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
( ) 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. AND SUBSIDIARIES
--------------------------------------
(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) 763-1200
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 March 31, 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.
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
H:\2000WORK\CLIENTS\02582-001\BIOAQUA-MAR-00-DEC-99-10-Q.DOC
<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
(Unaudited)
<TABLE>
<CAPTION>
A S S E T S March 31, 2000 December 31, 1999
<S> <C> <C>
Current Assets:
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 3,730,517 $ 102,621
Accounts receivable, net 2,121,322 1,882,127
Due from related parties 382,424 357,743
Other receivables 188,634 242,937
Inventory 610,159 594,283
Income taxes receivable 152,065 120,122
Offering costs - 141,256
Other current assets 253,073 346,340
----------------- ----------------
Total Current Assets 7,438,194 3,787,429
Property and Equipment, net 563,575 622,364
Loan Receivable - Supplier 1,988,051 1,554,344
Intangibles, net 10,500 9,835
----------------- ----------------
$ 10,000,320 $ 5,973,972
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,463,473 $ 1,159,966
Line-of-credit 2,245,455 2,189,508
Obligations with banks - current portion 85,358 85,358
Notes payable 760,469 644,415
Due to stockholder 1,300,000 1,300,000
----------------- ----------------
Total Current Liabilities 5,854,755 5,379,247
----------------- ----------------
Long-Term Liabilities:
Obligations with banks, excluding current portion 403,720 378,161
----------------- ----------------
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 497,244 428,160
Cumulative translation adjustment (790,952) (741,219)
----------------- ----------------
Total Stockholders' Equity 3,741,845 216,564
----------------- ----------------
$ 10,000,320 $ 5,973,972
================= ================
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
March 31,
------------------- -------------------
2000 1999
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $ 1,435,879 $ 1,391,358
Cost of Operations 1,060,479 999,015
-------------- --------------
Gross Profit 375,399 392,343
General and Administrative Expenses 287,547 230,074
-------------- --------------
Income from Operations 87,852 162,269
-------------- --------------
Other Income (Expenses):
Other, net 50,267 (12,934)
Interest expense (69,035) (90,629)
-------------- --------------
(18,768) (103,563)
-------------- --------------
Net Income $ 69,084 $ 58,706
============== ==============
Net Income Per Common Share 0.04 0.03
============== ==============
Weighted Average Common Shares
Outstanding $ 1,795,634 $ 1,790,000
============== ==============
</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'Equity
Stock Stock Capital -------------- --------------------- -------------
Earnings Adjustment
<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 Income - - - 69,084 - 69,084
Translation adjustment - - - - (49,733) (49,733)
---------- ---- ------------ --------- -------------- ------------
Balance at March 31, 2000 $ 94 $ 170 $ 4,035,289 $ 497,244 $ (790,952) $ 3,741,845
===================== ============ ============= ============== ============
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
March 31,
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 69,084 $ 58,706
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 65,216 60,562
Translation adjustment (49,733) (52,252)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net (239,195) (594,535)
Other receivables 54,303 69,082
Inventory (15,876) 119,884
Income taxes receivable (31,943) (49,818)
Other current assets 93,267 (356,589)
Other assets (293,116) (85,727)
Increase (decrease) in:
Accounts payable and accrued expenses 303,507 348,004
---------------- ---------------
Net Cash (Used in) Operating Activities (44,486) (482,683)
---------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (55,789) (7,684)
---------------- ---------------
</TABLE>
<PAGE>
BIO-AQUA SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
March 31,
2000 1999
<S> <C> <C>
Cash Flows from Financing Activities:
- ---------------------------------------------------------------------------------------------------------------------------------
Net proceeds (repayments) of notes payable to vendors $ 116,054 $ (42,043)
Payment of underwriting discounts (552,500) -
Payment of offering costs (191,570) -
Net proceeds from lines-of-credit 55,947 -
Net proceeds (repayments) to related parties 24,681 (157,077)
Proceeds from public offering 4,250,000 -
Proceeds from long-term debt 25,559 600,327
------------------ ----------------
Net Cash Provided by Financing Activities 3,728,171 401,207
------------------ ----------------
Increase (Decrease) in Cash and Cash Equivalents 3,627,896 (89,160)
Cash and Cash Equivalents - Beginning of Period 102,621 136,489
------------------ ----------------
Cash and Cash Equivalents - End of Period $ 3,730,517 $ 47,329
================== ================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 69,035 $ 90,629
</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 March 31, 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.
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 March 31, 2000 was 501.41
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 quarter
ending March 31, 2000 was 519.78 pesos to U.S. $1 and for the year
ending December 31, 1999 was 515.08 pesos to U.S. $1.
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 1,795,634 for
the three months ended March 31, 2000 and 1,790,000 for the three
months ended March 31, 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 March 31, 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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Results of Operations
Gross revenues for the three months ended March 31, 2000 increased by $44,521
when compared to the three months ended March 31, 1999 from $1,391,358 to
$1,435,879 or 3%, due to a modest increase in trading activities during the
first quarter of 2000.
Cost of operations for the three months ended March 31, 2000, increased by
$61,464 when compared to the three months ended March 31, 1999 from $999,015 to
$1,060,479 or 6%, 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 increased.
Our gross profit percentage declined by approximately 2% (from 28% to 26%) for
the three months ended March 31, 2000 when compared to the three months ended
March 31, 1999 because of the increase in costs previously explained.
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(Continued)
General and administrative expenses increased by $57,473 or 25% from $230,074 to
$287,547 for the three months ended March 31, 2000 when compared to the same
period during 1999, mostly to an increase in payroll and selling expenses.
Other income (expenses) decreased from $(103,563) for the three months ended
March 31, 1999 to $(18,768) for the three months ended March 31, 2000, a
decrease of $84,795 or approximately 82%. This decrease is due to a decrease in
interest expense for the three months ended March 31, 2000 as a result of a
decrease in the average outstanding balance of debt. Additionally, we earned
approximately $50,000 in interest income on loans made to a supplier. (See
liquidity and capital resources.)
Our net income for the three months ended March 31, 2000 increased by $10,378,
from $58,706 for the three months ended March 31, 1999 to $69,084 for the same
period in 2000. This increase was the result of interest earned, reduced by the
declined in the gross profit percentage and the increase in general and
administrative expenses.
Liquidity and Capital Resources
At March 31, 2000, the accounts receivable increased by $239,195 when compared
at December 31, 1999, from $1,882,127 in 1999 to $2,121,322 in 2000. The
increased in receivables was due to extending payment terms to certain
customers.
Inventory increased by $15,876 at March 31, 2000, when compared to December 31,
1999, from $594,283 to $610,159. Inventory levels varies during the year
depending on the amount of trades and availability of product from suppliers.
Increased in inventory was within the expected range.
Due from related parties increased from $357,743 at December 31, 1999 to
$382,424 at March 31, 2000, an increase of $24,681, due to advances made to the
Company's main shareholder.
Other receivables decrease to $188,634 at March 31, 2000 from $242,937 at
December 31, 1999. A decrease of $54,303 or 14% as a result of the collection of
amounts due from the prior installations of automatic control systems.
Income taxes receivable increased to $152,065 at March 31, 2000 from $120,122 at
December 31, 1999, an increase of $31,943. This increase was prompted by an
increase in government incentives and credits arising out of export sales.
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(Continued)
Loans Receivable - Supplier increased by $433,707 from $1,554,344 at December
31, 1999 to $1,988,051 at March 31, 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 $50,267 and $149,603 was recorded at March 31, 2000
and December 31, 1999, respectively and included in other receivables.
Accounts payable increased by $303,507 from $1,159,966 at December 31, 1999 to
$1,463,473 at March 31, 2000 because the Company obtained extended payment terms
from certain vendors.
Long-term debt has increased from $2,274,866 at December 31, 1999 to $2,330,813
at March 31, 2000, an increase of $55,947. The increase was due to additional
borrowings to cover short-term operations.
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 March 31, 2000, $400,000 of our net proceeds
was paid as a portion of the $1.3 million purchase price for Profeed, Inc. In
addition, $150,000 was paid to repay the bridge loans from third party
accredited investors and $50,000 for current operations. The remainder of our
anticipated use of our net proceeds will be used for reduction of bank loans,
development of red tide kits, development of immune stimulants, research and
development of poultry vaccine, marketing and working capital.
<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: ______________________________________________
Max Rutman, President
and Chief Executive Officer
By: ______________________________________________
Guillermo Quiroz, Chief Financial Officer
(authorized Officer and Chief Accounting Officer)
DATED: May 18, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001089590
<NAME> BioAqua Systems, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 501.41
<CASH> 3,730,517
<SECURITIES> 0
<RECEIVABLES> 2,121,322
<ALLOWANCES> 0
<INVENTORY> 610,159
<CURRENT-ASSETS> 7,438,194
<PP&E> 2,165,188
<DEPRECIATION> 1,601,613
<TOTAL-ASSETS> 10,000,320
<CURRENT-LIABILITIES> 5,854,755
<BONDS> 0
0
0
<COMMON> 264
<OTHER-SE> 3,741,581
<TOTAL-LIABILITY-AND-EQUITY> 10,000,320
<SALES> 1,435,879
<TOTAL-REVENUES> 1,435,879
<CGS> 1,060,479
<TOTAL-COSTS> 1,060,479
<OTHER-EXPENSES> 287,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,035
<INCOME-PRETAX> 69,084
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,084
<EXTRAORDINARY> 0
<CHANGES> 0
<DISCONTINUED> 0
<NET-INCOME> 69,084
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
