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, 2000
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, 2000, Registrant had outstanding 4,911,273 shares of common
stock, its only class of common equity outstanding.
Transitional Small Business Disclosure Format (Check
one): Yes [ ] No [ X ]
2
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Page No.
Condensed Consolidated Balance Sheets at
September 30, 2000 (unaudited) and
June 30, 2000 3
Condensed Consolidated Statements of
Operations for the Three Months ended
September 30, 2000 and 1999 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Three Months ended
September 30, 2000 and 1999 (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
2
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheets
September 30, June 30,
2000 2000
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents $ 41,454 $ 46,604
Trade accounts receivable 393,303 487,987
Other receivables 31,821 87,090
Live Fish Inventories 7,438,376 5,939,966
Prepaid expenses 38,103 52,443
----------- -----------
Total current assets 7,943,057 6,614,090
Property, buildings and equipment, net 7,688,030 7,872,569
Investments in cooperatives 169,240 169,240
Other assets 190,950 160,961
----------- -----------
Total assets $15,991,277 $14,816,860
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
3
4
September 30, June 30,
2000 2000
(Unaudited) (Note 1)
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 2,468,021 $ 1,348,678
Accounts payable 595,998 389,063
Accrued expenses 261,920 145,449
Current maturities of long-term debt 1,519,821 1,617,848
------------ ------------
Total current liabilities 4,845,760 3,510,038
Long-term debt, less current maturities 5,079,631 4,977,708
------------ ------------
Total liabilities 9,925,391 8,487,746
------------ ------------
Stockholders' equity:
Common stock, no par value -
authorized 100,000,000 shares,
issued and outstanding 4,911,273 at
September 30, 2000 and 4,905,273
shares at June 30, 2000 15,386,194 15,383,334
Unearned compensation (8,648) (8,320)
Retained earnings (deficit) (9,311,660) (9,045,900)
------------ ------------
Total stockholders' equity 6,065,886 6,329,114
------------ ------------
Total liabilities and stockholders'
equity $ 15,991,277 $ 14,816,860
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
4
5
AquaPro Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months ended
September 30
2000 1999
----------- ------------
Net sales $ 1,350,240 $ 2,015,901
Cost of products sold 1,082,446 1,477,180
----------- -----------
Gross profit 267,794 538,721
Selling, general and administrative 387,680 361,625
----------- -----------
Operating income (loss) (119,886) 177,096
Other income (expense):
Interest expense (205,817) (165,659)
Other, net 59,943 58,909
----------- -----------
(145,874) (106,750)
----------- -----------
Net income (loss) $ (265,760) $ 70,346
=========== ===========
Basic net earnings (loss) per share $ (0.05) $ 0.01
Diluted net earnings (loss) per share $ (0.05) $ 0.01
Basic weighted average common shares
outstanding 4,911,273 4,892,631
Diluted weighted average common shares
outstanding 4,911,273 4,955,535
See accompanying notes to unaudited condensed consolidated financial statements.
5
6
AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended
September 30
2000 1999
Net cash used in operating activities $(1,054,145) $(211,898)
Cash flows from investing activities:
Purchases of property and equipment (34,244) (287,979)
Investment in Joint Venture (40,000) --
----------- ---------
Net cash used in investing activities (74,244) (287,979)
Cash flows from financing activities:
Net increase in notes payable 1,119,343 249,843
Proceeds from long-term borrowings 171,973 281,689
Principal payments on long-term borrowings (168,077) (117,919)
----------- ---------
Net cash provided by financing activities 1,123,239 413,613
----------- ---------
Net decrease in cash and cash equivalents (5,150) (86,264)
Cash and cash equivalents at beginning of
period 46,604 86,264
----------- ---------
Cash and cash equivalents at end of
period $ 41,454 $ 0
=========== =========
See accompanying notes to unaudited condensed consolidated financial statements
6
7
AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2000
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, 2000 is not
necessarily indicative of the results that may be expected for year ended June
30, 2001.
The balance sheet at June 30, 2000 has been derived from the audited
consolidated 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, 2000.
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, 2000
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUE. Net sales during the three-month period ended September 30, 2000
totaled $1,350,241 compared to $2,015,901 for the same period in 1999. This
represents a decrease of $665,660 or 33.0%. Volume decreased 834,462 pounds to
1,900,743 pounds of fish sold compared to 2,735,205 pounds sold during the
three-month period ended September 30, 1999. Accordingly, volume represented a
30.5% decrease during the three months ended September 30, 2000 compared to the
same period in 1999. The average price per pound sold declined from 73.7 cents
per pound in the three months ended September 30, 1999 to 71.0 cents per pound
in the same period in 2000. The decrease in pounds of catfish sold resulted
primarily from an increase in the occurrence of "off - flavor" problems during
the three - month period ended September 30, 2000. Certain types of algae
release a chemical in the which is absorbed by fish and causes a musty tasted
termed "off flavor". Off - flavor is not a permanent condition,
7
8
but can adversely effect sales in a given period. The Company has taken and
continues to take steps to address this problem. If the off - flavor problem
continues, there could an adverse affect on the results of operations in future
periods.*
COST OF PRODUCTS SOLD AND MARGIN. Cost of products sold was $1,082,446, a
decrease of $394,734 or 26.7% compared to the same three-month period of 1999,
while net sales decreased 33.0%. On a per pound basis, the costs of products
sold increased from 54.0 cents in the three- month period ended September 30,
1999 to 56.9 cents in the same period in 2000. Margin from fish sales was 19.8%
during the three-month period ended September 30, 2000 as compared to 26.7% in
the same period in 1999. 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 increase in
cost of sales per pound was due partly to initial stocking cost associated with
the initiation of operation at the new Indian Lakes farm purchased in May of
2000. Also, feed costs are some what higher this year compared to the same
period last year.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses during the three-month period ended September 30, 2000 were $387,680 or
$26,056 higher than in the three-month period ended September 30, 1999. The
selling, general and administrative expenses represented an increase in relation
to sales volume, from 13.2 cents per pound sold in the three - month period
ending September 30, 1999 to 20.4 cents per pound in the same period in 2000.
*Due to the significant decline in volume from the same period last year, the
cost per pound ratio is much higher than it would be if projected sales levels
were achieved.
Also, the Company is selling fish to certain processors to which the Company
does not own stock. Those processors charge non - members processing fees, and
those additional costs are reflected in selling expense.
INTEREST EXPENSE. Interest expense increased $40,158 or 24.2% to $205,817
in the three-month period ended September 30, 2000 compared to the same
period in 1999. The Company increased its long-term debt with its purchase
of land, ponds and improvements, and machinery and equipment in May 2000, which
in turn increased the Company's interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had a current ratio of 1.7 to one,
compared to 1.9 to one at June 30, 2000. Current assets exceeded current
liabilities by $3,097,297 as of September 30, 2000 compared to $3,104,052 as of
June 30, 2000.
Live fish inventories increased from approximately 10.2 million pounds on June
30, 2000 to approximately 13.8 million pounds on September 30, 2000, while the
cost basis of this inventory increased by approximately $1,498,000. During the
summer months and through the end of October, fish consume the greatest amount
of feed during the year.
For the three-month period ended September 30, 2000, the Company had a net
operating cash outflow of $1,054,145 compared to an outflow of $211,898 for the
8
9
same period in the previous year.
During the three-month period ended September 30, 2000, the Company purchased
$34,244 in property and equipment, most of which was financed by long-term debt.
Through the end of September 2000, the Company 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 $200,000 relating to purchases through
September 2000 are past due. The Company's feed and production lines of credit
with a bank require that fifty percent of all collections of accounts receivable
be applied to the outstanding balance of each until paid. The Company reached
the credit limit on its $800,000 production line of credit and has available
approximately $50,000 on its feed line of credit as of September 30, 2000. The
Company anticipates it will take approximately two months to become current with
its unsecured vendor accounts payable.
The Company has a $250,000 unsecured credit facility from a creditor that makes
short-term loans to businesses. Loan proceeds are paid directly to the Company's
vendors, and the Company repays borrowings and loan fees of 2 1/2% to the
creditor over six months. Borrowings bear interest at 12% per annum. During
August 2000, the Company utilized the facility from this creditor for operating
expenses in addition to those funded by the Company's bank lines of credit. As
of September 30, 2000, the Company's outstanding balance with the short-term
creditor was $230,000.
When the feeding season ends, normally in October, the requirements for cash
decrease during the winter months. Sales of catfish are traditionally the
highest during the late fall and winter and the Company's bank lines of credit
are paid off. The Company will then have all of its cash flow available.
OUTLOOK*
Volume. Record high temperatures kept pond water temperatures at or above 100
degrees for much of the summer. Primarily because of this, the Company and other
producers experienced an off flavor condition in market size fish, delaying and
reducing sales. Off flavor fish are not sick, instead, they have a musty or
algae like taste that is unacceptable for processors or consumers. This
condition disappears once the weather cools down in the fall and winter and
these effected fish can then be sold.
For the quarter ended September 30, 2000, the Company sales' volume was only
81.4% of fiscal 2000's average quarterly sales and only 69.4% of fiscal 2000's
first quarter record sales. First quarter sales were over 300,000 pounds a month
less than the Company's potential monthly average for fiscal 2001.
For the fiscal year ended June 30, 2000 the Company farmed 2,125 Water acres
which sold a total of 9,332,125 pounds of fish, or an average of 4,391 pounds
per acre. For fiscal 2001, the Company now farms 2,650 water acres. If the
Company can average 4,358 pounds per water acre, it could potentially sell
11,550,000 pounds of fish this fiscal year. That would leave, in marketable
inventory by fiscal year end, as many pounds left to sell in the next nine
months as were sold in the entire year of fiscal 2000. On the other hand, the
hot summer reduced feeding levels below normal, which has slowed fish growth
9
10
during the Company's quarter September 30, 2000. Early warm spring weather could
make up those lower feeding levels while a late spring could delay feeding,
growth, and increased sales volume until the summer. The new 525-water acre farm
purchased in spring of 2000 is expected to begin selling fish during this
period.
Revenues. Revenues follow sales volume and as a result were less than expected
for the quarter ended September 30, 2000. The average price received during this
quarter was $.71/lb. or $.027/lb. less than the first quarter of last year. This
resulted in approximately $51,000 in reduced revenue for the pounds actually
sold. The current price for fish is $.68 to $.70/lb. Even though there is an
expected shortfall in the supply of fish for the spring, most farmers, including
the Company, are in the "payback" period of their seasonal credit lines and must
sell fish to reduce debt. The Company will continue to sell fish to meet its
credit line obligations unless it is successful in obtaining longer term
financing to replace the seasonal credit lines. If successful in obtaining long
term financing, the Company could defer some sales into the spring when the
price of fish is historically higher.
Costs of goods sold. For the quarter ended September 30, 2000, the cost of fish
sold was $.569/lb. or $.029/lb. more than the average cost for the same quarter
of last fiscal year. Costs were approximately $55,000 higher on the pounds
actually sold. Higher feed prices and energy costs combined with somewhat
reduced feeding to resulted in higher costs in inventory. Between October and
the time that feeding starts in earnest next spring, management expects the
average cost per pound in inventory to increase one cent per month, as it has
done historically.
Other factors. For the quarter ended September 30, 2000, sales, general, and
administrative costs were 7% higher than the same period last fiscal year. The
Company has increased the number of its water acres by approximately 50% over
the last two years with only a small increase in general and administrative
expenses.
Interest expenses are approximately $40,000 higher for the quarter ended
September 30, 2000 because of the costs of acquiring and operating new farms.
Significant sales have not yet begun from the newest farm and the Company is
carrying the costs of establishing a marketable inventory in those ponds without
the benefit of sales from that farm to help cover expenses.
10
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the quarter ending September 30, 2000 the company issued
6,000 shares of restricted Common stock to senior management.
The stock has a two year vesting period.
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
11
12
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 10, 2000 By: /s/ George S. Hastings, Jr.
Chief Executive Officer,
President and
Chairman of the Board
12