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, 1999
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)
1100 Highway 3, Sunflower, Mississippi 38778
(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: (662) 569-3331
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 October 14, 1999, Registrant had outstanding 4,892,381 shares
of common stock, its only class of common equity outstanding.
Transitional Small Business Disclosure Format (Check
one): Yes [ ] No [ X ]
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page No.
Condensed Consolidated Balance Sheet at
September 30, 1999 (unaudited)and
June 30, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months ended
September 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Three Months ended
September 30, 1999 and 1998 (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 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
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheet
September 30, June 30,
1999 1999
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents $ 0 $ 86,264
Trade accounts receivable 607,523 243,136
Other receivables --- 104,000
Inventories 6,755,429 6,264,923
Prepaid expenses 68,835 21,038
----------- ----------
Total current assets 7,427,459 6,719,361
Property, buildings and equipment, net 7,119,190 7,035,066
Investments in cooperatives 411,456 411,456
Other assets 161,438 170,205
------------ -----------
Total assets $15,123,871 $14,336,088
============= =============
See accompanying notes to unaudited consolidated financial statements.
September 30, June 30,
1999 1999
(Unaudited) (Note 1)
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 1,604,786 $ 1,388,493
Accounts payable 766,288 548,768
Accrued expenses 197,223 99,002
Current maturities of long-term debt 1,514,046 1,523,347
----------- -----------
Total current liabilities 4,082,343 3,559,610
Long-term debt, less current maturities 4,517,605 4,334,081
----------- -----------
Total liabilities 8,599,948 7,893,691
----------- -----------
Stockholders' equity:
Common stock, no par value -
authorized 100,000,000 shares,
issued and outstanding 4,892,381 at
September 30, 1999 and 4,890,381
shares at June 30, 1999 15,374,818 15,371,912
Unearned compensation (24,170) (32,444)
Retained earnings (deficit) (8,826,725) (8,897,071)
------------ ------------
Total stockholders' equity 6,523,923 6,442,397
------------ ------------
Total liabilities and stockholders'
equity $15,123,871 $14,336,088
============= =============
See accompanying notes to unaudited consolidated financial statements.
AquaPro Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months ended
September 30
1999 1998
----------- ------------
Net sales $ 2,015,901 $ 1,678,440
Cost of products sold 1,477,180 1,301,141
----------- -----------
Gross profit 538,721 377,299
Selling, general and administrative 361,625 382,258
----------- -----------
Operating income (loss) 177,096 (4,959)
----------- -----------
Other income (expense):
Equity in losses on investment in
cooperatives ---- (23,000)
Interest expense (165,659) (130,368)
Other, net 58,909 99,759
----------- -----------
(106,750) (53,609)
----------- -----------
Net income (loss) $ 70,346 $ (58,568)
============= =============
Basic net earnings (loss) per share $ 0.01 $ (0.01)
Diluted net earnings (loss) per share $ 0.01 $ (0.01)
Basic weighted average common shares
outstanding 4,892,631 4,887,379
Diluted weighted average common shares
outstanding 4,955,535 4,887,379
See accompanying notes to unaudited consolidated financial statements.
AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended
September 30
1999 1998
Net cash used in operating activities $ (211,898) $ (413,348)
Cash flows from investing activities:
Purchases of property and equipment (287,979) (34,643)
Purchases of cooperative stock and related
payments ---- (19,660)
Proceeds from note receivable from affiliate ---- 27,998
----------- -----------
Net cash used in investing activities (287,979) (26,305)
Cash flows from financing activities:
Net increase in notes payable 249,843 462,120
Proceeds from long-term borrowings 281,689 ----
Principal payments on long-term borrowings (117,919) (69,234)
----------- ------------
Net cash provided by financing activities 413,613 392,886
----------- ------------
Net decrease in cash and cash equivalents (86,264) (46,767)
Cash and cash equivalents at beginning of
period 86,264 112,631
----------- ------------
Cash and cash equivalents at end of
period $ 0 $ 65,864
============= =============
Non-cash financing activities:
Cancellation of shares of non-vested
common stock $ 1,468 $ 38,250
============= =============
See accompanying notes to unaudited consolidated financial statements
AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for three- month period ended September 30, 1999 is not
necessarily indicative of the results that may be expected for year ended
June 30, 2000.
The balance sheet at June 30, 1999 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended June 30, 1999.
2. Stockholders Equity
During the three months ended September 30, 1999 and 1998, the Company canceled
1,500 shares and 9,000 shares, respectively, of non-vested common stock.
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 THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUE. Net sales during the three-month period ended September 30, 1999
totaled $2,015,901 compared to $1,678,440 for the same period in 1998. This
represents an increase of $337,461 or 20.1%. Volume increased 489,385 pounds
to 2,735,205 pounds of fish sold compared to 2,245,820 pounds sold during the
three-month period ended September 30, 1998. Accordingly, volume represented
a 21.8% increase during the three months ended September 30, 1999 compared to
the same period in 1998. The average price per pound sold declined from
74.7 cents per pound in the three months ended September 30, 1998 to 73.7
cents per pound in the same period in 1999.
COST OF PRODUCTS SOLD AND MARGIN. Cost of products sold was $1,477,180, an
increase of $176,039 or 13.5% compared to the same three-month period of
1998, while net sales increased 20.1%. On a per pound basis, the costs of
products sold decreased from 57.9 cents in the three- month period ended
September 30, 1998 to 54.0 cents in the same period in 1999. Margin from
fish sales was 26.7% during the three-month period ended September 30, 1999
as compared to 22.5% in the same period in 1998. Cost of products sold is
largely dependent on the Company's cost structure in the previous year due
to the nine to eighteen month grow out period required for fish to reach a
marketable size. The decrease in costs of sales per pound was largely due
to a decrease in the Company's cost of feed.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses during the three-month period ended September 30, 1999 were $361,625
or $20,633 lower than in the three-month period ended September 30, 1998.
The selling, general and administrative expenses represented a decrease in
relation to sales volume, from 17.0 cents per pound sold in the three month
period ending September 30, 1998 to 13.2 cents per pound in the same period
in 1999.
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 Catfish, Inc.?s (?Delta Pride?) operations. For the
fiscal year ending June 30, 2000, Delta Pride has announced that it
will not charge its shareholders for any loss incurred in that fiscal
year, even though losses continue to occur.
However, the Company is presently expected, as a shareholder of Delta
Pride, to pay an assessment for the year ended June 30, 1999 of
$339,838. The assessment is to be paid in monthly installments
through March 2000. The Company has made $86,658.72 in payments
while continuing to sell fish to Delta Pride and determining that
company?s efforts toward becoming a more viable entity.
Effective November 1, 1999, AquaPro joined approximately forty
percent of Delta Pride stockholders and ceased making payments to
Delta Pride on the calculated ?pay back? for their fiscal year ended
June 30, 1999. Simultaneously, AquaPro?s president, who had been
elected and served on Delta?s board, resigned from the Board of
Directors of Delta Pride, citing an inability to influence the
direction that Delta Pride was headed. The Company has arranged to
sell all of its fish through other processors in the area at equal or
higher prices.
Delta Pride is uncertain as to whether it can force payment of this
?pay back,? but it believes that it can cancel a stockholder?s
shares to offset the ?pay back.? Certain shareholders dispute this
ability. The matter is now in court, and while AquaPro is not a
party to the action, the ruling will affect the Company. As of
November 9, 1999, Delta Pride has offered to cancel any remaining
payback and release the Company from any future liability in return
for the Company?s Delta Pride stock. The Company?s Board of
Directors is studying that proposal.
In fiscal 1999, in addition to recognizing $339,838 of Delta Pride
operating losses in AquaPro?s net loss for the year, AquaPro
recognized a $628,000 reduction in value of its Delta Pride stock
from $870,064 to its appraised value of $242,064. The remaining
amount of the payback is carried in the Company?s accounts payable at
$253,179.40. If the offer is accepted by AquaPro?s Board of
Directors, the stock value and the payable will both be removed from
the balance sheet and the Company will record $11,115.40 in debt
forgiveness income.
If the Company?s board does not accept Delta Pride?s offer, it will
not make any more payments to Delta Pride and will wait for the legal
resolution of the dispute. Delta Pride has received a ?Going
Concern? exception to its financial statements. If Delta Pride
should declare bankruptcy, it is not known whether a bankruptcy
trustee would be successful in an attempt to force payment of any
unforgiven ?pay back.? If the Company were forced to make such a
payment, it would have to postpone capital improvements and
expansions during the payment period.
INTEREST EXPENSE. Interest expense increased $35,291 or 27.1% to $165,659
in the three-month period ended September 30, 1999 compared to the same
period in 1998. The Company increased its long-term debt with its purchase
of live fish inventories, land and ponds and improvements, and machinery and
equipment in June 1999, which in turn increased the Company's interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had a current ratio of 1.8 to one,
compared to 1.9 to one at June 30, 1999. Current assets exceeded current
liabilities by $3,345,116 as of September 30, 1999 compared to $3,159,751 as
of June 30, 1999.
Live fish inventories increased from approximately 10.7 million pounds on
June 30, 1999 to approximately 12.8 million pounds on September 30, 1999, while
the cost basis of this inventory increased by approximately $490,000. During
the summer months and through theend of October, fish consume the greatest
amount of feed during the year.
In addition to the feed it purchased from Delta Western (via the Company's bank
line of credit), in August 1999 the Company purchased from another feed vendor
approximately 867 tons of feed at a total cost of $198,500. This feed was
financed by a creditor that manages short-term loans to businesses. The loan
will be paid by the Company over a six-month period ending February 2000.
For the three-month period ended September 30, 1999, the Company had a net
operating cash outflow of $216,226 compared to an outflow of $413,348 for the
same period in the previous year.
During the three-month period ended September 30, 1999, the Company purchased
approximately $288,000 in property and equipment, most of which was financed by
long-term debt. Long-term debt of $85,808 was also used to finance the
Company's first two installments for its share of Delta Pride's losses for
the year ended June 30, 1998.
Through the end of September 1999, the Company has continued to feed the fish
at normal levels through its peak feeding season, and as a result experienced a
cash flow shortage. The Company is current on all of its notes payable and
long-term debt, payroll, and payroll tax obligations. However, unsecured
vendor accounts payable of approximately $66,000 relating to purchases
through September 1999 are past due. As discussed above, the Company's feed
and production credit lines require that fifty percent of all collections of
accounts receivable be applied to the outstanding balance of each until paid.
The Company has reached the credit limit on its $400,000 production line of
credit and has available on its feed line of credit approximately $275,000.
The Company anticipates it will take approximately two months to become current
with its unsecured vendor accounts payable.
The Company has obtained a $350,000 unsecured credit facility from a creditor
that manages short-term loans to businesses. Loan proceeds are paid directly
to the Company's vendors, and the Company repays proceeds and loan fees of
2 1/2% to the creditor over a period of six months. Borrowings bear interest
at 12% per annum. During May through September 1999, the Company utilized
the revolver from this creditor for purposes of land improvements, stocking
of ponds, and purchases of feed in addition to those funded by the Company's
bank line of credit. As of September 30, 1999, The Company's outstanding
balance with the short-term creditor was $248,000.
The Company arranged to borrow approximately $100,000 from an individual
investor in September 1999 to purchase feed and fund other operating costs.
As the feeding season normally ends in October, the requirements for cash
decrease during the winter months. Sales of catfish are traditionally the
highest during the late fall and winter. Furthermore, when the bank lines
of credit are paid off, the Company willhave cash flow from all of its
accounts receivables.
YEAR 2000*
On January 1, 2000, any clock or date recording mechanism incorporating date
sensitive software which uses only two digits to represent the year may
recognize a date using 00 as the year 1900 rather than 2000. This could
result in a system failure or miscalculations causing disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business activities.
The Company has conducted a review of its internal computer systems to
determine the extent of any Year 2000 problem including potential problems
with the Company?s computer system relying on computer chips or software that
use dates stored as its first two digits (e.g., 99) versus four digits
(e.g., 1999). The review addressed both information technology (IT) and
non-IT systems. Non-IT systems typically include embedded technology such
as micro controllers.
Based on discussions with the vendors of both its hardware and software
components, the Company determined during the year ended June 30, 1999 that
certain facets of the system required further upgrading to become compliant
with Year 2000. In April, the Company moved its accounting and information
systems from Tennessee to Mississippi. As part of the move, the Company
engaged an outside firm to handle these upgrades along with the dismantling
of the system at the old location and setting up in Mississippi. The
Company believes that its hardware and software systems are now compliant
with Year 2000. Any Year 2000 problems that may occur are not expected to
have a material adverse effect on the Company?s future operating results or
financial condition. The cost of the move and the verification was
approximately $6,000.
In regard to the Non-IT systems and micro controllers, the Company has
determined that the type of equipment employed on its catfish farms do not
utilize micro controllers or do not utilize micro controllers that are
date-sensitive. Modern farm trucks, however, do utilize computers to
control ignition and other functions to cause the engine to operate.
Discussions with the vendors of these vehicles indicated that those
functions are not date-sensitive.
The Company?s major suppliers or customers face the same Year 2000 issues. If
they are not Year 2000 compliant, some disruption of the Company?s operations,
sales or collections could occur.
The Company has made inquiries to its feed vendor and major customers. In each
of these cases, the response has been that the respective company views the
Year 2000 issues with all seriousness, is working on the issue internally,
and expects to be fully prepared well before the end of 1999. Those
companies have agreed to update their progress with the Company to assure
of their compliance or so that the Company can modify its own plans
accordingly.
The Company's major supplier, comprising approximately half of the Company's
expense budget for a year is Delta Western. However, feeding normally begins
in late February of each year, and, accordingly, the Company does not
anticipate a Year 2000 problem associated with its feed vendors.
The Company's credit facilities ($1,100,000) are through Community Bank. As
the proceeds from sales of catfish are received, Community withholds funds on
sales to apply against the outstanding balances of the lines of credit.
Community Bank officials have addressed their significant Year 2000 issues and
have indicated that the bank is compliant with Year 2000.
The Company's major customers are catfish processors. In every case,
management's discussions have revealed that the processors intend to be ready
for Year 2000. The processors have hired outside consultants that are
reviewing both the micro controllers in the plant processing equipment and
the office information systems. Their contingency plans would include
reverting to a manual recording of fish deliveries, sales of processed fish
to their customers, billing, collections, and payment to fish farmers. This
could result in the processors paying less for fish or increasing market
prices thereby reducing demand and sales of catfish. This would cause a
decrease in sales dollars and/or cause the Company to sell fewer pounds of fish.
The Company?s worst case Year 2000 scenarios would include the processors or
suppliers information technology failure. Any switch to manual record keeping
would require the Company to hire additional personnel which could add between
one and two cents ($ .01 - .02) per pound sold. Management does not believe
that sales to processors and the mechanical day-to-day operations would
cease. It should be noted that the time of the year which Year 2000 problems
could occur is during a period of slow activity on a catfish farm. The
winter is normally a time to maintain equipment, fine tune budgets for the
coming feeding season and finalize credit lines. AquaPro has attempted to
diversify its customer base to limit its exposure to customers who do not
effectively deal with their Year 2000 issues.
OUTLOOK*
This outlook section contains a number of forward-looking statements,
all of which are based on current expectations. Actual results may
differ materially. These statements do not reflect the potential
impact of any future mergers or acquisitions except as noted below.
AquaPro expects that the demand and consumption of catfish will
continue to grow. According to the United States Department of
Census, catfish sales as of September 30, 1999 are 4.2% or
eighteen million pounds greater than the same time period in 1998.
According to Catfish Bargaining Association president, Bruce Dunlap,
?Fish supplies have never been so short and fish so small as they
are this year.? Through September feeding is only up 2.2% while
sales are up 4.2%.
Even with the expected shortage, current prices for catfish are
approximately one cent per pound less than last year. Management
does not expect the price to increase significantly during the
traditional ?turkey days? of the holiday season. Historically,
prices tend to rise during the Lenten season and until a couple of
months into the new feeding season.
Sales for the first quarter of 2000 were a record $2,015,901, an
increase of 20.1%. Pounds of fish sold increased 21.8% or 489,000
pounds more than the same period last year. The Company expects that
it will continue to have record sales for the remainder of the year.
However, sales for the quarter ended June 30, 2000 are expected to
be less than the first three quarters as our inventory of marketable
sized fish is depleted before the new growing season can add size and
weight to the smaller fish.
Cost of goods sold reduced from 57.9 cents per pound for the quarter
ended September 30, 1998 to 54.0 cents per pound for the quarter
ended September 30, 1999. The Company continues to strive to reduce
inventory costs. Continuing low cost of feed in the second quarter
of fiscal 2000 is expected to reduce overall cost of sales by an
additional one to two cents. Current booking prices for next feed
season's needs appear to indicate low feed costs next year as well.
Gross profit increased forty-two percent from $377,299 to $538,721
for the quarters ending September 30, 1998 and September 30, 1999.
Lower inventory costs are expected to continue to provide positive
gross profits for the remainder of the year.
Sales, general, and administrative costs were approximately $20,000
less than the same quarter last year even though sales were twenty
per cent higher. On a per pound basis, Sales, General, and
Administrative costs reduced from 17 cents to 13.2 cents, a 22%
decrease. The Company expects that Sales costs will increase with
increased sales volume, but General and Administrative costs should
vary only slightly with increases or decreases in sales volume.
Operating income for the quarter ended September 30, 1998 increased
from a negative $4,959 to a positive $177,096 for the September 30,
1999 quarter end. With increase sales volume and lower inventory
costs, operating income is expected to remain positive for the next
two quarters. Operating income for the fourth quarter is expected to
be negative until feeding can bring smaller stocker fish to
marketable size.
Other expenses increased in the area of interest expense mostly
because of the newly acquired farm and higher rates paid on trade
payables during the feeding season. Such interest expense is
expected to continue while the mortgage remains in existence. The
new farm is expected to produce more than enough revenue to cover
this additional interest cost and help sales volume in the fourth
quarter and beyond.
Net income increased $128,914 from a negative $58,568 for the quarter
ended September 30, 1998 to a positive $70,346 for the quarter ended
September 30, 1999. This is the Company's first quarter of reported
positive net income. If it can accomplish its budgeted sales volumes
and lower costs it expects to post positive net income for the second
and third quarters. As stated above, the fourth quarter results will
depend upon the coming feeding season. The Company feels that it has
a good chance to record its first profitable year for fiscal 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the three months ended September 30,1999, the Company
canceled 1,500 shares forfeited by a non-vested employee.
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: Financial data schedule
Reports on Form 8-K: None
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: (Date) By: /s/ George S. Hastings, Jr.
Chief Executive Officer,
President and
Chairman of the Board
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JUN-30-2000
[PERIOD-END] SEP-30-1999
[CASH] (4,328)
[SECURITIES] 0
[RECEIVABLES] 607,523
[ALLOWANCES] 0
[INVENTORY] 6,755,429
[CURRENT-ASSETS] 7,427,459
[PP&E] 10,335,168
[DEPRECIATION] 3,235,978
[TOTAL-ASSETS] 15,119,543
[CURRENT-LIABILITIES] 4,078,015
[BONDS] 4,517,605
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 15,374,818
[OTHER-SE] (8,850,895)
[TOTAL-LIABILITY-AND-EQUITY] 15,119,543
[SALES] 2,015,901
[TOTAL-REVENUES] 2,015,901
[CGS] 1,477,180
[TOTAL-COSTS] 1,477,180
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 165,659
[INCOME-PRETAX] 70,346
[INCOME-TAX] 0
[INCOME-CONTINUING] 70,346
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 70,346
[EPS-BASIC] .01
[EPS-DILUTED] .01
</TABLE>
