<PAGE>   1
                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [Fee Required]

         For the fiscal year ended June 30, 1998

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [No Fee Required] 

         For the transition period from

                         Commission File Number 0-29258
                                                -------

                               AQUAPRO CORPORATION
                  --------------------------------------------       
                 (Name of small business issuer in its charter)

              Tennessee                              62-1598919 
   ------------------------------                  ---------------
  (State or other jurisdiction of                 (I.R.S. Employer
   incorporation or organization)                Identification No.)

           105 Bonnabrook Drive Suite 202, Hermitage, Tennessee 37076
           -----------------------------------------------------------
                 (Address of Principal executive offices)    (Zip Code)

         Issuer's telephone number (615) 889-0804
                                   --------------

         Securities registered under Section 12(b) of the Exchange Act:

             Title of each class       Name of each exchange on which registered
             -------------------       -----------------------------------------
                    None                                 None
             
         Securities registered under Section 12 (g) of the Exchange Act:

                           Common Stock, no par value
                  -------------------------------------------
                                (Title of Class)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
                                                                       ---   ---

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [  ]

         State issuer's revenues for its most recent fiscal year $5,041,463
                                                                 ----------

         The aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of September 8, 1998 was $4,518,226, based
on the last sale price of $1.00 as reported by the NASD Over the Counter
Bulletin Board.

         As of September 8, 1998, Registrant had outstanding 4,818,354 shares of
common stock, its only class of common equity outstanding.

         Transitional Small Business Disclosure Format (check one): Yes   No  X
                                                                       ---   ---

<PAGE>   2


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                      PAGE
<S>                                                                                                                   <C> 
PART I   ..............................................................................................................-1-
         Item 1.           Description of Business.....................................................................-1-
         Item 2.           Description of Property....................................................................-17-
         Item 3.           Legal Proceedings..........................................................................-18-
         Item 4.           Submission of Matters to a Vote of Security Holders........................................-18-

PART II  .............................................................................................................-19-
         Item 5.           Market for Common Equity and Related Stockholder Matters...................................-19-
         Item 6.           Management's Discussion and Analysis or Plan of Operation..................................-21-
         Item 7.           Financial Statements.......................................................................-29-
         Item 8.           Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.......-29-

PART III .............................................................................................................-30-
         Item 9.  Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of
                  the Exchange Act....................................................................................-30-
         Item 10. Executive Compensation..............................................................................-32-
         Item 11. Security Ownership of Certain Beneficial Owners and Management......................................-34-
         Item 12. Certain Relationships and Related Transactions......................................................-35-
         Item 13. Exhibits and Reports on Form 8-K....................................................................-37-
         LIST OF EXHIBITS.............................................................................................-38-
         FINANCIAL STATEMENTS.........................................................................................-40-
</TABLE>


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<PAGE>   3



                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS

GENERAL

         THE COMPANY. AquaPro Corporation ("Registrant," "AquaPro" or the
"Company") was incorporated on March 20, 1995. The Company engages in the
business of owning and managing catfish aquaculture farms ("Aquaculture")
directly and through its two wholly-owned subsidiaries, American Fisheries
Corporation, a Mississippi Corporation ("American") and Circle Creek
Aquaculture, Inc., a Tennessee Corporation ("Circle Creek"). The Company
currently owns 1,843 water acres of aquaculture ponds. All of the Company's
catfish farming activities are conducted in the State of Mississippi and are
conducted through Circle Creek and American.

         Mr. Hastings, the Company's Chairman and Chief Executive Officer caused
Circle Creek to be incorporated in 1983 under the name of Hastings & Company,
Inc. It changed to its current name in March 1995. Until 1996, the business of
Circle Creek was primarily the sponsorship and operation of catfish farming
investment limited partnerships. Through 1996, Circle Creek sponsored eight such
limited partnerships which engaged in catfish farming (the "Circle Creek
Partnerships"), Circle Creek Aquaculture, L.P. ("CCA I"), Circle Creek
Aquaculture II, L.P. ("CCA II"), Circle Creek Aquaculture III, L.P. ("CCA III"),
Circle Creek Aquaculture IV, L.P. ("CCA IV"), Circle Creek Aquaculture V, L.P.
("CCA V"), Circle Creek Aquaculture VI, L.P. ("CCA VI"), Circle Creek
Aquaculture VII, L.P. ("CCA VII"), and Circle Creek Aquaculture VIII, L.P. ("CCA
VIII"), (collectively, the "Circle Creek Partnerships"). Each of the Circle
Creek Partnerships was organized under the laws of the State of Tennessee.

         Mr. Hastings acquired all of the outstanding stock of American in
February 1994. American had been formed in 1988 by unrelated persons to manage
catfish farming operations. At the time it was acquired by Mr. Hastings,
American served as manager for each of the six Circle Creek Partnerships then
existing. In 1995, Mr. Hastings and Ms. Hastings transferred all of their
interest in the stock of American and Circle Creek to the Company. Effective on
December 31, 1995, the Company acquired all of the assets and assumed all of the
liabilities of CCA I, CCA II, CCA III and CCA IV, pursuant to certain merger
transactions (the "Prior Consolidation"). Effective June 30, 1997, the Company
acquired all of the assets and assumed all of the liabilities of CCA V, CCA VI,
CCA VII, and CCA VIII (the "Recent Consolidation"). See Part III, Item 12,
"Certain Relationships and Related Transactions."

         Mr. Hastings sponsored and acted as sole general partner for the first
six Circle Creek Partnerships which were formed between 1989 and 1994. In 1995
and 1996, Mr. Hastings and the Company co-sponsored, and acted as co-general
partners of, CCA VII and CCA VIII. Effective December 31, 1995, Mr. Hastings
assigned all of his economic interest as general partner of each of the eight
Circle Creek Partnerships to the Company. These interests consisted of a one
percent (1%) interest in Partnership capital, profits and losses and a
promotional contingent interest of twenty-five percent (25%) of Partnership
distributions following a minimum cumulative return to the limited partners. The
general partner did not receive any distributions pursuant to this contingent
promotional interest in any of the Circle Creek Partnerships.

         The Company changed its fiscal year to June 30 commencing with the
period ended June 30, 1997. Management believes the change in fiscal year
allowed its accounting period to better reflect operations



                                       -1-

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during the normal catfish Aquaculture business cycle and thus more accurately
reflect the Company's performance in its business segment.

         The Company moved its corporate offices in May 1998 to 105 Bonnabrook
Drive Suite 202, Hermitage, Tennessee 37076. A 44 percent reduction in monthly
base rent was realized by making the move. The Company's catfish farms are
located in the north central area of Mississippi in the region known as the
"Mississippi Delta" or the "Delta." The address of the Company's farm management
offices is 1100 Highway 3, Sunflower, MS 38778.

THE CATFISH FARMING INDUSTRY

         The Company grows channel catfish for ultimate sale and processing.
Channel catfish account for substantially all of the commercial catfish
production within the United States. The channel catfish has many qualities
making it a superior candidate for commercial production over other species of
catfish. These qualities include ease of spawning, easily controlled
reproduction, relatively simple dietary needs, a relatively hardy constitution,
the ability to survive over a wide range of temperatures and the ability to
adapt well to commonly used culture systems.

         According to the National Fisheries Institute, farm-raised catfish now
ranks as the fifth most popular seafood in America, with a per capita annual
consumption of one pound. The National Agricultural Statistic Service ("NASS")
of the Agricultural Statistic Board, U.S. Department of Agriculture, has
released its annual survey data for the catfish farming industry for 1996. NASS
reports that catfish growers in the fifteen (15) major producing states had
total sales of $525 million during 1997, an increase of 11.6% over 1996. NASS
also reports that on January 1, 1998, water acres used for catfish Aquaculture
totaled 173,000 acres.

         The Food and Drug Administration ("FDA") funded a study in 1991, which
showed farm-raised catfish to be the fourth most popular seafood in the U.S. The
average prices paid by major processors per pound for farm-raised catfish during
the past fifteen years, according to the U.S. Department of Agriculture, are as
follows:

                  HISTORIC AVERAGE PROCESSOR PRICE FOR CATFISH

<TABLE>
<CAPTION>
                   Calendar
                     Year             Average Price Per Pound
                     ----             -----------------------
<S>                <C>                <C>
                     1984                      69.2(cent)
                     1985                      72.6
                     1986                      66.8
                     1987                      61.8
                     1988                      76.4
                     1989                      71.5
                     1990                      77.3
                     1991                      63.1
                     1992                      60.0
                     1993                      71.0
                     1994                      78.9
                     1995                      78.8
                     1996                      77.0
                     1997                      71.2
                     1998 (through 7/31)       76.0
</TABLE>



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         There are two major channels of distribution for farm-raised catfish:
retail grocery store outlets and the food service sector. Each accounts for
approximately half of total catfish sales. Catfish farmers can access these
markets directly only if they process their own production. The vast majority of
farmers, including the Company, do not have processing capability and thus must
sell their products to either cooperatively owned or independent processors. The
Company sells its catfish to a limited number of cooperative and independent
catfish processors. The terms of sale generally permit payment within 4 weeks of
delivery and do not require collateral for payment. For the year ended June
30, 1998, three processors represented 52%, 31%, and 10%, respectively, of the
Company's net sales. For the six-month period ended June 30, 1997, one processor
represented 90% of net sales. Three processors represented 55%, 25% and 11%,
respectively, of the Company's net sales for the year ended December 31, 1996.
These cooperatives sell processed catfish both to retail groceries and to the
food service industry.

THE COMPANY'S CATFISH FARMING OPERATIONS

         CATFISH AQUACULTURE. Channel catfish are grown in outdoor ponds in
which the water is about four to five feet deep. The Company's operations are
conducted in ponds ranging from 10 to 20 water acres in size. Each pond is
separated by levees that must be large and strong enough to support a semi-truck
and trailer hauling up to 40,000 pounds of catfish. The levee system provides
access to the ponds for feeding, oxygen checking (oxygen level regulation),
aeration and other maintenance chores. Ponds are supplied with water from
underground sources (wells). The water does not flow back and forth between the
ponds because of the higher, heavy clay levees. The ponds have relatively flat,
regular sides and bottoms, since this shape facilitates harvesting. Individual
ponds average 13 land acres and 4 to 5 feet in depth from the bottom of the pond
to the top of the levee.

         Successful catfish farming requires stocking the ponds and feeding the
fish at the highest rate possible, while still maintaining a healthy living
environment. In prior years, Management believed that 5,000 stocker fish and
8,000 to 10,000 5" to 6" fingerlings per acre for the initial stocking, and
7,000 to 10,000 5" to 6" fingerlings each year thereafter, is the optimum number
of fish to maintain maximum production levels. During the year ended June 30,
1998, new farm management has lowered these levels to 5,000 stocker fish and
6,000 to 8,000 5" to 6" fingerlings per acre for the initial stocking, and 6,000
to 8,000 5" to 6" fingerlings each year thereafter. Furthermore, Management now
believes only stocking rates greater than 6,000 head per acre are cost-effective
on a long-term basis in the present industry environment compared to 7,000 head
per acre in the prior year. Current stocking rates in the industry range from
approximately 3,000 head to more than 10,000 head per acre. Once fully stocked,
a well-managed catfish farm can produce 6,500 pounds of catfish per water acre
per year, although the industry average is less. Catfish farms in the
Mississippi Delta average 4,000 to 5,000 pounds of catfish production per acre
per year.

         The time period required for a catfish to progress from fingerling to
its optimum weight of 1 to 1-1/2 pounds is 8 to 12 growing months, depending on
the feeding, health, density of population and other factors, many of which,
including climatic conditions, will be outside the control of Management. There
are normally seven growing months during a calendar year (April through October)
so fish are generally in the water over a two calendar year period.
Historically, most catfish were harvested and processed in the months of June
through October. However, as a result of an active marketing campaign by the
catfish industry and consistent year-round production, consumer demand for
catfish has become more year-round in recent years.

         Channel catfish grow fastest and healthiest under certain environmental
conditions. The optimal temperature for channel catfish growth is about
85(degree). Because the growing of catfish in outdoor ponds is by far the most
economical (cultivation in tanks or heated water is much more expensive and is
commercially



                                       -3-

<PAGE>   6



feasible only when some unique circumstance exists, such as the opportunity to
sell fish at an exceptional price), catfish are most easily grown in a location
where average daily water temperatures are above 70(degree) for at least 180
days a year, with at least 120 days above 80(degree). Thus, climate is one
reason for choosing the Mississippi Delta region to grow the fish. When the
water approaches 50(degree) Fahrenheit, feeding activity slows, almost stopping
as temperature drops further. In the Mississippi Delta region, the heaviest
feeding times are spring, summer, and fall. (Channel catfish can survive,
however, for long periods of time at water temperatures ranging from just above
freezing to about 104(degree)).

         The Company cultures its fingerlings until they reach marketable size
(or weight). Within the catfish farming industry, three sizes of food-size fish
are recognized. Large food-size catfish are 3 pounds and above. Medium food-size
catfish are 1-1/2 to 3 pounds, and small food-size catfish are 3/4 to 1-1/2
pounds. While catfish of 3/4 of a pound or more are considered market weight,
Management intends to market the Company's catfish at a weight of 1 to 1-1/2
pounds. In Management's experience, this is the optimum size for marketing
because it yields the best fillet when processed. The highest demand for catfish
production is for fillet cuts. Accordingly, the catfish will be fed and
maintained until they weigh 1 to 1-1/2 pounds before any will be ready to
harvest and sell to a processor. As catfish are sold, additional fingerlings
will be purchased periodically to restock the ponds. Generally, the Company
would replace inventory with 5" to 6" fingerlings. This is because, for
production during a full growing season, it is generally more efficient to
purchase 5" to 6" fingerlings than to devote one or more of the Company's ponds
to catfish spawning. The price paid for fingerlings ranges between .75(cent) and
1.50(cent) per inch. Management anticipates that this price range will remain
fairly constant. However, fry are much less costly than larger stock-size fish,
and where ponds are newly refurbished or reworked they are sterile and ideal for
growing fry-size fish.

         NECESSARY RESOURCES AND MATERIALS. As discussed in further detail
below, the raw materials necessary for the Company's agriculture operations
consist primarily of stock fish, feed, electricity and gasoline. The Company
also requires equipment and general supplies to maintain its operations. The
Company purchases its feed principally through cooperatives. The price of feed
closely reflects the costs of the raw materials used in the synthesis thereof,
including soybean, corn and other agricultural products. Accordingly, the price
of feed fluctuates in response to the prices of these commodities on the world
markets. The Company uses significant amounts of electricity and fuel in
operating is aerators, particularly during the warmer months (principally spring
and summer) during which fish activity and thus, oxygen consumption is greatest.
Thus, the Company is subject to price fluctuations in electricity and gasoline
prices. The Company uses both unspecialized equipment, such as tractors, trucks,
etc., and specialized equipment, aerators, seining equipment, etc., in its
operations. New and used equipment in the past has been available at competitive
prices and terms to the Company, primarily because of the concentration of
catfish farming in the Delta area and as a result of the historic high rate of
turnover of catfish farming operators. The Company anticipates this trend will
continue and anticipates that both new and used equipment will continue to be
readily available to the Company as needed. Another major expense of the
Company's business is labor. The Company currently employs a non-organized labor
field staff. Most of the Company's field staff requires low level skills and
training and thus, the Company believes that competent labor at competitive
prices will continue to be available to the Company in the area of its
operations.

         FEED. Catfish are fed a diet of "puffed" high protein, floating food
pellets which are a mixture of soybean, corn, wheat, vitamins, minerals and fish
meal, produced by fish mills. The food is scientifically formulated, not only to
provide an optimal level of nutrition to the individual fish but also to produce
a meat of a mild, sweet flavor and the absence of any "fishy" odor during
cooking. One of the advantages of catfish Aquaculture is the higher
feed/conversion ratio of this meat source. Laboratory studies have shown
conversion ratios for channel catfish as high as 1.75 pounds of feed per one
pound of fish produced.



                                       -4-

<PAGE>   7



However, based on its experience, Management believes the "real life" conversion
rate for catfish grown under commercial conditions, including mortality, is
closer to 2.5:1 and management uses this rate in its inventory control and
monitoring procedures. By comparison, chicken has a conversion ratio of
approximately 3:1; pork has a conversion ratio of approximately 4:1; and beef
has a conversion ratio of approximately 8:1.

         Feed prices can vary greatly from year to year. In 1995, feed prices
averaged $235 per ton. Increases in soybean, corn and wheat prices in 1996 and
early 1997 pushed feed prices to $287 per ton in early 1997. Higher feed prices
directly resulted in increased costs of products sold. The price of feed is
subject to crop yields, which cannot be predicted with certainty. In order to
help control its feed costs, the Company owns shares in Indi-Bell Feed Mill
Cooperative ("Delta Western"). As a member of this Cooperative, the Company has
the opportunity to buy feed at wholesale prices and to purchase feed on an "as
needed" basis on two days' prior notice. Thus, the Company can avoid having to
purchase and store large amounts of catfish feed in order to lock in current
prices. Delta Western has over 250 members. This cooperative hedges against
price fluctuations for its members through the purchase of futures option
contracts on the Chicago Board of Trade Futures Exchange. The Company contracted
to purchase at a price of $239 per ton for approximately 90% of its budgeted
feed consumption for calendar 1998. This feed has been used as of September 1998
and the Company is currently paying approximately $200 per ton for its feed.
Management expects to contract for its 1999 feed needs at approximately $200
per ton, although it has not yet done so as of the end of September 1998.

         OXYGEN LEVELS. Catfish are sensitive to water oxygen levels which
fluctuate on a more or less predictable cycle during a 24-hour period. Oxygen
levels are supplemented by algae growth during the daylight hours, and are
depleted during the dark hours as algae are dormant. Because the fish remain
active during both daylight and dark hours, the ponds must be constantly
monitored and aerated as necessary in order to maintain acceptable oxygen
levels.

         DISEASE. Diseases affecting catfish are a constant risk. A vaccine is
presently available to treat enteric septicemia, which is currently the leading
cause of mortality among catfish (approximately 40% of all catfish disease is a
form of enteric septicemia). The most efficient safeguard against this disease
is constant monitoring and the purchase of fingerlings which have been fed the
oral vaccine. Once the disease is detected, medicated feed may be provided to
the infected fish to prevent a serious outbreak. Those diseases which cannot be
successfully treated can often be contained in the infected pond, since the Farm
ponds, as is typical with catfish ponds, are separated by levees, and water from
one pond does not normally cross over into another pond. Frequent monitoring is
also necessary in order to maintain proper water chemistry.

         HARVESTING AND RESTOCKING. When Management determines that the catfish
of a particular pond are ready for market, the pond is seined using a net of
appropriate size, which will allow the smaller catfish to escape while trapping
the larger catfish in the net. The catfish will then be loaded live on trucks
and transported to the processor where the fish are cleaned, processed, and
chilled or frozen in less than three minutes. The processing plants pay an
agreed upon price per pound for the delivered fish. The Company owns shares in
the Delta Pride Catfish, Inc. ("Delta Pride") processing cooperative where most
of its catfish are sold for processing. The Company primarily contracts with
unaffiliated firms for the harvesting and transportation of its fish production.



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<PAGE>   8



         The Company seeks to restock its ponds annually in order to maintain
the optimum population within each pond. At any time, each pond will have fish
at various stages of growth. The cycle from fingerling to ideal processing size
(1.0 lbs. to 1.5 lbs.) generally takes 18 months.

         INVENTORY CONTROL PROCEDURES. Husbandry of its live fish inventories is
probably the most important aspect of the Company's Aquaculture business.
Ongoing knowledge of live fish inventories is critical to management's ability
to make accurate and timely decisions regarding their feeding, care and
harvesting. For instance, accurate estimates of the number of fish and their
respective size are used in determining the amount and timing of feedings and
necessary aeration, restocking and harvesting. 

         The following provides additional information and background of the
Company's method of accounting for live fish inventories. Mississippi State
University - Extension Service ("MSUES"), formerly Cooperative Extension Service
- Mississippi State University, and the Mississippi Agriculture and Forestry
Experiment Station - Mississippi State University ("MAFES") have published
conversion rates as determined by aquaculture research performed at Mississippi
State University and other research facilities. MSUES is funded by the United
States Department of Agriculture, the State of Mississippi, and the Counties
within Mississippi. MAFES is funded by the United States Department of
Agriculture and the State of Mississippi. The Company has not performed
procedures to specifically substantiate the conversion rates published by MSUES
or MAFES because management believes actual grow-out conditions on the farms are
not as favorable as in the research facilities. Thus, the Company uses lower
feed conversion rates than the published rates based on its actual experience
and the experience of other growers that management participates with in Catfish
Farmers of America and Catfish Farmers of Mississippi, both of which are
industry trade associations, and Delta Pride Catfish, Inc., a farmer-owned
catfish processor.

         The Company maintains a perpetual record of live fish inventories for
each of the Company's 140 production ponds. The perpetual live fish inventory
records are used to account for the pounds of fish fingerlings purchased,
grow-out based on feed fed, observed mortality and sales. Management believes
this is consistent with the methodology used by other growers in the industry in
maintaining perpetual live fish inventory records.

         The Company's actual feed conversion is determined by monitoring the
feed fed daily to each of the ponds, observing the live fish feeding and
monitoring mortality in each of the ponds by personnel with substantial
experience in aquaculture. Catfish feed is pelletized and is blown onto the
surface of the water using calibrated feed trucks or trailers to ensure the
appropriate amount of feed is fed to fish based on their body weight and to
ensure that excess feed is not fed. The pelletized feed floats, therefore the
fish can be observed feeding. Under normal conditions, the fish are generally
fed daily, during the feeding season from April through October, as much feed as
they will consume without adversely affecting water quality (oxygen, pH,
ammonia, etc.). A fish's feed consumption is directly related to its body
weight, thus certain fish will not consume a disproportionate amount of feed.
Published industry data from MSUES and MAFES provide the percentage of their
body weight catfish eat at each feeding depending on the size of fish. The
feeding may also be affected by water temperature, water quality, disease, and
frequency of feeding. Based on the factors described above, the pounds of live
fish in a pond can be determined by the quantity of feed the fish consume.


                                       -6-

<PAGE>   9



         Management assesses the accuracy of the perpetual inventory records by
analyzing the trend of pounds of feed fed to each pond relative to the pounds of
fish in the pond (i.e. feed consumption increases in quantity as the fish
increase in size, but decreases as a percentage of the fish's body weight) and
observing the feeding of the fish in each pond monthly to estimate the pounds of
live fish. To analyze the trend of feed fed relative to the pounds of catfish in
each pond per the perpetual inventory records, management compares feed
consumption as a percentage of body weight with published industry data from
MSUES and MAFES. Management also considers its prior experience in analyzing
such trends. Management's observation of the actual feeding of the fish not only
includes consideration of the amount of feed fed relative to the body weight of
the fish in a pond but management also considers other factors which affect
feeding rates including size of fish, water temperature, water quality, disease,
and frequency of feeding. Management also utilizes the perpetual inventory
records and observation of the actual feeding of the fish to determine which
ponds are ready to be harvested.

         The perpetual inventory records are updated daily by pond for the
pounds of feed fed to each pond and is converted to live weight by the feed
conversion and is reduced by any observed mortality. Mortality tends to be
higher during periods of severe winter weather, which may not be completely
observed until the feeding resumes in the spring. Revisions are made to the
perpetual inventory records, on a pond by pond basis, when observations of the
actual feeding or seinings of the fish indicate the quantity of fish in a pond
differ from the perpetual inventory record.

         Actual harvests of fish are also utilized in assessing the accuracy of
the perpetual inventory records. Although only fish which have reached a
marketable weight are harvested, management observes the initial seining of fish
prior to the pond being harvested and compares such observations with the
perpetual inventory records. Because such seining includes substantially all of
the fish in a pond except for the small "fingerling" fish, (the "fingerlings" do
not represent a significant portion of the total fish weight in a production
pond), management can estimate the total fish weight in a pond. The holding
nets, which are of a size to retain the fish which have reached a marketable
weight and release the smaller fish, are then used to harvest the fish to be
taken to the processor.

         Individual ponds are closed approximately every 8 to 10 years by
seining substantially all the fish in the pond being closed. Ponds are closed in
connection with refurbishing of the pond levees and removing the buildup of silt
from the bottom of the ponds. After a pond is closed, the Company compares its
perpetual inventory records to the results of seining such closed pond, and any
revisions necessary are made to the perpetual inventory records.

         EMPLOYEES. The Company currently employs 35 full-time persons and one
part-time person.

RECENT DEVELOPMENTS

         COMMUNITY BANK CREDIT LINE. Effective May 14, 1998, the Company 
obtained a revolving credit line in the amount of $1,000,000 from Community
Bank, Indianola. The sole purpose and availability of the credit line is to
provide financing for catfish feed purchases from Delta Western. Borrowings
under the credit line bear interest at the rate of prime plus 165 basis points
(1.65%). The credit line matures on March 15, 1999. The Company paid a
commitment fee of 1% ($10,000). Under the credit line, the Company has an
operating deposit account at the bank into which the Company must deposit
proceeds from all inventory sales and accounts receivable. Approximately 55
percent (40 cents per pound of fish sold) of amounts collected are applied to
repayment of the credit line balance and the remaining balance is then available
to the Company. The credit line is represented by the Company's promissory note
which is collateralized



                                       -7-

<PAGE>   10



by a first lien on all inventory, accounts receivable, certain stock in
processing cooperatives owned by the Company and two of the Company's farming
properties (see Item 2). Mr. George S. Hastings has personally guaranteed
repayment of the credit line.

         ASSESSMENTS BY DELTA PRIDE COOPERATIVE. Delta Pride has assessed the
Company and its other members on a 'per pound' basis for fish processed by Delta
Pride pursuant to each member's delivery rights during the year ended June 30,
1998. The current assessment is approximately 5.9 cents ($0.059) per pound
processed, and payable in installments of $0.01 per pound each month
(approximately $35,000 each month) during the months of October 1998 through
February 1999 with a final payment due in March 1999 of $0.009 (approximately
$31,500). The assessment is necessary to cover operating and other financial
losses (totaling $0.079 per pound) incurred by Delta Pride during the year ended
June 30, 1998. The Company's share of Delta Pride's losses of $260,112 ($0.079
per pound of fish sold to Delta Pride) has been recorded as a charge to earnings
during the year ended June 30, 1998 and reflected as a reduction in the
Company's investment in Delta Pride stock as of June 30, 1998 in the Company's
balance sheet. Delta Pride is the largest catfish processor in the United
States. The Company is among the ten largest member shareholders of Delta Pride
and Delta Pride is the Company's largest customer. Mr. Hastings is a member of
the Board of Directors of Delta Pride.

         The members' obligations to pay these installments are non-recourse,
but, until the installments are paid, the Company cannot deliver fish under its
delivery rights to Delta Pride. Payment of the Delta Pride assessments will
materially reduce the Company's cash flow for the year ending June 30, 1999
while the charges increased its net loss for the year ended June 30, 1998.

         RESIGNATION OF OFFICERS.  Mr. Eric P. Braschwitz, the Company's Chief 
Financial Officer and Secretary resigned effective September 18, 1998. The
Company expects to hire a new accounting officer and Mr. Braschwitz has
committed to assisting in the transition on an as needed basis at reasonable
times when he is not required to be at his new job.

         Ms. Patricia G. Hastings resigned her positions of Executive Vice 
President, Legal Counsel, Secretary, and Director effective January 19, 1998 for
personal reasons. Ms. Hastings was the wife of Mr. Hastings. The Company
announced on Form 8-K filed January 26, 1998 that Mr. and Ms. Hastings planned
to divorce and this became final in August 1998. The duties and responsibilities
of Ms. Hastings were assumed by Mr. Hastings and Mr. Braschwitz. Ms. Hastings
transferred ownership to Mr. Hastings all of her shares of AquaPro Common Stock,
except for 7,952 shares which she has retained.

         RELOCATION OF OFFICERS.  Mr. George S. Hastings, Jr, the Company's 
President and Chief Executive Officer, has relocated his personal residence from
Nashville, Tennessee to Indianola, Mississippi to be closer to the Company's
catfish farming activities.

         ADJUSTMENT OF EXECUTIVE COMPENSATION.  As of July 1997, Mr. and Mrs.
Hastings were being paid a combined annual salary on a biweekly basis of
$225,000 under their respective employment contracts, which they agreed to
divide equally between themselves. In addition, Mr. Hastings received $12,000
annually as a car allowance. In August 1997, Mr. Hastings agreed to reduce his
salary to $1 annually until the Company's performance improved. During the
months of August 1997 through January 1998 (a period of six months), Mr. and
Mrs. Hastings were paid biweekly on an annual basis of $87,000 which they split
50/50. It was also agreed to by the Board's compensation committee that Mr.
Hastings would be issued options to buy the Company's stock not to exceed
200,000 shares annually. These options would be issued quarterly at the rate of
50,000 options and would be priced at the same price the preferred stock of the
Company converts to



                                       -8-

<PAGE>   11



common stock in 1998. On May 27, 1998, the Company's Preferred Stock converted
to common stock at the price of $2.837 per share. Accordingly, Mr. Hastings was
issued 7 year options to purchase 100,000 shares at $2.837 for his six month
period of reduced salary.

         In connection with their divorce, Ms. Hastings resigned her positions
as an Officer and Director of the Company in January 1998. Also, Mr. Hastings
received all of the stock grants and options previously issued to her. The Board
agreed to continue to pay $87,000 in salary to Mr. Hastings. Additionally, Mr.
Hastings was granted by the compensation committee additional options to be
issued quarterly. The first quarter ended on May 15, 1998 and Mr. Hastings was
issued 7 year options to buy 84,000 shares at the closing market price of $3.125
on that date. This arrangement superseded the 50,000 shares per quarter that was
in effect August 1997 through January 1998.

         The Company has outstanding 7 year options to purchase stock at $6.25
per share that were issued 1995 to 1997 (171,000 shares). On August 18, 1998,
the compensation committee recommended and the Board approved that all of the
options previously issued at $6.25 per share be repriced at $2.00 per share.

RISK FACTORS

         The Company and its securities are subject to a number of risks. Set
forth below is a description of the risks that the Company considers to be of a
significant nature.

         RISKS ASSOCIATED WITH THE AQUACULTURE BUSINESS

         General Risks of Catfish Farming. The Company faces three
general types of risk in connection with its catfish farming business.

         -        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 in 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 it to realize a profit in its catfish
sales, the Company will not be profitable and, if this condition persists, it
would fail and the shareholders would lose some or all of their investment.

         Certain risks, such as adverse climatic conditions, natural disasters,
disease, consumer demand and competition, are outside 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.

                  Availability and Price of Stock Fish and Supplies. The price
of stock fish, supplies such as feed, and labor is subject to fluctuations due
to availability and varying demands. Increased competition for




                                       -9-

<PAGE>   12



supplies and services within the catfish farming industry in general, and the
Mississippi Delta in particular, could cause temporary or prolonged price
increases for feed, labor or other items necessary to the Company's farming
operations. While Management will attempt to obtain lower supply and labor costs
through cooperative purchasing, there is no assurance that it will be able to do
so or that future price increases will not occur. Prolonged increases in one or
more of these categories would negatively affect the Company's profitability and
ability to remain in business.

                  Consumer Demand. The Company's profitability will depend
substantially on the price at which it can sell its catfish. In the past years,
prices have fluctuated substantially and will likely continue to do so in the
future. Prices are dependent upon the demand for catfish by consumers and the
supply of catfish available at any given time. While catfish consumption is in
general increasing, there continues to be substantial consumer reluctance to eat
catfish. Also, catfish continues to incur substantial competition from other
seafood, beef, pork and chicken. While foreign-produced catfish currently
accounts for less than one percent of the total catfish consumed in the United
States, increased foreign competition could negatively impact the price at which
the Company can sell its catfish production. Any continued depression of the
price the Company can receive for its catfish will negatively affect the
Company's profitability and its ability to remain in business.

                  Loss Due to Disease. The single highest cause of loss in
catfish farming is disease. Disease has accounted for more than sixty percent of
catfish loss each year since 1990. The Company will attempt to control the more
common catfish diseases through the purchase of disease resistant or vaccinated
fingerlings, and will monitor its fish for disease so that a diseased pond can
be quickly quarantined. Nevertheless, catfish are susceptible to a number of
viral and bacterial diseases, many of which cannot be effectively treated, even
if diagnosed early. A number of these diseases cannot be prevented. Also, it is
possible that new diseases may occur in the future for which effective treatment
does not exist. There is no assurance that the Company will be able to limit
disease. A loss of a substantial amount of the Company's inventory due to
disease will negatively affect its profitability and its ability to remain in
business.

                  Water Oxygenation. Catfish survival is dependent upon the
maintenance of adequate oxygen levels in the catfish ponds on a 24-hour basis.
Typically, oxygen levels will fluctuate throughout a 24-hour period. Oxygen
levels are enhanced by photo synthetic bacteria during the daylight hours and
depleted during the nighttime hours by catfish activity. In order to maintain
adequate oxygen levels, catfish ponds must be aerated mechanically during times
of low oxygen levels. If oxygen levels are not monitored regularly or if low
levels are not discovered in time, the catfish will be lost. The Company will
maintain a regular oxygen monitoring schedule and will have on its premises
sufficient electric aerators to maintain pond oxygen levels under anticipated
conditions. Nevertheless, unanticipated conditions such as prolonged loss of
electric power may render unavailable the electric aerating equipment. A
substantial loss of the Company catfish inventory due to a failure to maintain
oxygen levels would negatively impact the Company's profitability and its
ability to remain in business.

                  Price of Catfish Feed. Catfish feed, which is the greatest
single production cost in catfish farming operations, is subject to large
fluctuations. Industry groups report in recent years, fluctuation between $180
and $300 per ton. Currently, catfish feed is produced by a small number of
producers, some of which are cooperatives. The Company owns shares in Delta
Western, a cooperative catfish food producer, which allows the Company a limited
preferential right to purchase feed. These shares, however, do not assure the
availability of feed or the price at which feed can be purchased. While the
Company attempts to budget for anticipated feed costs in its operations, such
costs are not predictable with certainty and the Company has no control over the
market price of feed. However, the Company has contracted to purchase


                                      -10-

<PAGE>   13



at a price of $239 per ton for approximately 90% of its budgeted feed
consumption for calendar 1998. There is no assurance that the Company will be
able to purchase feed in the future as needed at a cost that will allow it to
operate profitably or remain in business.

                  Climatic Conditions. While channel catfish are tolerant to a
wide range of climatic and temperature conditions, these catfish become immobile
below 32(degree) Fahrenheit. Catfish ponds cannot economically be heated.
Accordingly, prolonged cold weather conditions could lower pond temperatures to
below 32(degree) and result in a substantial loss of the Company's catfish
inventory, thereby negatively impacting its profitability and its ability to
remain in business.

                  Water Contamination. Non-catfish farming operations in the
Mississippi Delta have in the past used and continue to use chemical fertilizers
and pesticides in their crop production. Even small concentrations of certain
chemicals and pesticides can significantly affect catfish production and can
result in loss of the entire catfish population in the pond affected. While
Management has from time to time tested the Partnerships' ponds and found no
dangerous levels of any chemical or pesticide present, there is no assurance
that contamination from these chemicals may not occur in the future, either
through penetration of ground water or surface application. Management will
continue to monitor and test the ponds for possible contamination. Additionally,
in order to reduce the risk of contamination, the Company has adopted a policy
whereby it will not purchase land where certain crops have been grown.

                  Natural Hazards. Excessive amounts of aquatic weeds reduce
catfish production. The only method of aquatic weed control is chemical control,
which can result in oxygen depletion and accompanying loss of catfish in the
treated pond. Further, the chemicals used to destroy weeds are expensive to
purchase and are not always completely effective. Catfish population loss can
also occur as a result of predators, including naturally occurring birds, snakes
and turtles. The occurrence of such predators is common in the Mississippi Delta
area and Management will limit the damage caused by such predators by continuing
its policy of early detection and removal.

                  Water Availability. Catfish production requires large,
reliable sources of water. In general, the Mississippi Delta is supplied by a
large and readily accessible ground water source. The Partnerships' farms are
served by wells, capable of producing sufficient water to meet the anticipated
needs of the Company's catfish farming operations. Nevertheless, the water
available to the Company may be limited by natural courses or by chemical or
fertilizer contamination as described above. Further, there is no assurance that
the State of Mississippi, the U.S. Army Corps of Engineers or other governmental
authority will not in the future place limitations on the amount of water which
may be withdrawn by well. Nonavailability of sufficient water would
substantially and negatively impact the Company's profitability and ability to
remain in business.

                  Quality of Catfish. Management intends to follow farming
procedures which have been shown to result in the palatable, clean tasting,
"non-fishy" catfish demanded by the consumer market. Nevertheless, for reasons
which usually cannot be controlled before they are discovered, catfish in any
particular pond may acquire an "off-flavor" taste. A number of factors, many of
which often work together, may cause this result. A common cause is certain
types of algae which are difficult to control in catfish ponds, particularly in
late summer and early fall. Fortunately, a catfish pond will become "off-flavor"
only for a limited period of time, even if no affirmative corrective action is
taken. However, there may be several months during which one or more of the
Company's ponds may be "off-flavor," thereby preventing the Company from selling
catfish from that pond but requiring the Company to continue to incur expenses
in

                                      -11-

<PAGE>   14



feeding and maintaining the catfish population. Catfish industry groups are
currently conducting studies to determine the cause and treatment of
"off-flavor" conditions.

                  Uninsured Losses. Management maintains liability and casualty
coverage for its farms and its major equipment in amounts it deems appropriate.
However, certain losses from significant risks, such as disease, chemical
contamination, climatic conditions or natural disasters, such as ice storms,
floods, droughts or hurricanes, are either uninsurable or are not economically
feasible to insure. Should the Company incur a loss from such an uninsured
event, the Company could sustain a loss of its catfish farming business. In such
event, the Shareholders would lose all or substantially all of their investment
in the Company.

                  Ability to Sell its Fish Production. The Company does not have
the capability to process its own fish. The Company sells its catfish to two
cooperative processors of which it is a member. The Company also has an
agreement with a third processor (the Company is not a member of this processor)
to sell 2.5 million pounds of fish annually. Members of cooperative processors
are allocated fish delivery rights or sale allocations requiring the cooperative
to purchase an amount of fish in proportion to the number of shares owned. The
price received depends on the price paid by the processor at the time of
delivery. Cooperatives are managed by boards of directors elected by their
members. To the extent the cooperative processors operate profitably, the
members are benefitted through price concessions, rebates and/or distributions.
To the extent cooperatives operate unprofitably, members are subject to
assessments to fund such losses. The failure to pay assessments generally
results in a loss of delivery rights and sometimes in the loss of membership
interests. Accordingly, the Company's ability to market its catfish in volumes
and at prices necessary for profitable operations substantially depends on the
ability of management of the cooperative processors of which the Company is a
member to operate their processors in an efficient manner. Moreover, fish the
Company cannot sell to its cooperative processors must be sold to other
processors on a negotiated basis in competition with other catfish producers.
While there are a number of processors located in the Mississippi Delta,
management does not believe there is sufficient competition among processors to
provide any substantial leverage to the catfish producers in negotiating prices.
These circumstances do not allow the Company to depend on stable catfish prices
for its future production. Thus, there is no assurance that the Company will be
able to sell its catfish production at a price which will allow it to realize a
profit.

                  Assessments By Delta Pride. The Company's principal catfish
processing cooperative, Delta Pride Catfish, Inc. has assessed its member
stockholders, including the Company, approximately $.079 per pound (of which
$0.059 per pound will have to be paid with cash) of catfish processed to cover
operating and other losses sustained by Delta Pride during their year ended June
30, 1998. As a member of this cooperative, the Company must pay this assessment
in order to retain its member catfish delivery rights. During the year ended
June 30, 1998, the six month period ended June 30, 1997, and the year ended
December 31, 1996, the Company sold 52%, 90%, and 55%, respectively, of its
total catfish production to Delta Pride. The total assessment was recorded as a
$260,112 charge to earnings during the year ended June 30, 1998 and is expected
to require payments of totaling approximately $208,000 during the months October
1998 through March 1999. Accordingly, this will significantly reduce the cash
flow of the Company during the next year.

         The assessment totaled $272,000 ($0.079 per pound) for the six month
period ended June 30, 1997, of which $191,376 ($0.05) was paid in cash during
the year ended June 30, 1998.


                                      -12-

<PAGE>   15



         Moreover, although Delta Pride has instituted significant measures,
including a change in executive management in 1997, to end future operating
losses, it has been unsuccessful and there is no assurance it will be able to
operate at a break even level or profit in the future. Should Delta Pride
continue to operate at a loss, its members, including the Company, can
anticipate additional assessments in the future.

         Should Delta Pride continue to sustain significant losses and/or should
a significant number of its members fail to pay their assessments as due, Delta
Pride's ability to continue to operate as a fish processing concern could be
suspended or terminated. In this event, the Company would be unable to market a
substantial percentage of its catfish unless it established alternative
processing arrangements. Also, in such event, the Company's investment in Delta
Pride cooperative stock would be significantly impaired or possibly rendered
valueless. Mr. Hastings is a member of the Board of Directors of Delta Pride.

                  Availability and Price of Stock Fish and Supplies. The price
of stock fish, supplies such as feed, and labor is subject to fluctuations due
to availability and varying demands. Increased competition for supplies and
services within the catfish farming industry in general, and the Mississippi
Delta in particular, could cause temporary or prolonged price increases for
feed, labor or other items necessary to the Company's farming operations. While
management will attempt to obtain lower supply and labor costs through
cooperative purchasing, there is no assurance that it will be able to do so or
that future price increases will not occur. Prolonged increases in one or more
of these categories would negatively affect the Company's profitability and
ability to remain in business.

                  Effect of Competition. The catfish farming industry is
intensely competitive, particularly in terms of costs of production and price,
and to a lesser extent in terms of quality and marketing. Many of the Company's
competitors are better established, have substantially greater financial,
marketing and other resources than the Company, and some may have more
efficiencies in cost of production. The existence of any of these facts could
give such competitors an advantage over the Company. Moreover, one or more
competitors may develop and successfully commercialize catfish farming
techniques or procedures that provide them with an advantage over the Company in
terms of costs of production, price and quality of catfish production. As a
consequence, such competition may result in the Company's inability to compete
with such farming operations on a continuing basis.

                  Impact of Environmental Laws and Regulations. As a food,
catfish is subject to federal and state laws and regulations regulating the
cultivating and growing of edible products and the content of regulated or
restricted substances therein. For example, various herbicides, algaecides,
fungicides and other mineral and chemical supplements and treatments which the
Company may otherwise in controlling algae, fungi and other pests, are
restricted or prohibited under prevailing federal and state laws and
regulations. The chemical content of catfish is subject to federal standards and
the Company is susceptible to inclusions of restricted or prohibited substances
in its catfish through means beyond its control. For instance, such substances
may be included by feed or ground water utilized by the Company in cultivating
its catfish. In the event restricted or prohibited substances or chemicals are
discovered to be present in the Company's ponds or catfish in amounts exceeding
permissible levels, the Company could be prohibited from selling all or a
significant portion of its catfish for an extended period of time, and may be
required to destroy all or a substantial portion of its then-current catfish
production. Also, under certain circumstances, the Company could be required to
pay monetary damages and/or take remedial measures to remove or prevent
occurrence contamination by the restricted or prohibited substance or chemical.
In July 1997, the FDA advised the catfish industry that excessive levels of
dioxin had been detected. Dioxin is a toxic industrial byproduct thought to
affect the human immune system and to cause human reproductive disorders and
cancer. The FDA proposed to immediately


                                      -13-

<PAGE>   16



ban all further shipments of catfish, eggs and poultry on a nationwide basis
that may have been contaminated by the trace levels of dioxin. The catfish
industry was able to delay FDA action until catfish producers had an opportunity
to test their catfish for dioxin levels. The Company, among other catfish
producers, had sufficient time to receive negative test results for dioxin
levels in their catfish production and avoid delaying shipment and sales of
their catfish after the ban implementation date. However, had the FDA not
delayed imposition of the ban, the Company and other catfish producers would
have experienced a delay in the sale and shipment of their catfish production
until such time as they could produce negative test results.

         Also, under various federal, state and local laws, ordinances and
regulations, the owner of real estate generally is liable for the costs of
removal or amelioration of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. Further, the presence of such substances, or the
failure to properly ameliorate such substances, may adversely affect the
Company's ability to operate or sell or rent a property or its catfish, or to
borrow funds using the property as collateral. Noncompliance with environmental,
health or safety requirements may result in the need to cease or alter the
Company's operations. Also, certain environmental laws impose liability on a
previous owner of property to the extent that hazardous or toxic substances were
present during the prior ownership period. Transfer of the property will not
relieve a prior owner of this liability. Thus, the Company could have liability
with respect to a property after it is sold.

         The Company will not obtain its own environmental inspection of the
Company's properties. Based on management's previous inspections, general
familiarity with the Company's properties and its knowledge of the area,
management believes that the properties are in compliance in all material
respects with all applicable federal, state and local ordinances and regulations
regarding hazardous or toxic substances. Nevertheless, there is no assurance or
guarantee that hazardous or toxic substances will not later be found on a
property or that a property will not subsequently be found in violation of any
federal, state or local environmental law or regulation.

         The Company may find it difficult or impossible to sell a property
prior to or following any such cleanup. If such substances are discovered after
the Company sells a property, the Company could be liable to the purchaser
thereof if the Company knew or had reason to know that such substances or
sources existed. In such case, the Company could also be subject to the costs
described above.

         RISKS ASSOCIATED WITH THE COMPANY AND THE SECURITIES

                  Ability to Achieve Profitable Operations. The Company has not
been profitable since its inception and reported a net loss for the year ended
June 30, 1998 of $1,536,161. The Company had an accumulated deficit of
$7,353,886 as of June 30, 1998. Also, none of the individual Circle Creek
Partnerships whose farming operations the Company has acquired had achieved
profitable operations. Based on current and historical industry data, management
believes the Company's ability to achieve profitable operations will require it
to maximize production on its farms and to achieve more efficient and
cost-effective farming operations so that its costs of production as a
percentage of gross revenues are minimized. Management believes this strategy is
necessary to meet the demands of the farm grown catfish industry where profit
margins are expected to narrow because wholesale fish prices are expected to
remain flat and inventory costs, particularly feed and fuel costs, are expected
to continue to fluctuate and competition is expected to intensify. However,
there is no assurance that Management will be able to implement this



                                      -14-

<PAGE>   17



strategy, or if implemented that it will prove successful; and there is no
assurance that the Company will be able to operate at a profit in the future.

                  No Assurance of Proposed or Future Acquisitions. Effective,
June 30, 1997, the Company acquired the farming operations of its four
affiliated limited partnerships in consideration for the issuance of its equity
and debt securities (the "Recent Consolidation"). The Company believed the
acquisition of these additional properties was necessary for it to achieve
efficiencies of scale of operations and facilitate its ability to achieve
profitable operations. However, this has not yet occurred since the Company
reported a net loss of $1,536,161 for the year ended June 30, 1998. See Part
III, Item 12 "Certain Relationships and Related Transactions." The Company's
inability to acquire additional properties and/or to expand its operations could
adversely affect the Company's ability to achieve necessary economies of scale
of operations.

                  Adequacy of Capital. There is no assurance that the Company
has capital resources sufficient to meet its operating expenses and general and
administrative expenses in the future if anticipated revenues from fish
inventory sales are not realized. During the next twelve months, the Company
anticipates that it will incur substantial costs in its restocking and
rehabilitation of certain farms as it endeavors to maximize production on those
farms. In the event anticipated operating revenues realized during this period,
when added to current cash reserves, are not sufficient to pay these costs, the
Company may need to defer some or all of these expenditures. In such event, it
is unlikely such additional farms can be operated profitably. Even if the
Company, in the future, realizes a positive cash flow from its operations, as to
which there can be no assurance, it may still require substantial capital to
acquire additional farming properties and further expand its farming operations.
Such additional capital may not be available when needed or on terms acceptable
to the Company. The Company anticipates seeking additional capital through
public or private sales of its securities, including equity securities. Future
financings may result in the issuance of equity securities and dilution to
current shareholders. There are no assurances that any additional debt or equity
capital will be available to the Company, or that, if such additional debt or
capital is available, that the terms would be favorable or acceptable to the
Company. Insufficient funds may require the Company to delay, reduce or
eliminate certain or all of its operations and development activities.

                  Dependence on Management. The feasibility and profitability of
the Company will depend significantly upon the continued participation of Mr.
Hastings. He is expected to continue in his position with the Company.
However, Mr. Hastings may in the future be unable or unwilling to continue with
the Company. The unavailability of Mr. Hastings would likely have a significant
adverse effect on the Company and its business. The success of the Company's
future operations depends in large part on the Company's ability to recruit and
retain qualified personnel over time, and there can be no assurance that the
Company will be able to retain its existing personnel or attract additional
qualified employees in the future.


                                      -15-

<PAGE>   18



                  Effect of Anti-Takeover Measures. The Company's Restated
Certificate of Incorporation includes certain notice and meeting procedures and
super-majority voting rights of stockholders regarding approval of certain
merger, consolidation and other business combination transactions. These
provisions could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company by deferring certain mergers, tender offers or future takeover
attempts. Also, such provisions could limit the price that certain investors
might be willing to pay in the future for the Company's securities. Certain of
such provisions allow the Board of Directors to impose various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions.

                  No Dividends on Common Stock. The Company has adopted a policy
of reinvesting its cash flow, if any, to expand its catfish farming operations
and expects to follow this policy in the future. Accordingly, shareholders
should anticipate not receiving regular dividends or distributions with respect
to their Shares.

                  Risks of Leverage. The use of leverage to purchase property
and/or operate a business involves substantial risks. While the effects of
leveraging are to increase the number of properties purchased or number or
amount of operations conducted by the Company, thereby increasing the potential
for gain to the Company's Shareholders, the financial risk to the Company and
thus the Shareholder's investment is substantially increased. One reason for
this is because the Company will be required to pay fixed payments to retire the
debt, irrespective of the success of its operations. To the extent that the
Company does not have funds available to repay its debt, holders of the debt may
call a default and, if the debt is secured by the assets of the Company, such
debt holders may foreclose on such assets. Nonsecured debt holders may seek
repayment from the Company's assets through legal process. In any event, a
default on its debt could result in the Company's loss of all or a material
portion of its assets which could, in turn, result in the loss of all or a
substantial portion of the Shareholder's investment in the Company.

         The Company has used significant financing to acquire its farming
properties and assets in the Consolidation and may incur additional financing to
expand its operations and/or to acquire additional farming properties. The use
of such financing ("leveraging") will allow the Company to expand its operations
and acquire additional property with a smaller cash investment by the
Shareholders, and thereby provides the Shareholders with the opportunity of
participating in correspondingly greater proceeds from the operations. However,
leveraging will also expose the Company (and thus the Shareholders) to
correspondingly larger potential losses. In the event a farm is operated at a
loss or sold for an amount less than the principal amount of such financing,
plus accrued interest payable thereon, a Shareholder could lose all or part of
his or her investment.

         The Company has substantial obligations with respect to its 10.35%
Notes due 2002 and its institutional credit agreements. Leverage has significant
consequences including the following: (i) dedication of a portion of the
Company's cash flow from operations to the payment of interest in respect of its
debt obligations, which reduces the funds available to the Company for its
operations and future business opportunities; (ii) potential impairment of the
Company's ability to obtain additional financing in the future; and (iii)
potential vulnerability of the Company to a downturn in its business or the
United States economy generally. A high degree of leverage would also make it
difficult for the Company to generate sufficient working capital which could
adversely affect the Company's ability to fund its continuing operations at
necessary levels.



                                      -16-

<PAGE>   19



                  Risks of Balloon Payments. Generally, the Company's debt
obligations require balloon payments at the end of their term. The Company's
credit line with Community Bank is due in March 1999 and its other significant
debt is due between 1999 and 2002. In the event the Company is unable to
refinance these obligations or is otherwise unable to raise funds sufficient to
repay these obligations as scheduled, the Company would be in default of these
obligations. The Company's ability to repay these obligations when they mature
will be dependent upon its ability to obtain adequate refinancing or to
negotiate an extension. The Company's ability to obtain replacement financing
for these obligations will be dependent on, among other things, its financial
condition at the time and the economic conditions in general. Accordingly, there
is no assurance that, if necessary, AquaPro will be able to obtain replacement
financing for any of these obligations upon their maturity.

ITEM 2.        DESCRIPTION OF PROPERTY

         REAL PROPERTY. The Company owns eight non-contiguous farms having a
total of 140 ponds comprising 1,844 water acres situated on a total of 2,417
land acres. The farms are located in the Mississippi Delta area of Mississippi.
The table below sets forth information regarding these properties.

                      INFORMATION REGARDING THE COMPANY'S REAL PROPERTY

<TABLE>
<CAPTION>
           NAME                                                     UNPAID BALANCE OF
       (LOCATION OF              TOTAL ACRES         NUMBER          MORTGAGE LOAN AT
         PROPERTY)              (WATER ACRES)       OF PONDS          JUNE 30, 1998
         ---------              -------------       --------          -------------
<S>                             <C>                 <C>           <C>
   Circle Creek                    275 (210)           15         Pledged under the Feed
   (Sunflower County, MS)                                           Line of Credit(1)

   Panther Run                     278 (211)           15         Pledged under the Feed
   (LeFlore County, MS)                                             Line of Credit(1)

   Balmoral                        318 (270)           21         Pledged under the Farm
   (Sunflower County, MS)                                         Bank of Texas loan(2)

   Cypress Lake                    254 (193)           13         Pledged under the Farm
   (LeFlore County, MS)                                           Bank of Texas Loan(2)

   Hidden Lakes                    668 (443)           41         $1,033,654(3)
   (Bolivar County, MS)

   Stillwater                      170 (140)            8         Pledged under the Farm
   (Sunflower County, MS)                                         Bank of Texas Loan(2)

   Crystal Waters                  212 (189)           11         Pledged under the Farm
   (Bolivar County, MS)                                           Bank of Texas Loan(2)

   Niagara                         242 (188)           16         Pledged under the Farm
   (Bolivar County, MS)                                           Bank of Texas Loan(2)
</TABLE>

---------------------------------
(1)      Note payable to a bank under a $1,000,000 revolving line of credit used
         solely to fund purchases of feed; outstanding balance of $586,459 at
         June 30, 1998. Interest accrues at the prime rate plus 1.65% and the
         arrangement expires March 15, 1999. Interest is paid monthly and
         principal is paid with approximately 55 percent (40 cents per pound of
         fish sold) of all collections of accounts receivable.



                                      -17-

<PAGE>   20



(2)      Note payable to Farm Credit Bank of Texas ($1,422,000 at June 30,
         1998) with annual principal and interest payments of approximately 
         $186,000 due beginning April 1, 1999 through 2003 and $149,000 
         April 1, 2004 through 2018; interest accrues at a variable rate (8.35%
         at June 30, 1998).

(3)      Note payable to a bank with monthly principal and interest payments of
         $11,754 through March 2000 and a final payment of approximately
         $979,000 due April 2000 with interest at prime plus 2 1/2% (11% at June
         30, 1998).

---------------------

         The Mississippi Delta is an approximately 10,000 square mile area lying
predominately on the east side of the Mississippi River, beginning in the
vicinity of Memphis, Tennessee and extending into Mississippi. The portion of
the Delta where the Partnership's farms are located is approximately 44 feet
above sea level and is located approximately 5-1/2 hours by car from the Gulf of
Mexico and 1-1/2 hours by car from the Mississippi River. Accordingly, the farms
are not likely to be susceptible to flooding. The farms are located within
approximately 45 minutes of each other.

         EQUIPMENT. The Company owns certain equipment; including tractors,
implements (including portable aerator attachments), utility trucks and electric
aerators. It also owns various lesser pieces of equipment, including electric
pumps and power units, and miscellaneous equipment.

         COOPERATIVE MEMBERSHIPS.  The Company belongs to the following
cooperatives.

                  Processing Cooperatives.  AquaPro is a member of and owns 
stock in the catfish cooperatives Delta Pride and Fishco, Inc. ("Fishco").
Membership in these cooperatives provides the Company with delivery rights for
its catfish in amounts proportionate to its share ownership. Prices paid by the
cooperatives are not fixed in advance and are determined at the time of
delivery.

                  Feed Mill Cooperative. The Company is a member of and owns
stock in Indi-Bell (Delta Western) Feed Mill Cooperative. The Delta Western
Cooperative is one of the oldest and largest feed mill cooperatives with over
250 members. As a member of this cooperative, the Company is able to buy feed at
prices lower than are generally available from feed retailers. Also, for a
nominal charge, the Company is able to reserve or "lock-in" specified amounts
and at set prices. This cooperative hedges against price fluctuations for its
members through the purchase of futures option contracts on the Chicago Board of
Trade Futures Exchange. As a member of this cooperative, the Company can
purchase feed on an "as needed" basis on two days' prior notice. It is thus not
necessary for the Company to purchase and store large amounts of catfish feed.

ITEM 3.        LEGAL PROCEEDINGS

         The Company is not currently a party to any legal proceeding, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the financial position or results of
operations of the Company. Additionally, the Company was not a party to any
material legal proceeding during the period covered by this report.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1998.




                                      -18-

<PAGE>   21



                                     PART II

ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         MARKET FOR THE COMPANY'S COMMON EQUITY: The Company's Common Stock
began trading on the Nasdaq Over the Counter Bulletin Board on February 24,
1998. The high and low sales prices for the Common Stock, as reported on the
Bulletin Board were $5.13 and $1.88 during the period from February 24, 1998
through March 31, 1998 and $3.25 and $2.00 for the period from April 1, 1998
through June 30, 1998.

         STOCKHOLDERS: As of September 7, 1998, there were approximately 1,700
stockholders of record of the 4,818,354 outstanding shares of Common Stock. The
Company believes there are approximately 1,500 beneficial owners of the
Company's Common Stock.

         DIVIDENDS: The Company has not paid any cash dividends to holders of
its Common Stock since its inception and does not plan to pay cash dividends in
the foreseeable future. The Company currently intends to retain earnings, if
any, to finance the growth of the Company. In addition, the Company's bank
agreements prohibit the payment of dividends without prior bank approval.

         RECENT SALES OF UNREGISTERED SECURITIES: Set forth below is information
for all securities that the Company has sold in the past three (3) years without
registering said securities under the Securities Act of 1933 (the "1933 Act").
Share numbers and prices have not been adjusted to reflect the September 18,
1996 stock dividend.

         Between December 31, 1995 and June 15, 1996, Registrant issued the
following securities in connection with its acquisition of four (4) affiliated
partnerships. See Part III, Item 12 below.

         The Company issued 404,764 units of its equity securities, and $149,098
in principal amount of its 10.35% Notes, to approximately 240 limited partners
of the four partnerships acquired in the Prior Consolidation. The units were
issued at a price of $10.00 per unit. The notes were issued at par. The units
and notes were issued for net assets valued at $4,199,210 for the purposes of
the transaction.

         The Company issued 167,876 units to approximately 25 persons who were
holders of certain debt obligations of the Partnerships acquired in the Prior
Consolidation. These units were issued at the rate of $10.00 per unit in unpaid
balance of debt obligation exchanged. A total of $1,678,762 in principal amount
of the notes were exchanged.

         The Company issued 362,704 shares of its common stock upon the exercise
of stock rights issued as part of the units in the Prior Consolidation. The
exercise price of the stock rights was $7.25. Net cash proceeds in the amount
of $2,137,928 were received from the Rights Offering. The Company paid
commissions of 5% of the exercise price of the stock rights exercised to
broker-dealers who provided solicitation services in the exercise of the stock
rights. As additional compensation to these persons, the Company issued
five-year options to purchase a total of 39,117 shares at a price of $9.38.

         The Company issued 2,994 units at $10.00 per unit and 18,864 shares at
a price of $7.25 per share to Mr. Hastings in consideration of the cancellation
a total of $166,704 of indebtedness.




                                      -19-

<PAGE>   22



         Each unit issued in the Prior Consolidation was comprised of one Common
Share; one stock right entitling the holder to purchase one Common Share at
$7.25; one warrant entitling the holder to purchase one Common Share for $8.25
within twelve (12) months following the Closing Date; and one warrant entitling
the holder to purchase one Common Share for $10.50 within twenty-four (24)
months following the closing date, which warrant, if not exercised prior to
expiration, is converted into three-tenths (0.3) Common Shares.

         The 10.35% Notes in the Prior Consolidation are due December 31, 2002
and bear interest at the rate of 10.35% per annum for the period from and
including the date of original issuance. The 10.35% Notes are convertible into
common stock at a price of $10.42 per share.

         In issuing its securities in the Prior Consolidation the Company relied
on the exemptions set forth in Section 3(a)(10) of the 1933 Act by reason of a
fairness hearing duly noticed and held by the California Commissioner of
Corporations pursuant to Section 25142 of the California Corporate Securities
Law of 1968, as canceled.

         During the year ended June 30, 1998, the six month period ended June
30, 1997, and the year ended December 31, 1996, the Company issued seven year
stock options to officers for 241,000, 51,000 and 54,000 shares, respectively,
and 12,000 shares each period, respectively, to directors. The options were
issued as compensation to the Company's Officers and Board of Directors. Also,
during the year ended June 30, 1998, the six month period ended June 30, 1997,
and the year ended December 31, 1996, the Company issued a total of 20,000,
22,500, and 21,000 restricted common shares, respectively, to officers. In
issuing the foregoing shares and options, the Company relied on the exemptions
under Section 4(2) of the 1933 Act and Rule 701, promulgated thereunder. Each
transaction effected in reliance upon the exemption under Section 4(2) shares or
options were issued either to an officer or director of the Company. In the case
of directors and executive officers, as control persons, and their familiarity
with the Company, the Company felt determined that their level of sophistication
was sufficient to support the exemption. With respect to the three issuances to
lower level executive personnel, the Company relies on the exemption under Rule
701.

         Over the past three years, the Company issued options which, when
exercisable, will entitle the holders thereof to purchase a total of 1,476
shares at a price of $9.38 as additional underwriting compensation to
broker-dealer firms which placed L.P. Units and/or Investor Notes in CCA V, CCA
VII and CCA VIII. These options were issued upon reliance on the exemption under
Section 4(2) of the 1933 Act.

         Pursuant to the September 18, 1996 Dividend, the Company issued 218,994
shares as a one-for-five stock dividend to shareholders of record on September
18, 1996.

         Commencing on September 10, 1996 through June 30, 1997, Company sold a
total of 235,507 Preferred Units, each Unit consisted of one share of the
Company's Series A Preferred Stock and one, $7.50 Common Stock Purchase Warrant,
which expires on December 31, 1998 and is converted into 0.3 share of common
stock if it expires unexercised. Units were sold at $10 per Unit to a total of
90 accredited persons and not more than 35 non-accredited persons within the
meaning of Rule 506 of the 1933 Act. The Company offered and sold the Series A
Preferred Stock and $7.50 Common Stock Purchase Warrants in reliance upon the
exemption set forth in Rule 506 of Regulation D promulgated under the 1933 Act.
Pursuant to this exemption, sales were made only to accredited persons or
non-accredited persons who either alone or together with their purchaser
representatives, were sophisticated for the purposes of Rule 506.



                                      -20-

<PAGE>   23



         On June 30, 1997, the Company issued a total of 708,926 Units of its
Common Stock and stock rights and $68,582 of its 7.15% Notes to the
approximately 340 Limited Partners of CCA V, CCA VI, CCA VII and CCA VIII in the
Recent Consolidation. The issuances were on the terms and conditions described
under Part III, Item 12. In issuing these securities the Company relied upon the
exemption from registration under Section 3(a)10 of the 1933 Act pursuant to a
fairness hearing duly noticed and held by the California Commissioner of
Corporations on March 31, 1997.

         During the year ended June 30, 1998, the Company realized net proceeds
of $1,763,286 from the sale of 227,194 shares of Series A Preferred Stock
through its Preferred Stock Rights Offering.

         During the quarter ended September 30, 1998, the holders of the 10.35%
convertible notes payable due in 1999 and 2000 were offered 1.3 shares of the
Company's Series A Preferred Stock for each $10 of principal in an exchange
offer (see notes 4 and 7 to the financial statements below). In the aggregate,
approximately $984,014 of these notes were exchanged for 127,922 shares of
preferred stock.

         On May 29, 1998, all of the Company's preferred stock was, under its
terms, converted to common stock under a mandatory exchange provision at a value
equal to its liquidation preference plus declared and unpaid dividends (see
note 9 to the financial statements below). The conversion ratio was the
average closing price of the Company's common stock during its first 65 days of
trading (which commenced February 24, 1998). The average closing price of the
Company's stock during this period was $2.837. Accordingly, 3.52485 shares of
common stock were issued for each share of $10 Series A Preferred Stock
outstanding or a total of 2,065,438 common shares in exchange for 590,623
preferred shares. Additionally, the Company paid the Series A Preferred Stock
dividends for the period from January 1, 1998 through May 28, 1998 with shares
of common stock. The same exchange ratio used in the mandatory conversion
discussed above was used to determine the number of common shares issued as
payment of the dividend. Accordingly, a total of 58,886 shares was issued as
payment of $167,061 in Series A Preferred Stock dividends.

         During the year ended June 30, 1998, a holder of the Company's 7.15%
convertible notes converted a note to 7,930 shares of common stock.

         During August and September 1998, four individual investors loaned the
Company a total of $165,000 to purchase catfish feed. The Company issued
$200,000 in short-term notes to these investors. Interest accrues on these notes
at an annual rate of 12% and is payable monthly. Principal is payable in full on
April 1, 1999. At the noteholders' option, principal and/or interest may be paid
in Common Stock of the Company at a price of $2.00 per share.

         The Company relied on the exemption from registration under Section
4(a) of the 1933 Act in making these sales.

ITEM 6.        MANAGEMENT'S DISCUSSIONS 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 6 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.



                                      -21-

<PAGE>   24




         AquaPro Corporation consists of the combination of American Fisheries
Corporation (the farm management company), Circle Creek AquaCulture, Inc. (the
syndication company for the catfish farming investment partnerships) and eight
catfish farms, four of which farms were separate limited partnerships before the
Prior Consolidation effective on December 31, 1995 (Circle Creek I-IV) and four
of which farms were separate limited partnerships before the Recent
Consolidation effective on June 30, 1997. CCA I, CCA II, CCA III and CCA IV were
consolidated with AquaPro as of December 31, 1995 and CCA V, CCA VI, CCA VII and
CCA VIII were consolidated as of June 30, 1997 under a carryover basis of
accounting because of common control. Prior to its consolidation, each limited
partnership pursued short-term goals of pass-through tax benefits and maximum
cash distributions rather than focusing on longer-term plans and goals. AquaPro
owns and manages catfish aquaculture farms with the purpose of raising and
selling catfish to food processors.

         In 1996, AquaPro began the implementation of plans that could not be
accomplished as individual partnerships before the respective consolidations:

         -      Cost reduction through economies of scale
         -      Improved risk management through spreading the risks inherent
                in catfish aquaculture over more geographical areas, farms and
                ponds.
         -      Improved production capacity through investment in farm 
                capital improvement projects.
         -      Long-term increases in sales volume on existing farms through 
                increased stocking levels of fry and fingerlings and intensified
                management practices.
         -      Reduced interest costs from retirement of debt.
         -      Growth in market share and further efficiencies from acquisition
                of other catfish farms.

         None of the eight limited partnerships had operated at a profit as an
individual entity. Also, the financial statements show that AquaPro, including
the consolidations, has not been profitable since inception and expects to incur
additional losses. This discussion should be read in conjunction with "Item 1,
Business", the Financial Statements, and the Notes to the Financial Statements
included elsewhere in this report on Form 10-KSB.

         This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements based on the Company's
current expectations. The actual performance of the Company could differ
materially from that indicated by the forward-looking statements because of
various risks and uncertainties including, without limitation, cost and
availability of feed, market price received for the Company's fish, mortality of
fish from disease or low oxygen levels, inability to acquire fry and fingerlings
at reasonable costs, changes in consumer demand for catfish, difficult climatic
conditions, the extent to which the number of "off flavor" fish occur and delay
fish sales to processors, the availability of adequate financing for the Company
and its terms as well as the impact that credit limitations would have on
competitors to force them to sell fish at or below market or cost, inability to
acquire more farms at competitive prices, the catfish industry's ability to gain
increased market acceptance for its existing product lines, the ability for the
Company to scale up its production and reduce costs per pound, the potential of
quarterly variations in demand, production and sales, the impact of new and
changes in government regulations on food products and general economic
conditions. These risks and uncertainties cannot be controlled by the Company.
When used in this report, the words "believe", "estimate", "plans", "goals",
"expects", "should", "outlook", "anticipates", and similar expressions as they
relate to the Company or its management are intended to identify forward-looking
statements.


                                      -22-

<PAGE>   25



RESULTS OF OPERATIONS YEAR ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED 
JUNE 30, 1997

         The periods discussed below are not comparable due to the change in the
Company's year end to June 30 effective June 30, 1997. Accordingly, the
discussion does not focus on the reasons for dollar trends. However, other
information, meaningful comparisons and trends are discussed as appropriate.

         REVENUE. Net sales during the year ended June 30, 1998 totaled
$5,041,463 compared to $1,212,468 for the six month period ended June 30, 1997.
Volume increased 5,288,000 pounds to 6,926,000 pounds of fish sold during the
year ended June 30, 1998 compared to 1,638,000 pounds sold during the six month
period ended June 30, 1997. The average price of fish sold was 72.8 cents per
pound during the year ended June 30, 1998 compared to 74 cents per pound
during the six month period ended June 30, 1997. This decrease in average price
resulted from lower prices received by the Company's major customers from food
distributors, restaurants, and grocers due to an increase in competitive pricing
policies as processors attempted to increase their market share. The Company's
major customers in turn passed on the lower prices to the catfish farmers,
including the Company. The trend of these lower prices continued until late in
February 1998 when prices rose to 74 to 75 cents per pound. In March and April
1998, prices reached 80 cents per pound but then began declining in late May.
Currently, fish prices are 73 to 75 cents per pound. The Company cannot predict
the future trend of fish prices.*

         Sales for the first fiscal quarter ending September 30, 1998 are
expected to total approximately 2,000,000 pounds which compares to 1,772,000
pounds sold during the quarter ended September 30, 1997.* Management expects to
sell slightly more than 7 million pounds of fish during the year ending June 30,
1999 which would exceed the 6,926,000 pounds sold during the year ended June 30,
1998.*

         COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $4,316,032
for the year ended June 30, 1998 compared to $1,188,159 for the six month period
ended June 30, 1997. Margin from fish sales was 14.4% during the year ended June
30, 1998 compared to 2.0% for the six month period ended June 30, 1997. During
the six month period ended June 30, 1997, the Company recorded $244,000 of
additional reserves for mortality. These reserves were deemed necessary as
spring weather approached and inventory was physically observed, indicating that
winter kill of catfish was higher than previously estimated. Had this reserve
not been required, margin from fish sales would have been 22.0% for the six
month period ended June 30, 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. While feed prices were lower in the
summer of 1997 compared to 1996, the Company experienced a poor feeding season
during the summer of 1997 which adversely affected the cost of growing fish.
Management believes that the reserve and mortality adjustments were unusual and
of a nonrecurring nature but cannot predict with certainty due to risks beyond
its control that such adjustments will not be necessary in the future.*
Management expects that margins will improve and Cost of Products Sold will
decrease as a percentage of Net Revenues during the year ending June 30, 1999
due to lower feed costs and higher fish turnover.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and
Administrative expenses during the year ended June 30, 1998 were $1,652,570
compared to $1,055,540 during the six months ended June 30, 1997. During the six
month period ended June 30, 1997, the Company had high legal and accounting fees
to facilitate the acquisition of the four remaining catfish farming limited
partnerships by the Company. This acquisition was accomplished effective June
30, 1997. Additionally, legal and accounting fees were incurred in the six month
period ended June 30, 1997, as the Company prepared to become a public company
registered with the Securities and Exchange Commission.


                                      -23-

<PAGE>   26



         DELTA PRIDE ASSESSMENT. During the year ended June 30, 1998, the
Company recorded a net charge of $260,112 for its share of Delta Pride's losses.
This compared to $272,000 for the six month period ended June 30, 1997. About
April 15, 1997, Delta Pride disclosed that it was experiencing significant
operating losses and that, since it operates as a cooperative, shareholders
are required to fund these operating losses. These losses have continued and
have adversely affected the Company's operations for the year ended June 30,
1998. Management of Delta Pride has indicated they are taking steps to reduce
the operating losses in the future. For the year ending June 30, 1999, the
Company cannot predict with certainty what its share of Delta Price's losses
will be, and, unless major changes occur at Delta Pride, the charge could be
substantial.* The Company is taking steps to reduce its dependency on Delta
Pride as a major customer but, because of the limited number of catfish
processors, there can be no assurance that it will be able to do so.*

         INTEREST EXPENSE. Interest expense was $460,393 for the year ended June
30, 1998 compared to $212,685 for the six month period ended June 30, 1997.
Long-term debt levels were slightly lower during the year ended June 30, 1998
but this was more than offset by higher average borrowings on the Company's feed
line of credit during the year ended June 30, 1998 compared to the six month
period ended June 30, 1997. Management anticipates slightly higher levels of
debt and interest expense during the year ending June 30, 1999 due to higher
than anticipated borrowings for catfish feed and the refinancing of five of the
mortgages on the Company's farms (see Liquidity and Capital Resources discussion
below).*

         INCOME TAXES AS OF JUNE 30, 1998. The Company had net operating loss
carry-forwards of approximately $5,100,000 available to reduce taxable income
through the year 2013.

         SEASONALITY OF OPERATING RESULTS. In prior years, the revenues of
AquaPro have fluctuated from quarter to quarter depending on stocking levels and
results of feeding. Also, prices for live fish have tended to rise during the
first part of the year and drift downward during the summer, only to rise again
in September and October and fall in November and December before beginning the
annual price cycle again. Accordingly, quarterly operating results of the
Company may vary from quarter to quarter and year to year and cannot be
predicted with certainty.



                                      -24-

<PAGE>   27



RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED 
DECEMBER 31, 1996

         The periods discussed below are not comparable due to the change in the
Company's year end to June 30 effective June 30, 1997. Accordingly, the
discussion does not focus on the reasons for dollar trends. However, other
information, meaningful comparisons and trends are discussed as appropriate.

         REVENUE. Net sales during the six months ended June 30, 1997 totaled
$1,212,468 compared to $3,924,954 for the year ended December 31, 1996. Volume
decreased 3,361,000 pounds to 1,638,000 pounds of fish sold during the six
months ended June 30, 1997 compared to 4,999,000 pounds sold during the year
ended December 31, 1996. The average price of fish sold was 74 cents per pound
during the six months ended June 30, 1997 compared to 78.5 cents per pound
during the year ended December 31, 1996. This decrease in average price resulted
from lower prices received by the Company's major customers from food
distributors, restaurants, and grocers due to an increase in competitive pricing
policies as processors attempted to increase their market share. The Company's
major customers in turn passed on the lower prices to the catfish farmers,
including the Company.

         COST OF PRODUCTS SOLD AND MARGIN. Cost of Products Sold was $1,188,159
for the six months ended June 30, 1997 compared to $3,525,405 for the year ended
December 31, 1996. Margin from fish sales was 2.0% during the six months ended
June 30, 1997 compared to 10.2% for the year ended December 31, 1996. During the
six month period ended June 30, 1997, the Company recorded $244,000 of
additional reserves for mortality. These reserves were deemed necessary as
spring weather approached and inventory was physically observed, indicating that
winter kill of catfish was higher than previously estimated. Had this reserve
not been required, margin from fish sales would have been 22.0% for the six
month period ended June 30, 1997. During the year ended December 31, 1996,
certain ponds were emptied for refurbishing and mortality adjustments of
approximately $438,000 were recorded in Cost of Products Sold. Had these
mortality adjustments not occurred, margin from fish sales would have been 21%.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and
Administrative expenses during the six months ended June 30, 1997 were
$1,055,540 compared to $1,349,499 during year ended December 31, 1996. During
the six month period ended June 30, 1997, the Company had high legal and
accounting fees to facilitate the acquisition of the four remaining catfish
farming limited partnerships by the Company. This acquisition was accomplished
effective June 30, 1997. Additionally, legal and accounting fees were incurred
in the six month period ended June 30, 1997, as the Company prepared to become a
public company registered with the Securities and Exchange Commission.

         DELTA PRIDE ASSESSMENT. During the six months ended June 30, 1997, the
Company was required to record a net charge of $272,000 for its share of Delta
Pride's losses. This compared to $109,969 for the year ended December 31, 1996.
About April 15, 1997, Delta Pride disclosed that it was experiencing significant
operating losses and that, since it operates as a cooperative, shareholders are
required to fund these operating losses. These losses adversely affected the
Company's operations for the six months ended June 30, 1997.

         INTEREST EXPENSE. Interest expense was $212,685 for the six months
ended June 30, 1997 compared to $555,974 for the year ended December 31, 1996.
Long-term debt levels and average borrowings for feed were lower during the six
months ended June 30, 1997 than in the year ended December 31, 1996.




                                      -25-

<PAGE>   28



LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1998, the Company had a current ratio of 4.8 to 1, as
compared to 3.4 to 1 at June 30, 1997. Current assets exceeded current
liabilities by $4,776,156 compared to $4,289,944 in June 1997. Cash and cash
equivalents decreased during the year ended June 30, 1998 by $90,263.

         Cash and cash equivalents were used primarily to fund operating losses.
Cash used in operating activities totaled $1,254,140 for the year ended June 30,
1998 which compares to $1,168,012 and $1,415,414 for the six month period ended
June 30, 1997 and the year ended December 31, 1996, respectively. The Company's
net losses totaled $1,536,161, $1,487,525, and $2,506,855 for the year ended
June 30, 1998, the six month period ended June 30, 1997, and the year ended
December 31, 1996, respectively. The Company has funded these losses and uses of
cash for operating activities through the sale of Common and Preferred Stock.
The Company realized net proceeds of $1,763,286, $1,089,239, and $2,886,097 from
the sale of Common and Preferred Stock during the year ended June 30, 1998, the
six month period ended June 30, 1997, and the year ended December 31, 1996,
respectively.

         During the year ended June 30, 1998, the six month period ended June
30, 1997, and the year ended December 31, 1996, the Company purchased
approximately $1,052,597, $530,422, and $591,474 in property and equipment.
These expenditures for property and equipment were primarily funded by the net
proceeds from Common and Preferred Stock sales discussed above and long-term
debt. During the year ended June 30, 1998, certain major pond reworking programs
were completed to increase production capacity at a cost of approximately
$300,000 and aeration equipment was acquired to provide double aeration for the
refurbished ponds for a total of $280,000. Management believes that in order to
maintain productive catfish farming operations over the long-term, 10 percent of
ponds will need to be reworked each year and that capital will be required to
maintain high levels of production. Also, in August 1997, the Company moved its
administrative offices in Mississippi to one of its farms from an office
facility it had previously shared with another catfish farming operation. This
move required the purchase and installation of double wide mobile trailer homes
on the Company's farm land in Sunflower, Mississippi. The total cost of this
move was approximately $190,000, including the trailers, utility hook-ups, well
construction, and ground preparation. The remaining $283,000 in capital
expenditures was primarily for trucks and other farm related equipment.

         During the year ending June 30, 1999, the Company anticipates it will
need to spend approximately $300,000 to refurbish its Hidden Lakes and Crystal
Waters farms. Additionally, other capital expenditures may be required to
replace older equipment on an as needed basis. The Company is currently seeking
funding resources for these capital projects.

         The Company intends to fund its operations primarily through fish
sales, cash reserves, and its $1,000,000 feed credit line with a bank. On May
14, 1998, a $1,000,000 credit line was established with a bank in Mississippi as
a revolving line of credit solely for catfish feed purchases. Borrowings are
secured by shares of the Company's cooperative processing stock, accounts
receivable, live fish inventories and two of the Company's farming properties
(see Item 2). Interest is paid monthly and principal is paid with approximately
55 percent (40 cents per pound of fish sold) of all collections of accounts
receivable. Interest accrues at the prime rate plus 165 basis points and the
commitment expires March 15, 1999 with no prepayment penalty.

         On June 9, 1998, the Company refinanced the mortgages on five of its
eight farms through a transaction with the Farm Credit Bank of Texas and the
Federal Land Bank Association of North Mississippi. The new mortgage loan
proceeds were $1,422,000 which paid off the five mortgages with an aggregate
principal and accrued interest balance of approximately $1,173,000. The new loan
required the purchase of



                                      -26-

<PAGE>   29



stock in the Federal Land Bank Association for $42,660. Net of these and other
loan closing costs, the Company received approximately $187,000 in cash from the
refinancing.

         In addition to the refinancing described above, the Company financed
capital improvements of approximately $531,000 through long-term debt borrowings
and paid off approximately $296,000 in other long-term debt. Cash dividends on
Preferred Stock totaled $165,904.

         The Company had several non-cash financing transactions during the year
ended June 30, 1998 that affected its balance sheet. In late May 1998, all of
the Company's Preferred Stock outstanding was converted to Common Stock under a
mandatory conversion transaction. Under its terms, the Preferred Stock was
converted at its liquidation preference plus declared and unpaid dividends
through May 27, 1998. A total of 2,124,324 shares of Common Stock were issued
with a dollar value of $4,751,769 in this exchange.

         During the year ended June 30, 1998, the Company commenced and
completed an exchange offer to certain holders of its 10.35% investor notes
payable. Each holder was offered 1.3 shares of Series A Preferred Stock for each
$10 of notes held. The offer was made for a total of $1,147,513 of notes. In the
aggregate, $984,014 of notes were exchanged for 127,922 shares of Series A
Preferred Stock. This Preferred Stock was subsequently converted to Common Stock
in the mandatory conversion discussed above.

         Also, during the year ended June 30, 1998, the Company converted all of
its officers' accrued compensation and notes payable to long-term notes with
five year amortization schedules and monthly payments.

         As of the middle of September 1998, the Company is experiencing its
seasonal cash flow shortage. The Company is current on all of its debt, payroll,
and tax obligations. However, unsecured vendor accounts payable of approximately
$200,000 relating to purchases in July and August 1998 is past due. As discussed
above, the Company's feed line of credit requires that approximately 55 percent
of all collections of accounts receivable be applied to the outstanding balance
until it is paid; accordingly, the Company has access to only 45 percent of
collections to pay other obligations. This is especially onerous on the
Company's cash flow during the summer months when feeding is at its peak.
Moreover, the Company reached its limit for borrowing on the feed line in late
August 1998 due to higher than anticipated feeding opportunities due to
unseasonably hot weather this year. The Company has been able to feed
approximately $350,000 more in feed through August 1998 than through the same
period in 1997. The Company anticipates it will require approximately three to
four months to become current with its unsecured vendors. The Company borrowed
approximately $165,000 from four individual investors in August and September to
purchase additional feed. As the feeding season ends in October, the
requirements for cash decreases during the winter months. Sales of catfish are
traditionally the highest during the March quarter. Furthermore, when the feed
line of credit is paid off, the Company will have access to all of its accounts
receivable.

         Based upon management's projected sales volume at current sales prices
for the period July 1, 1998 through March 31, 1999, management anticipates the
Company's fish sales would be sufficient to repay borrowings under the revolving
line of credit prior its maturity on March 15, 1999, to bring its unsecured
obligations current and to fund operating expenses through March 31, 1999.
Management's projected fish sales from April 1, 1999 through June 30, 1999 would
not be sufficient to fund operating expenses with the feed requirements during
that period. Based upon the anticipated repayment of the revolving line of
credit and the collateral which would be available to secure additional
borrowings, management believes that the Company will be able to renew the
present revolving line of credit for the same amount or obtain a credit
agreement with similar terms. The revolving line of credit is collateralized by
accounts receivable (book value of $349,148 at June 30, 1998), live fish
inventories (book value of $5,533,276 at June 30, 1998), investment in certain
cooperative stock (book value of $776,654 at June 30, 1998), and certain
property and buildings (book value of $865,534 at June 30, 1998). The Company
has obtained an advanced commitment letter from a feed vendor to provide a
revolving line of credit for feed purchases for a minimum of $500,000 beginning
April 2, 1999 under terms similar to its existing line of credit. The commitment
for the line of credit is contingent upon the repayment of the existing line on
or before the due date and the pledge of collateral similar to the collateral
pledged on the existing line. Management projects that the availability of this
line of credit is necessary for the Company to meet its operating cash needs
through June 30, 1999 in the normal course of business. Management projects this
advanced commitment would only partially meet the Company's needs to finance
feed purchases through the end of the 1999 feeding season.

         Notwithstanding the above, Management believes that additional capital
will be necessary to support the Company's growth and on going operations.
Management believes that current cash combined with cash proceeds from sales of
fish will be adequate to fund its planned existing operations through June 30,
1999. However, additional capital will be needed to finance any future capital
expenditures. Moreover, the Company may require additional capital, which it may
seek through equity or debt financing, collaborative arrangements with corporate
partners, equipment lease financing or funds from other sources. No assurance
can be given that these funds will be available to the Company on acceptable
terms, if at all. In addition, because of the Company's possible need for funds
to support future operations, it may seek to obtain funds when conditions are
favorable, even if it does not have an immediate need for additional capital at
such time.

                                      -27-

<PAGE>   30



         YEAR 2000. The year 2000 Issue refers to potential problems with
computer systems or any equipment with computer chips or software that use dates
where the date has been stored as just two digits (e.g., 98) versus four digits
(e.g., 1998). 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 internally conducted a review of its internal
information systems to determine the extent of any Year 2000 problem. Such
review included specific inquiries about the Year 2000 Issue posed to the
vendors of its software programs. Based on such review, the Company does not
currently believe that it has material exposure to the Year 2000 Issue with
respect to its own information systems, since its principal information systems
correctly define the year 2000. Although there exists the possibility that Year
2000 issues will be identified, based on such review to date, the Company does
not currently expect that any such problems will have a material adverse effect
on the Company's future operating results or financial condition.

         The Company replaced its accounting system in fiscal 1997 with a system
that is Year 2000 compliant at a cost of approximately $70,000. The old system
was replaced based on the Company's system needs. The Company expects to incur
no additional costs associated with the Year 2000 Issue. 

         The Company has discussed this potential problem with some of its major
suppliers and customers and is in the process of contacting others in an effort
to determine the extent to which the Company may be vulnerable to those parties'
failure to timely correct their own Year 2000 problems. To date, the Company is
unaware of any situations of noncompliance that would materially adversely
affect its operations or financial condition.

         The Company has not developed a Year 2000 contingency plan as a June
30, 1998. The Company is dependent upon feed vendors to supply feed during the
feeding season from April to October each year, and is also dependent upon local
utility companies to provide electricity to operate aeration equipment. Because
live catfish are dormant during the winter months, any year 2000 problems that
the feed vendors or utility companies may have would not affect the Company,
unless these problems were not corrected by March or April 2000. 

         The inability of the Company's customers to effectively deal with their
year 2000 issues, if any, could potentially delay sales to the customers which
could have a significant adverse affect on the Company's cash flows. The Company
has attempted to diversify its customer base to limit its exposure if one or 
more of its customers does not effectively deal with their 2000 Issues.

         There can be no assurance, however, that instances of noncompliance
which could have a material adverse affect on the Company's operations or
financial condition will be identified; that the systems of other companies with
which the Company transacts business will be corrected on a timely basis; or
that a failure by such entities to correct a Year 2000 problem or a correction
which is incompatible with the Company's information systems would not have a
material adverse effect on the Company's operations or financial condition. 

         OFFAL RECOVERY ALLIANCE.* On June 24, 1998, AquaPro announced the
formation of a strategic alliance to scientifically engineer and reclaim high
quality minced fish protein, for the global market, by employing advanced
techniques recently developed by the Alaskan fishing industry. Flohr Metal
Fabricators Inc., Teknotherm Inc., Ocean's Edge Inc., and the Company have
combined their respective talents to form the Strategic Alliance.

         The Alliance offers catfish processors the ability to reclaim a
significant portion of the catfish offal, currently being sold to rendering
plants at two cents per pound ($.02/lb.), and convert it into high quality
blocked minced fish protein with a global market supporting forty to seventy
cents per pound ($.40-.70/lb.) The Alliance offers to processors a 100% financed
turnkey system to design, install, coordinate operations, and market offal
recovery products within 90 to 120 days of the agreement.

         The Alliance intends to offer its services first to the catfish
industry which produces approximately 265 million pounds of offal per year. The
process has the ability to recover premium meat from what machines now leave on
the fish's frame and other trimmings. Potentially 60 million pounds of high
quality minced product can be recovered for the catfish industry. Processors
will be invited to enter into a profit sharing agreement with the Company in
which the processor provides the offal and AquaPro's alliance provides the
expertise to capture the minced product for sale.*



                                      -28-

<PAGE>   31



         As of the middle of September 1998, discussions are underway with two
processors. No assurances can be given that any processors will agree to a
profit sharing agreement, or that the venture would be profitable. Management
knows of no processor that currently has a commercially available flow of minced
product for sale.

         Flohr Metal Fabricators, Inc., is a 57-year-old company in Seattle,
Washington. It pioneered the involvement of U.S. design and building of Surimi
processing in the mid 1980's. Highly experienced in fish processing, it has
completed more than 25 shore bases and on vessel Surimi processing lines, some
with finished product capacity of over 440,000 pounds per day. Flohr's
experience with minced product includes the largest pollock plants in Alaska,
factory trawlers for pollock and cod, shore salmon plants in Alaska and Russia
as well as Russian factory trawlers. It prides itself on its ability to
customize technology to the processing facilities and other applications. Flohr
also built the probe that found the Titanic.

         Teknotherm Inc. in Seattle is a subsidiary of Teknotherm A/S, a
Norwegian company founded in 1926. Today the company designs and manufactures
refrigeration systems for the Fishing, Marine, and Industrial refrigeration
market. Since early 1980, Teknotherm has been one of the major suppliers of
plate freezer systems for the Fishing industry in Alaska, Norway, Ireland, and
Scotland.

         Ocean's Edge, Inc., formed in 1993, is headquartered in South
Dartmouth, Massachusetts. In the mid 1980's its principals were among the first
companies to use American technology to produce imitation crab, using a pollock
surimi as the base. They have conducted extensive research into the application
of fish protein into other types of food applications. On the marketing side,
they were instrumental in reintroducing Korean hair crab back into the Japanese
market. Ocean's Edge is in the process of developing a marketing agreement
between AquaPro and the end users of the minced product, including the leader in
private label seafood sales with more than 65% of the U.S. market.

ITEM 7.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements are attached hereto.

ITEM 8.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
               FINANCIAL DISCLOSURE

         None.














                                      -29-

<PAGE>   32





                                    PART III

ITEM 9.        DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, 
               COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         Set forth below are the Directors and Executive Officers of AquaPro and
their ages, positions held and length of service.


<TABLE>
<CAPTION>
                                                            An Officer of the          
                                                              Company (or a             Director of the
                                                            Predecessor of the            Company (or
       Name and Age                 Position                  Company) Since          Predecessor) Since
       ------------                 --------                  --------------          ------------------       
<S>                          <C>                            <C>                       <C> 
   George S. Hastings, Jr.   Chairman of the Board                  1983                       1983
   Age 51                    Chief Executive Officer
                             President  

   Kenneth Ostebo            Director                                --                        1998
   Age 41*

   Roger Daley*              Director                                --                        1996
   Age 75

   Joseph Duncan, Sr.*       Director                                --                        1995
   Age 71
</TABLE>

*  Independent director, i.e. director who is not an officer or employee of 
   the Company.

----------------------

         None of the persons named are directors of any Reporting Companies.
"Reporting Companies" include companies with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or subject to the requirements of Section 15(d) of the 1934 Act, or
any company registered as an investment company under the Investment Company Act
of 1940, as amended (the "1940 Act").

         Set forth below is a description of the business and employment
background of the Company's Directors and Executive Officers.

                  George S. Hastings, Jr. has been involved in the catfish
Aquaculture industry since 1986. Mr. Hastings has sponsored eight catfish
farming programs, including the Partnerships. Mr. Hastings has substantial
experience in all levels of catfish farm management. Mr. Hastings serves as an
officer and director of the Company's wholly-owned subsidiaries, American and
Circle Creek, the predecessor of which he co-founded in 1983. From 1976 through
1983, Mr. Hastings worked in various capacities for Advanced Financial Planning
Corporation in Nashville, Tennessee, a financial planning firm emphasizing the
formation


                                      -30-

<PAGE>   33



and sale of real estate investment programs. From 1983 to 1995 Mr. Hastings
owned 50% of and operated the Hastings/Huntingdon Companies which provided
financial planning, advisory and brokerage services to private individuals and
organizations. Mr. Hastings received his B.S. Degree in Finance with a minor in
accounting from the University of Tennessee and holds a J.D. Degree from the
University of Tennessee College of Law. Mr. Hastings has been a member of the
State Bar of Tennessee and the U.S. Tax Court since 1976.

                  Kenneth Ostebo was appointed a Director of the Company
effective May 4, 1998. From 1994 to the present, Mr. Ostebo has been Chief
Executive Officer for Ocean's Edge, Inc. a commercial fishing and marketing
company. Mr. Ostebo has 21 years experience in the seafood industry and has
developed expertise in introducing lesser known products into the marketplace.
In 1982, he established new markets for secondary seafood items and brought them
to a national level. Mr. Ostebo then started a company using the same processing
principles and product development and spent two years on research and
development of a new seafood product which ultimately gained national
acceptance. Mr. Ostebo has expertise in taking a new product from its inception
to target markets to consumer awareness and selling these products on both
domestic and international levels.

                  Roger A. Daley served as a Director of the Company effective
September 16, 1996. Prior to his retirement in 1986, Mr. Daley served as General
Manager and President of the Knoxville News Sentinel, which he first joined as
an advertising sales representative in 1946. During his service with the News
Sentinel, the newspaper expanded five times and became agent for the Knoxville
Journal. Mr. Daley has also served as a guest consultant on business and
marketing for Taiwan and West Germany. He served as a charter member of and is
past president of the Knoxville Sales Executives Club and the Greater Knoxville
Advertising Club. He received the Printer Ink "Man of the Year" award and is a
charter member and served on the Board of the Better Business Bureau. Mr. Daley
has also served as a member of the American Newspaper Publishers Association and
of the Southern Newspaper Publishers Association, for which he served on several
committees and served three years on that Board. In addition, he has served in
various capacities for numerous charitable and civic organizations, including
service on the Executive Council of the United Fund as a past president of the
Tourist Bureau and as vice president of the Chamber of Commerce.

                  Joseph Duncan, Sr. has been elected and has served as a
Director since December 30, 1995. Mr. Duncan previously served as Chairman of
the Board of Security Alarms & Services Inc. ("SAS") until it was acquired by
National Guardian Services Corporation. Prior to that time, SAS was the largest
independently-owned, full-line security company in the Central South United
States, specializing in burglar and fire alarm systems, access control and
security guard services. Mr. Duncan is past president of the National Burglar &
Fire Alarm Association, and served as a member of the board of directors of that
trade association for fourteen years. In addition, Mr. Duncan served as a board
member or advisor to a number of national and regional trade associations
including the National Council of Investigation & Security Services, the Central
Station Alarm Association, and the Tennessee Burglar & First Alarm Association.
Mr. Duncan became a shareholder of the Company pursuant to the Prior
Consolidation.

         Based upon a review on the Forms 3 furnished to the Company with
respect to its most recent fiscal year, each of the Company's Directors,
Executive Officers, Promoters and Control Persons failed to timely file his or
her initial Form 3 under Section 16(a) of the Securities and Exchange Act of
1934. Each person filed his or her report on September 29, 1997.



                                      -31-

<PAGE>   34



ITEM 10.       EXECUTIVE COMPENSATION

         The following table sets forth remuneration to be paid by the Company
and/or its subsidiaries to its Chief Executive Officer and to its other highly
compensated executive officers of which there are none whose annual salary and
bonus exceeds $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                              ANNUAL COMPENSATION              LONG-TERM COMPENSATION

                                                                              VALUE OF          SECURITIES
         NAME AND                                                            RESTRICTED         UNDERLYING
     PRINCIPAL POSITION                YEAR        SALARY       BONUS         STOCK(2)          OPTIONS(3)
     ------------------                ----       --------     -------       ----------         ----------
<S>                                    <C>        <C>          <C>           <C>                <C>  
    George S. Hastings, Jr.            1998       $ 70,558     $15,616         $19,500            223,000
    Chief Executive Officer            1997(1)      59,250       7,798          46,875             51,000
                                       1996        118,500      28,000          46,875             51,000
</TABLE>

---------------------------------

(1)      A transitional six-month period.

(2)      Shares issuable on April 1, but subject to 2-year vesting whereby
         shares will be lost if employee voluntarily terminates employment or is
         terminated for cause before the vesting period ends. Shares were valued
         at $3.13 per Share, which is 50% of the value of $6.25 for 1997 and
         1996; shares valued at $1.63 which is 50% of the April 1, 1998 value of
         $3.25.

(3)      Options are exercisable for a 7-year period commencing on the date of
         issuance of April 1 in 1997 and 1996 at a price of $6.25 per Common
         Share. Effective August 18, 1998, all options issued prior to 1998 were
         repriced by the Compensation Committee of the Board of Directors at
         $2.00 per Common Share, of which Mr. Hastings holds for a total of
         153,000 shares. The options issued in 1998 are exercisable for 7-year
         periods commencing on April 1, 1998 at $3.25 per Common Share (39,000
         shares), May 15, 1998 at $3.13 per Common Share (84,000 shares), and
         May 27, 1998 at $2.84 per Common Share (100,000 shares). See discussion
         below.

---------------------------------

         The following table sets forth certain information regarding stock
options and warrants granted to each named Executive Officer by reason of their
employment during the Company's 1998 fiscal year.

                        OPTION/WARRANT GRANTS IN 1998(A)

<TABLE>
<CAPTION>
                                                  INDIVIDUAL GRANTS
                           --------------------------------------------------------

                             NUMBER OF SECURITIES      % OF TOTAL OPTIONS/WARRANTS
                                  UNDERLYING               GRANTS TO EMPLOYEES          EXERCISE OR BASE      EXPIRATION
     NAME                  OPTIONS/WARRANTS GRANTED           IN FISCAL YEAR             PRICE ($/SHARE)         DATE
     ----                  ------------------------          ---------------             ---------------         ----
<S>                        <C>                         <C>                              <C>                   <C>
  George S. Hastings, Jr.          223,000                        89.2%                  $2.84 to $3.25        5/26/2005
</TABLE>


         The following table sets forth the value of all unexercised employee
stock options and Director Options held by the Named Executive Officers as of
June 30, 1998.

                    AGGREGATED OPTION AND WARRANT VALUE TABLE


<TABLE>
<CAPTION>
                                     NUMBER OF SECURITIES                  VALUE OF UNEXERCISED
                                UNDERLYING UNEXERCISED OPTIONS             IN-THE-MONEY OPTIONS
                                ------------------------------           ------------------------- 
        NAME                      EXERCISABLE/UNEXERCISABLE(1)           EXERCISABLE/UNEXERCISABLE
        ----                      ----------------------------           -------------------------
<S>                             <C>                                      <C> 
  George S. Hastings, Jr.                  376,000/None                          None/None(1)
</TABLE>

-------------------------------
     (1) No Options are in-the-money based on the value of the Company's
         Common Stock which, as of September 9, 1998, is $1.00 per Common Share
         based on the closing price reported on the NASD Bulletin Board.

--------------------------------

                                      -32-

<PAGE>   35


         EMPLOYMENT CONTRACTS. The Company has a written employment agreement
with Mr. George Hastings. Pursuant to this agreement, he receives a base salary
of $150,000 per annum. In addition, Mr. Hastings is entitled to awards of
restricted stock, stock options, medical insurance coverage and to such annual
bonus compensation as determined by the Board of Directors. The award of any
bonus compensation, however, is dependent on the achievement of certain
performance levels by the Company, including growth in funds from operations
and/or water acres under management. The stock options awarded pursuant to such
employment contract is exercisable for a term of seven years at an exercise
price equal to the fair market value on such date and are exercisable upon
issuance. The employment agreement has an initial three-year term and is
automatically extended for an additional year at the end of each year of the
agreement, subject to the right of the Company to terminate the contract for
cause upon notice or voluntarily by giving at least three months' prior written
notice and the payment of severance payment equal to three years of
compensation.

         ADJUSTMENT OF EXECUTIVE COMPENSATION. As of July 1997, Mr. and Mrs.
Hastings were being paid a combined annual salary on a biweekly basis of
$225,000 under their respective employment contracts, which they agreed to
divide equally between themselves. Mr. Hastings in addition received $12,000 as
a car allowance. In August 1997, Mr. Hastings agreed to reduce his salary to $1
annually until the Company's performance improved. During the months of August
1997 through January 1998 (a period of six months), Mr. and Mrs. Hastings were
paid biweekly on an annual basis of $87,000 which they split 50/50. It was also
agreed to by the Board's compensation committee that Mr. Hastings would be
issued options to buy the Company's stock not to exceed 200,000 shares annually.
These options would be issued quarterly at the rate of 50,000 options and would
be priced at the same price the preferred stock of the Company converts to
common stock in 1998. On May 27, 1998, the Company's Preferred Stock converted
to common stock at the price of $2.837 per share. Accordingly, Mr. Hastings was
issued 7 year options to purchase 100,000 shares at $2.837 for this six month
period of reduced salary.

         In connection with their divorce, Ms. Hastings resigned her positions
as an Officer and Director of the Company in January 1998. Also, Mr. Hastings
received all of the stock grants and options previously issued to her. The Board
agreed to continue to pay $87,000 in salary to Mr. Hastings. Additionally, Mr.
Hastings was granted by the compensation committee additional options to be
issued quarterly. The first quarter ended on May 15, 1998 and Mr. Hastings was
issued 7 year options to buy 84,000 shares at the closing market price of $3.125
on that date. This arrangement superceded the 50,000 shares per quarter that was
in effect August 1997 through January 1998.

         The Company has outstanding 7 year options to purchase stock at $6.25
per share that were issued 1995 to 1997 (174,000 shares). On August 18, 1998,
the compensation committee recommended and the Board approved that all of the
options previously issued at $6.25 per share be repriced at $2.00 per share.

         EXPLANATION OF LONG-TERM COMPENSATION.  Under Mr. Hastings employment
contract, he is entitled to receive issuances of Restricted Stock in the amounts
stated. Total stock of up to approximately 3% of the total outstanding may be
issued each year. Also, under his employment contract, Mr. Hastings is awarded


                                      -33-

<PAGE>   36



stock options in the amount stated entitling the holder to purchase shares at a
price of $6.25 per share. These options are for a term of seven years.

         COMPENSATION OF DIRECTORS. The Company pays its outside Directors an
annual retainer of $1,000 each September; $500 for each meeting attended in
person and $250 for each telephonic meeting. The Company also reimburses each
outside Director for his or her out-of-pocket expenses incurred in connection
with attending meetings. In addition, the Company annually awards each Director
(including Directors who are officers of the Company) options for the purchase
of 3,000 Common Shares (the "Director Options"). The Director Options have a
term of seven years and are exercisable at a price equal to the fair market
value of the Common Shares on the date of issuance. These options have a term of
seven years.

         STOCK OPTION PLAN. The shareholders have approved and authorized a
stock option plan for officers, directors, employees and consultants to the
Company. The Plan is designed to comply with Rule 16b-3 under the 1934 Act. The
purpose of the stock option plan is to encourage stock ownership by current and
future officers, directors, employees and consultants to the Company, and
certain other persons judged by the committee who would administer the plan to
be instrumental to the success of the Company, and to give such persons a
greater personal interest in the Company achieving continued growth and success.
The stock option plan would be administered by persons who are "disinterested
persons" within the meaning of paragraph (c)(2) of Rule 16b-3. The Plan has not
yet been approved by the Board and has not yet been implemented.

ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of September 9,
1998, by each person or entity who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, the beneficial ownership by
each Officer, Director, and the beneficial ownership of all Directors and
Officers as a group:

<TABLE>
<CAPTION>
                                                                            AMOUNT AND NATURE OF
                      NAME & POSITION                                       BENEFICIAL OWNERSHIP
                   OFFICERS AND DIRECTORS                               NUMBER OF COMMON SHARES(%)(1)
                   ----------------------                               -----------------------------
    <S>                                                               <C>                         <C>
    George S. Hastings, Jr.                                           596,822(2)(3)               (11.43%)
    President, Chief Executive Officer and Chairman of the Board

    Kenneth Ostebo                                                          0                      (0.00%)
    Director

    Roger Daley                                                        64,373(3)                   (1.23%) 
    Director

    Joseph F. Duncan, Sr.                                              35,933(4)                   (0.69%)
    Director

    All officers and directors as a group (four persons)              697,128                     (13.35%)
</TABLE>

---------------------------------------------

(1)      In accordance with Rule 13d-3 promulgated under the Securities Exchange
         Act of 1934 (the "Exchange Act"), Common Shares which are not
         outstanding but which are subject to vested options, warrants, rights
         or conversion privileges have been deemed to be outstanding for the
         purpose of computing the percentage of outstanding Common Shares owned
         by the



                                      -34-

<PAGE>   37



         individual having such right, but have not been deemed outstanding for
         the purpose of computing the percentage for any other person.

         The number of Common Shares owned by each person equals the Common
         Shares outstanding beneficially owned plus Common Shares issuable to
         the beneficial holder upon the exercise of the rights, warrants and/or
         options deemed to be outstanding.

         The total number of Common Shares outstanding is 4,818,354 as of June
         9, 1998. The total number of options outstanding is 403,000 as of such
         date. Accordingly, the total number of outstanding Common Shares
         considered outstanding for purposes of computing the above percentages
         is 5,221,354.

(2)      Includes the following Common Shares, warrants and options held of
         record by Mr. Hastings: 220,822 Common Shares and 376,000 Common Shares
         issuable upon the exercise of 364,000 Compensatory Options and 12,000
         Director Options.

(3)      Includes 55,373 Common Shares held of record and 9,000 Common Shares 
         issuable upon the exercise of Director Options.

(4)      Includes 23,993 Common Shares held of record and 12,000 Common Shares 
         issuable upon the exercise of Director Options.

---------------------------

ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FORMATION OF REGISTRANT

         At December 31, 1995, the Company became sole owner of American and 
Circle Creek. Mr. Hastings and Ms. Hastings were the sole owners of American and
Circle Creek (formerly Hastings and Company, Inc.) at the time of their
acquisition. Mr. Hastings and Ms. Hastings received 105,334 shares of Common
Stock of the Company in connection with the Company's acquisition of American
and Circle Creek. In connection with the Company's acquisition of American and
Circle Creek, Mr. Hastings and Ms. Hastings assigned all of their right and
title to the economic interest of the general partner in each of the Circle
Creek Partnerships to the Company.

         Pursuant to the Prior Consolidation, the Company acquired all of the
assets and liabilities of CCA I, CCA II, CCA III, and CCA IV. Pursuant to such
transaction, Mr. Hastings and Ms. Hastings received 4,584 units of Common Stock
and Common Stock purchase rights from the Company in exchange for their limited
partnership interest in these partnerships on the same basis as the other
limited partners. In addition, Mr. Hastings and Ms. Hastings received 2,994
units at $10.00 per unit and purchased 18,864 shares at $7.25 per share in
cancellation of $166,704 of debt owing to them by these partnerships.

         As of June 30, 1997 (the "Closing Date"), each of CCA V, CCA VI, CCA
VII and CCA VIII was merged into the Company under the laws of the state of
Tennessee. As a result thereof, the Company assumed all of the assets and
liabilities of the merged Partnership and the Company's Units and Notes, as
described below, were distributed to the limited partners of the merged
Partnerships in accordance with their elections.

         The Company and the partners of each Participating Partnership approved
the Consolidation on April 16, 1997 and June 30, 1997, respectively. The
Company's Shareholders approved the Consolidation by a greater than 85% vote.
More than 98% of the Limited Partners of each Partnership approved the
Consolidation by written consent. No Shareholder of the Company elected to
exercise his or her dissenter's rights with respect to the Consolidation as may
have been provided under Tennessee corporate law.



                                      -35-

<PAGE>   38



          In the Consolidation, AquaPro (i) acquired by merger all of the assets
and assumed all of the liabilities of the four Participating Partnerships in
consideration for the issuance of its Units and its 7.15% Notes, (ii) offered
the holders of the Investor Notes the opportunity to exchange their investor
Notes for shares of the Preferred Stock, and (iii) is offering the Preferred
Stock upon exercise of the Stock Rights in the subject Offering.

         In the Consolidation the Company acquired the assets and liabilities of
each Participating Partnership by statutory merger under the laws of the state
of Tennessee. Pursuant thereto, the limited partners of each Partnership elected
to receive either Units or 7.15% Notes in consideration for their Partnership
interests. As a result of the Consolidation, the Company issued its Units and
7.15% Notes to the limited partners of the Partnerships as follows:

<TABLE>
<CAPTION>
      PARTNERSHIP                 NUMBER OF UNITS         7.15% NOTES
      ---------------------------------------------------------------
<S>                               <C>                     <C>
        CCA V                         340,662                $37,056
        CCA VI                        152,773                 23,379
        CCA VII                       109,518                   None
        CCA VIII                      105,973                  8,147
                                      -------                -------
        Total                         708,926                $68,582
</TABLE>

         Each Unit was comprised of One (1) Share; One (1) Stock Right; One (1)
$7.50 Warrant entitling the holder to purchase one share for $7.50 within twelve
(12) months following the Closing Date; and One (1) $9.50 Warrant entitling the
holder to purchase one share for $9.50 within twenty-four (24) months following
the Closing Date. Each of the $7.50 Warrants and the $9.50 Warrants is converted
into three-tenths (3/10) Share if not exercised before they expire and upon
exercise, the holder will receive a credit against the exercise price equal to
the greater of 30% of the Exercise Price or 30% of the then market value of the
common shares, as defined. The 7.15% Notes issued in the Consolidation are due
December 31, 2003 and bear interest at the rate of 7.15% per annum for the
period from and including the date of original issuance. The Notes are
convertible at a price of $10.50 per share.

         Both of the $7.50 Warrants and the $9.50 Warrants were called
immediately upon issuance. As a result, each Unit as issued was composed of 1.6
common shares and one $9.50 Stock Right.

                  The Notes will bear interest at the rate of 7.15% per annum
for the period from and including the date of original issuance (expected to be
the Closing Date). The Notes are convertible into common shares at any time at
the election of the holder at a price of $10.00 per share. The Notes are
redeemable at any time, or from time to time, by AquaPro for a Redemption Price
equal to their unpaid principal balance plus accrued interest to the date called
for prepayment. The extent to which the Company issues Notes in place of Units
in the Recent Consolidation will depend upon elections of the Dissenting
Partners whose elections to receive Notes will be honored in full prior to
elections for Notes by other Participating Limited Partners. The issuance of the
Notes, however, is limited by the Note Restriction which prohibits the issuance
of Notes to any Participating Partnership if, as a result of such issuance, the
aggregate principal amount of Notes issued to such Participating Partnership in
the Recent Consolidation would exceed 20.0% of the Partnership's estimated Net
Exchange Value, as described below, on the Closing Date. Also, Dissenting
Partners, if any, will have the first election to receive Notes.


                                      -36-

<PAGE>   39



         The Series A Preferred Stock (the"Preferred Stock") which underlie the
$9.50 Stock Rights are part of a series of up to 2,000,000 shares of Preferred
Stock the Company is authorized to issue. As of September 1, 1997, there were
352,000 shares of Preferred Stock outstanding. The Preferred Stock pays
cumulative dividends at the annual rate of $.70.

         Neither the General Partner nor the Company received Shares or Notes in
connection with the General Partner interest in the Participating Partnerships.
The General Partner will receive no other compensation in connection with the
Recent Consolidation other than Units in exchange for the L.P. Units owned by
Affiliates. Ms. Patricia Hastings holds 314 L.P. Units in CCA VI. The General
Partner and his Affiliates own no other L.P. Units in the Partnerships.

         The transactions constituting the Consolidation were approved by the
shareholders of the Company at their annual meeting on April 16, 1997. Under the
Corporations Law of the state of Tennessee, shareholders who either vote against
certain mergers or abstain from voting have the right to elect by written notice
to dissent and receive cash payment for their shares ("Dissenters' Rights"). The
holders of approximately 155,000 shares of the Company's common stock voted
against or abstained from voting on the transactions. The Company gave notice to
these shareholders of their possible Dissenters' Rights; no shareholders have
delivered notice of their election of such Dissenters' Rights.

         Pursuant to the Consolidation, the Company assumed a total of
$1,147,513 of collateralized notes of the Partnerships (the "Investor Notes").
The Investor Notes were convertible into Partnership interests, and by reason of
the Consolidation, into Units of the common stock of the Company at prices
ranging from $10.56 to $12.26 per share. The Investor Notes bear interest at a
rate of 10.35% per annum and are payable interest only on a quarterly basis
until maturity, when they are due and payable in full. Maturities of the
Investor Notes occur in 1999 and 2000. Payment of the Investor Notes is secured
by liens on the catfish inventories of the issuing Partnership.


                                     PART IV

ITEM 13.       EXHIBITS AND REPORTS ON FORM 8-K

         A List of Exhibits is included with this Report and is attached hereto.

         No Reports on Form 8-K were filed by the Company during the last
quarter covered by this Report.




                                      -37-

<PAGE>   40
                         Report of Independent Auditors


The Board of Directors and Stockholders
AquaPro Corporation


We have audited the accompanying consolidated balance sheets of AquaPro
Corporation and subsidiaries as of June 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year ended June 30, 1998, the six months ended June 30, 1997 and
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AquaPro
Corporation and subsidiaries at June 30, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the year ended June 30,
1998, the six months ended June 30, 1997 and the year ended December 31, 1996,
in conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, the Company's recurring
losses from operations raise substantial doubt about its ability to continue as
a going concern. Management's plans as to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



Jackson, Mississippi                                      /s/ Ernst & Young LLP
August 28, 1998



                                      F-1
<PAGE>   41

                               AquaPro Corporation

                           Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                             JUNE 30
                                                                                    1998                  1997
                                                                             ------------------------------------

<S>                                                                            <C>                   <C>         
ASSETS
Current assets:
   Cash and cash equivalents                                                   $    112,631          $    202,894
   Trade accounts receivable (Note 5)                                               349,148               108,009
   Receivable from affiliate                                                         27,998                27,998
   Live fish inventories (Note 5)                                                 5,533,276             5,740,124
   Prepaid expenses                                                                  21,303                10,516
                                                                             ------------------------------------
Total current assets                                                              6,044,356             6,089,541

Property, buildings and equipment (Note 5):
   Land                                                                           1,783,425             1,781,078
   Ponds and improvements                                                         3,263,405             3,014,785
   Buildings                                                                        458,014               346,416
   Machinery and equipment                                                        2,901,160             2,364,743
                                                                             ------------------------------------
                                                                                  8,406,004             7,507,022
   Accumulated depreciation                                                       2,402,841             1,867,269
                                                                             ------------------------------------
                                                                                  6,003,163             5,639,753

Investments in cooperatives (Notes 4 and 5)                                         833,894               883,518
Other assets                                                                        166,779               104,161







                                                                             ------------------------------------
Total assets                                                                   $ 13,048,192          $ 12,716,973
                                                                             ====================================
</TABLE>



                                      F-2
<PAGE>   42



<TABLE>
<CAPTION>
                                                                                             JUNE 30
                                                                                    1998                  1997
                                                                             ------------------------------------

<S>                                                                            <C>                   <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Notes payable (Note 5):
     Bank                                                                      $    586,459          $    497,571
     Officer and director                                                                --               161,254
     Others                                                                          13,505                30,637
   Accounts payable                                                                 195,318               523,255
   Accrued salaries                                                                  17,883               239,994
   Accrued interest and other                                                        28,461                74,628
   Current maturities of long-term debt                                             426,574               272,258
                                                                             ------------------------------------
Total current liabilities                                                         1,268,200             1,799,597

Long-term debt, less current maturities (Note 5)                                  3,829,981             4,102,980

Stockholders' equity:
   Series A Preferred Stock, no par value - authorized 900,000 shares,
     cumulative, convertible, issued and outstanding 235,507 at 
     June 30, 1997 (Note 9)                                                              --             1,837,408
   Preferred stock, par value to be determined by the
     Board of Directors - authorized 100,000 shares, none issued                         --                    --
   Common stock, no par value - authorized 100,000,000
     shares, issued and outstanding 4,818,354 and 2,670,667
     shares at June 30, 1998 and 1997 (Note 6)                                   15,405,803            10,588,311
   Unearned compensation                                                           (101,906)             (126,563)
   Retained earnings (deficit)                                                   (7,353,886)           (5,484,760)
                                                                             ------------------------------------
Total stockholders' equity                                                        7,950,011             6,814,396
                                                                             ====================================
Total liabilities and stockholders' equity                                     $ 13,048,192          $ 12,716,973
                                                                             ====================================
</TABLE>



See accompanying notes.



                                      F-3
<PAGE>   43

                               AquaPro Corporation

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                                SIX MONTHS
                                                            YEAR ENDED             ENDED             YEAR ENDED
                                                              JUNE 30             JUNE 30            DECEMBER 31
                                                               1998                 1997                 1996
                                                          ------------------------------------------------------
<S>                                                        <C>                  <C>                  <C>        
Net sales                                                  $ 5,041,463          $ 1,212,468          $ 3,924,954
Cost of products sold                                        4,316,032            1,188,159            3,525,405
                                                          ------------------------------------------------------
Gross profit                                                   725,431               24,309              399,549
Selling, general and administrative (Note 6)                 1,652,570            1,055,540            1,349,499
Impairment loss on long-lived assets                                --                   --            1,019,000
                                                          ------------------------------------------------------
Operating loss                                                (927,139)          (1,031,231)          (1,968,950)

Other income (expense):
   Equity in losses on investments in cooperatives            (260,112)            (272,000)            (109,969)
   Interest expense                                           (460,393)            (212,685)            (555,974)
   Patronage dividend                                          130,724               10,218              105,451
   Other, net                                                  (19,241)              18,173               22,587
                                                          ------------------------------------------------------
                                                              (609,022)            (456,294)            (537,905)
                                                          ------------------------------------------------------
Net loss                                                   $(1,536,161)         $(1,487,525)         $(2,506,855)
                                                          ======================================================
Net loss attributable to common stockholders               $(1,869,126)         $(1,552,952)         $(2,512,080)
                                                          ======================================================
Basic and diluted net loss per common share                $      (.65)         $      (.58)         $     (1.04)
                                                          ======================================================
Weighted average basic and diluted
common shares outstanding                                    2,870,743            2,677,534            2,426,920
                                                          ======================================================
</TABLE>


See accompanying notes.





                                      F-4
<PAGE>   44



                               AquaPro Corporation

           Consolidated Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                                                                           AquaPro Corporation
                                                                                       -----------------------------
                                                                General      Limited
                                                               Partners'    Partners'          Common Stock
                                                                Capital      Capital       Shares        Amount
                                                             -------------------------------------------------------

<S>                                                          <C>            <C>          <C>          <C>       
Balance at January 1, 1996                                   $   10,851     $  92,139     1,664,381    $ 6,495,174
Net loss for the year ended December 31, 1996
Cash distributions                                              (10,851)      (97,665)
Retirement of limited partnership units
Sale of limited partnership units                                                5,526
Common stock issued to employees for future services                                         20,000        150,000
Amortization of unearned compensation
Conversion of debt to stock (Note 5)                                                        186,740      1,717,305
Sale of common stock (Note 6)                                                               362,704      2,137,928
Sale of preferred stock (Note 9)
One-for-five common stock split                                                             218,994
Cash dividend on preferred stock
                                                             -------------------------------------------------------
Balance at December 31, 1996                                          --            --    2,452,819     10,500,407
Net loss for the six months ended June 30, 1997
Common stock issued to employees for services                                                22,500        140,625
Cancellation of common stock granted to
   former employees                                                                          (9,000)       (56,250)
Amortization of unearned compensation
Conversion of warrants to common stock                                                      203,834
Sale of common stock (Note 6)                                                                   514          3,529
Sale of preferred stock (Note 9)
Cash dividend on preferred stock
                                                             -------------------------------------------------------
Balance at June 30, 1997                                              --            --    2,670,667     10,588,311
Net loss for the year ended June 30, 1998
Common stock issued to employees for future services                                         21,000         68,250
Cancellation of common stock granted to
   former employees                                                                          (5,567)       (42,188)
Amortization of unearned compensation
Conversion of debt to common stock                                                            7,930         39,661
Conversion of long-term debt to preferred stock (Note 3)
Sale of preferred stock (Note 9)
Cash dividend on preferred stock
Conversion of preferred stock to common stock (Note 9)                                    2,065,438      4,584,708
Common stock issued as payment of preferred dividends                                        58,886        167,061
                                                             =======================================================
Balance at June 30, 1998                                     $        --   $        --    4,818,354    $15,405,803
                                                             =======================================================
</TABLE>






                                      F-5
<PAGE>   45







<TABLE>
<CAPTION>
                           AquaPro Corporation
---------------------------------------------------------------------------
                               Additional                      Retained        Total
       Preferred Stock          Paid-In        Unearned        Earnings    Stockholders'
    Shares         Amount       Capital      Compensation     (Deficit)        Equity
-------------------------------------------------------------------------------------------

<S>             <C>              <C>          <C>            <C>             <C>        
          --    $        --      $ 26,749     $ (93,750)     $(1,419,728)    $ 5,111,435
                                                              (2,506,855)     (2,506,855)
                                                                                (108,516)
                                  (26,749)                                       (26,749)
                                                                                   5,526
                                               (150,000)                              --
                                                131,250                          131,250
                                                                               1,717,305
                                                                               2,137,928
     104,534        748,169                                                      748,169
                                                                                      --
                                                                  (5,225)         (5,225)
-------------------------------------------------------------------------------------------
     104,534        748,169            --      (112,500)      (3,931,808)      7,204,268
                                                              (1,487,525)     (1,487,525)
                                               (131,250)                           9,375

                                                 56,250                               --
                                                 60,937                           60,937
                                                                                      --
                                                                                   3,529
     130,973      1,089,239                                                    1,089,239
                                                                 (65,427)        (65,427)
-------------------------------------------------------------------------------------------
     235,507      1,837,408                    (126,563)      (5,484,760)      6,814,396
                                                              (1,536,161)     (1,536,161)
                                                (68,250)                              --


                                                 42,188                               --
                                                 50,719                           50,719
                                                                                  39,661
     127,922        984,014                                                      984,014
     227,194      1,763,286                                                    1,763,286
                                                                (165,904)       (165,904)
    (590,623)    (4,584,708)                                                          --
                                                                (167,061)             --
===========================================================================================
          --    $        --      $     --     $(101,906)     $(7,353,886)    $ 7,950,011
===========================================================================================
</TABLE>



See accompanying notes.



                                      F-6
<PAGE>   46

                               AquaPro Corporation

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                          YEAR ENDED   SIX MONTHS ENDED   YEAR ENDED
                                                                           JUNE 30         JUNE 30       DECEMBER 31
                                                                             1998             1997             1996
                                                                      -----------------------------------------------
<S>                                                                     <C>              <C>              <C>         
OPERATING ACTIVITIES
Net loss                                                                $(1,536,161)     $(1,487,525)     $(2,506,855)
Adjustments to reconcile net loss to net cash used in
    operating activities:
     Depreciation and amortization                                          700,341          400,706          692,351
     Impairment loss on long-lived assets                                        --               --        1,019,000
     Equity in losses on investments in cooperatives                        260,112          272,000          109,969
     Loss on sale of equipment                                               41,835
     Payments of loss allocations on investments in cooperative            (191,376)              --          (79,969)
     Changes in operating assets and liabilities:
       (Increase) decrease in trade accounts receivable                    (240,483)         533,298         (366,935)
       (Increase) decrease in live fish inventories                         206,192       (1,190,596)        (276,659)
       Increase in prepaid expenses and other assets                       (130,379)         (14,263)         (17,969)
       Increase (decrease) in accounts payable and accrued expenses        (366,221)         318,368           11,653
                                                                      -----------------------------------------------
Net cash used in operating activities                                    (1,256,140)      (1,168,012)      (1,415,414)

INVESTING ACTIVITIES
Purchases of property and equipment                                      (1,052,597)        (530,422)        (591,474)
Proceeds on sale of equipment                                                35,592
Purchases of investments in cooperatives                                         --               --          (62,000)
                                                                      -----------------------------------------------
Net cash used in investing activities                                    (1,017,005)        (530,422)        (653,474)

FINANCING ACTIVITIES
Net increase (decrease) in notes payable                                     60,706          (48,084)        (743,758)
Principal payments on long-term borrowings                               (1,428,667)        (149,708)        (741,152)
Proceeds from long-term borrowings                                        1,953,461          312,722          503,178
Proceeds from exercise of common stock purchase rights                           --               --        2,137,928
Proceeds from issuance of preferred stock                                 1,763,286        1,089,239          748,169
Proceeds from exercise of common stock warrants                                  --            3,529               --
Proceeds from sale of limited partnership units                                  --               --            5,525
Cash distributions to partners                                                   --               --         (108,516)
Retirement of limited partnership units                                          --               --          (26,749)
Payments of preferred stock dividends                                      (165,904)         (65,427)          (5,225)
                                                                      -----------------------------------------------
Net cash provided by financing activities                                 2,182,882        1,142,271        1,769,400
                                                                      -----------------------------------------------
Net decrease in cash and cash equivalents                                   (90,263)        (556,163)        (299,488)
Cash and cash equivalents at beginning of period                            202,894          759,057        1,058,545
                                                                      -----------------------------------------------
Cash and cash equivalents at end of period                              $   112,631      $   202,894      $   759,057
                                                                      ===============================================
SUPPLEMENTAL CASH FLOW INFORMATION-
Interest paid                                                           $   503,047      $   238,394      $   501,960
                                                                      ===============================================
NON-CASH FINANCING ACTIVITIES
Conversion of notes payable and long-term debt to common stock          $    39,661      $        --      $ 1,717,305
                                                                      ===============================================
Common stock issued to employees for future services                    $    68,250      $   140,625      $   150,000
                                                                      ===============================================
Conversion of long-term debt to 10.35% convertible notes payable        $        --      $        --      $   214,495
                                                                      ===============================================
Conversion of limited partnership units to notes payable                $        --      $    68,582      $        --
                                                                      ===============================================
Conversion of long-term debt to preferred stock                         $   984,014      $        --      $        --
                                                                      ===============================================
Conversion of accrued salaries and note payable to officers to
long-term debt                                                          $   380,198      $        --      $        --
                                                                      ===============================================
Conversion of preferred stock to common stock                           $ 4,584,708      $        --      $        --
                                                                      ===============================================
Common stock issued as payment of preferred dividends                   $   167,061      $        --      $        --
                                                                      ===============================================
</TABLE>

See accompanying notes.




                                      F-7
<PAGE>   47

                               AquaPro Corporation

                   Notes to Consolidated Financial Statements

                                  June 30, 1998


1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND BUSINESS

AquaPro Corporation (the "Company") and its wholly owned subsidiaries American
Fisheries Corporation ("American") and Circle Creek Aquaculture, Inc. ("Circle
Creek") own and operate eight catfish farms located in the delta area of the
State of Mississippi. The Company acquired the catfish farms by merger with
eight affiliated limited partnerships (see Note 2). These mergers have been
accounted for in a manner similar to a pooling of interests because of common
control. The accompanying consolidated financial statements as of and for the
six months ended June 30, 1997 and for the year ended December 31, 1996 have
been restated to give effect to the mergers described above and in Note 2. All
material intercompany transactions and balances have been eliminated in
consolidation.

Effective January 1, 1997, the Company changed its fiscal year end to June 30
from December 31.

The Company conducts catfish farming activities on 1,843 water acres within the
State of Mississippi. Catfish farming is concentrated in a few southern states,
principally Mississippi, Louisiana, Alabama and Arkansas. Catfish are sold
principally to retail grocery stores and restaurants by catfish processors. The
Company's sales are to a limited number of processors and collateral is
generally not required. Three processors represented 52%, 31%, and 10% of the
Company's net sales for the year ended June 30, 1998; one processor represented
90% of the Company's net sales for the six months ended June 30, 1997; and,
three processors represented 55%, 25% and 11%, of the Company's net sales for
the year ended December 31, 1996.

Fish prices are affected by changes in market demand and supply and may
fluctuate significantly from period to period.

USE OF ESTIMATES

Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.




                                      F-8
<PAGE>   48

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

LIVE FISH INVENTORIES

Live fish inventories are stated at the lower of average cost or market. Market
value is determined as estimated selling price less estimated costs to sell.
Revenue is recognized when catfish are delivered live to the processor.

Live fish inventories are purchased as "fingerlings" (generally, 5 to 6 inches
in length) and are grown to a marketable size over 9 to 18 months. Because the
production cycle generally exceeds one year, management anticipates certain live
fish inventories on hand at June 30, 1998 may not be sold during the year ending
June 30, 1999. Live fish inventories are classified as a current asset in the
accompanying balance sheets consistent with industry practice. The quantities of
live fish inventories are determined based upon estimated growth from feed fed
and are reduced for the actual quantities sold and observed mortality. The
Company estimates fish grow-out based upon 2.5 pounds of feed fed per one pound
of live fish growth. The estimated fish grow-out, which includes estimated
mortality based on the Company's experience, is based upon published industry
data and actual experience of the Company. In addition to the estimated
mortality, reductions in inventories for observed mortality are recorded as
observed. Management assesses the accuracy of the perpetual inventory records by
periodic comparisons with observations of the catfish feeding in each pond and
analysis of the trend of pounds of feed fed relative to the pounds of catfish
reflected in the perpetual inventory records by pond. Costs associated with live
fish production are accumulated during the growing period and consist
principally of feed, labor and overhead required to grow the live fish to a
marketable size. Each pond is closed approximately every 8 to 10 years and the
perpetual inventory records are adjusted to the actual harvest. Live catfish are
highly susceptible to disease, oxygen depletion and extreme temperatures which
could result in mortality higher than the Company's estimated mortality.




                                      F-9
<PAGE>   49


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LIVE FISH INVENTORIES (CONTINUED)

Management monitors each pond and takes appropriate actions to minimize the risk
of loss from mortality. Given the nature of the live fish inventories, it is
reasonably possible that the Company's actual mortality will vary significantly
from estimates. The cost of producing fish for harvest is subject to the cost of
grains which is susceptible to significant fluctuations in the commodity
markets. The Company establishes prices for a portion of its anticipated feed
purchases over specified periods of time through various feed purchase
agreements.

PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment are stated at cost. Depreciation is provided
by the straight-line method over the assets' estimated useful lives (15 years
for ponds and improvements, 15 years for buildings, and 3 to 7 years for
machinery and equipment).

INVESTMENTS IN COOPERATIVES

Investments in cooperatives are stated at original cost adjusted for allocation
of earnings or losses, net of distributions.

INCOME TAXES

Income taxes are accounted for by the Company using the liability method in
accordance with FASB Statement No. 109, Accounting for Income Taxes. Deferred
income taxes relate to temporary differences between assets and liabilities
recognized differently for financial reporting and income tax purposes.

STOCK BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to estimated fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and, generally,
recognizes no compensation expenses for the stock option grants.




                                      F-10
<PAGE>   50

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIC AND DILUTED NET LOSS PER COMMON SHARE

In fiscal 1998, the Company adopted the provisions of FASB Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per common share. Unlike primary earnings per common share,
basic earnings per common share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per common share is very
similar to the previously reported earnings per common share. All earnings
(loss) per common share amounts for all periods have been presented to conform
to the Statement 128 requirements.

Basic net loss per common share is computed by dividing net loss applicable to
common stock (net loss less dividend requirements for preferred stock of
$332,965 in the fiscal year ended June 30, 1998, $65,427 in the six months ended
June 30, 1997 and $5,225 in the year ended December 31, 1996) by the weighted
average number of common shares outstanding. Common equivalent shares (stock
options and warrants) outstanding have not been included in the computation of
diluted net loss per common share due to their antidilutive effects for the
periods presented.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with FASB statement No. 121, Accounting for The Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
continually reevaluates the carrying value of its long-lived assets for events
or changes in circumstances which indicate that the carrying value may not be
recoverable. As part of this reevaluation, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposal. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized through a charge to operations when the carrying value exceeds the
fair value of the asset.

The adoption by the Company of Statement 121 during the year ended December 31,
1996 resulted in a non-cash charge of $1,019,000 from the write-down of land,
ponds and improvements, buildings and goodwill to their estimated fair values.
The charge represented the adjustment required to remeasure long-lived assets at
the lower of the carrying amount or fair value based upon 1996 appraisals
obtained from an independent appraiser in connection with the merger as
described in Note 3. 


                                      F-11
<PAGE>   51


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Effective in fiscal 1999, FASB Statement No. 130, Reporting Comprehensive
Income, requires that items required to be recognized as components of
comprehensive income be reported in a financial statement displayed with the
same prominence as other financial statements. Management does not expect FASB
No. 130 to have a significant impact on the Company in fiscal 1999.

Also, effective for fiscal 1999 is FASB Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information which requires companies to
report financial and descriptive information about their reportable operating
segments. Management does not expect FASB No. 131 to have a significant impact
on the Company.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to fiscal 1998 presentation.

2.  GOING CONCERN

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During the year ended June 30,
1998, the six months ended June 30, 1997 and the year ended December 31, 1996,
the Company incurred net losses of $1,536,161, $1,487,525 and $2,506,855,
respectively, and had deficient cash flow from operating activities of
$1,256,140, $1,168,012 and $1,415,414 for those same periods. These factors may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.

The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing or refinancing as may be required, and ultimately attain
profitability.

Subsequent to June 30, 1998, the Company reached the limit on borrowings
available under the $1,000,000 revolving line of credit used solely to fund
purchases of feed. Management attributed these additional borrowings to the
increase in catfish production, as compared to the prior year, along with the
end of the growing season approaching. Management also borrowed $165,000 from
third parties to fund feed purchases in excess of the amount funded by the
revolving line of credit. The growing season, or months in which catfish are
fed, generally is from April through October. As described in Note 5, the
required principal payments on borrowings under the revolving line of credit
consist of approximately 55% of collections on accounts receivable.

Based upon management's projected sales volume at current sales prices for the
period July 1, 1998 through March 31, 1999, management anticipates the Company's
fish sales would be sufficient to repay borrowings under the revolving line of
credit prior its maturity on March 15, 1999, to bring its unsecured obligations
current and to fund operating expenses through March 31, 1999. Management's
projected fish sales from April 1, 1999 through June 30, 1999 would not be
sufficient to fund operating expenses including the feed requirements during
that period. Based upon the anticipated repayment of the revolving line of
credit and the collateral which would be available to secure additional
borrowings, management believes that the Company will be able to renew the
present revolving line of credit for the same amount or obtain a credit
agreement with similar terms. The revolving line of credit is collateralized by
accounts receivable (book value of $349,148 at June 30, 1998), live fish
inventories (book value of $5,533,276 at June 30, 1998), investment in certain
cooperative stock (book value of $776,654 at June 30, 1998), and certain
property and buildings (book value of $865,534 at June 30, 1998). The Company
has obtained an advanced commitment letter from a feed vendor to provide a
revolving line of credit for feed purchases for a minimum of $500,000 beginning
April 2, 1999 under terms similar to its existing line of credit. The commitment
for the line of credit is contingent upon the repayment of the existing line on
or before the due date and the pledge of collateral similar to the collateral
pledged on the existing line. Management projects that the availability of a
line of credit under this commitment is necessary for the Company to meet its
operating cash needs through June 30, 1999 in the normal course of business.
Management projects this advanced commitment would only partially meet the
Company's needs to finance feed purchases through the end of the 1999 feeding
season.

3. MERGERS

Effective June 30, 1997, the Company acquired the assets and assumed the
liabilities of Circle Creek Aquaculture V, L.P., Circle Creek Aquaculture VI,
L.P., Circle Creek Aquaculture VII, L.P., and Circle Creek Aquaculture VIII,
L.P., ("Circle Creek V-VIII"). Circle Creek V-VIII were engaged in catfish
farming in the State of Mississippi and were previously managed by the Company
pursuant to management agreements. The mergers are accounted for as a
reorganization of the entities under common control into the Company.
Accordingly, the transactions are accounted for on the historical cost basis of
Circle Creek V-VIII. The carrying amounts for the general and limited partners'
capital of Circle Creek V-VIII were transferred to the Company's common stock as
of January 1, 1995.




                                      F-12
<PAGE>   52



                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


3. MERGERS (CONTINUED)

In consideration for the assets and liabilities of Circle Creek V-VIII, the
Company issued 708,926 "Units" and $68,582 of 7.15% Convertible Notes based upon
the relative fair value of the net assets of the Company and Circle Creek
V-VIII. A Unit consisted of 1.6 shares of common stock and one 90-day right to
purchase one share of the Company's 7.0% Series A Preferred Stock for $9.50 (the
"Preferred Stock Rights"). Also, as part of the merger, the Company offered its
Series A Preferred Stock in exchange for $1,147,513 in principal amount of
certain 10.35% notes of Circle Creek V-VIII (the "Investor Notes"). This
exchange offer commenced subsequent to June 30, 1997 and was completed by
September 30, 1997. Each holder of Investor Notes was offered 1.3 shares of
Series A Preferred Stock for each $10 of Investor Notes. In the aggregate,
$984,014 of Investor Notes were exchanged for 127,922 shares of Series A
Preferred Stock.

Separate revenues and net loss of the merged entities are presented in the
following table.

<TABLE>
<CAPTION>
                                 SIX MONTHS ENDED     YEAR ENDED
                                      JUNE 30         DECEMBER 31
                                        1997             1996
                                    ----------------------------

<S>                                 <C>              <C>        
Revenues:
    AquaPro Corporation             $   604,805      $ 2,837,274
    Circle Creek V-VIII               1,129,114        1,667,751
    Elimination of intercompany
      Transactions                     (521,451)        (580,071)
                                    ----------------------------
    Total                           $ 1,212,468      $ 3,924,954
                                    ============================

Net loss:
    AquaPro Corporation             $  (972,102)     $  (886,786)
    Circle Creek V-VIII                (482,522)      (1,592,813)
    Elimination of intercompany
      Transactions                      (32,901)         (27,256)
                                    ----------------------------
    Net loss, as reported           $(1,487,525)     $(2,506,855)
                                    ============================
</TABLE>

In connection with the mergers, approximately $213,000 of merger costs and
expenses were incurred and have been included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations for the six months ended June 30, 1997. The merger costs and expenses
consisted principally of legal and consulting fees.





                                      F-13
<PAGE>   53

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


4. INVESTMENTS IN COOPERATIVES

Investments in cooperatives consist of the following:

<TABLE>
<CAPTION>
                                                                       JUNE 30
                                                                 1998            1997
                                                         --------------------------------

<S>                                                             <C>            <C>     
Delta Pride Catfish, Inc.                                       $664,654       $714,278
Fishco, Inc.                                                     112,000        112,000
Indi-Bell, Inc.                                                   57,240         57,240
                                                         --------------------------------
                                                                $833,894       $883,518
                                                         ================================
</TABLE>

The ownership of Delta Pride Catfish, Inc. ("Delta Pride") and Fishco, Inc.
("Fishco") stock provides the Company the right to sell live catfish to Delta
Pride and Fishco. Delta Pride is the Company's most significant customer.
Substantially all of the Company's catfish feed purchases are from Indi-Bell,
Inc.

5. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable-bank consists of borrowings under a $1,000,000 revolving line of
credit used solely to fund purchases of feed. Interest accrues at the prime rate
plus 1.65% and the line of credit expires March 15, 1999. Interest is paid
monthly and principal is paid with approximately 55 percent (40 cents per pound
of fish sold) of all collections of accounts receivable.

The notes payable-officer and director outstanding at June 30, 1997 and accrued
officers' salaries of $230,000 were converted to five year unsecured notes
during January 1998 and April 1998.




                                      F-14
<PAGE>   54


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                           JUNE 30
                                                                                      1998           1997
                                                                                   --------------------------
<S>                                                                                 <C>           <C>       
Note payable to Farm Credit Bank of Texas with annual principal and interest
payments of approximately $186,000 due beginning April 1, 1999 through 2003 and
$149,000 April 1, 2004 through 2018; interest accrues at a variable rate 
(8.35% at June 30, 1998)                                                            $1,422,000    $        --

Note payable to a bank with monthly principal and interest payments of $11,754
through March 2000 and a final payment of approximately $979,000 due April 2000
with interest at prime plus 2 1/2% (11% at June 30, 1998)                            1,033,654      1,055,244

Convertible notes payable with interest due quarterly at 10.35% and
principal due December 1999 ($63,500) and December 2000 ($100,000)                     163,500      1,147,513

Convertible notes payable with interest due quarterly at 10.35% and
principal due December 2002                                                            363,593        363,593

Note payable to a bank with annual principal payments of $43,610 due beginning
May 1, 1999 through 2003; interest accrues at prime rate plus one percent 
(9.5% at June 30, 1998) and is payable semi-annually                                   218,048             --

Convertible notes payable with interest due quarterly at 7.15% and
principal due December 2003                                                             28,921         68,582

Notes payable to an insurance company with interest at 7.7% to 9.5%                         --        651,200

Notes payable to the Federal Land Bank with interest at variable rates
(9.05% at June 30, 1997)                                                                    --        512,095

Notes payable to a finance company with annual payments aggregating
approximately $104,000 including interest at rates ranging from 6% to 10.65%,
maturing at various dates from July 1998 through April 2003                            242,806        200,603
</TABLE>





                                      F-15
<PAGE>   55

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

<TABLE>
<S>                                                                                 <C>           <C>       
Capital lease obligations to Farm Credit Leasing Services Corporation with
quarterly payments aggregating $12,185 including interest at an
effective rate of 8.5% through June 2002                                               146,430        180,300

Note payable to an officer and director of the Company with monthly payments of
$3,810 including interest at 8.75%, maturing April 2003                                179,635             --

Note payable to a former officer and director of the Company with monthly
payments of $4,000 including interest at 8.75%, maturing January 2003                  182,515             --

Notes payable to various finance companies with monthly payments aggregating
$9,200 including interest at rates ranging from 4.92% to
11.77%, maturing at various dates through April 2001                                   230,006        141,931

Note payable to a bank with monthly payments of $1,156 including interest at
prime plus 1.65% (10.15% at June 30, 1998) through June 2002                            45,447         54,177
                                                                                   --------------------------
                                                                                     4,256,555      4,375,238
Less current maturities                                                                426,574        272,258
                                                                                   --------------------------
                                                                                    $3,829,981     $4,102,980
                                                                                   ==========================
</TABLE>

The 10.35% convertible notes payable due in 2002 are convertible into shares of
the Company's common stock at a price of $10.42 per share at the noteholders'
option at any time prior to maturity. The 7.15% convertible notes are
convertible into shares of the Company's stock at a price of $10 per share at
the noteholders' option at any time prior to maturity. The convertible notes may
be paid by the Company at any time without penalty.

During 1996, certain holders of the unsecured and convertible (prime plus 3%)
notes payable converted notes with a principal balance of $1,678,762 into
167,876 units. Also in 1996, certain holders of the unsecured notes payable and
convertible notes payable (prime plus 3%) converted notes with a principal
balance of $214,495 into the 10.35% convertible notes payable.

During 1996, the Company issued 18,864 shares of its common stock to certain
officers and directors for the cancellation of $136,764 in notes payable to
officers and directors.




                                      F-16
<PAGE>   56


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

During the quarter ended September 30, 1997, the holders of the 10.35%
convertible notes payable due in 1999 and 2000 were offered 1.3 shares of the
Company's Series A Preferred Stock for each $10 of principal in an exchange
offer (see Note 3). In the aggregate, approximately $984,014 of these notes were
exchanged for 127,922 shares of preferred stock. Convertible notes not converted
pursuant to this offer are convertible into shares of the Company's common stock
at the noteholders' option any time prior to maturity at a price of $6.56 to
$8.08 per share.

Substantially all trade accounts receivable, live fish inventories, property,
buildings and equipment and cooperative stock are pledged as collateral to the
note payable to bank and long-term debt. The Company is required, by certain
provisions of the loan agreements, to maintain minimum net worth, current and
debt service coverage ratios beginning in fiscal year 1999.

The aggregate annual maturities of long-term debt at June 30, 1998 are as
follows:

<TABLE>
<S>                                                <C>       
          1999                                     $  426,574
          2000                                      1,462,641
          2001                                        434,083
          2002                                        269,909
          2003                                        575,419
          Thereafter                                1,087,929
                                              ------------------
                                                   $4,256,555
                                              ==================
</TABLE>

6. COMMON STOCK

The Company had stock purchase warrants with an expiration date of December 31,
1997 that allowed the holder to purchase 1.2 shares of the Company's common
stock for $8.75. On June 30, 1997, the Company exercised its option to convert
the stock purchase warrants into 203,834 shares of the Company's common stock.




                                      F-17
<PAGE>   57


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


6. COMMON STOCK (CONTINUED)

During 1996, the Company received $2,137,928, net of related expenses pertaining
to broker-dealer commissions, legal, printing, travel and other, from the sale
of 429,865 shares of common stock at $7.25 per share pursuant to the exercise of
$7.25 stock purchase rights and 5,380 shares of common stock at $8.25 per share
pursuant to the exercise of $8.25 stock purchase warrants. In connection with
the exercise of the $7.25 stock purchase rights, the Company granted
broker-dealers options to purchase 39,117 shares of the Company's common stock
at $9.38 per share. The options are exercisable at any time through June 2001.
There are also 235,507 $7.50 stock purchase warrants outstanding at June 30,
1998 pertaining to preferred stock issued in 1997 and 1996 (see Note 9). None of
the options have been exercised as of June 30, 1998. No other stock purchase
rights or warrants are outstanding at June 30, 1998.

During the fiscal year ended June 30, 1998 and six months ended June 30, 1997,
the Company granted to key employees 21,000 shares of common stock at $3.25 per
share and 22,500 shares of common stock at $6.25 per share, respectively. The
Company also granted 24,000 shares of common stock at $6.25 per share to key
employees during the year ended December 31, 1996. The shares generally vest
after a two-year period. Unearned compensation expense is amortized to selling,
general and administrative expenses in the accompanying consolidated statements
of operations over the vesting period. Common shares totaling 5,567 and 9,000
previously granted were canceled during the fiscal year ended June 30, 1998 and
six-month period ended June 30, 1997, respectively.





                                      F-18
<PAGE>   58


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


7. EMPLOYEE STOCK OPTIONS

The Company granted directors and certain key employees options to purchase
shares of common stock at $2.84 to $3.25 per share during the fiscal year ended
June 30, 1998 and $6.25 per share during the six months ended June 30, 1997 and
year ended December 31, 1996 as follows:

<TABLE>
<CAPTION>
                                                          Weighted Average
                                            Shares         Exercise Price
                                    ----------------------------------------

<S>                                         <C>                 <C> 
Outstanding at January 1, 1997              129,000             6.25
Granted                                      63,000             6.25
Forfeited                                   (12,000)            6.25
                                    -------------------
Outstanding at June 30, 1997                180,000             6.25
Granted                                     253,000             3.01
Forfeited                                    (9,000)            6.25
                                    -------------------
Outstanding at June 30, 1998                424,000             4.32
                                    ===================
</TABLE>

The options were granted for a seven-year period and, are exercisable at anytime
prior to their expiration at various dates from March 31, 2002 to May 27, 2005.

Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, Accounting for Stock-Based Compensation, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of the Statement. The fair value was estimated at the date
of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: volatility factor of 1.076 for the year ended June
30, 1998 and .01 for the six months ended June 30, 1997 and the year ended
December 31, 1996; weighted-average expected life of options of 3 years;
risk-free interest rate of 6%; and no dividend yield.





                                      F-19
<PAGE>   59


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


7. EMPLOYEE STOCK OPTIONS (CONTINUED)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
granted for the fiscal year ended June 30, 1998 and the six months ended June
30, 1997, and the year ended December 31, 1996 is amortized to expense over the
vesting period. The Company's pro forma net losses were $2,078,258, $1,538,525,
and $2,572,855 for the fiscal year ended June 30, 1998 and the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively, and the
Company's pro forma basic and diluted loss per common share was $(.84) $(.60)
and $(1.06), respectively, for those same periods. The weighted average fair
value of options granted during the fiscal year ended June 30, 1998 was $2.14.
The weighted average fair value of options granted during the six months ended
June 30, 1997 and the year ended December 31, 1996 was $1.00.

8. PROFIT-SHARING PLAN

Effective January 1, 1997, the Company established a profit sharing plan for
substantially all employees. This plan provides for monthly contributions based
on employee deferrals. The Company made contributions of approximately $6,300
and $9,100 to the plan for the year ended June 30, 1998 and the six month period
ended June 30, 1997, respectively.

9. PREFERRED STOCK

During the year ended June 30, 1998, the Company realized net proceeds of
$1,763,286 from the sale of 227,194 shares of Series A Preferred Stock.





                                      F-20
<PAGE>   60


                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


9. PREFERRED STOCK (CONTINUED)

During the six months ended June 30, 1997, the Company received $1,089,239, net
of related expenses pertaining to broker-dealer commissions, legal, printing,
travel and other, from the sale of 130,973 "Preferred Units." In 1996, the
Company received $748,169, net of related expenses pertaining to
broker-dealer commissions, legal, printing, travel and other, from the sale of
104,534 "Preferred Units". A Preferred Unit consists of one share of the
Company's Series A Preferred Stock and one $7.50 common stock purchase warrant.
The $7.50 stock purchase warrants (235,507 warrants outstanding at June 30,
1998) allow the holder to purchase one share of the Company's common stock for
$7.50 prior to the expiration date of December 31, 1998. The warrants will be
automatically converted into three-tenths of a share of the Company's common
stock if not exercised by that date.

The Series A Preferred Stock had cumulative annual dividends of $0.70 per share,
payable quarterly. On May 29, 1998, all of the Company's preferred stock was
converted to common stock under a mandatory exchange provision. The conversion
ratio was the average closing price of the Company's common stock during its
first 65 days of trading (which commenced February 24, 1998). The average
closing price of the Company's stock during this period was $2.837. Accordingly,
3.52485 shares of common stock were issued for each share of $10 Series A
Preferred Stock outstanding or a total of 2,065,438 common shares in exchange
for 590,623 preferred shares. Additionally, the Company paid the Series A
Preferred Stock dividends for the period from January 1, 1998 through May 28,
1998 with shares of common stock. The same exchange ratio used in the mandatory
conversion discussed above was used to determine the number of common shares
issued as payment of the dividend. Accordingly, a total of 58,886 shares was
issued as payment of $167,061 in Series A Preferred Stock dividends.

10. INCOME TAXES

For the year ended December 31, 1996 and the six months ended June 30, 1997,
taxable income and losses of Circle Creek V-VIII were reported on the tax
returns of the partners. Accordingly, income taxes have not been provided in the
accompanying consolidated financial statements applicable to losses of Circle
Creek V-VIII for 1996 and for the six months ended June 30, 1997 . The merger
described in Note 3 was treated as a taxable transaction by the partners with
the excess of the fair value of the related assets and liabilities over the tax
basis reported as taxable income to the partners.





                                      F-21
<PAGE>   61



                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


10. INCOME TAXES (CONTINUED)

The Company had net operating loss carryovers of approximately $5,100,000 at
June 30, 1998, to reduce future taxable income through 2013.

Components of the Company's deferred tax assets consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30
                                                            1998               1997
                                                      -------------------------------------
<S>                                                      <C>              <C>       
Deferred tax assets - noncurrent:
   Goodwill for income tax purposes                      $ 2,283,000       $ 2,440,000
   Net operating loss carryforward                         1,900,000           960,000
   Other                                                      42,000           206,000
                                                      -------------------------------------
                                                           4,225,000         3,606,000
Valuation allowance for deferred tax assets               (4,225,000)       (3,606,000)
                                                      -------------------------------------
Net deferred tax assets                                  $        --       $        --
                                                      =====================================
</TABLE>

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash and cash equivalents approximate their fair values
at June 30, 1998 and 1997. The carrying amount for investments in cooperatives
approximates their fair value at June 30, 1998 and 1997 based upon estimates of
recent sales of stock of the cooperative obtained by management.

Notes payable to banks and officers and directors were at variable rates which
approximated fair value at June 30, 1998 and 1997. The fair value of notes
payable-other and long-term debt, which was estimated using discounted cash flow
analysis based upon the Company's incremental borrowing rates for similar
borrowings arrangements, approximated their carrying amounts at June 30, 1998
and 1997.





                                      F-22
<PAGE>   62



                                LIST OF EXHIBITS

                               AQUAPRO CORPORATION

<TABLE>
<CAPTION>
                                                                          
                                                                EXHIBIT   
                   ITEM                                            NO.    
<S>                                                             <C>                 
AquaPro's Charter (1)                                              3.1 
                                                                       
AquaPro's Amended and Restated Charter (1)                         3.2 
                                                                       
AquaPro's Articles of Correction to Charter (1)                    3.3 
                                                                       
AquaPro's Articles of Amendment to Charter (1)                     3.4 
                                                                       
AquaPro's First Amended and Restated Bylaws (1)                    3.5 
                                                                       
Plan and Agreement of Consolidation for CCA I - IV (1)             3.6 
                                                                       
Plan and Agreement of Consolidation for CCA V - VIII (1)           3.7 
                                                                       
Articles of Merger of CCA I - IV and AquaPro Corporation (1)       3.8 
                                                                       
Amended Plan and Agreement of Merger of CCA V - VIII and               
AquaPro Corporation (2)                                            3.9 
                                                                       
Articles of Merger of CCA V - VIII and AquaPro Corporation (2)     3.10
                                                                       
Form of Common Stock Certificate (1)                               4.1 
                                                                       
Form of $10.50 Common Stock Warrant (1)                            4.2 
                                                                       
Form of $10.50 Warrant Agreement (1)                               4.3 
                                                                       
Form of 10.35% Debenture (1)                                       4.4 
                                                                       
Form of 10.35% Loan Note Agreement (1)                             4.5 
                                                                       
Form of Series A Preferred Stock Certificate (1)                   4.6 
                                                                       
Form of $7.50 Common Stock Warrant (1)                             4.7 
                                                                       
Form of $9.50 Stock Right (2)                                      4.8 
                                                                       
Form of $9.50 Stock Rights Agreement (2)                           4.9 
                                                                       
Exchange Form for Investor Notes (2)                               4.10
</TABLE>
<PAGE>   63


<TABLE>
<CAPTION>
<S>                                                                   <C>                   
Form of 10.35% Collateralized Convertible Note (2)                     4.11 
                                                                            
Form of Agency Agreement 10.35% Collateralized                              
Convertible Notes (2)                                                  4.12 
                                                                            
Form of Security Agreement 10.35% Collateralized                            
Convertible Notes (2)                                                  4.13 
                                                                            
Marketing Agreement with Delta Pride (1)                               10.1 
                                                                            
Agreements with Delta Western ("Indi Bell") (1)                        10.2 
                                                                            
Security Agreement, Guaranty, Note with Community Bank (1)             10.3 
                                                                            
Note, Deed of Trust, Security Agreement with Met Life (Balmoral) (1)   10.4 
                                                                            
Note and Deed of Trust with Met Life (Cypress Lake) (1)                10.5 
                                                                            
Employment Agreement with George S. Hastings, Jr.  (1)                 10.6 
                                                                            
Employment Agreement with Patricia G. Hastings (1)                     10.7 
                                                                            
Note and Deed of Trust with Sunburst Bank (CCA V) (2)                  10.8 
                                                                            
Note, Deed of Trust, Loan Agreements, and Finance Charge                    
Agreement with Metropolitan Life (CCA VI) (2)                          10.9 
                                                                            
Deed of Trust, Assumption Agreements, Modification and Loan                 
Agreements and other communications with Federal Land Bank                  
(CCA VII and VIII) (2)                                                 10.10
                                                                            
Four Agreements with Delta Western (Indi-Bell) (3)                     10.11
                                                                       
Commitment Letter, Guaranty, Note Agreement, Security Agreement 
with Community Bank Dated May 14, 1998                                 10.12

Promissory Note, Interest Rate Disclosure, Settlement Statements,
Deed of Trust and Security Agreement with Farm Credit Bank 
of Texas Dated June 9, 1998                                            10.13
</TABLE>

Financial Data Schedule                                                27.1
--------------------------------------------------------------------------------


(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-SB (File # 000-29258).

(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-KSB filed September 29, 1997 (File 
# 000-29258).

(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-QSB filed May 15, 1998 (File # 000-29258).
<PAGE>   64


                                   SIGNATURES



         Pursuant to the requirements of Section 13 or 15(d) 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, in Hermitage,
Tennessee on September 25, 1998.

                                     AQUAPRO CORPORATION



Dated: September 25, 1998            By:  /s/ George S. Hastings, Jr.
                                          --------------------------------------
                                          George S. Hastings, Jr.
                                          Chief Executive Officer, President and
                                          Chairman of the Board


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated below and on the date indicated.


By: /s/ George S. Hastings, Jr.                               September 25, 1998
--------------------------------
George S. Hastings, Jr., Chief Executive Officer, President
(Principal Executive Officer and Principal Accounting
Officer) and Chairman of the Board


By: /s/ Roger Daley                                           September 25, 1998
-------------------
Roger Daley, Director


By: /s/ Joseph F. Duncan                                      September 25, 1998
------------------------
Joseph F. Duncan, Sr., Director


By: /s/ Ken Ostebo                                            September 25, 1998
------------------
Ken Ostebo, Director