<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________ to ___________
Commission file number 0-29258
AQUAPRO CORPORATION
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1598919
--------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
4307 Central Pike, Hermitage, Tennessee 37076
- ------------------------------------------------------------------------------
(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: (615) 899-0804
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
As of November 10, 1997, Registrant had outstanding 2,670,667 shares of common
stock, its only class of common equity outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page No.
<S> <C> <C>
Condensed Consolidated Balance Sheets at September 30, 1997
(unaudited) and June 30, 1997....................................... 3
Condensed Consolidated Statements of Operations for the Quarters
Ended September 30, 1997 and 1996 (unaudited)..................... 5
Condensed Consolidated Statements of Cash Flows for the Quarters
Ended September 30, 1997 and 1996 (unaudited)...................... 6
Note to Unaudited Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 13
Item 2. Changes in Securities.............................................. 13
Item 3. Defaults Upon Senior Securities.................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................ 13
Item 5. Other Information.................................................. 13
Item 6. Exhibits and Reports on Form 8-K................................... 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 57,758 $ 202,894
Trade accounts receivable 382,608 108,009
Receivables from affiliates 27,998 27,998
Live fish inventories 6,142,687 5,740,124
Prepaid expenses 4,891 10,516
----------------------------
Total current assets 6,615,942 6,089,541
Property, buildings and equipment, net 5,766,522 5,639,753
Investments in cooperatives 998,344 883,518
Delivery rights and other intangible assets, net 98,253 104,161
----------------------------
Total assets $13,479,061 $12,716,973
============================
</TABLE>
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<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
-----------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 1,455,882 $ 689,462
Accounts payable 156,415 523,255
Accrued salaries 229,994 239,994
Accrued interest and other 85,242 74,628
Current maturities of long-term debt 218,578 272,258
----------------------------
Total current liabilities 2,146,111 1,799,597
Long-term debt, less current maturities 3,181,787 4,102,980
Stockholders' equity:
Series A Preferred Stock, no par value - authorized
1,900,000 shares, cumulative, convertible, issued and
outstanding 451,323 at September 30, 1997 and 235,507
at June 30, 1997 3,463,222 1,837,408
Preferred stock, par value to be determined by the
Board of Directors - authorized 100,000 shares, none
issued -- --
Common stock, no par value - authorized 100,000,000
shares, issued and outstanding 2,670,667 shares 10,588,311 10,588,311
Unearned compensation (96,093) (126,563)
Retained earnings (deficit) (5,804,277) (5,484,760)
----------------------------
Total stockholders' equity 8,151,163 6,814,396
----------------------------
Total liabilities and stockholders' equity $13,479,061 $12,716,973
============================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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AquaPro Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
September 30
1997 1996
---------------------------
<S> <C> <C>
Revenues:
Net sales $1,293,443 $ 837,491
Management fees from affiliates 1,500 4,500
---------------------------
1,294,943 841,991
Cost of products sold 1,091,010 893,516
Selling, general and administrative 430,918 258,279
---------------------------
Operating loss (226,985) (309,804)
Other (income) expense:
Equity in losses on investment in cooperative -- 30,000
Interest expense 95,634 125,770
Other, net (44,398) (37,886)
---------------------------
51,236 117,884
---------------------------
Net loss $ (278,221) $ (427,688)
===========================
Net loss per common share $ (0.12) $ (0.16)
===========================
Weighted average common shares outstanding 2,670,667 2,592,814
===========================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
September 30
1997 1996
-------------------------
<S> <C> <C>
Net cash used in operating activities $(1,134,706) $ (928,521)
Cash flows from investing activities:
Purchases of property and equipment (271,669) (140,858)
Purchases of cooperative stock and related payments (114,826) (60,000)
-------------------------
Net cash used in investing activities (386,495) (200,858)
Cash flows from financing activities:
Net increase in notes payable 766,420 140,858
Principal payments on long-term borrowings (140,607) (49,053)
Proceeds from long-term borrowings 99,748 90,042
Proceeds from exercise of common stock purchase rights -- 109,597
Proceeds from issuance of preferred stock 691,800 --
Payments of preferred stock dividends (41,296) --
-------------------------
Net cash provided by financing activities 1,376,065 291,444
-------------------------
Net (decrease) in cash and cash equivalents (145,136) (837,935)
Cash and cash equivalents at beginning of period 202,894 1,228,136
-------------------------
Cash and cash equivalents at end of period $ 57,758 $ 390,201
=========================
Non-cash financing activities:
Conversion of long-term debt to Series A
Preferred Stock $ 934,014 --
=========================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
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AquaPro Corporation
Note to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1997
1. Basis of Presentation of Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary
for a fair presentation of financial position, results of operations and cash
flows, in conformity with generally-accepted accounting principles. However,
the information furnished, in the opinion of management, reflects all
adjustments necessary to present fairly the financial position, results of
operations and cash flows on a consistent basis. The results of operations
are not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
This unaudited quarterly information should be read in conjunction with the
audited consolidated financial statements of AquaPro and the notes thereto
included in the Company's Annual Report on Form 10-KSB for the period ended
June 30, 1997.
2. Long-Term Debt and Stockholders' Equity
During the quarter ended September 30, 1997, the Company commenced an
exchange offer to certain holders of its 10.35% investor notes payable. Each
holder was offered 1.3 shares of Series A Preferred Stock for each $10 of
notes held. The offer was made for a total of $1,147,513 of notes. In the
aggregate, $934,014 of notes were exchanged for 121,422 shares of Series A
Preferred Stock.
Also during the quarter, the Company realized net proceeds of $691,800 from
the sale of 94,394 shares of Series A Preferred Stock through its Preferred
Stock Rights Offering.
3. Net Loss per Common Share
Net loss per share is computed by dividing net loss applicable to common
stock (net loss less dividend requirements for Series A Preferred Stock of
$41,296 in the quarter ended September 30, 1997 and $-0- in the quarter ended
September 30, 1996) by the weighted average number of common shares
outstanding (2,670,667 shares in the quarter ended September 30, 1997,
2,592,814 shares in the quarter ended September 30, 1996). Common equivalent
shares (stock options and warrants) outstanding have not been included, due
to their antidilutive effects.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain factors
including those set forth in this Item 2 and elsewhere in, or incorporated
by reference into, this report. The Registrant has attempted to identify
forward-looking statements in this report by placing an asterisk (*)
following each sentence containing such statements.
RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1996
REVENUE. Net sales during the three month period ended September 30, 1997
totaled $1,293,443 compared to $837,491 for the same period in 1996. This
represents an increase of $455,952 or 54.4%. Volume increased 726,000 pounds
to 1,772,000 pounds of fish sold compared to 1,046,000 pounds sold during
the three month period ended September 30, 1996. Accordingly, volume
represented a 69.4% increase during the three months ended September 30,
1997 compared to the same period in 1996. The increase in volume was
partially offset by a price decrease of approximately 7 cents per pound to
73 cents realized in 1997 compared to 1996 when the average price of fish
sold was 80 cents. This decrease in average price resulted from lower prices
received by the Company's major customers from food distributors,
restaurants, and grocers due to an increase in competitive pricing policies
as processors attempted to increase their market share. The Company's major
customers in turn passed on the lower prices to the catfish farmers,
including the Company. Furthermore, the trend of these lower prices has
continued into the winter months, and the Company cannot predict when more
favorable prices will occur.*
Management expects sales to decline during the quarter ending December 31,
1997 compared to the quarter ended September 30, 1997 due to the normal
seasonal decrease in demand.* Sales for the quarter ending March 31, 1998
are expected to approximate the level achieved during the quarter ended
September 30, 1997.* Historically (but not in 1997) wholesale catfish prices
increase during the March quarter.* Due to the unusually cool spring weather
which resulted in a lackluster feeding season in 1997, optimal production
and sales levels of 2,200,000 pounds of fish per quarter are not expected to
be achieved until beginning in May 1998 when the feeding season resumes next
year.* Typically, catfish grow to marketable size during the warmer weather
months from the middle of March through the middle of October.*
8
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COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $1,091,010, an
increase of $197,494 or 22.1% compared to the quarter ended September 30,
1996, while net sales increased 54.4%. Margin from fish sales was 15.7%
during the three month period ended September 30, 1997 as compared to
negative 6.7% in the same period in 1996. In the prior year, certain ponds
were emptied for refurbishing and mortality adjustments of approximately
$218,000 were recorded in Cost of Products Sold. Had these mortality
adjustments not occurred, margin from fish sales would have been 19.3%. The
higher margin from fish sales (without reserve and mortality adjustments)
resulted from a lower average cost to produce fish in 1996. Cost of
Products sold is largely dependent on the Company's cost structure in the
previous year due to the 12 to 18 month grow out period required for fish
to mature. The cost of feed was lower during the period affecting the
quarter ended September 30, 1996 than in 1997. Additionally, there was a 9%
decline in average price in the quarter ended September 30, 1997 compared
to the same period in 1996. Management believes that these reserve and
mortality adjustments were unusual and of a nonrecurring nature but cannot
predict with certainty due to risks beyond its control that such
adjustments will not be necessary in the future.*
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during first three month period ended September 30, 1997 were
$430,918 or $172,639 higher than in the three month period ended September
30, 1996. This increase was primarily due to 69.4% increase in volume of
fish sold during the period as discussed above. Additionally, legal and
accounting fees increased in 1997 compared to the same period in 1996 as
the Company prepared to become a public company registered with the
Securities and Exchange Commission.
EQUITY IN LOSSES ON INVESTMENT IN COOPERATIVE. During the three month
period ended September 30, 1996, the Company was required to record a net
charge of $30,000 for its share of losses of Delta Pride's operations. In
1997, this charge totaled $272,000 and was fully charged to earnings as of
June 30, 1997 and, therefor, did not affect the Statement of Operations for
the quarter ended September 30, 1997. However, during the quarter ended
September 30, 1997, the Company was required to pay to Delta Pride $114,826
of these losses. Additionally, in December 1997 and January 1998, the
Company expects to be required to pay $76,551 to Delta Pride.*
9
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INTEREST EXPENSE. Interest expense decreased $30,136 or 24% to $95,634 in
the three month period ended September 30, 1997 compared to the same period
in 1996. Debt levels were lower during the 1997 period compared to 1996 due
to conversion of $934,014 in debt to preferred stock during the quarter
ended September 30, 1997. Interest rates were slightly lower due to
variable rate adjustments on ceratin debt effective January 1, 1997.
Management anticipates slightly higher levels of debt and interest expense
during the next four quarters due to funding certain capital expenditures.*
SEASONALITY OF OPERATING RESULTS. In prior years, the revenues of AquaPro
have fluctuated from quarter to quarter depending on stocking levels and
results of feeding. Also, prices for live fish have tended to rise during
the first part of the year and drift downward during the summer, only to
rise again in September and October and fall in November and December
before beginning the annual price cycle again. However, this has not
occurred in 1997 as prices fell in the early part of 1997 and have not
recovered. Accordingly, quarterly operating results of the Company may vary
from quarter to quarter and year to year and cannot be predicted with
certainty.*
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had a current ratio of 3.1 to 1, as
opposed to 3.4 to 1 at June 30, 1997. Current assets exceeded current
liabilities by $4,469,831 in September 1997 compared to $4,289,944 in June
1997. Cash and cash equivalents decreased during the three month period
ended September 30, 1997 by $145,136.
Cash and cash equivalents were used primarily to fund operating losses and
grow live fish inventories. Life fish inventories increased by $402,563
during the three month period ended September 30, 1997. The quarter ending
September 30 is normally the period during which the fish consume the
greatest amount of feed in the year. Feed costs are added to inventory when
purchased. The increase in live fish inventory was about as expected by
the Company.
During the three month period ended September 30, 1997, the Company
purchased approximately $272,000 in property and equipment. In August 1997,
the Company moved its administrative offices in Mississippi to one of its
farms from an office facility it had previously shared with another catfish
farming operation. This move required the purchase and installation of
double wide mobile trailer homes on the Company's farm land in Sunflower,
Mississippi. The total cost of this move was approximately $150,000,
including the trailers, utility hook-ups, well construction, and ground
preparation. For the fiscal year ending June 30, 1998, the Company's budget
for capital expenditures is $1,350,000. To increase production capacity,
certain major pond reworking programs are scheduled to be completed at a
cost of approximately $750,000. Management believes that in order to
maintain productive catfish farming operations over the long-term, 10
percent of ponds need to be reworked each year and that capital will be
required to maintain high levels of production. The remaining $600,000 in
property and equipment purchases planned during the next year include
additional aeration equipment to provide double aeration to the
10
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refurbished ponds and vehicles and tractors to replace older equipment.
During the three month period ended September 30, 1997, the Company
realized net proceeds from the sale of preferred stock and additional
long-term borrowings of $691,800 and $99,748, respectively. Short-term
notes payable increased approximately $766,000 as the Company's feed credit
lines increased by $353,000 and an additional short-term note of $250,000
was made by the Company's bank in Mississippi. This short-term note is due
in full in March 1998 with all accrued interest thereon at prime rate plus
165 basis points. The short-term note is secured by certain catfish farm
real property. Additionally, officers and directors of the Company advanced
$163,000 in short-term loans to the Company. These short-term officer and
director advances were repaid in full in October 1997 with the proceeds
from the Company's Preferred Stock Rights Offering. These funds were used
to fund the Company's operations and to increase its inventory as discussed
above. Additionally, principal payments totaling $140,607 were made to
reduce long-term debt and preferred stock dividends of $41,296 were paid
during the three months ended September 30, 1997.
The Company intends to fund its operations primarily through fish sales,
working capital, $925,000 in feed credit lines, the proceeds of sales from
the Company's stock rights offering, and additional credit lines. On April
16, 1997, a $750,000 credit line was established with a bank in Mississippi
as a revolving line of credit for catfish feed purchases. Borrowings are
secured by shares of the Company's cooperative processing stock and all
accounts receivable and live fish inventories on and related to seven of
the Company's eight farms. Interest is paid monthly and principal is paid
with 50 percent of all collections of accounts receivable from sales of the
seven farms. Interest accrues at the prime rate plus 165 basis points and
the commitment expires March 8, 1998 with no prepayment penalty. During the
quarter ending December 31, 1997, the Company intends to attempt to obtain
an additional credit facility of up to $3,000,000. The Company anticipates
its cash needs during the year ending June 30, 1998 will exceed its current
borrowing capacity. It is anticipated any new credit facility obtained will
replace the revolving line of credit mentioned above. This new credit
facility, if obtained, will give the Company added flexibility to access
funds for general corporate purposes in addition to catfish feed purchases.
Moreover, the Company may require additional capital for growth through
acquisition, which it may seek through equity or debt financing,
collaborative arrangements with corporate partners, equipment lease
financing or funds from other sources. No assurance can be given that these
funds will be available to the Company on
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acceptable terms, if at all. In addition, because of the Company's need for
funds to support future operations, it may seek to obtain funds when
conditions are favorable, even if it does not have an immediate need for
additional capital at such time.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the quarter ended September 30, 1997, the Company
commenced an exchange offer to certain holders of its
10.35% investor notes payable. Each holder was offered 1.3
shares of Series A Preferred Stock for each $10 of notes
held. The offer was made for a total of $1,147,513 of
notes. In the aggregate, $934,014 of notes were exchanged
for 121,422 shares of preferred stock.
Also during the quarter, the Company realized net proceeds
of $691,800 from the sale of 94,394 shares of Series A
Preferred Stock through its Preferred Stock Rights
Offering.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K: None
13
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Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AquaPro Corporation
(Registrant)
Dated: November 14, 1997 By: /s/ Eric P. Braschwitz
----------------- -----------------------
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 57,758
<SECURITIES> 0
<RECEIVABLES> 382,608
<ALLOWANCES> 0
<INVENTORY> 6,142,687
<CURRENT-ASSETS> 6,615,942
<PP&E> 7,752,946
<DEPRECIATION> 1,986,424
<TOTAL-ASSETS> 13,479,061
<CURRENT-LIABILITIES> 2,146,111
<BONDS> 3,181,787
0
3,463,222
<COMMON> 10,588,311
<OTHER-SE> (5,900,370)
<TOTAL-LIABILITY-AND-EQUITY> 13,479,061
<SALES> 1,293,443
<TOTAL-REVENUES> 1,294,943
<CGS> 1,091,010
<TOTAL-COSTS> 1,091,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,634
<INCOME-PRETAX> (278,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (278,221)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
