<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, 1998
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)
105 Bonnabrook Dr., Suite 202, 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 16, 1998, Registrant had outstanding 4,818,354 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
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
<S> <C> <C>
Condensed Consolidated Balance Sheets at September 30, 1998
(Unaudited) and June 30, 1998.....................................3
Condensed Consolidated Statements of Operations for the
quarters ended September 30, 1998 and 1997 (Unaudited)............5
Condensed Consolidated Statements of Cash Flows for the
quarters ended September 30, 1998 and 1997 (Unaudited)............6
Notes to Unaudited Condensed Consolidated Financial Statements....7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................11
Item 2. Changes in Securities............................................11
Item 3. Defaults Upon Senior Securities..................................11
Item 4. Submission of Matters to a Vote of Security Holders..............11
Item 5. Other Information................................................11
Item 6. Exhibits and Reports on Form 8-K.................................11
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------------------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 65,864 $ 112,631
Trade accounts receivable 469,746 349,148
Receivables from affiliates -- 27,998
Live fish inventories 6,101,235 5,533,276
Prepaid expenses 59,462 21,303
------------------------------
Total current assets 6,696,307 6,044,356
Property, buildings and equipment, net 5,876,564 6,003,163
Investments in cooperatives 853,554 833,894
Delivery rights and other intangible assets, net 113,923 166,779
------------------------------
Total assets $13,540,348 $13,048,192
==============================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---------------------------------
(Unaudited) (Note)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 1,069,311 $ 599,964
Accounts payable 337,202 195,318
Accrued salaries -- 17,883
Accrued interest and other 56,565 28,461
Current maturities of long-term debt 421,425 426,574
---------------------------------
Total current liabilities 1,884,503 1,268,200
Long-term debt, less current maturities 3,760,745 3,829,981
Stockholders' equity:
Common stock, no par value - authorized 100,000,000
shares, issued and outstanding 4,809,354 at September
30, 1998 and 4,818354 at June 30, 1998 15,367,554 15,405,803
Unearned compensation (60,000) (101,906)
Retained earnings (deficit) (7,412,454) (7,353,886)
---------------------------------
Total stockholders' equity 7,895,100 7,950,011
---------------------------------
Total liabilities and stockholders' equity $ 13,540,348 $ 13,048,192
=================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
Note: The Balance Sheet at June 30, 1998 has been derived from the audited
financial statements at the date indicated, but does not include all of
the information and footnotes required by generally accepted accounting
principles.
4
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AquaPro Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
-----------------------------
<S> <C> <C>
Revenues:
Net sales $ 1,678,440 $ 1,294,943
Cost of products sold 1,301,141 1,091,010
-----------------------------
Gross Profit 377,299 203,933
Selling, general and administrative 382,258 430,918
-----------------------------
Operating loss (4,959) (226,985)
Other (income) expense:
Equity in losses on investment in cooperatives 23,000 --
Interest expense 130,368 95,634
Other, net (99,759) (44,398)
-----------------------------
53,609 51,236
-----------------------------
Net loss $ (58,568) $ (278,221)
=============================
Basic and diluted net loss per share $ (.01) $ (0.12)
=============================
Basic and diluted weighted average common shares
outstanding 4,887,379 2,670,667
=============================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
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AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1998 1997
---------------------------
<S> <C> <C>
Net cash used in operating activities $(413,348) $(1,134,706)
Cash flows from investing activities:
Purchases of property and equipment (34,643) (271,669)
Purchases of cooperative stock and related payments (19,660) (114,826)
Proceeds from note receivable from affiliate 27,998
Net cash used in investing activities (26,305) (386,495)
Cash flows from financing activities:
Net increase in notes payable 462,120 766,420
Principal payments on long-term borrowings (69,234) (140,607)
Proceeds from long-term borrowings -- 99,748
Proceeds from issuance of preferred stock -- 691,800
Payments of preferred stock dividends -- (41,296)
---------------------------
Net cash provided by financing activities 392,886 1,376,065
---------------------------
Net decrease in cash and cash equivalents (46,767) (145,136)
Cash and cash equivalents at beginning of period 112,631 202,894
---------------------------
Cash and cash equivalents at end of period $ 65,864 $ 57,758
===========================
Non-cash financing activities:
Cancellation of 9,000 shares of common stock 38,250
</TABLE>
6
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AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1998
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.
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 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED
TO THE QUARTER ENDED SEPTEMBER 30, 1997
REVENUE. Net sales during the three month period ended September 30, 1998
totaled $1,678,440 compared to $1,293,443 for the same period in 1997. This
represents an increase of $384,997 or 29.8%. Volume increased 473,820
pounds to 2,245,820 pounds of catfish sold, a record first quarter high for
the Company, compared to 1,772,000 pounds sold during the three month
period ended September 30, 1997. Accordingly, volume represented a 26.7%
increase during the three months ended September 30, 1998
7
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compared to the same period in 1997. Volume increased due to increased
stocking and feeding levels attained in calendar 1998 compared to calendar
1997.
Sales volume is greatly affected by stocking and feeding levels in the 12
to 18 month grow out period required for fish to mature to market size.
This increase in volume was partially enhanced by a price increase of
approximately 2 cents a pound to 74.7 cents realized in 1998 compared to
1997 when the average price of fish sold was 72.9 cents. This increase in
average price resulted from higher prices received by the Company's major
customers from food distributors, restaurants, and grocers due to a
shortage in supply of fish. The Company's major customers in turn passed on
the higher prices to the catfish farmers, including the Company. In
November 1998, prices have lowered to the range of 68 to 75 cents per
pound, primarily due to the seasonal increase of supply of fish after the
growing season and the lower demand during the Thanksgiving and Christmas
seasons. However, the Company cannot predict the future trend of fish
prices.*
Management expects sales volume to decline slightly from the quarter ended
September 30, 1998, but to exceed the volume of sales from the quarter ended
December 31, 1997.*
GROSS PROFIT during the three month period totaled $377,299 compared to
$203,933 for the same period in 1997. This represents an increase of
$173,366 or 85% in Gross Profit. Gross Profits are expected to continue to
increase as Cost of Goods Sold decrease.*
COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $1,301,141, an
increase of $210,131 or 19.3% compared to the same three month period of
1997, while net sales increased 29.8%. Margin from fish sales was 22.5%
during the three month period ended September 30, 1998 as compared to a
margin of 15.7% in the same period in 1997.
Cost of Goods Sold per pound decreased 7% to 58 cents per pound for the
quarter ended September 30, 1998 from 62 cents in the quarter ended
September, 1997.
Management expects Cost of Goods Sold per pound to continue to reduce due
to increased inventory growth at reduced cost.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during the three month period ended September 30, 1998 were
$382,258 or $48,660 lower than in the three month period ended September 30,
1997. This is a 11.3% decrease in total costs and a decrease of 30.2%, based
on volume. Selling, General, and Administrative costs per pound reduced from
24 cents to 17 cents per pound sold. Seining and hauling increased
approximately $30,000 because of increased sales, with the net decrease
resulting from reductions in administrative, legal, and accounting costs.
8
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DELTA PRIDE ASSESSMENT (EQUITY IN LOSSES ON INVESTMENT IN COOPERATIVE).
During the three month period ended September 30, 1998, the Company
recorded a net charge of $23,000 for its share of estimated losses of Delta
Pride's operations for its current fiscal year. No reserve was recorded for
the period ended September 30, 1997.
Starting in October of 1998, the Company began making the first of five
$34,984.59 monthly payments to Delta Pride. A sixth and final payment of
$30,632.76 is due the 15th of March, 1999. The total payments of
$205,555.71 represent the cooperative assessment to the Company for its
share of Delta Pride's losses for its fiscal year ended June 30, 1998.
In an effort to reduce these charge backs, the Company's president has run
for and been elected to the Board of Directors of Delta Pride. The first
year of his three year term ended in October of 1998. The results of the
efforts of the Board of Directors at Delta Pride have not yet been
successful in reducing that cooperative's losses. There can be no assurance
that the losses can be stopped*
Over the last three years, the Company has reduced its dependence upon
sales to Delta Pride from approximately 90% of sales to approximately 45%
of sales expected for the current year.*
INTEREST EXPENSE. Interest expense increased $34,734 or 36.3% to $130,368
in the three month period ended September 30, 1998 compared to the same
period in 1997. The average outstanding balances on short-term feed lines
of credit were higher in the quarter ended September 30, 1998 than in the
same period in the prior year. Management anticipates slightly higher
levels of debt and interest expense during the next four quarters due to
funding certain capital expenditures and increased levels of short-term
borrowings during the summer feeding season.*
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. Accordingly, interim
operating results of the Company may vary from quarter to quarter and year
to year and cannot be predicted with certainty.*
9
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had a current ratio of 3.5 to 1, as
opposed to 4.8 to 1 at June 30, 1998. Current assets exceeded current
liabilities by $4,811,804 in September 1998 compared to $4,776,156 in June
1998. Cash and cash equivalents reduced during the three month period ended
September, 1998 by $46,767.
Cash and cash equivalents were used primarily to fund operating expenses
and to grow live fish inventories. Live fish inventories increased by
approximately $567,959 during the three month period ended September 30,
1998 due to the three months of feeding during the summer. Management
expects live fish inventories to decrease during the next two quarters from
normal sales activities since the feeding season does not begin fully until
the second calendar quarter of 1999. Feed costs are added to inventory when
purchased.
The Company intends to fund its operations primarily through fish sales,
cash reserves and its $1,000,000 feed credit line with a bank. On May 14,
1998, a $1,000,000 credit line was established with a bank in Mississippi
as a revolving line of credit solely for catfish feed purchases. Borrowings
are secured by shares of the Company's cooperative processing stock,
accounts receivable, live fish inventories and two of the Company's farming
properties. Interest is paid monthly and principal is paid with
approximately 55 percent (40 cents per pounds of fish sold) of all
collections of accounts receivable. Interest accrues at the prime rate plus
165 basis points and the commitment expires March 15, 1999 with no
prepayment penalty. As of November 12, 1998 the balance owed on the
revolving line of credit is $624,529. The Company, based on its current
sales schedule, intends to retire the entire amount before the March, 1999
due date.*
Notwithstanding the above, Management believes that additional capital will
be necessary to support the Company's growth and on going operations.
Management believes that current cash combined with cash proceeds from
sales of fish will be adequate to fund its planned existing operation
through June 30, 1999. However, additional capital will be needed to
finance any future capital expenditures. Moreover, the Company may require
additional capital, 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 acceptable terms, if at all. In
addition, because of the Company's possible 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.
10
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual meeting scheduled November 16, 1998 three
questions were submitted to shareholders:
1. Election of the Board of Directors;
2. Proposal to ratify the appointment of Ernst and
Young LLP, as Independent auditors for the Company;
3. To transact such other business as may properly come
before the meeting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits: None
Reports on Form 8-K: None
11
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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, hereunto duly authorized.
AquaPro Corporation
(Registrant)
Dated: November 16, 1998 By: /s/ George S. Hastings, Jr
------------------ ---------------------------
President and Chairman
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 65,864
<SECURITIES> 0
<RECEIVABLES> 469,746
<ALLOWANCES> 0
<INVENTORY> 6,101,235
<CURRENT-ASSETS> 6,696,307
<PP&E> 8,440,647
<DEPRECIATION> 2,564,084
<TOTAL-ASSETS> 13,540,348
<CURRENT-LIABILITIES> 1,884,503
<BONDS> 3,760,745
0
0
<COMMON> 15,367,554
<OTHER-SE> (7,472,454)
<TOTAL-LIABILITY-AND-EQUITY> 13,540,348
<SALES> 1,678,440
<TOTAL-REVENUES> 1,678,440
<CGS> 1,301,141
<TOTAL-COSTS> 1,301,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,368
<INCOME-PRETAX> (58,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (58,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,568)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
