing on each balance sheet date. Sales revenue is
translated at the spot rate applicable on the date of the
transaction. Other revenue and expenses are translated at average
exchange rates in effect during the period.
The
results of transaction gains and losses are reflected in the Statements of
Operations. Equity is translated at historical rates and the resulting
translation adjustments are reflected as accumulated other comprehensive
income.
In the
opinion of management, all adjustments considered necessary for a fair statement
of the results for the interim periods have been included. These adjustments are
of a normal recurring nature. However, the reported results for the interim
periods ended March 31, 2010 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2010.
Accounting
estimates
The
preparation of financial statements in conformity with US GAAP requires that
management 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 may differ from those
estimates.
Management
exercises significant judgment in estimating both the quantities and the fair
value of tuna inventories.
Basis
of consolidation
The
Company has had relationships, through common control and various business
transactions (renting of ships, buying and farming of live tuna and fish feed)
with two companies, Kali Tuna Trgovina d.o.o. (KTT) and MB Lubin d.o.o. (Lubin).
Lubin is owned by Mr. Dino Vidov, a manager for the Company; however, as of
March 31, 2010 it is controlled by the Company. Previously, Lubin was
controlled by the Company‘s ultimate parent Atlantis Group hf.
The
Company owns a 50% interest in KTT. The remaining 50% interest in KTT is owned
by Bluefin Tuna Hellas (BTH). In accordance with its joint venture agreement
with BTH, the Company has historically sold tuna inventory to KTT at its cost,
and KTT in turn has sold the tuna to unrelated third parties. However, as a
result of the tax contingency matter described in Note 12, the Company and BTH
modified their joint venture agreement during the year ended June 30, 2009 so
that the joint venture activity is conducted entirely within Kali Tuna rather
than through KTT. As more fully described in Notes 6 and 11, BTH continued to
provide financing for the joint venture activities and partcipate in the profits
derived therefrom. The BTH share of profits or losses from the joint venture for
each period has been reflected as noncontrolling interest in these consolidated
financial statements and described herein as “BTH – Joint Venture”.
The
fiscal year of KTT is from May 1 to April 30. Therefore, the
difference in fiscal year has no material effects on the results reported in the
consolidated financial statements.
Based
upon the guidance of the Financial Accounting Standards Board (“FASB”)
interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN No.
46R) the Company has determined that KTT and Lubin are variable interest
entities of which the Company is the primary beneficiary. These companies are
therefore consolidated in Kali Tuna's financial statements.
All
material inter-company transactions and balances have been eliminated in
consolidation.
6
Notes to the Financial
Statements
|
2.
|
Significant
accounting policies (continued)
|
In
response to revised guidance from the FASB concerning presentation of
ownership interests in consolidated entities held by parties other than
the reporting entity, the Company has modified its presentation to reflect
in the accompanying consolidated financial statements the equity in the
consolidated variable interest entities and their share of reported net
losses as amounts attributable to noncontrolling interests. Amounts
previously reported as of June 30, 2009 as minority interest of 3 and
related party liabilities to BTH of 1,371 have been restated and are now
reflected within the equity section of the consolidated balance sheet as
noncontrolling interest in VIE- BTH Joint
Venture.
|
Risk
management
The Company is exposed to
financial risks arising from changes in tuna prices. The Company does not
anticipate that tuna prices will decline significantly in the foreseeable future
and, therefore, has not entered into derivative or other contracts to manage the
risk of a decline in tuna prices. The Company reviews its outlook for tuna
prices regularly in considering the need for active financial risk management.
Revenue
recognition
Revenue
is recognized when tuna inventory is delivered and the Company has transferred
to the buyer the significant risks and rewards of ownership. Revenue is
presented net of value added taxes collected.
Fair
value of financial instruments
The
carrying value of the Company‘s accounts receivable, advances, short term
borrowings and accounts payable approximates fair value because of the
short-term maturity of these instruments. The Company does not hold any
financial instrument for trading purposes.
Leases
Leases
are classified as capital leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases. Assets held under capital
leases are recognized as assets of the Company at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease
payments. The corresponding liabilities are included in the balance sheet as
obligations under capital leases.
Long lived
assets
The
Company reviews its long-lived assets for possible impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of the asset and its eventual
disposition are less than its carrying amount. The Company has
identified no such impairment losses as of March 31, 2010.
Income
taxes
Deferred
income taxes are provided under the liability method and reflect the net tax
effects of temporary differences between the tax bases of assets and liabilities
and their reported amounts in the consolidated financial statements, using the
enacted tax rates expected to be in effect when those differences reverse. The
Company establishes valuation allowances when the realization of specific
deferred tax assets is subject to uncertainty.
Property
and equipment
Property
and equipment are stated at cost and depreciated over the estimated useful lives
of the related assets, which generally range from 2 to 50 years, using the
straight line method. Maintenance and repairs, which do not extend
asset lives, are expensed as incurred. The gain or loss arising on the disposal
or retirement of an item of property and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and
is recognized in profit or loss.
Inventories
Inventories
consist primarily of live tuna stock that the Company farms until the tuna
reaches desirable market size. Management systematically monitors the
size, growth and growth rate of the tuna to estimate the quantity at each
balance sheet date. Live stock inventories are stated at the lower of cost or
market value, using the average cost method. Inventories of fish feed and
supplies are stated at the lower of cost or market, using the average cost
method.
Management
periodically reviews inventory balances and purchase commitments to estimate if
inventories will be sold at amounts (net of estimated selling costs) less than
carrying value. If expected net realizable value is less than carrying value,
the Company adjusts its inventory balances through a charge to cost of tuna
sold
Trade
accounts receivable
Trade
accounts receivable represents the balance owed to the Company by its customers
in connection with sales transactions. An allowance for uncollectible
accounts is determined by management based on a review of the Company’s
accounts, with consideration of historical losses, industry circumstances and
general economic conditions. Accounts are charged against the
allowance when all attempts to collect have failed.
7
Notes to the Financial
Statements
2.
|
Significant
accounting policies (continued)
|
Cash
and cash equivalents
For
purposes of the statements of cash flows, the Company considers all highly
liquid cash investments that mature in three months or less when purchased to be
cash equivalents. The Company’s bank deposits are generally not covered by
deposit insurance.
Reclassifications
Certain
items in the comparative balance sheet as of June 30, 2009 have been
reclassified to conform with the March
31, 2010 presentation.
With the exception of the item described above under the heading “Basis of
consolidation”, there was no effect on previously reported equity.
Recent
Accounting Pronouncements
In
June 2009, the FASB amended the accounting guidance for the consolidation of
variable interest entities. This amendment revised the evaluation criteria to
identify the primary beneficiary of a variable interest entity. Additionally,
this amendment requires ongoing reassessments of whether an enterprise is the
primary beneficiary of the variable interest entity. In December 2009, the FASB
amended consolidation guidance previously issued in June to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity, among other
changes.
In
January 2010, the FASB issued new accounting guidance that requires new
disclosures related to fair value measurements. The new guidance requires
expanded disclosures related to transfers between Level 1 and 2 activities
and a gross presentation for Level 3 activity. The new accounting guidance is
effective for fiscal years and interim periods beginning after December 15,
2009, except for the new disclosures related to Level 3 activities, which
are effective for fiscal years beginning after December 15, 2010 and for
interim periods within those
years. The new guidance
was effective in the third quarter of fiscal year 2010 for Level 1 and Level 2
activities but disclosures related to Level 3 activities, will not be effective
until the first quarter of fiscal year 2012.
As
the Company does not have any assets or liabilities that are categorized in
Levels 1 and 2, the adoption of this guidance will have no impact on our
financial statements until the first quarter of fiscal year
2012.
3.
|
Significant
concentrations
|
Sales of
tuna to two customers in Japan accounted for approximately 99.4% of the
Company's tuna sales for the nine months ended March 31, 2010. One customer
accounted for 82.2% of net revenue and the other for 17.2%.
4.
|
Income
taxes
|
Income tax expense for the
nine month periods ended March 31, 2010 and March 31, 2009 is comprised as
follows:
March
31, 2010
|
March
31,
2009 |
|||||||
Current
(expense)
|
(630 | ) | (569 | ) | ||||
Deferred
benefit
|
62 | 74 | ||||||
(568 | ) | (495 | ) |
Deferred
tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment date. A valuation
allowance is provided for the amount of deferred tax assets that, based on
available evidence, are not expected to be realized.
8
Notes to the Financial
Statements
Deferred
tax liabilities and assets have been recognized
as of March 31, 2010
and
June 30, 2009
in the following amounts based upon the indicated temporary
differences:
March
31, 2010
|
June
30,
2009 |
|||||||
Inventories
|
110 | 210 | ||||||
Other
items
|
- | (9 | ) | |||||
110 | 201 |
5.
|
Property
and equipment
|
The
Company´s property and equipment as of March 31, 2010 and June 30, 2009 were as
follows:
March
31, 2010
|
June
30,
2009 |
|||||||
Cost:
|
||||||||
Land
|
449 | 468 | ||||||
Buildings
|
2,722 | 2,833 | ||||||
Vessels.
|
8,806 | 7,315 | ||||||
Machinery
and equipment
|
7,096 | 6,043 | ||||||
Fixtures
and office equipment
|
118 | 121 | ||||||
Construction
in progress
|
391 | 1,414 | ||||||
19,582 | 18,194 | |||||||
Less
accumulated depreciation:
|
||||||||
Buildings
|
965 | 893 | ||||||
Vessels
|
4,200 | 3,972 | ||||||
Machinery
and equipment
|
4,687 | 4,670 | ||||||
Fixtures
and office equipment
|
104 | 98 | ||||||
9,956 | 9,633 | |||||||
Property
and equipment, net
|
9,626 | 8,561 |
6.
|
Variable
interest entities
|
The
Company has determined that it and its affiliates provided the majority of
financial support to Lubin and KTT through various sources including
the purchase and sale of inventory, rental income and unsecured loans. In
addition, the Company is a co-signatory of a Finance Agreement between Lubin and
Erste&Steiermaerkische
bank d.d as guarantor for repayment of Lubin´s liabilities to Erste&Steiermaerkische
bank d.d. in the amount of CHF
707,000 (USD 662).
Financial
support provided by the Company and its affiliates to Lubin and KTT for the nine
month periods ended March 31, 2010 and 2009, and as of March 31, 2010 and June
30, 2009 was as follows:
Lubin
|
KTT
|
|||||||||||||||
March
31, 2010
|
March
31,
2009 |
March
31,
2010 |
March
31,
2009 |
|||||||||||||
Rental
income and sale of inventory
|
1,780 | 1,092 | - | - | ||||||||||||
Purchase
of inventory
|
34 | 31 | - | - | ||||||||||||
Lubin
|
KTT
|
|||||||||||||||
March
31, 2010
|
June
30,
2009 |
March
31,
2010 |
June
30,
2009 |
|||||||||||||
Unsecured
liabilities
|
6,222 | 5,597 | - | 61 |
9
Notes
to the Financial Statements
6.
|
Variable
interest
entities (continued)
|
Selected
information from the balance sheets of Lubin and KTT as of March 31, 2010 and
June 30, 2009 and the results of operations for the nine month periods ended
March 31, 2010 and 2009 were as follows:
Lubin
|
KTT
|
|||||||||||||||
Nine
months ended
|
Nine
months ended
|
|||||||||||||||
March
31, 2010
|
June
30,
2009 |
March
31,
2010 |
June
30,
2009 |
|||||||||||||
Total
assets
|
5,424 | 5,835 | 56 | 67 | ||||||||||||
Total liabilities | 7,172 | 6,744 | 1 | 1 | ||||||||||||
Stockholder's
equity
|
(1,748 | ) | (909 | ) | 55 | 66 |
Lubin
|
KTT
|
|||||||||||||||
Nine
months ended
|
Nine
months ended
|
|||||||||||||||
March
31, 2010
|
March
31,
2009 |
March
31,
2010 |
March
31,
2009 |
|||||||||||||
Net
sales
|
1,806 | 1,400 | - | - | ||||||||||||
Net
income (loss)
|
(912 | ) | (771 | ) | (8 | ) | 4 |
As
described in Note 2, the BTH joint venture activities previously conducted
through KTT were, beginning during the year ended June 30, 2009, conducted
within the Company. BTH provided financing for these activities, as
described in Note 11, and its 50% share in the profits generated has been
reflected as noncontrolling interest within these consolidated financial
statements. Selected balance sheet information related to these activities as of
March 31, 2010 and June 30, 2009, and the results of its operations for the nine
month periods ended March 31, 2010 and 2009 were as
follows:
March
31, 2010
|
June
30,
2009 |
|||||||
Total
assets
|
2,630 | 2,128 | ||||||
Total
liabilities
|
0 | 0 | ||||||
Venturers´
equity
|
2,630 | 2,128 |
Nine
months ended
|
||||||||
March
31, 2010
|
March
31,
2009 |
|||||||
Net
sales
|
24 | 3,299 | ||||||
Profit
(loss) before taxes
|
(358 | ) | 274 |
7.
|
Inventories
|
Inventories are comprised
as follows as of March 31, 2010 and June 30, 2009:
March
31, 2010
|
June
30, 2009
|
|||||||
Live
stock inventories:
|
||||||||
Adriatic
tuna
|
||||||||
0-30
kg.
|
9,952 | 10,587 | ||||||
30-60
kg.
|
2,998 | 4,052 | ||||||
60+
kg.
|
780 | 1,901 | ||||||
Mediterranean
tuna + 60kg.
|
2,630 | 2,128 | ||||||
16,360 | 18,668 | |||||||
Fish
feed and supplies
|
588 | 1,656 | ||||||
Total
inventories
|
16,948 | 20,324 |
Inventories
are stated at the lower of cost or net realizable value. Cost is calculated on a
weighted average basis and includes all costs to acquire and to bring the
inventories to their present location and condition. Tuna weighing less than
30kg is stated at cost, as international regulations prohibit the sales of tuna
under 30kg. The Company evaluates the net realizable value of its
inventories on a regular basis and records a provision for loss to reduce
the computed weighted average cost if it exceeds the net realizable
value.
10
Notes to the Financial
Statements
The fair
value of live tuna stock inventories at March 31, 2010 and June 30, 2009 is
estimated at 17,293 and 22,152, respectively. Live tuna stock weighing 30kg or
more is traded in Japan, with observable market prices that are based on the
price that an unrelated third party is willing to pay for the inventory.
As there is no market for tuna less than 30kg, the fair value for this category
is estimated to equal its cost.
8.
|
Equity
|
The
subscribed capital of the Company consists of four unequal stakes, which were
all owned by KT DOO Finance Pty, Ltd. Australia (KTT DOO) on December 31, 2009
and were sold to the Atlantis Group hf, Iceland (Atlantis), who owned
them on March 31, 2010. Due to the unequal ownership stakes, calculations of
earnings per share are not meaningful, and therefore not presented.
In
October 2009, Atlantis (the ultimate parent of the Company) entered into a
financing arrangement with a third party. As part of the consideration of
the financing, Atlantis gave the third party a right to purchase 1.82% of the
interest in the Company for 1 million USD. This right is exercisable
within a five-year period. In the event the Company completes a merger
transaction with a publicly traded shell company in the United States, the right
will expire and be replaced by a purchase warrant to purchase 1 million shares
of such public company at $1.00 per share within a three-year
period.
9.
|
Obligations
under capital leases
|
The
Company leases equipment under arrangements classified as capital leases, and
had the following obligations as of March 31, 2010 and June 30,
2009:
March
31, 2010
|
June
30,
2009 |
|||||||
Total
obligations under capital leases
|
48 | 28 | ||||||
Current
maturities
|
(14 | ) | (9 | ) | ||||
Non-current
obligations
|
34 | 19 |
Aggregated annual
maturities under capital leases as of March 31, 2010 were as
follows:
Year
ending March 31, 2011
|
17 | |||
Year
ending March 31, 2012
|
17 | |||
Year
ending March 31, 2013
|
9 | |||
Year
ending March 31, 2014
|
7 | |||
Year
ending March 31, 2015
|
4 | |||
|
54 | |||
Less
interest
|
(6 | ) | ||
Total obligations under capital leases
|
48 |
11
Notes to the Financial
Statements
10.
|
Borrowings
|
The Company's borrowings
as of March 31, 2010 and June 30, 2009 were comprised as
follows:
Facility
|
Interest
rate
|
March
31,
2010 |
June
30, 2009
|
||||||||||
Erste&Steiermaerkische
bank d.d.
|
HRK
19,240,000
|
5%
|
3,555 | 3,705 | |||||||||
Erste&Steiermaerkische
bank d.d.
|
HRK
30,000,000
|
5%
|
5,543 | 5,777 | |||||||||
Erste&Steiermaerkische
bank d.d.
|
EUR
1,375,000
|
EURIBOR
+7%
|
1,844 | 1,930 | |||||||||
Erste&Steiermaerkische
bank d.d.
|
JPY
180,000,000
|
3M
JPY LIBOR+6.5%
|
1,939 | - | |||||||||
Ernste
Factoring d.o.o.
|
HRK
3,400,000
|
3M
CHF IBOR+5.75%
|
- | 655 | |||||||||
Erste&Steiermaerkische
bank d.d.
|
CHF
707,000
|
1M
LIBOR +7%
|
662 | - | |||||||||
Current
maturities of capital lease obligation
|
14 | 9 | |||||||||||
13,557 | 12,076 |
Kali Tuna
has a credit facility with Erste&Steiermaerkische bank. d.d. that consists
of four revolving credit lines amounting to HRK 19,240,000 (USD 3,555), HRK
30,000,000 (USD 5,543), EUR 1,375,000 (USD 1,844), and JPY 180,000,000 (USD
1,939) which mature on August 15, 2010, September 15, 2010, March 1, 2011 and
March 1, 2011, respectively.
Lubin has
a credit facility with Erste&Steiermaerkische bank. d.d. amounting to CHF
707,000 (USD 662) which matures on July 1, 2010.
All of the Company's fixed
assets are pledged to the bank in connection with these
loans.
12
Notes to the Financial
Statements
11.
|
Related
parties
|
Related
parties are those parties which have influence with the Company, directly or
indirectly, either through common ownership or other relationship.
The
Company has no share options or contracts with managers, its employees and other
related parties to the Company. None of the managers, employees or other related
parties holds shares in the Company except for Atlantis hf, which held 100% of
shares in the Company on March 31, 2010. There are also no loans to managers,
directors or board members. Board members do not receive payment for their work
as board members.
Related party balances as
of March 31, 2010 and June 30, 2009 were as follows:
March
31, 2010
|
June
30,
2009 |
|||||||
Atlantis
Group hf
|
15 | 7 | ||||||
KT
DOO Finance
|
- | 3,552 | ||||||
Atlantis
Resourses Australia
|
275 | - | ||||||
290 | 3,559 |
Principal
|
Interest
Rate
|
March
31,
2010 |
June
30,
2009 |
||||||||
Loans
from related parties
|
|||||||||||
KT
DOO Finance Pty Ltd Australia
|
AUD
696,000
|
Interest
Free
|
- | 560 | |||||||
Atlantis
Group hf
|
US
957,000
|
Interest
Free
|
957 | - | |||||||
957 | 560 |
During
the nine months ended March 31, 2010 the Company paid $71 to Atlantis hf Iceland
for interest on the loans. No interest was paid in the corresponding
period to March 31 2009.
In
October 2009, Atlantis hf Iceland received the net proceeds related to a
financing agreement entered into by the Company with a third
party. Under the terms of the agreement the Company agreed to repay
the advance plus interest at 6% and a fee to the third party by either
delivering tuna or by a cash settlement. Additionally, Atlantis gave the third
party rights to acquire an equity interest in the Company, as described in Note
8 - Equity.
12.
|
Commitments
and contingencies
|
During
June 2008, the Financial Police of Ministry of Finance of the Republic of
Croatia (FP) concluded an inspection of certain of the Company’s transactions
and alleged the following underpayments of taxes and related
interest:
Underpayment
of value added taxes for calendar year 2006 and related interest, which total
approximately 1.45 million USD, in connection with sales of tuna inventory by
the Company to its 50%-owned subsidiary, Kali Tuna Trgovina, at its purchase
cost.
Underpayment
of tax on profit for the year ended June 30, 2007 and related interest, which
total approximately 135 thousand USD, in connection with sales of tuna inventory
by the Company to Atlantis Resources ehf (an Icelandic subsidiary of Atlantis
Group, which is the Company’s ultimate parent).
Any
underpayments that are ultimately upheld at the conclusion of a permitted appeal
process would also be subject to liability for additional interest penalties. In
addition, the Company could potentially be held liable for similar transactions
in subsequent years; as the applicable amounts of additional taxes and interest
for those periods are dependent upon assessment of the Company´s transactions by
FP, such amounts cannot be reasonably estimated.
The
Company filed an appeal to contest these allegations. In July 2009 the claim was
dismissed by the Appellate Body of Ministry of Finance. Dismissal did not
terminate the process, but has obliged the Financial Authorities in Croatia to
repeat the performed procedure taking into account all facts and proof being
proposed and disclosed by KT in their appeal.
The new
process has started recently and management expects, based upon the facts and
circumstances of the relevant transactions, that it should ultimately prevail
and incur no material liability. Accordingly, the accompanying consolidated
financial statements do not reflect any adjustments related to this
contingency.
13
Notes to the Financial
Statements
13.
|
Subsequent
Events
|
The
Company has evaluated subsequent events through May 18, 2010, the date on
which the accompanying financial statements were available to be
issued.
In April
2010, Atlantis and a third party agreed to release the Company from all
obligations related to the financing agreement described in Note 11 - Related
parties, which totaled 5,897 USD at March 31, 2010. Under the terms of the
release, Atlantis will repay all amounts owing under the original financing
agreement and, accordingly, the Company has no further obligation to repay the
advance by delivering tuna or by cash settlement. The rights of the third party
to acquire the equity interest remain intact as described in Note 8 -
Equity.
On April
14, 2010, in preparation for a merger of the Company with Lions Gate Lighting
Corp. (Lions Gate), all the shares of the Company were contributed by Atlantis
hf, Iceland to its
newly-formed wholly-owned subsidiary, Bluefin Acquisition Group Inc.
(Bluefin).
On May 3,
2010 the Company entered into a share exchange agreement with Lions Gate. Under
the terms of the share exchange agreement Bluefin will become a wholly-owned
subsidiary of Lions Gate if and when the share exchange is completed. The
completion of the share exchange is subject to certain conditions precedent
including, among other things, raising a minimum of 15,000 USD in gross proceeds
under a private placement offering.
No other
material subsequent events have occurred since March 31, 2010 that require
recognition or disclosure in the financial statements.
14