UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-9083
TREECON RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 23-2708876 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
6004 South U.S. Highway 59
Lufkin, Texas 75901
(Address of principal executive offices)
(936) 634-3365
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.). Yes ¨ No x
As of July 14, 2004, there were 18,615,464 shares of the issuer’s common stock, $.01 par value, outstanding.
TREECON RESOURCES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2003
| Page No. | ||||
| PART I – FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements | |||
| Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and September 30, 2002 |
2 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
8 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 21 | ||
| Item 4. |
Controls and Procedures | 21 | ||
| Item 1. |
Legal Proceedings | 23 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 23 | ||
| 24 | ||||
| 25 | ||||
-1-
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2003 |
September 30, 2002 |
|||||||
| (Unaudited) | (Note 2) | |||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash |
$ | 1,147,104 | $ | 2,327,766 | ||||
| Receivables, net of allowance for doubtful accounts of $763,691 and $1,794,200 |
||||||||
| Trade accounts |
1,707,608 | 1,904,233 | ||||||
| Sales contracts |
1,850,795 | 3,937,056 | ||||||
| Notes |
2,551,683 | 2,192,115 | ||||||
| Related parties |
1,396,923 | 1,043,271 | ||||||
| Inventories |
11,774,150 | 13,476,256 | ||||||
| Prepaid expenses and other |
1,056,179 | 1,634,874 | ||||||
| Assets held for sale |
— | 1,766,264 | ||||||
| Net current assets of discontinued operations |
— | 16,493,504 | ||||||
| Total current assets |
21,484,442 | 44,775,339 | ||||||
| Property and equipment, at cost |
||||||||
| Land |
658,930 | 658,930 | ||||||
| Buildings and improvements |
4,999,933 | 4,233,791 | ||||||
| Machinery, equipment and other |
2,461,743 | 2,694,492 | ||||||
| 8,120,606 | 7,587,213 | |||||||
| Accumulated depreciation |
(3,266,712 | ) | (2,915,206 | ) | ||||
| 4,853,894 | 4,672,007 | |||||||
| Other assets: |
||||||||
| Noncurrent receivables, net of allowance for doubtful accounts of $59,145 and $37,735 |
||||||||
| Sales contracts |
1,482,139 | 1,732,656 | ||||||
| Notes |
473,579 | 713,468 | ||||||
| Related parties |
374,533 | 374,533 | ||||||
| Restricted cash |
534,489 | 524,208 | ||||||
| Other |
1,891,559 | 2,226,074 | ||||||
| 4,756,299 | 5,570,939 | |||||||
| Total assets |
$ | 31,094,635 | $ | 55,018,285 | ||||
The accompanying notes are an integral part
of these condensed financial statements.
- 2 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
| June 30, 2003 |
September 30, 2002 |
|||||||
| (Unaudited) | (Note 2) | |||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Notes payable |
$ | 2,036,533 | $ | 5,153,055 | ||||
| Notes payable and accrued interest to related party |
23,829,314 | 1,596,264 | ||||||
| Accounts payable |
892,329 | 1,511,331 | ||||||
| Accrued expenses and other |
1,186,881 | 1,689,081 | ||||||
| Current maturities of long-term debt |
273,028 | 1,241,809 | ||||||
| Total current liabilities |
28,218,085 | 11,191,540 | ||||||
| Long-term debt, net of current portion |
607,568 | 1,440,619 | ||||||
| Notes payable and accrued interest to related party |
— | 22,332,614 | ||||||
| Reserve for credit guarantees |
534,489 | 524,208 | ||||||
| Net long-term liabilities related to discontinued operations |
— | 16,461,936 | ||||||
| Total liabilities |
29,360,142 | 51,950,917 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock, $0.01 par value, authorized 100,000,000 shares, issued and outstanding 18,615,464 shares |
186,155 | 186,155 | ||||||
| Paid-in capital |
28,156,204 | 28,156,204 | ||||||
| Accumulated deficit |
(26,551,241 | ) | (24,777,741 | ) | ||||
| Notes receivable from officers and directors |
(56,625 | ) | (497,250 | ) | ||||
| Total stockholders’ equity |
1,734,493 | 3,067,368 | ||||||
| Total liabilities and shareholders’ equity |
$ | 31,094,635 | $ | 55,018,285 | ||||
The accompanying notes are an integral part
of these condensed financial statements.
- 3 -
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Net revenues |
$ | 10,120,493 | $ | 8,397,763 | ||||
| Cost of sales |
8,858,025 | 6,416,114 | ||||||
| Gross profit |
1,262,468 | 1,981,649 | ||||||
| Selling, general and administrative expenses |
1,499,657 | 1,880,277 | ||||||
| Operating income (loss) |
(237,189 | ) | 101,372 | |||||
| Other income (expenses): |
||||||||
| Interest expense |
(544,099 | ) | (607,131 | ) | ||||
| Interest income and other |
840,642 | 89,973 | ||||||
| Total other income (expenses) |
296,543 | (517,158 | ) | |||||
| Income (loss) from continuing operations before income taxes |
59,354 | (415,786 | ) | |||||
| Income tax benefit |
— | 191,128 | ||||||
| Loss from continuing operations |
59,354 | (224,658 | ) | |||||
| Discontinued operations, net of income taxes |
— | 127,390 | ||||||
| Net income (loss) |
$ | 59,354 | $ | (97,268 | ) | |||
| Net loss per share, basic and diluted |
$ | — | $ | (.01 | ) | |||
The accompanying notes are an integral part
of these condensed financial statements.
- 4 -
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Net revenues |
$ | 29,014,592 | $ | 27,749,657 | ||||
| Cost of sales |
24,681,024 | 21,511,581 | ||||||
| Gross profit |
4,333,568 | 6,238,076 | ||||||
| Selling, general and administrative expenses |
5,045,186 | 5,514,533 | ||||||
| Operating income (loss) |
(711,618 | ) | 723,543 | |||||
| Other income (expenses): |
||||||||
| Interest expense |
(1,692,674 | ) | (1,703,323 | ) | ||||
| Interest income and other |
831,556 | (49,313 | ) | |||||
| Total other expenses |
(861,118 | ) | (1,752,636 | ) | ||||
| Loss from continuing operations before income taxes |
(1,572,736 | ) | (1,029,093 | ) | ||||
| Income tax benefit |
— | 458,217 | ||||||
| Loss from continuing operations |
(1,572,736 | ) | (570,876 | ) | ||||
| Discontinued operations, net of income taxes |
(66,700 | ) | 158,113 | |||||
| Net loss |
$ | (1,639,436 | ) | $ | (412,763 | ) | ||
| Net loss per share, basic and diluted |
$ | (.09 | ) | $ | (.02 | ) | ||
The accompanying notes are an integral part
of these condensed financial statements.
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Operating Activities: |
||||||||
| Loss from continuing operations |
$ | (1,572,736 | ) | $ | (570,876 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
553,724 | 404,966 | ||||||
| Provision for doubtful accounts |
411,142 | 257,396 | ||||||
| Interest accrual on notes to related party |
1,496,700 | 1,190,412 | ||||||
| Loss on investment in limited liability company |
175,337 | 628,416 | ||||||
| Gain on asset sales |
(870,185 | ) | — | |||||
| Cash expenses related to discontinued operations |
(9,548 | ) | (394,508 | ) | ||||
| Changes in: |
||||||||
| Accounts and sales contracts receivable |
2,298,036 | 3,491,572 | ||||||
| Inventories |
1,702,106 | (208,048 | ) | |||||
| Prepaid expenses and other |
563,806 | (199,044 | ) | |||||
| Accounts payable |
(386,400 | ) | 119,746 | |||||
| Accrued expenses and other |
(332,200 | ) | 199,983 | |||||
| Net cash provided by operating activities |
4,029,782 | 4,920,015 | ||||||
| Investing Activities: |
||||||||
| Capital expenditures, net |
(688,944 | ) | (284,160 | ) | ||||
| Notes and other receivables |
(119,679 | ) | 437,619 | |||||
| Receivables from related parties |
(353,652 | ) | (254,953 | ) | ||||