FORM 10-QSB
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to _____________________
Commission file number:
BIO-AQUA SYSTEMS, INC.
------------------- --------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0926223
-----------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
350 East Las Olas Boulevard, Suite 1700, Ft. Lauderdale, Florida 33301
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 766-7879
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------------- ------------
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2000, there were 940,000 shares of Class A Common Stock, par
value $.0001 per share, and 1,700,000 shares of Class B Common stock, par value
$.0001 per share, outstanding.
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
<PAGE>
The accompanying notes are an integral part of these consolidated financial
statements.
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
A S S E T S June 30, 2000 December 31, 1999
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,140,520 $ 102,621
Accounts receivable net allowance of
approximately $98,000 1,634,084 1,882,127
Due from related parties 229,704 357,743
Other receivables 589,591 242,937
Inventory 379,802 594,283
Income taxes receivable 100,524 120,122
Offering costs - 141,256
Other current assets 602,419 346,340
----------------- ----------------
Total Current Assets 4,676,644 3,787,429
Property and Equipment, net 522,588 622,364
Loan Receivable - Supplier 2,054,064 1,554,344
Intangibles, net 11,266 9,835
----------------- ----------------
$ 7,264,562 $ 5,973,972
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,091,875 $ 1,159,966
Line-of-credit 1,641,348 2,189,508
Obligations under capital leases 85,358 85,358
Notes payable 442,305 644,415
Due to stockholder 900,000 1,300,000
----------------- ----------------
Total Current Liabilities 4,160,886 5,379,247
----------------- ----------------
Long-Term Liabilities:
Obligations under capital leases, excluding current portion 314,647 378,161
----------------- ----------------
Stockholders' Equity:
Class A common stock 94 9
Class B common stock 170 170
Preferred stock - -
Additional paid-in capital 4,035,289 529,444
Retained earnings 171,512 428,160
Cumulative translation adjustment (1,418,036) (741,219)
----------------- ----------------
Total Stockholders' Equity 2,789,029 216,564
----------------- ----------------
$ 7,264,562 $ 5,973,972
================= ================
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 and 1999
-------------------------- --------------------------
2000 1999
<S> <C> <C>
Revenues $ 1,969,501 $ 1,571,682
Cost of Operations 1,511,433 969,741
----------------- -----------------
Gross Profit 458,068 601,941
General and Administrative Expense 608,915 716,700
----------------- -----------------
Loss from Operations (150,847) (114,759)
----------------- -----------------
Other Income (Expenses):
Other, net (43,000) 153,733
Interest expense (131,886) (110,239)
----------------- -----------------
(174,886) 43,494
----------------- -----------------
Net Loss $ (325,733) $ (71,265)
================= =================
Net Loss Per Common Share $(0.12) $(0.04)
====== ======
Weighted Average Common Shares Outstanding 2,640,000 1,790,000
========== ==========
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 and 1999
-------------------------- --------------------------
2000 1999
<S> <C> <C>
Revenues $ 3,405,380 $ 2,963,040
Cost of Operations 2,571,912 1,968,756
----------------- -----------------
Gross Profit 833,468 994,284
General and Administrative Expense 896,462 946,774
----------------- -----------------
(Loss) Income from Operations (62,994) 47,510
----------------- -----------------
Other Income (Expenses):
Other, net 7,267 153,618
Interest expense (200,921) (213,687)
----------------- -----------------
(193,654) (60,069)
----------------- -----------------
Net Loss $ (256,648) $ (12,559)
================= =================
Net Loss Per Common Share $(0.11) $(0.01)
====== ======
Weighted Average Common Shares Outstanding 2,215,000 1,739,882
========== ==========
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B Additional Cumulative Total
Common Common Paid-in Retained Translation Stockholders'
Stock Stock Capital Earnings Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 9 $ 170 $ 529,444 $ 428,160 $ (741,219) $ 216,564
Issuance of Class A common stock from
public offering, net 85 - 3,505,845 - - 3,505,930
Net Loss - - - (256,648) - (256,648)
Translation adjustment - - - - (676,817) (676,817)
----------- ----------- ------------ ------------- -------------- ------------
Balance at June 30, 2000 $ 94 $ 170 $ 4,035,289 $ 171,512 $ (1,418,036) $ 2,789,029
=========== =========== ============ ============= ====== ==============
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 and 1999
2000 1999
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $ (256,648) $ (12,559)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 128,546 117,777
Allowance for bad debt 98,285 -
Loss on disposal of fixed assets 18,740 -
Translation adjustment (676,817) (153,208)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 149,758 95,560
Other receivables (346,654) 69,082
Inventory 214,481 (31,217)
Income taxes receivable 19,598 15,039
Other current assets (256,079) (362,773)
Due from suppliers (499,720) (342,387)
Intangibles (1,431) -
Increase (decrease) in:
Accounts payable and accrued expenses (68,091) 161,530
---------------- ---------------
Net Cash (Used in) Operating Activities (1,476,032) (443,156)
---------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (47,510) (9,049)
---------------- ---------------
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 and 1999
2000 1999
Cash Flows from Financing Activities:
<S> <C> <C>
(Repayments) of notes payable $ (202,110) $ (23,911)
Payment of underwriting discounts (552,500) -
Payment of offering costs (50,314) (205,127)
Net (repayments) proceeds of lines-of-credit (548,160) 625,541
Net proceeds (repayments) to related parties 128,039 (5,865)
Proceeds from bridge loan - 150,000
Proceeds from public offering 4,250,000 -
Repayment due to stockholder (400,000) -
Payment on capital leases (63,514) (93,227)
------------------ ----------------
Net Cash Provided by Financing Activities 2,561,441 447,411
------------------ ----------------
Increase (Decrease) in Cash and Cash Equivalents 1,037,899 (4,794)
Cash and Cash Equivalents - Beginning of Period 102,621 136,489
------------------ ----------------
Cash and Cash Equivalents - End of Period $ 1,140,520 $ 131,695
================== ================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 200,921 $ 60,069
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of Class A common stock in
connection with offering - 118,122
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements (Continued)
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) With Respect to June 30, 2000 and 1999 and December 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization - Bio-Aqua Systems, Inc., (the "Company"), is a Florida
corporation incorporated in ------------
March 1999 as a holding company to acquire Tepual, S.A., a Chilean
corporation. Tepual, S.A. is in the business of researching and developing of
production and control systems related to animal nutrition. The Company provides
brokerage services and technical advice in the production of meals for feed for
aquaculture, poultry and cattle farming. In addition, the Company researches
poultry vaccines.
Basis of Presentation - In March 2000, the Company acquired 99.9%
of the issued and outstanding common stock of Tepual, S.A., in
exchange for 1,700,000 shares of Class B common stock which took
effect as of the closing of the initial public offering of the
Company's stock. In order to comply with Chilean law and the
requirements of the Central Bank of Chile for foreign investments,
two stock purchase agreements were effectuated at the time of the
closing of the initial public offering of the Company's stock
whereby (i) Atik, S.A. ("Atik"), a Chilean corporation and
Flagship Import Export LLC ("Flagship"), a Nevada limited
liability company, purchased 1,699,900 shares of Class B common
stock and, (ii) the Company purchased Atik and Flagship's 99.9%
interest in Tepual, S.A. and Tepual, S.A. then became a majority
owned (99.9%) subsidiary of the Company. The substance of this
transaction is an exchange of shares between the Company and Atik
and Flagship which was accounted for as a combination of entities
under common control. Generally accepted accounting principles
prescribe giving effect to a consummated business combination in
financial statements that do not include the date of consummation
as if the business combination occurred at the beginning of the
first period presented. Accordingly, the combined financial
statements for all periods presented have been prepared assuming
the acquisition by the Company took place on January 1, 1997, that
the Company was incorporated on that date, and the exchange of
shares was effectuated at that time. Because the Company was not
formed until March 1999, historical and proforma financial
statements are not included herein because the assets,
liabilities, revenues and expenses and net income of Bio-Aqua
Systems, Inc. are not material to the information presented. These
financial statements became the historical combined financial
statements of the Company after financial statements covering the
date of consummation of the business combination were issued.
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Functional Currency - The financial statements have been
translated in accordance with the provisions set forth in
Statement of Financial Accounting Standards No. 52, from Chilean
pesos (the functional currency) into US dollars (the reporting
currency). The exchange rate used at June 30, 2000 was 538.61
pesos to U.S. $1 and at December 31, 1999, was 530.07 pesos to
U.S. $1. The weighted average exchange rate used for the six
months ended June 30, 2000 was 524.70 pesos to U.S. $1 and for the
year ending December 31, 1999 was 515.08 pesos to U.S. $1.
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 2,215,00 and
2,640,000 for the three and six months ended June 30, 2000 and
1,739,882 and 1,790,000 for the three and six months ended June
30, 1999 giving effect to common stock equivalents, none of which
existed in the aforementioned periods.
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis contains various "forward looking
statements". Such statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may", "expect", "anticipate", "estimate" or "continue" or use of
negative or other variations or comparable terminology.
We caution that these statements are further qualified by important factors that
could cause actual results to differ materially from those contained in the
forward-looking statements, that these forward-looking statements are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.
OVERVIEW
We generate substantially all of our revenues from the sale of certain products
such as fish meal, feather meal and krill meal which we purchase from third
parties under our own brand for resale to our customers throughout the world. As
of June 30, 2000, we have sold two of our automatic control systems for fish
meal processing, certain immune stimulants on a testing basis, as well as
vaccines which we have developed.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Results of Operations
Gross revenues for the six months ended June 30, 2000 increased by $442,340 when
compared to the six months ended June 30, 1999 from $2,963,040 to $3,405,380 or
15%, due to an increase in trading activities during the first six months of
2000.
Cost of operations for the six months ended June 30, 2000, increased by $603,156
when compared to the six months ended June 30, 1999 from $1,968,756 to
$2,571,912 or 31%, as a result of the fluctuations of the prices of fish meal,
feather meal and krill meal in our brokerage business. In addition, because
these products are generally paid in U.S. dollars, the devaluation of the
Chilean pesos also contributed to the cost increase. Also, for the six months
ended June 30, 2000, management decided to reserve approximately $200,000 of
existing inventory as obsolete due to decline in demand. This decision increased
the cost of operations by approximately 10% when compared to 1999 and decreased
profits accordingly.
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
(Continued)
Gross profit percentage declined by approximately 10% (from 34% to 24%) for the
six months ended June 30, 2000 when compared to the six months ended June 30,
1999 because of the increase in costs previously explained.
General and administrative expenses decreased by $50,312 or 5% from $946,774 to
$896,462 for the six months ended June 30, 2000 when compared to the same period
during 1999. This decrease was principally attributed to a reduction in
administrative overhead.
Other income (expenses) decreased from $153,618 for the six months ended June
30, 1999 to $7,267 for the six months ended June 30, 2000, a decrease of
$146,351 or approximately 95%. This decrease is due to a reduction in drawbacks
from Chilean customs collected in 1999 but not in 2000.
Net loss for the six months ended June 30, 2000 increased by $244,089, from
$12,559 for the six months ended June 30, 1999 to $256,648 for the same period
in 2000. The increase in net loss was prompted by an allowance for bad debt
recorded for the six months ended June 30, 2000 of approximately $98,000 and an
inventory reserve recorded of approximately $200,000 previously explained.
Liquidity and Capital Resources
At June 30, 2000, the accounts receivable decreased by $248,043 when compared at
December 31, 1999, from $1,882,127 in 1999 to $1,634,084 in 2000. The decrease
in receivables was due to collection of outstanding balances on certain Chilean
government contracts.
Inventory decreased by $214,481 at June 30, 2000, when compared to December 31,
1999, from $594,283 to $379,802. The decrease was attributable to the increase
in the reserve for obsolete inventory recorded at June 30, 2000.
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
(Continued)
Due from related parties decreased from $357,743 at December 31, 1999 to
$229,704 at June 30, 2000, a decrease of $128,039, due to reimbursements made to
the Company by its principal shareholder.
Other receivables increased to $597,256 at June 30, 2000 from $242,937 at
December 31, 1999. An increase of $346,654. The increase is mostly due to an
increase in interest receivable from the Kelor project and an increase in other
miscellaneous receivables.
Income taxes receivable decreased to $100,524 at June 30, 2000 from $120,122 at
December 31, 1999, a decrease of $19,598. This decrease was prompted by a
decrease in government incentives and credits arising out of export sales.
Loan Receivable - Supplier increased by $499,720 from $1,554,344 at December 31,
1999 to $2,054,064 at June 30, 2000. This increase is due to additional loans
made to Kelor Trading Ltd., a krill fishing and research operation. Under this
agreement with Kelor, we have agreed to lend up to $2 million, payable over 18
months at an interest rate of 13.5% in return for the exclusive rights to sell
all of the vessel's krill products and the right to perform certain research and
development on board the vessel located in Antarctic waters. Additionally, Kelor
has agreed to pay us a brokerage commission of 3% over the F.O.B. sales and $20
per ton of krill meal and 5% for krill oil. Interest income receivable in the
amount of $252,091 and $154,702 was recorded at June 30, 2000 and December 31,
1999, respectively and is included in other receivables.
Accounts payable and accrued expenses decreased by $68,091 from $1,159,966 at
December 31, 1999 to $1,091,875 at June 30, 2000.
The lines-of-credit with banks decreased from $2,189,508 at June 30, 1999 to
$1,641,348 at June 30, 2000, a decrease of $548,160. This decrease was due to
payments made on these lines-of-credit with the proceeds from the public
offering made on March 2000.
<PAGE>
USE OF PROCEEDS
On March 29, 2000, the Securities and Exchange Commission declared effective our
registration statement on Form SB-2 in connection with our initial public
offering. A total of 425,000 units (each unit consisting of 2 shares of Class A
common stock and 2 redeemable common stock purchase warrants) were sold at a
price of $10 per unit to the underwriters through their representatives
Institutional Equity Corporation and Capital West Securities. The aggregate
gross proceeds raised in connection with the IPO were $3,697,500 net of $552,500
of underwriters discounts. As of June 30, 2000, the Company had used the
proceeds from this offering as follows:
1. Reduction of bank debt by approximately $740,000.
2. $400,000 was paid as a portion of the $1.3 million purchase price for
Profeed, Inc.
3. Paid offering costs of approximately $466,000 excluding underwriters
discounts.
4. Repayment of bridge loans by approximately $160,000.
5. Paid approximately $338,000 for development of Red Tide Kits, Immune
Stimulants and Poultry Vaccines.
6. Used approximately $643,500 for trading working capital.
7. Open a certificate of deposit with bank for $950,000.
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Part II: Other Information
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities and Use of Proceeds
None
ITEM 3: Defaults upon Senior Securities
None
ITEM 4: Submission of Matters to a vote of Securities Holders
None
ITEM 5: Other Information
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
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 as a duly authorized officer as the chief financial officer of the
Registrant.
BIO-AQUA SYSTEMS, INC.
By: /s/Max Rutman
Max Rutman, President
and Chief Executive Officer
By: /s/Guillermo Quiroz
Guillermo Quiroz, Chief Financial Officer
(authorized Officer and Chief Accounting Officer)
DATED: August 24, 2000
<PAGE>
