================================================================================
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, 2002
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 13, 2002, Registrant had outstanding 4,938,273 shares of common
stock, its only class of common equity outstanding.
Transitional Small Business Disclosure Format (Check one) : Yes [ ] No [x]
================================================================================
INDEX
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
September 30, 2002 (unaudited) and June 30, 2002 3
Condensed Consolidated Statements of
Operations for the Three Months ended
September 30, 2002 and 2001 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the Three Months ended
September 30, 2002 and 2001 (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 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AquaPro Corporation
Condensed Consolidated Balance Sheets
September 30, June 30,
2002 2002
(Unaudited) (Note 1)
Current Assets:
Cash and Cash equivalents $ 55,842 $ 8,246
Trade accounts receivable -- --
Other receivables -- 2,232
Live Fish Inventories -- --
Notes receivable 129,245 1,037,309
Prepaid expenses -- 2,205
Deferred production & cultivating costs 613,305 --
--------- ---------
Total current assets 798,392 1,049,992
Property, buildings and equipment, net 4,026,416 4,365,777
Investment in cooperatives 169,240 169,240
Other investments 44,440 44,440
Other assets 62,738 81,092
--------- ---------
Total assets $5,101,226 $5,710,541
========= =========
-3-
September 30, June 30,
2002 2002
(Unaudited) (Note 1)
Liabilities and Stockholders' equity
Current liabilities:
Notes payable $ 3,938,914 $ 3,672,925
Accounts payable 823,100 1,436,363
Accrued expenses 791,660 750,187
Current maturities of long-term debt 1,429,327 1,429,327
----------- -----------
Total current liabilities 6,983,001 7,288,802
Long-term debt, less current maturities 2,883,859 2,706,365
----------- -----------
Total liabilities 9,866,860 9,995,167
Stockholders' equity:
Common stock, no par value - authorized
100,000,000 shares, issued and outstanding
4,938,273 at September 30, 2002 and
4,935,273 at June 30, 2002 15,394,044 15,393,714
Unearned compensation - -
Retained earnings (deficit) (20,159,678) (19,678,340)
----------- -----------
Total Stockholders' equity (4,765,634) (4,284,626)
----------- -----------
Total liabilities and stockholders' equity $ 5,101,226 $ 5,710,541
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
AquaPro Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months ended
September 30
2002 2001
------------- -------------
Net Sales $ -- $ 881,901
Cost of products sold -- 1,015,973
------------- -------------
Gross profit -- (134,072)
Selling, general and administrative 245,043 224,610
------------- -------------
Operating (loss) (245,043) (358,682)
Other income (expense) (240,882) (208,805)
Loss on disposal (64,400) --
Other, net 68,987 94,127
------------- -------------
(236,295) (114,678)
Net (loss) $ (481,338) $ (473,360)
============= =============
Basic and diluted net (loss) per share $ (.09) $ (.10)
Basic and diluted weighted average common
Shares outstanding 4,938,273 4,921,023
See accompanying notes to unaudited condensed consolidated financial statements.
-5-
AquaPro Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30
2002 2001
Net cash used in operating activities $ (547,192) $ (532,491)
Cash flows from investing activities:
Purchases of property and equipment (24,380) (1,136)
Proceeds from disposal of equipment 175,355 1,200
(Investment in) sale of joint venture -- 40,000
------------ ------------
150,975 40,064
Cash flows from financing activities:
Net increase in notes payable (942,036) 690,033
Proceeds from long-term borrowings 1,437,776 --
Principal payments on long-term borrowings (52,257) (195,758)
------------ ------------
Net cash provided by financing activities 443,813 494,275
------------ ------------
Net increase/ (decrease)
in cash and cash equivalents 47,596 1,848
Cash and cash equivalents at beginning
of period 8,246 810
------------ ------------
Cash and cash equivalents at end
of period $ 55,842 $ 2,658
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements
-6-
AquaPro Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2002
BASIS OF PRESENTATION. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States 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 accounting principles generally
accepted in the United States 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, 2002 is not necessarily
indicative of the results that may be expected for year ended June 30, 2003.
The consolidated balance sheet at June 30, 2002 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by accounting principles generally
accepted in the United States 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, 2002.
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 in this report
by placing an asterisk (*) following each sentence containing such statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,2002
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001
REVENUE. The character of the Company's potential revenue changed dramatically
between the quarters ended September 30, 2001 and 2002. Prior to the quarter
beginning July 1, 2002, the Company maintained an inventory of catfish, which it
sold for its own account. In the quarter ending June 30, 2002, the company sold
its entire inventory to International Holdings, Inc. (IHI). Simultaneously with
the sale of the inventory, the Company entered into a custom farming arrangement
whereby the Company leases its catfish ponds to IHI, and provides the manpower,
equipment, and expenses related to the care, growth, and sale of IHI's catfish.
IHI provides the funds for the feed for the catfish, as well as making advances
to the Company to cover other production costs.
Under the Contract, AquaPro is to receive a share of the net proceeds from
sales, but only after IHI receives the cost of the fish purchased, feed
purchased, and financing costs. (The details of the Contract are hereby
incorporated by reference from Exhibit 10.21 of the Form 10-KSB, filed October
11, 2002.)
-7-
The Company considered posting an amount for revenues that was an accrual of
budgeted revenues for the fiscal year. However, the present unsettled nature of
the catfish industry indicates that estimation of what revenues AquaPro may
possibly receive by fiscal yearend June 30, 2003, is impossible at this time.
Unknown factors include the price of fish, the number of pounds of fish that can
be ultimately sold and the Company's ability to market fish without payment for
processing rights, which reduce revenues. No revenues were recognized for the
quarter ended September 30, 2002. For the quarter ended September 30, 2001, net
sales totaled $881,901.
For the quarter ended September 30,2002, 748,608 pounds of fish were sold by
IHI, while for the quarter ended September 30, 2001, the Company sold 1,516,930
pounds of fish.
One goal of the custom farming arrangement was to initially stock the ponds with
a lower number of fish but to feed each fish allowing it to grow to its maximum
potential size during the feeding season.* In previous years, the Company's
financing arrangements required steady sales of fish during the growing season
to meet cash flow needs, and the Company was unable to maximize the growing
season. It is believed that the remaining inventory, to be sold after the
feeding season, will total more pounds than in previous years.*
COST OF PRODUCTS SOLD AND MARGIN. No current amount was reported as costs of
products sold for the quarter ended September 30, 2002. The Company has
capitalized costs associated with future revenues from the future selling of
catfish by International Holdings, Inc. The deferred production and cultivating
costs are to be expensed with future revenues for proper matching, but are
evaluated on a monthly basis so that the estimated value will reflect its future
benefits. For the quarter ended September 30, 2002, $613,305 was capitalized.
SELLING, GENERAL AND ADMINISTRATIVE. For the quarter ended September 30, 2002,
selling, general and administrative costs totaled $245,043 compared to $224,610
for the quarter ended September 30, 2001. Administrative labor expenses
continued to be lower than previous years as a result of dramatic cuts in the
manpower. Seining costs increased as a result of the Company's increased seining
efforts aimed at restocking the catfish ponds with catfish purchased from
farmers going out of business.
INTEREST EXPENSE. Interest expense increased to $240,822 in the quarter ended
September 30, 2002, from $208,805 for the quarter ended September 30, 2001.
Total liabilities reduced from $10,638,064, for the quarter ended September 30,
2001, to $9,866,860 for the period ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES. As of September 30, 2002 the Company had a
current ratio of 0.114 to one compared to a current ratio of 1.32 to one as of
September 30, 2001. Current liabilities exceeded current assets by $6,184,609
for the quarter ended September 30, 2002. For the quarter ended September 30,
2001, current assets exceeded current liabilities by $1,874,625. On September
30, 2001 the cost basis of the Company's catfish inventory was $7,587,142. The
sale of the Company's live fish inventory in the quarter ended June 30, 2002,
removed the value of the fish inventory from current assets.
For the three-month period ended September 30, 2002, the Company had a net
operating cash outflow of $547,192 compared to $1,054,145 for the period ended
September 30, 2002.
The Company is totally dependent upon advances from IHI to cover its payroll,
operating expenses, and scheduled secured debt repayments. * The Company has no
cash except that which has been advanced by IHI. Most unsecured vendors and
creditors have agreed to wait for payments on their accounts until after the
crop can be sold by the end of the fiscal year June 30, 2003. * However, it can
not be certain that the unsecured creditors would not attempt to force the
Company into involuntary bankruptcy. It is also not known whether the creditors
in the Kroeker farm foreclosure will sue the Company and its President, George
Hastings, for the difference between the mortgage debt and the amount the
property brought at auction. *
-8-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
During the quarter ending September 30, 2002 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
NONE
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 12, 2002 By: /s/ George S. Hastings, Jr.
Chief Executive Officer,
President, and
Chairman of the Board
-9-