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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 December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 0-29258
AQUAPRO CORPORATION
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(Exact name of Registrant as specified in its charter)
Tennessee 62-1598919
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
4307 Central Pike, Hermitage, Tennessee 37076
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(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: (615) 889-0804
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 February 10, 1998, Registrant had outstanding 2,674,847 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets at December 31, 1997
(Unaudited) and June 30, 1997 .................................... 3
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended December 31, 1997 and 1996 (Unaudited) ...... 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1997 and 1996 (Unaudited) .............. 7
Notes to Unaudited Condensed Consolidated Financial Statements ... 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 14
Item 2. Changes in Securities ............................................ 14
Item 3. Defaults Upon Senior Securities .................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information ................................................ 14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheets
December 31, June 30,
1997 1997
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(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 362,668 $ 202,894
Trade accounts receivable 231,548 108,009
Receivables from affiliates 27,998 27,998
Live fish inventories 5,927,400 5,740,124
Prepaid expenses 58,402 10,516
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Total current assets 6,608,016 6,089,541
Property, buildings and equipment, net 5,774,446 5,639,753
Investments in cooperatives 1,028,619 883,518
Delivery rights and other intangible assets, net 91,744 104,161
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Total assets $13,502,825 $12,716,973
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December 31, June 30,
1997 1997
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Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 1,002,202 $ 689,462
Accounts payable 108,782 523,255
Accrued salaries 229,994 239,994
Accrued interest and other 39,248 74,628
Current maturities of long-term debt 340,965 272,258
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Total current liabilities 1,721,191 1,799,597
Long-term debt, less current maturities 3,024,563 4,102,980
Stockholders' equity:
Series A Preferred Stock, no par value
- authorized 1,900,000 shares,
cumulative, convertible, issued and
outstanding 590,623 at December 31, 1997 and 235,507
at June 30, 1997 4,584,708 1,837,408
Preferred stock, par value to be determined by the
Board of Directors - authorized 100,000 shares, none
issued -- --
Common stock, no par value - authorized 100,000,000
shares, issued and outstanding 2,674,847 at December
31, 1997 and 2,670,667 shares at June 30, 1997 10,604,534 10,588,311
Unearned compensation (65,624) (126,563)
Retained earnings (deficit) (6,366,547) (5,484,760)
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Total stockholders' equity 8,757,071 6,814,396
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Total liabilities and stockholders' equity $13,502,825 $12,716,973
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See accompanying notes to unaudited consolidated financial statements.
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AquaPro Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months ended
December 31
1997 1996
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Revenues:
Net sales $ 962,345 $ 1,178,073
Management fees from affiliates -- 4,500
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962,345 1,182,573
Cost of products sold 857,462 1,017,979
Selling, general and administrative 449,259 426,237
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Operating loss (344,376) (261,643)
Other (income) expense:
Equity in losses on investment in cooperatives 27,112 --
Interest expense 116,553 200,034
Other, net (47,079) (63,078)
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96,586 136,956
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Net loss $ (440,962) $ (398,599)
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Basic net loss per share $ (0.21) $ (0.15)
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Weighted average common shares outstanding 2,671,712 2,636,831
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See accompanying notes to unaudited consolidated financial statements.
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AquaPro Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Six Months ended
December 31
1997 1996
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Revenues:
Net sales $ 2,255,788 $ 2,015,564
Management fees from affiliates 1,500 9,000
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2,257,288 2,024,564
Cost of products sold 1,948,472 1,911,495
Selling, general and administrative 880,177 684,516
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Operating loss (571,361) (571,447)
Other (income) expense:
Equity in losses on investment in cooperatives 27,112 30,000
Interest expense 212,187 325,804
Other, net (91,477) (100,964)
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147,822 254,840
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Net loss $ (719,183) $ (826,287)
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Basic net loss per share $ (0.33) $ (0.32)
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Weighted average common shares outstanding 2,671,264 2,614,699
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See accompanying notes to unaudited consolidated financial statements.
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AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
December 31
1997 1996
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Net cash used in operating activities $(1,130,379) $ (960,536)
Cash flows from investing activities:
Purchases of property and equipment (452,472) (153,055)
Purchases of cooperative stock and related payments (145,101) (62,000)
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Net cash used in investing activities (597,573) (215,055)
Cash flows from financing activities:
Net increase in notes payable 312,740 185,270
Principal payments on long-term borrowings (174,912) (370,576)
Proceeds from long-term borrowings 149,216 148,874
Proceeds from issuance of preferred stock 1,763,286 748,169
Payments of preferred stock dividends (162,604) (5,225)
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Net cash provided by financing activities 1,887,726 706,512
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Net increase (decrease) in cash and cash equivalents 159,774 (469,079)
Cash and cash equivalents at beginning of period 202,894 1,228,136
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Cash and cash equivalents at end of period $ 362,668 $ 759,057
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Non-cash financing activities:
Conversion of long-term debt to Series A Preferred
Stock $ 984,014 $ --
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See accompanying notes to unaudited consolidated financial statements.
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AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1997
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.
2. Long-Term Debt and Stockholders' Equity
During the six months ended December 31, 1997, the Company commenced and
completed an exchange offer to certain holders of its 10.35% investor
notes payable. Each holder was offered 1.3 shares of Series A Preferred
Stock for each $10 of notes held. The offer was made for a total of
$1,147,513 of notes. In the aggregate, $984,014 of notes were exchanged
for 127,922 shares of Series A Preferred Stock.
Also during the six months ended December 31, 1997, the Company realized
net proceeds of $1,763,286 from the sale of 227,194 shares of Series A
Preferred Stock through its Preferred Stock Rights Offering.
2. Basic and Diluted Net Loss per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 128, Earnings per Share. Statement No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement No.
128 requirements.
Basic net loss per common share is computed by dividing net loss
applicable to common stock (net loss less dividend requirements for
Series A Preferred Stock of $121,310 and $162,604 in the three and six
month periods ended December 31, 1997, respectively, and $5,225 in the
three and six month periods ended December 31, 1996) by the weighted
average number of common shares outstanding (2,671,712 and 2,671,264
shares in the three and six month periods ended December 31, 1997,
respectively, and 2,636,831 and 2,614,699 shares in the three and six
month
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periods ended December 31, 1996, respectively). Diluted loss per common
share has not been presented due to the antidilutive effects of
outstanding stock options and warrants.
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 DECEMBER 31, 1997 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1996
REVENUE. Net sales during the three month period ended December 31, 1997
totaled $962,345 compared to $1,178,073 for the same period in 1996. This
represents a decline of $215,728 or 18.3%. Volume decreased 211,000
pounds to 1,349,000 pounds of fish sold compared to 1,560,000 pounds sold
during the three month period ended December 31, 1996. Accordingly,
volume represented a 13.5% decline during the three months ended December
31, 1997 compared to the same period in 1996. The remainder of the
decline was due to a price decrease of approximately 5 cents a pound to
71 cents realized in 1997 compared to 1996 when the average price of fish
sold was 76 cents. This decrease in average price resulted from lower
prices received by the Company's major customers from food distributors,
restaurants, and grocers due to an increase in competitive pricing
policies as processors attempted to increase their market share. The
Company's major customers in turn passed on the lower prices to the
catfish farmers, including the Company. However, in February 1998,
prices began to rise and, currently, approximate 74 to 75 cents per
pound.
Management expects to substantially increase sales beginning in the March
1998 quarter due to the normal seasonal increase in demand during Lent.*
Total sales for the March 1998 quarter should exceed the sales in the
March 1997 quarter due to overall increased stocking and feeding levels
during 1997 compared to 1996.*
COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $857,462, a
decrease of $160,517 or 15.8% compared to the same three month period of
1996, while net sales decreased 18.3%. Margin from fish sales was 10.9%
during the three month period ended December 31, 1997 as compared to
13.6% in the same period in 1996. Cost of Products sold is largely
dependent on the Company's cost structure in the previous year due to the
12 to 18 month grow out period required for fish to mature. The cost of
feed was lower during the period affecting the
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quarter ended December 31, 1996 than the quarter ended December 31, 1997.
Additionally, there was a 7% decline in average price in the quarter
ended December 31, 1997 compared to the same period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during the three month period ended December 31, 1997 were
$449,259 or $23,022 higher than in the three month period ended December
31, 1996. Legal and accounting fees increased in 1997 compared to the
same period in 1996 as the Company prepared to become a public company
registered with the Securities and Exchange Commission.
DELTA PRIDE ASSESSMENT (EQUITY IN LOSSES ON INVESTMENT IN COOPERATIVE).
During the three month period ended December 31, 1997, the Company
recorded a net charge of $27,112 for its share of estimated losses of
Delta Pride's operations. During the same period in 1996, there was no
such adjustment. In January 1998, the Company made its final assessment
payment to Delta Pride covering the year ended June 30, 1997. Such
payments totaling $191,377 were made at various times from July 1997
through the final payment in January 1998.
INTEREST EXPENSE. Interest expense decreased $83,481 or 41.7% to $116,553
in the three month period ended December 31, 1997 compared to the same
period in 1996. Debt levels were lower during the 1997 period compared to
1996 due to the conversion of $984,014 in debt to preferred stock during
the quarter ended September 31, 1997. Also, interest rates were lower due
to variable rate adjustments on certain debt effective January 1, 1997.
Management anticipates slightly higher levels of debt and interest
expense during the next four quarters due to funding certain capital
expenditures.*
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. However, this did not
occur in 1997 as prices fell in the early part of 1997 and have not fully
recovered. Accordingly, interim operating results of the Company may vary
from quarter to quarter and year to year and cannot be predicted with
certainty.*
RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 1996
REVENUE. Net sales during the six month period ended December 31, 1997
totaled $2,255,788 compared to $2,015,564 for the same period in 1996.
This represents an increase of $240,224 or 11.9%. Volume increased
524,000 pounds to 3,130,000 pounds of fish sold compared to 2,606,000
pounds sold during the six month period ended December 31, 1996.
Accordingly, volume represented a 20.1% increase during the six months
ended December 31, 1997 compared to the same period in 1996. This volume
increase was partially offset by a price decrease of approximately 5
cents a pound to 72 cents realized in 1997 compared to 1996 when the
average price of fish sold was 77 cents. This decrease in average price
resulted from lower prices received by the Company's major customers from
food distributors, restaurants, and grocers due
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to an increase in competitive pricing policies as processors attempted to
increase their market share. The Company's major customers in turn passed
on the lower prices to the catfish farmers, including the Company.
However, in February 1998, prices began to rise and, currently,
approximate 74 to 75 cents per pound.
COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $1,948,472 an
increase of $36,977 or 1.9% compared to the same six month period of
1996, while net sales increased 11.9%. Margin from fish sales was 13.6%
during the six month period ended December 31, 1997 as compared to 5.2%
in the same period in 1996. In the prior year, certain ponds were emptied
for refurbishing and mortality adjustments of approximately $218,000 were
recorded in Cost of Products Sold. Had these mortality adjustments not
occurred, margin from fish sales would have been 16%. The higher margin
from fish sales (without reserve and mortality adjustments) resulted from
a lower average cost to produce fish in 1996. Cost of Products sold is
largely dependent on the Company's cost structure in the previous year
due to the 12 to 18 month grow out period required for fish to mature.
The cost of feed was lower during the period affecting the six months
ended December 31, 1996 than the six months ended December 31, 1997.
Additionally, there was a 6% decline in average price in the six months
ended December 31, 1997 compared to the same period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during the six month period ended December 31, 1997 were
$880,177 or $195,661 higher than in the six month period ended December
31, 1996. This increase was primarily due to a 20.1% increase in volume
of fish sold during the period as discussed above. Additionally, legal
and accounting fees increased in 1997 compared to the same period in 1996
as the Company prepared to become a public company registered with the
Securities and Exchange Commission.
DELTA PRIDE ASSESSMENT (EQUITY IN LOSSES ON INVESTMENT IN COOPERATIVE).
During the six month period ended December 31, 1997, the Company recorded
a net charge of $27,112 for its share of estimated losses of Delta
Pride's operations. During the same period in 1996, the charge was
estimated at $30,000. In January 1998, the Company made its final
assessment payment to Delta Pride covering the year ended June 30, 1997.
Such payments totaling $191,377 were made at various times from July 1997
through the final payment in January 1998.
INTEREST EXPENSE. Interest expense decreased $113,617 or 34.9% to
$212,187 in the six month period ended December 31, 1997 compared to the
same period in 1996. Debt levels were lower during the 1997 period
compared to 1996 due to the conversion of $984,014 in debt to preferred
stock during the quarter ended September 31, 1997. Also, interest rates
were lower due to variable rate adjustments on certain debt effective
January 1, 1997. Management anticipates slightly higher levels of debt
and interest expense during the next four quarters due to funding certain
capital expenditures.*
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. However, this did not
occur in 1997 as prices fell in the early part
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of 1997 and have not fully recovered. Accordingly, interim operating
results of the Company may vary from quarter to quarter and year to year
and cannot be predicted with certainty.*
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had a current ratio of 3.8 to 1, as
opposed to 3.4 to 1 at June 30, 1997. Current assets exceeded current
liabilities by $4,886,825 in December 1997 compared to $4,289,944 in June
1997. Cash and cash equivalents increased during the six month period
ended December 31, 1997 by $159,774.
Cash and cash equivalents were used primarily to fund operating losses
and grow live fish inventories. Life fish inventories increased by
approximately $187,000 during the six month period ended December 31,
1997. During the summer months and through the end of October, fish
consume the greatest amount of feed in the year. Feed costs are added to
inventory when purchased. The increase in inventory during the six months
ended December 31, 1997 was about as expected by the Company.
During the six month period ended December 31, 1997, the Company
purchased approximately $452,000 in property and equipment. In August
1997, the Company moved its administrative offices in Mississippi to one
of its farms from an office facility it had previously shared with
another catfish farming operation. This move required the purchase and
installation of double wide mobile trailer homes on the Company's farm
land in Sunflower, Mississippi. The total cost of this move was
approximately $150,000, including the trailers, utility hook-ups, well
construction, and ground preparation. For the fiscal year ending June 30,
1998, the Company's capital budget was $1,350,000. To increase production
capacity, certain major pond reworking programs were scheduled to be
completed at a cost of $750,000. Additionally, equipment purchases to
provide double aeration equipment to the refurbished ponds and to replace
older vehicles and tractors were planned to total approximately $600,000.
To conserve cash, the Company has substantially reduced its capital
budget and now expects total capital expenditures to approximate $750,000
for the year ending June 30, 1998.*
During the six month period ended December 31, 1997, the Company realized
net proceeds from the sale of preferred stock and additional long-term
borrowings of $1,763,286 and $149,216, respectively. Short-term notes
payable increased approximately $313,000 as the Company's feed credit
lines increased by $63,000 and an additional short-term note of $250,000
was made by the Company's bank in Mississippi. This short-term note is
due in full in March 1998 with all accrued interest thereon at prime rate
plus 165 basis points. The short-term note is secured by certain catfish
farm real property. The Company expects to pay this note off on the due
date. Additionally, in July 1997, officers and directors of the Company
advanced $163,000 in short-term loans to the Company. These short-term
officer and director advances were repaid in full in October 1997 with
the proceeds from the Company's Preferred Stock Rights Offering. These
funds were used to fund the Company's operations and to increase its
inventory as discussed above. Additionally, principal payments totaling
$174,912 were made to reduce long-term debt and preferred stock dividends
of $162,604 were paid during the six months ended December 31, 1997.
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The Company intends to fund its operations primarily through fish sales,
working capital, its feed credit line, and additional credit lines. On
April 16, 1997, a $750,000 credit line was established with a bank in
Mississippi as a revolving line of credit for catfish feed purchases.
Borrowings are secured by shares of the Company's cooperative processing
stock and all accounts receivable and live fish inventories on and
related to seven of the Company's eight farms. Interest is paid monthly
and principal is paid with 50 percent of all collections of accounts
receivable from sales of the seven farms. Interest accrues at the prime
rate plus 165 basis points and the commitment expires March 8, 1998 with
no prepayment penalty. At December 31, 1997, the outstanding balance on
this feed line was $463,992. The Company expects that this feed line will
be paid off with proceeds from fish sales prior to the end of February
and has been negotiating with this bank and other potential lenders to
obtain a new credit facility of up to $2,500,000. However, as of February
13, 1998, the bank has not yet agreed to renew the commitment or extend
additional credit to the Company. The Company anticipates its cash needs
during the six months ending June 30, 1998 will exceed its current
borrowing capacity. It is anticipated any new credit facility will
replace the feed line of credit mentioned above. The new credit facility,
if obtained, will give the Company added flexibility to access funds for
general corporate purposes in addition to catfish feed purchases.
Moreover, the Company may require additional capital for growth through
acquisition, 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 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the six months ended December 31, 1997, the Company
commenced and completed an exchange offer to certain holders of
its 10.35% investor notes payable. Each holder was offered 1.3
shares of Series A Preferred Stock for each $10 of notes held.
The offer was made for a total of $1,147,513 of notes. In the
aggregate, $984,014 of notes were exchanged for 127,922 shares of
preferred stock.
Also during the six months ended December 31, 1997, the Company
realized net proceeds of $1,763,286 from the sale of 227,194
shares of Series A Preferred Stock through its Preferred Stock
Rights Offering.
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: 27 Financial Data Schedule (SEC use only)
Reports on Form 8-K: None
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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, thereunto duly authorized.
AquaPro Corporation
(Registrant)
Dated: February 13, 1998 By: /s/ Eric P. Braschwitz
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Chief Financial Officer
and Secretary
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