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, 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 x No ¨
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 August 10, 2004, there were 18,615,464 shares of the issuer’s common stock, $.01 par value, outstanding.
FORM 10-Q
QUARTER ENDED JUNE 30, 2004
TABLE OF CONTENTS
| Page No. | ||||||
| PART I – FINANCIAL INFORMATION |
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| Item 1. Financial Statements |
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| Condensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and September 30, 2003 |
3 | |||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
10 | |||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |||||
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
23 | |||||
| Item 4. Controls and Procedures |
23 | |||||
| PART II – OTHER INFORMATION |
||||||
| Item 1. Legal Proceedings |
25 | |||||
| Item 6. Exhibits and Reports on Form 8-K |
25 | |||||
| 26 | ||||||
| 27 | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
| June 30, 2004 |
September 30, 2003 |
|||||||
| (Unaudited) | (Note 2) | |||||||
| Current assets: |
||||||||
| Cash |
$ | 2,427,334 | $ | 2,562,705 | ||||
| Receivables, net of allowance for doubtful accounts of $547,416 and $763,691 |
||||||||
| Trade accounts |
1,757,299 | 2,190,003 | ||||||
| Sales contracts |
3,456,831 | 2,295,723 | ||||||
| Notes |
1,998,609 | 2,008,960 | ||||||
| Related parties |
91,771 | 716,057 | ||||||
| Inventories |
8,739,347 | 9,134,123 | ||||||
| Prepaid expenses and other |
1,077,899 | 1,045,110 | ||||||
| Total current assets |
19,549,090 | 19,952,681 | ||||||
| Property and equipment, at cost |
||||||||
| Land |
658,930 | 658,930 | ||||||
| Buildings and improvements |
5,184,406 | 5,083,791 | ||||||
| Machinery, equipment and other |
2,210,754 | 2,269,734 | ||||||
| 8,054,090 | 8,012,455 | |||||||
| Accumulated depreciation |
(3,578,973 | ) | (3,234,682 | ) | ||||
| 4,475,117 | 4,777,773 | |||||||
| Other assets: |
||||||||
| Noncurrent receivables, net of allowance for doubtful accounts of $31,044 and $37,735 |
||||||||
| Sales contracts |
380,687 | 441,387 | ||||||
| Related parties |
— | 338,000 | ||||||
| Restricted cash |
541,316 | 537,209 | ||||||
| Other |
2,052,085 | 2,507,852 | ||||||
| 2,974,088 | 3,824,448 | |||||||
| Total assets |
$ | 26,998,295 | $ | 28,554,902 | ||||
The accompanying notes are an integral part of these condensed financial statements.
- 3 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
Liabilities and Shareholders’ Equity
| June 30, 2004 |
September 30, 2003 |
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| (Unaudited) | (Note 2) | |||||||
| Current liabilities: |
||||||||
| Notes payable and accrued interest to related party |
$ | 22,879,241 | $ | 24,336,841 | ||||
| Accounts payable |
1,369,308 | 845,939 | ||||||
| Accrued expenses and other |
1,458,252 | 1,548,934 | ||||||
| Current maturities of long-term debt |
74,493 | 284,769 | ||||||
| Total current liabilities |
25,781,294 | 27,016,483 | ||||||
| Long-term debt, net of current portion |
24,784 | 540,278 | ||||||
| Reserve for credit guarantees |
541,316 | 537,209 | ||||||
| Total liabilities |
26,347,394 | 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 |
(27,296,833 | ) | (27,824,802 | ) | ||||
| Notes receivable from officers and directors |
(394,625 | ) | (56,625 | ) | ||||
| Total stockholders’ equity |
650,901 | 460,932 | ||||||
| Total liabilities and shareholders’ equity |
$ | 26,998,295 | $ | 28,554,902 | ||||
The accompanying notes are an integral part of these condensed financial statements.
- 4 -
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net revenues |
$ | 11,268,217 | $ | 10,120,493 | ||||
| Cost of sales |
9,443,128 | 8,858,025 | ||||||
| Gross profit |
1,825,089 | 1,262,468 | ||||||
| Selling, general and administrative expenses |
1,384,028 | 1,499,657 | ||||||
| Operating income (loss) |
441,061 | (237,189 | ) | |||||
| Other income (expenses): |
||||||||
| Interest expense |
(288,606 | ) | (544,099 | ) | ||||
| Interest income and other |
118,469 | 840,642 | ||||||
| Total other income (expenses) |
(170,137 | ) | 296,543 | |||||
| Income before income taxes |
270,924 | 59,354 | ||||||
| Income tax expense |
— | — | ||||||
| Net income |
$ | 270,924 | $ | 59,354 | ||||
| Net earnings per share, basic and diluted |
$ | 0.01 | $ | — | ||||
The accompanying notes are an integral part of these condensed financial statements.
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Nine Months Ended June 30, |
||||||||
| 2003 |
2003 |
|||||||
| Net revenues |
$ | 32,992,771 | $ | 29,014,592 | ||||
| Cost of sales |
27,288,327 | 24,681,024 | ||||||
| Gross profit |
5,704,444 | 4,333,568 | ||||||
| Selling, general and administrative expenses |
4,389,789 | 5,045,186 | ||||||
| Operating income (loss) |
1,314,655 | (711,618 | ) | |||||
| Other income (expenses): |
||||||||
| Interest expense |
(978,194 | ) | (1,692,674 | ) | ||||
| Interest income and other |
191,508 | 831,556 | ||||||
| Total other expenses |
(786,686 | ) | (861,118 | ) | ||||
| Income (loss) from continuing operations before income taxes |
527,969 | (1,572,736 | ) | |||||
| Income tax benefit |
— | — | ||||||
| Income (loss) from continuing operations |
527,969 | (1,572,736 | ) | |||||
| Discontinued operations, net of income taxes |
— | (66,700 | ) | |||||
| Net income (loss) |
$ | 527,969 | $ | (1,639,436 | ) | |||
| Net earnings (loss) per share, basic and diluted |
$ | .03 | $ | (.09 | ) | |||
The accompanying notes are an integral part of these condensed financial statements.
- 6 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating Activities: |
||||||||
| Income (loss) from continuing operations |
$ | 527,969 | $ | (1,572,736 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
503,468 | 553,724 | ||||||
| Provision for doubtful accounts |
109,648 | 411,142 | ||||||
| Interest accrual on notes to related party |
942,400 | 1,496,700 | ||||||
| Loss on investment in limited liability company |
71,636 | 175,337 | ||||||
| Gain on asset sales |
— | (870,185 | ) | |||||
| Cash expenses related to discontinued operations |
— | (9,548 | ) | |||||
| Changes in: |
||||||||
| Accounts and sales contracts receivable |
(768,237 | ) | 2,298,036 | |||||
| Inventories |
394,776 | 1,702,106 | ||||||
| Prepaid expenses and other |
345,509 | 563,806 | ||||||
| Accounts payable |
523,369 | (386,400 | ) | |||||
| Accrued expenses and other |
(90,682 | ) | (332,200 | ) | ||||
| Net cash provided by operating activities |
2,559,856 | 4,029,782 | ||||||
| Investing Activities: |
||||||||
| Capital expenditures, net |
(194,979 | ) | (688,944 | ) | ||||
| Notes and other receivables |
591,490 | (119,679 | ) | |||||
| Receivables from related parties |
34,032 | (353,652 | ) | |||||
| Proceeds from asset sales |
— | 870,185 | ||||||
| Net cash provided by (used in) investing activities |
430,543 | (292,090 | ) | |||||
The accompanying notes are an integral part of these condensed financial statements.
- 7 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
| For the Nine Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Financing Activities: |
||||||||
| Net principal payments on line of credit arrangements |
$ | — | $ | (3,116,522 | ) | |||
| Proceeds from borrowings on long-term debt |
— | 174,146 | ||||||
| Principal payments on related party note payable |
(2,400,000 | ) | — | |||||