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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 March 31, 2004

 

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 June 14, 2004, there were 18,615,464 shares of the issuer’s common stock, $.01 par value, outstanding.

 

Table of Contents

TREECON RESOURCES, INC.

FORM 10-Q

QUARTER ENDED MARCH 31, 2004

 

TABLE OF CONTENTS

 

          Page No.
PART I – FINANCIAL INFORMATION     

    Item 1. Financial Statements

     
     Condensed Consolidated Balance Sheets as of March 31, 2004 (unaudited) and September 30, 2003    2
     Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (unaudited)    4
     Condensed Consolidated Statements of Operations for the Six Months Ended March 31, 2004 and 2003 (unaudited)    5
     Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003 (unaudited)    6
     Notes to Condensed Consolidated Financial Statements (unaudited)    9

    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   12

    Item 3. Quantitative and Qualitative Disclosures about Market Risk

   21

    Item 4. Controls and Procedures

   21
PART II – OTHER INFORMATION     

    Item 1. Legal Proceedings

   23

    Item 6. Exhibits and Reports on Form 8-K

   23

     SIGNATURES

   24

     EXHIBITS FILED WITH THIS FORM 10-Q

   25

 

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Assets

 

    

March 31,

2004

    

September 30,

2003

  
     (Unaudited)     (Note 2)  

Current assets:

                 

Cash

    $ 2,427,932     $ 2,562,705  

Receivables, net of allowance for doubtful accounts of $527,183 and $490,800

                 

Trade accounts

      1,781,257       2,190,003  

Sales contracts

      2,186,117       2,295,723  

Notes

      2,877,376       2,008,960  

Related parties

      107,778       716,057  

Inventories

      9,208,081       9,134,123  

Prepaid expenses and other

      1,137,792       1,045,110  
    
 

Total current assets

      19,726,333       19,952,681  
    
 

Property and equipment, at cost

                 

Land

      658,930       658,930  

Buildings and improvements

      5,162,256       5,083,791  

Machinery, equipment and other

      2,202,322       2,269,734  
    
 
       8,023,508       8,012,455  

Accumulated depreciation

      (3,413,431 )     (3,234,682 )
    
 
       4,610,077       4,777,773  
    
 

Other assets:

                 

Noncurrent receivables, net of allowance for doubtful accounts of $31,200 and $31,200

                 

Sales contracts

      416,403       441,387  

Related parties

      —         338,000  

Restricted cash

      538,154       537,209  

Other

      2,269,228       2,507,852  
    
 
       3,223,785       3,824,448  
    
 

Total assets

    $ 27,560,195     $ 28,554,902  
    
 

 

The accompanying notes are an integral part

of these condensed financial statements.

 

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

 

Liabilities and Shareholders’ Equity

 

    

March 31,

2004

    

September 30,

2003

  
     (Unaudited)     (Note 2)  

Current liabilities:

                 

Notes payable and accrued interest to related party

    $ 23,499,458     $ 24,336,841  

Accounts payable

      1,354,619       845,939  

Accrued expenses and other

      1,665,719       1,548,934  

Current maturities of long-term debt

      82,708       284,769  
    
 

Total current liabilities

      26,602,504       27,016,483  

Long-term debt, net of current portion

      39,560       540,278  

Reserve for credit guarantees

      538,154       537,209  
    
 

Total liabilities

      27,180,218       28,093,970  
    
 

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

      (27,567,757 )     (27,824,802 )

Notes receivable from officers and directors

      (394,625 )     (56,625 )
    
 

Total stockholders’ equity

      379,977       460,932  
    
 

Total liabilities and shareholders’ equity

    $ 27,560,195     $ 28,554,902  
    
 

 

The accompanying notes are an integral part

of these condensed financial statements.

 

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months Ended
March 31,
  
     2004
     2003
  

Net revenues

    $ 10,323,467     $ 9,192,796  

Cost of sales

      8,314,037       7,779,118  
    
 

Gross profit

      2,009,430       1,413,678  

Selling, general and administrative expenses

      1,486,508       1,561,488  
    
 

Operating income (loss)

      522,922       (147,810 )
    
 

Other income (expenses):

                 

Interest expense

      (300,089 )     (564,665 )

Interest income and other

      45,619       39,690  
    
 

Total other expenses

      (254,470 )     (524,975 )
    
 

Income (loss) from continuing operations before income taxes

      268,452       (672,785 )

Income tax expense

      —         —    
    
 

Income (loss) from continuing operations

      268,452       (672,785 )

Discontinued operations, net of income taxes

      —         —    
    
 

Net income (loss)

    $ 268,452     $ (672,785 )
    
 

Net income (loss) per share, basic and diluted

    $ .01     $ (.04 )
    
 

 

The accompanying notes are an integral part

of these condensed financial statements.

 

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Six Months Ended
March 31,
  
     2004
     2003
  

Net revenues

    $ 21,724,554     $ 18,894,099  

Cost of sales

      17,845,199       15,822,999  
    
 

Gross profit

      3,879,355       3,071,100  

Selling, general and administrative expenses

      3,005,761       3,545,529  
    
 

Operating income (loss)

      873,594       (474,429 )
    
 

Other income (expenses):

                 

Interest expense

      (689,588 )     (1,148,575 )

Interest income and other

      73,039       (9,086 )
    
 

Total other expenses

      (616,549 )     (1,157,661 )
    
 

Income (loss) from continuing operations before income taxes

      257,045       (1,632,090 )

Income tax benefit

      —         —    
    
 

Income (loss) from continuing operations

      257,045       (1,632,090 )

Discontinued operations, net of income taxes

      —         (66,700 )
    
 

Net income (loss)

    $ 257,045     $ (1,698,790 )
    
 

Net income (loss) per share, basic and diluted

    $ .01     $ (.09 )
    
 

 

The accompanying notes are an integral part

of these condensed financial statements.

 

- 5 -

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months Ended
March 31,
  
     2004
     2003
  

Operating Activities:

                 

Income (loss) from continuing operations

    $ 257,045     $ (1,632,090 )

Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:

                 

Depreciation and amortization

      337,926       369,782  

Provision for doubtful accounts

      87,492       275,242  

Interest accrual on notes to related party

      662,617       994,687  

Loss on investment in limited liability company

      58,813       51,481  

Cash expenses related to discontinued operations

      —         (9,548 )

Changes in:

                 

Accounts and sales contracts receivable

      464,959       2,206,664  

Inventories

      (73,958 )     867,978  

Prepaid expenses and other

      81,296       663,154  

Accounts payable

      508,680       (236,127 )

Accrued expenses and other

      116,785       (410,013 )
    
 

Net cash provided by operating activities

      2,501,655       3,141,210  
    
 

Investing Activities:

                 

Capital expenditures, net

      (164,397 )     (646,791 )

Notes and other receivables

      (287,277 )     (209,916 )

Receivables from related parties

      18,025       (96,635 )
    
 

Net cash used in investing activities

      (433,649 )     (953,342 )
    
 

 

The accompanying notes are an integral part

of these condensed financial statements.

 

- 6 -

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TREECON RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

 

     For the Six Months Ended
March 31,
  
     2004
     2003
  

Financing Activities:

                 

Net borrowings (principal payments) on line of credit arrangements

    $ —       $ (1,981,836 )

Proceeds from borrowings on long-term debt

      —         174,146  

Principal payments on related party note payable

      (1,500,000 )     —