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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, 1998
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
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(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
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(Address and Zip Code of Principal Executive Offices)
Registrant's telephone number, including area code: (601) 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 February 10, 1999, Registrant had outstanding 4,883,443 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
Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at December 31, 1998 (unaudited)
and June 30, 1998 3
Condensed Consolidated Statements of Operations for the Three and
Six Months ended December 31, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six Months
ended December 31, 1998 and 1997 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Year 2000 10
Item 4. Outlook 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheet
December 31, June 30,
1998 1998
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents 68,688 112,631
Trade accounts receivable 506,394 349,148
Receivables from affiliates 27,998
Live fish inventories 5,320,265 5,533,276
Prepaid expenses 192,568 21,303
------------ ------------
Total current assets 6,087,915 6,044,356
Property, buildings and equipment, net 5,753,205 6,003,163
Investments in cooperatives 871,279 833,894
Other assets 131,977 166,779
------------ ------------
Total assets $ 12,844,376 $ 13,048,192
See accompanying notes to unaudited consolidated financial statements.
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December 31, June 30,
1998 1998
(Unaudited) (Note)
Liabilities and stockholders' equity
Current liabilities:
Notes payable 335,406 599,964
Accounts payable 340,000 195,318
Accrued salaries -- 17,883
Accrued interest and other 194,356 28,461
Current maturities of long-term debt 432,887 426,574
------------ ------------
Total current liabilities 1,302,649 1,268,200
Long-term debt, less current maturities 3,718,157 3,829,981
------------ ------------
Stockholders' equity:
Common stock, no par value - authorized 100,000,000 shares, issued and
outstanding 4,883,443 at December 31, 1998 and 4,818,354
shares at June 30, 1998 15,364,303 15,405,803
Unearned compensation (47,968) (101,906)
Retained earnings (deficit)
(7,492,765) (7,353,886)
------------ ------------
Total stockholders' equity 7,823,570 7,950,011
------------ ------------
Total liabilities and stockholders' equity $ 12,844,376 $ 13,048,192
See accompanying notes to unaudited consolidated financial statements.
Note: The balance sheet at June 30, 1998 has been derived from the audited
financial statements at the date indicated, but does not include all of the
information and footnotes required by generally accepted accounting principles.
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AquaPro Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months ended
December 31
1998 1997
------------ ------------
Net sales 1,870,423 962,345
Cost of products sold 1,422,061 857,462
------------ ------------
Gross Profit 448,362 104,883
Selling, general and administrative 456,012 449,259
------------ ------------
Operating loss (7,650) (344,376)
Other (income) expense:
Equity in losses on investment in cooperatives 44,569 27,112
Interest expense 119,707 116,553
Other, net (91,614) (47,079)
------------ ------------
72,662 96,586
------------ ------------
Net loss $ (80,312) $ (440,962)
============ ============
Basic and diluted net loss per share (0.02) (0.21)
Basic and diluted weighted average common shares outstanding 4,883,068 2,671,712
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
1998 1997
------------ ------------
Net sales: 3,548,863 2,257,288
Cost of products sold 2,723,201 1,948,472
------------ ------------
Gross Profit 825,662 308,816
Selling, general and administrative 838,270 880,177
------------ ------------
Operating loss (12,608) (571,361)
Other (income) expense:
Equity in losses on investment in cooperatives 67,569 27,112
Interest expense 250,075 212,187
Other, net (191,373) (91,477)
------------ ------------
126,271 147,822
------------ ------------
Net loss (138,879) (719,183)
============ ============
Basic and diluted net loss per share (0.03) (0.33)
============ ============
Basic and diluted weighted average common shares outstanding 4,885,586 2,671,264
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
1998 1997
------------ ------------
Net cash provided by (used in) operating activities $ 359,500 $ (1,130,379)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (75,591) (452,472)
Purchases of cooperative stock and related payments -- (145,101)
Proceeds from note receivable from affiliate 27,998 --
Refund on stock investment 14,220 --
------------ ------------
Net cash used in investing activities (33,373) (597,573)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in notes payable (264,559) 312,740
Principal payments on long-term borrowings (105,511) (174,912)
Proceeds from long-term borrowings -- 149,216
Proceeds from issuance of preferred stock -- 1,763,286
Payments of preferred stock dividends -- (162,604)
------------ ------------
Net cash provided by (used in) financing activities (370,070) 1,887,726
------------ ------------
Net increase (decrease) in cash and cash equivalents (43,943) 159,774
Cash and cash equivalents at beginning of period 112,631 202,894
------------ ------------
Cash and cash equivalents at end of period 68,688 $ 362,668
============ ============
Non-cash financing activities:
Conversion of long-term debt to Series A Preferred Stock -- $ 984,014
Conversion of Preferred Warrants to common stock 48,530 --
Cancellation of 12,000 shares of common stock $ 48,000 --
============ ============
See accompanying notes to unaudited consolidated financial statements
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AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1998
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 Stockholder's Equity
During the six months ended December 31, 1998, the Company converted all
outstanding Preferred Stock Warrants, according to their terms, into
three-tenths (0.03) of a share each. In total, 70,589 new shares were
issued to the holders of the warrants.
Also during the six months ended December 31, 1998, the Company canceled
12,000 shares forfeited by non-vested employees.
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, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997
REVENUE. Net sales during the three month period ended December 31, 1998
totaled $1,870,423 compared to $962,345 for the same period in 1997. This
represents an increase of $908,078 or 94.4%. Volume increased 1,290,890
pounds to 2,639,890 pounds of fish sold compared to 1,349,000 pounds sold
during the three month period ended December 31, 1997. Accordingly, volume
represented a 95.7% increase during the three months ended December 31,
1998 compared to the same period in 1997. The increase in volume offset the
change in the average price of fish for the three month period. This
average price saw a decline from 71.3 cents per pound in 1997 to 70.8 cents
per pound in 1998.
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COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $1,422,061, an
increase of $564,599 or 65.8% compared to the same three month period of
1997, while net sales increased 94.4%. On a per pound basis, the Costs of
Products Sold saw a decrease from 63.6 cents in the three month period
December 31, 1997 to 53.9 cents in 1998. Margin from fish sales was 24%
during the three month period ended December 31, 1998 as compared to 10.9%
in the same period in 1997. 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.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during the three month period ended December 31, 1998 were
$456,012 or $6,753 higher than in the three month period ended December 31,
1997. The Selling, General and Administrative expenses represented a
decrease in relation to sales volume, from 33.3 cents per pound sold in
1997 to 17.3 cents per pound in 1998.
DELTA PRIDE ASSESSMENT (EQUITY IN LOSSES ON INVESTMENT IN COOPERATIVE).
During the three month period ended December 31, 1998, the Company recorded
a net charge of $44,569 for its share of estimated losses of Delta Pride's
operations. During the same period in 1997, there was a charge of $27,112
for such losses. As of December 31, 1998, the Company had made three of
five monthly payments of $34,984.59 to Delta Pride. A sixth and final
payment of $30,632.76 is due March 15, 1999. The total payments of
$205,555.71 represents the cooperative assessment of the Company for its
share of the losses incurred by Delta Pride for its fiscal year ended June
30, 1998.
INTEREST EXPENSE. Interest expense increased $3,154 or 2.7% to $119,707 in
the three month period ended December 31, 1998 compared to the same period
in 1997. However, interest expense per pounds of product sold decreased
from 8.6 cents in 1997 to 4.5 cents per pound in 1998.
RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 1997
REVENUE. Net sales during the six month period ended December 31, 1998
totaled $3,548,863 compared to $2,257,288 for the same period in 1997. This
represents an increase of $1,291,575 or 57.2%. Volume increased 1,759,110
pounds to 4,889,110 pounds of fish sold compared to 3,130,000 pounds sold
during the six month period ended December 31, 1997. Accordingly, volume
represented a 56.2% increase during the six months ended December 31, 1998
compared to the same period in 1997. This volume increase was enhanced by a
slight increase of about one-half cent in the average selling price of
fish, prices received in the first quarter being higher than those received
in the second quarter.
COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $2,723,201, an
increase of $774,729 or 39.8% compared to the same six month period of
1997, while net sales increased 57.3%. On a per pound basis, the Costs of
Products Sold saw a decrease from 62.3 cents in the six month period ended
December 31, 1997 to 55.7 cents in 1998. Margin from fish sales was 23.3%
during the six month period ended December 31, 1998 as compared to 13.6% in
the same period for 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses during the six month period ended December 31, 1998 were $838,270
or $41,907 lower than in the six
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month period ended December 31, 1997. Selling, General and Administrative
expenses also represented a decrease in relation to sales volume, from 28.1
cents per pound sold in 1997 to 17.1 cents per pound in 1998.
DELTA PRIDE ASSESSMENT (EQUITY IN LOSSES IN INVESTMENT IN COOPERATIVE).
During the six month period ended December 31, 1998, the Company recorded a
net charge of $67,569 for its share of estimated losses of Delta Pride's
operations. During the same period in 1997, the charge was estimated at
$27,112. As of December 31, 1998, the Company had made three of five
monthly payments of $34,984.59 to Delta Pride. A sixth and final payment of
$30,632.76 is due on March 15, 1999. The total payments of $205,555.71
represents the cooperative assessment to the Company for its share of the
losses incurred by Delta Pride for its fiscal year ended June 30, 1998.
INTEREST EXPENSE. Interest expense increased $37,888 or 17.9% to $250,075
in the six month period ended December 31, 1998 compared to the same period
in 1997. However, interest expense per pound of product sold decreased from
6.8 cents per pound sold in 1997 to 5.1 cents in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had a current ratio of 4.7 to 1, as
opposed to 4.8 to 1 at June 30, 1998. Current assets exceeded current
liabilities by $4,785,266 in December 1998 compared to $4,776,156 in June
1998. Cash and cash equivalents decreased during the six month period ended
December 31, 1998 by $43,943.
Cash and cash equivalents were used primarily to fund operating losses and
grow live fish inventories. Live fish inventories increased from
approximately 9.5 million pounds on June 30, 1998 to approximately 10.1
million pounds on December 31, 1998, while the cost basis of this inventory
decreased by approximately $213,000. 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.
For the six month period ended December 31, 1998, the Company saw a net
operating cash inflow of $359,500 compared to an outflow of $1,130,379 for
the same period in the previous year.
During the six month period ended December 31, 1998, the Company purchased
approximately $76,000 in property and equipment.
Item 3. 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.
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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
equipment, the Company has concluded that certain facets of the system will
require further upgrading to become compliant with Year 2000. AquaPro is in
the process of moving its accounting and information systems to its
Mississippi office. As part of the move, the Company has engaged an outside
firm to handle these upgrades. The Company expects to have the system
functional in Mississippi by the summer of 1999. AquaPro does not expect
that any such problems will have a material adverse effect on the Company's
future operating results or financial condition. The cost of the move and
the verification is estimated to be between three and seven thousand
dollars ($3,000 - $7,000). The cost of verification is expected to be less
than one thousand ($1,000) of this amount. The source of funds for this
cost is accounted for in the Company's normal office overhead.
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 by the summer of 1999. Those
companies have agreed to update their progress with AquaPro so the Company
may be assured of their compliance or modify its own plans accordingly. In
each case, the information technology used is of a simple basis and
compliance on the easier side of the difficulty continuum.
The Company's major supplier, comprising approximately half of the
Company's expense budget for a year (i.e. $2,400,000) is Delta Western Feed
Cooperative. However, no feeding is expected until late February. If Delta
Western could not comply by that date and there were a total break down of
their systems, manual books would have to be kept.
The Company's credit facility ($1,000,000) is through Community Bank. As
the proceeds of sales of catfish are received, Community withholds forty
cents ($ .40) per pound of fish sales to apply against the outstanding
balance of the credit line. Community Bank officials have addressed their
significant Year 2000 issues and are currently having the results of their
efforts reviewed by banking regulators. The Bank expects to issue a letter
to AquaPro shortly indicating successful conversion of its computer
systems.
The Company's credit facility, feed purchases and draws and repayments on
its credit line go hand in hand. Historically, Delta Western has guaranteed
payment of ninety percent (90%) of the Company's feed line to the Bank.
Currently the day-to-day transactions are reviewed by AquaPro, Delta
Western and the Bank.
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The Company's major customers are catfish processors. In every case,
discussions have revealed that the processors intend to be ready for the
Year 2000 by the summer of 1999. 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 worst case 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. It is not thought that
sales 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 vendors who do not effectively deal
with their Year 2000 issues.
Item 4. 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 for and consumption of catfish will
continue to grow. According to the U.S. Department of Census, Catfish sales
nationwide increased seven percent (7%) in 1998 and are up ten percent
(10%)for the first month of 1999 over the same month in 1998. AquaPro's
revenues are totally dependent upon sales of its fish. The Company's
operating income or loss is a function of the number of pounds of fish
sold, the price received for those fish, the costs to produce those fish,
and the costs to operate as a publicly traded company.
AquaPro's strategy is to increase it fish production and sales while
simultaneously reducing the costs per pound of operations and
administration. It is also striving to create new revenue streams with its
minced recovery system discussed below. Increasing both production of fish
and sales requires either an increase in the number of fish grown per acre,
an increase in the number of acres in production, or both.
The Company has increased its production and sales from its existing
acreage for the three and six month periods by 95.7% and 56.2%
(respectively) compared to the same periods in fiscal 1998. Sales for the
last six months of this fiscal year are expected to be approximately
3,650,000 pounds or about the same as FYE 6/30/1998. Sales in the second
six months of FYE 6/30/1998 were a record 3,796,000 or 132% increase over
FYE 6/30/1997. If management's sales budget is met by June 30, 1999 the
Company will have had a 23% increase over the prior year. Management
continues to strive to increase the production of fish per existing water
acre and has budgeted feeding and expense levels designed to increase
production an additional ten to fifteen percent (10-15%). Management
expects
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that such a level of production would be the highest sustainable output on
the existing water acres. However, market acceptance of catfish, our own
conversion rate of feed to pounds of fish, weather conditions and all of
the uncertainties of farming can have a detrimental impact on the outcome
of fish production.
Costs of Products Sold is calculated by dividing the pounds in inventory
into the costs of raising that inventory, which gives an average cost per
pound. Fish require twelve to eighteen months to become marketable size, so
costs accumulate during this period. As current costs of farming increase
or decrease those costs affect the average cost for the whole inventory.
The result is that it takes over a year for the full impact of changed cost
to work its way through the inventory.
During the feeding seasons of Spring, Summer, and Fall the pounds in
inventory increase dramatically at a rate normally in excess of the costs
being added, reducing the average cost in inventory. During the winter,
sales continue but without pounds being added. Costs also continue (such as
depreciation, labor, etc.). Therefore, fewer pounds are divided into higher
costs resulting in an increase in the average cost per pound in inventory
and for sales.
For the six months ended December 31, 1998 the Costs of Product Sold was
55.7 cents per pound verses 62.3 cents a year earlier. This is a result of
efforts to reduce farming costs. During the feeding season ended fall of
1997, the Company paid approximately 30 cents (.30) in feed costs for each
pound grown on its fish. On February 11, 1999 the Company fixed the price
for this year's feed by contract with the feed mill. The price fixed per
ton results in a cost of 23.7 cents per pound added to inventory at the
Company's assumed 2.5 to 1.0 feed conversion rate. Eleven thousand tons has
now been booked at a price $550,000 less than last year's feeding costs.
However, the effect of the lower feed cost will average in over the entire
feeding season.
Selling, General and Administrative Expenses have both a variable and fixed
component. For the six months ended December 31, 1998, Selling, General and
Administrative Expenses were reduced to 17.1 cents per pound compared to
28.1 cents per pound for the six months ended December 31, 1997. This
reduction was the result of the combination of fewer dollars being spent
during the period while more pounds of fish were sold. Seining and hauling
(selling expenses) are variable expenses and increase with increases in
sales of fish. For the six months ended December 31, 1998, seining and
hauling represented twenty seven percent (27%) of total Selling, General
and Administrative Expenses (or 4.6 cents per pound).
Administrative expenses are costs such as accounting, legal, costs of SEC
filings, and professional office staff. The majority of these expenses are
not incurred by family farmers but are a necessity for a publicly held
company such as AquaPro. These expenses do not tend to vary with fish sales
volume. For the six months ended December 31, 1998, these expenses
represented seventy three percent (73%) of total Selling, General and
Administrative Expenses (or 12.5 cents per pound.)
The Company's strategic plans include increasing the number of water acres
farmed in order to increase the number of pounds of fish sold. Increased
sales of fish would require only a slight increase in administrative costs.
It is management's belief that its budgeted production on its existing
farms can support the costs of operations and being a public company. It
further believes that the production from new acreage will not cause a
proportional increase in fixed expenses for the Company and hence those new
operations can produce a better net margin.
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The Company is currently rebuilding 135 water acres of ponds on its Hidden
Lakes farm at a cost of approximately $200,000. These ponds have been out
of production because of their age and poor condition. The ponds are
expected to be completed in time for this year's growing season unless
climatic conditions lengthen the refurbishing period. The addition of the
135 acres will be an increase of approximately eight percent (8%) in
operating water acres for the Company. This year the newly constructed
ponds are budgeted to be fry grow out ponds, producing fingerlings this
growing season for sale to other farmers or for use on any new acreage the
Company might acquire in the future. The following growing season the ponds
are slated to become grow out ponds for food fish.
The Company is also in negotiation with the owners of two non-related farms
for the purchase of one or both of these farms. In both cases the owners
are willing to finance the purchase of the land, ponds, equipment, and
standing inventory of fish. However, operations of a catfish farm require
almost as much capital each year as the purchase price of the farm itself.
Therefore, establishment of an operating credit line for any acquisition is
of critical importance. The Company is in negotiation with lending
institutions to acquire lines of credit to operate one or both of these
farms. As of this time it is not known whether the Company will be
successful in obtaining these credit lines or farms.
The Company is continuing its efforts to bring the process of recovering
high quality minced fish protein from the frames and trimmings of the fish
to the catfish industry. While such processes have existed for years in the
ocean fish industry, the catfish industry has not yet developed the
process, instead opting to sell the frames and trimmings as Offal to
rendering plants. Offal sells for two cents per pound while high quality
minced block sells for a gross price of forty to seventy (.40 - .70) cents
per pound. The Company offers processors a turn-key installation of the
system in return for sharing a modest share of the profits with AquaPro.
The industry's largest processor, Delta Pride, reviewed the Company's
proposal and decided to attempt the project itself. It obtained limited
success and has currently decided to slow its emphasis on development,
instead focusing on more key operating problems at the plant.
However, three other processors have expressed a serious interest in
developing the process with AquaPro and are in various stages of process
experimentation and negotiation with the Company.
The Company's future results of operations and the other forward-looking
statements contained in this outlook - in particular the statements
regarding growth in the catfish industry, gross margin, capital spending,
marketing and general and administrative expenses, involve a number of
risks and uncertainties. In addition to the factors discussed above, among
the other factors that could cause actual results to differ materially are
the following: risks involving the price and availability of equipment and
supplies, climatic, environmental and biological risks such as weather,
natural catastrophes and disease, and market risks regarding the price and
strength of the consumer market for the Company's catfish production. The
risk exposure of each of these categories is amplified by competition
between the Company and other catfish producers, particularly those located
within the Mississippi Delta. If the Company is unable to maintain its
operating costs at levels which allow the Company to realize a profit in
its catfish sales, the Company will not be profitable and if these
conditions would persists, the Company would fail and the shareholders
would lose some or all of their investment.
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Certain risks, such as adverse climatic conditions, natural disasters,
disease, consumer demand and competition, are outside the Management's
control and, to a varying extent, cannot be planned for or avoided. The
occurrence of one or more of these events could deplete the Company's
operating reserves and resources and thereby result in the need for
additional capital.
AquaPro believes that it is in the right place at the right time in the
development of aquaculture. It believes that it has the talent and
experience to obtain business success, but future events such as access to
credit lines, revenues, costs, margins, and profits are all influenced by a
number of factors, including those discussed above, all of which are
inherently difficult to forecast.
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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, 1998, the Company
converted all outstanding Preferred Stock Warrants, according
to their terms, into three-tenths (0.03) of a share each. In
total, 70,589 new shares were issued to the holders of the
warrants.
Also during the six months ended December 31, 1998, the
Company canceled 12,000 shares forfeited by non-vested
employees.
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: None
Ex-27 Financial Data Schedule (for 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 12, 1998 By: /s/ Mike W. Jackson
----------------- -----------------------------------
Chief Accounting Officer
And Secretary
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