<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

         For the fiscal year ended June 30, 1999

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         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.)

                       1100 Highway 3, Sunflower, MS 38778
--------------------------------------------------------------------------------
              (Address of Principal executive offices (Zip Code)

         Issuer's telephone number (662) 569-3331
                                   ---------------

         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 $5,614,284
                                                                 ----------

         The aggregate market value of the voting stock held by non affiliates
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 1, 1999 was $5,196,030, based
on the last sale price of $1.06 as reported by the NASD Over the Counter
Bulletin Board.

         As of September 1, 1999, Registrant had outstanding 4,890,381 shares of
common stock, its only class of common equity outstanding.

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



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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             PAGE
<S>                                                                                                          <C>
PART I   .................................................................................................... -1-
         Item 1.  Description of Business.................................................................... -1-
         Item 2.  Description of Property....................................................................-18-
         Item 3.  Legal Proceedings..........................................................................-19-
         Item 4.  Submission of Matters to a Vote of Security Holders........................................-19-

PART II  ....................................................................................................-20-
         Item 5   Market for Common Equity and Related Stockholder Matters...................................-20-
         Item 6.  Management's Discussion and Analysis or Plan of Operation..................................-22-
         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.............................-35-
         Item 12. Certain Relationships and Related Transactions.............................................-36-
         Item 13. Exhibits and Reports on Form 8-K...........................................................-36-
         LIST OF EXHIBITS....................................................................................-37-
         FINANCIAL STATEMENTS................................................................................-41-
</TABLE>






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                                     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 2,126 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").

         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 during



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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 April 1999 to 1100 Highway
3, Sunflower, MS 38778. The Company's catfish farms and offices are located in
the north central area of Mississippi in the region known as the "Mississippi
Delta" or the "Delta." The investor relations is at 105 Bonnabrook Drive, Suite
202, Hermitage TN 37076.

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 survey data for the catfish farming industry for 1998. NASS reports
that catfish growers in the fifteen (15) selected states had total sales of $469
million during 1998, an increase of 10% over the $427 million sold in 1997. NASS
also reports that on January 1, 1999, water acres used for catfish production
totaled 175,220 acres, an increase of two percent from the previous year.

         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>
                    Year             Average Price Per Pound
                    ----             -----------------------
<S>                                  <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                      74.2
                    1999 (through 6/30)       74.2
</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 does not require collateral for payment. For the year ended June
30, 1999, three processors represented 51%, 34%, and 7%, respectively, of the
Company's net sales. For the year ended June 30, 1998, three processors
represented 52%, 31%, and 10%, respectively, of the Company's net sales. 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 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 stocking rates of 7,500 head per acre are cost-effective on a long-term
basis in the present industry environment. 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 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 eight growing months during a calendar year (March 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 feasible only when some unique circumstance exists, such as the
opportunity to sell fish at an exceptional


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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 fry and 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 fry and
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 fuel. 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 its
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 fuel 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. 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. However, based on its experience, Management believes
the "real life" conversion rate for catfish grown under commercial



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conditions is closer to 2.5:1 and management uses this rate in its inventory
control and monitoring procedures. The Company expects mortality of
approximately two to three percent of the fish pounds in the water during the
year. 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. However, by early
1999, decreases in soybean, corn and wheat prices had caused feed prices to
decrease to approximately $190 per ton. Feed prices have a direct relationship
with the Company's 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. The Delta
Western Cooperative 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
11,000 tons of feed from Delta Western at a price of $190 per ton for its
budgeted feed consumption for calendar 1999. This feed is still being used as of
September 1999.

         In addition, as part of the contract to purchase an additional farm
location in June 1999 (discussed in "Recent Developments" below), the Company
purchased 1,028 tons of prepaid feed at Fish-belt Feeds, Inc. at $198 per ton.
The Company has since purchased from Fish-Belt an additional 876 tons of feed at
an average cost of approximately $179 per ton. The feed purchased from Fish-Belt
was on a prepaid basis, whereas the Company draws the feed from Fish-Belt as
needed, and is still being used as of September 1999.

         Management expects to contract for its year 2000 feed needs at
approximately $190 to $200 per ton, although it has not yet done so as of the
end of September 1999.

         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 removing the fish from feed for a few days. 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



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minutes. The processing plants pay an agreed upon price per pound for the
delivered fish. As discussed above, the Company owns shares in the 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.

         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. Live fish inventory control and
estimation procedures have historically employed both quantitative and more
subjective, qualitative procedures. Current industry estimation practices employ
the simultaneous use of two general estimation techniques: physical inventory
sampling (counting techniques) and quantitative models. Typically, farmers will
use both techniques and cross-check the results to determine consistent
estimates.

         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 173 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 March 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



                                       -6-


<PAGE>   9



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.

         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 46 full-time persons and two
part-time persons.



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<PAGE>   10

RECENT DEVELOPMENTS

         PURCHASE OF ADDITIONAL FARM LOCATION. Effective June 30, 1999, the
Company closed on a contract to acquire real property, equipment, and catfish
stock from Kroeker Catfish Farms, Inc., Marvin L. Kroeker and Mary B. Kroeker
for a total price of $1,888,593. The price and terms of the purchase were
negotiated by the parties. The purchase included approximately 424 acres
containing 28 ponds aggregating approximately 320 water acres (thereby
increasing the Company's overall water acreage to 2,126), and related
improvements valued at $714,032 in the transaction. The purchase also included
certain equipment, including a bulldozer, various vehicles and various aeration
and seining-related equipment, valued at $545,950, and an inventory of feed and
live fish with a combined value of $628,611.

         The Company paid the entire purchase price with its promissory note
which is payable to the seller in annual payments of $200,000 of principal and
interest, commencing on April 30, 2000 and continuing annually thereafter until
the principal and accrued interest is fully paid. Interest during the first year
is 6% per annum, subject to adjustment for each following year on the last day
of April, on which date the interest for that year will equal 1 3/4% less than
the New York Consensus Prime Rate, as published in the Wall Street Journal for
the last business day of April of the year of the previous payment date. The
Company's note is secured by a vendor's lien on the personal property and a
first lien on the real property, equipment and all catfish produced on that
property. Pursuant to the terms of this encumbrance, as catfish cultivated on
the secured property are sold, the seller will release the lien so long as the
obligation is not in default.

         As part of the transaction, the seller also loaned the Company $200,000
at the closing for which the Company issued its note in that amount. The note
bears interest at 12.0% per annum and is payable in interest only monthly until
April 30, 2000, when all unpaid principal and accrued interest is due and
payable. The note is secured by a second lien on the lands, equipment and fish
purchased from the seller.

         The real property acquired is comprised of two separate parcels
located, respectively, in Leflore and Sunflower Counties, Mississippi. Each of
these parcels is located in close proximity to one of the Company's existing
farms and, management believes, will be immediately and efficiently integrated
into the Company's existing business operations. The Company will also integrate
the vehicles, equipment, feed and catfish acquired in the purchase into its
current farming operations. With the earthmoving equipment acquired, Management
believes the Company will be able to internally perform various pond
construction and maintenance operations for which it currently must use outside
contractors.

         COMMUNITY BANK CREDIT LINE. Effective April 26, 1999 the Company
obtained two revolving credit lines in an amount totaling $1,100,000 from
Community Bank, Indianola. The sole purpose of the first credit line of $700,000
is to provide financing for catfish feed purchases from Delta Western. The
second credit line of $400,000 is to be used for catfish production. Borrowings
under both credit lines bear interest at the rate of prime plus 165 basis points
(1.65%). The credit lines mature on March 15, 2000. The Company paid a
commitment fee of 1% ($11,000). Under the credit lines, the Company has an
operating deposit account at the bank into which the Company must deposit
proceeds from all inventory sales and accounts receivable. From these deposit
amounts, 50 percent are applied to the feed line of credit, and the remaining 50
percent are applied to the production line. The credit lines are represented by
the Company's promissory notes which are secured by a first lien on all
inventory, accounts receivable, certain stock in processing cooperatives owned
by the Company, a first lien on 553 acres of land, a second lien on 647 acres of
land, a blanket lien on all equipment, and an assignment of $1,000,000 of cash
value life insurance on two of the Company's officers. Mr. George S. Hastings
has personally guaranteed repayment of the credit lines.



                                       -8-


<PAGE>   11



         ASSESSMENTS BY DELTA PRIDE COOPERATIVE. Delta Pride Catfish, Inc.
("Delta Pride") has assessed the Company and its other members. The assessment
is made on a 'per pound' basis for fish processed by Delta Pride pursuant to
each member's delivery rights during the year ended June 30, 1999. The current
assessment is approximately 9.3 cents ($0.093) per pound processed, and payable
in monthly installments during the months of September 1999 through February
2000 with a final payment due in March 2000. The assessment is necessary to
cover operating and other financial losses incurred by Delta Pride during the
year ended June 30, 1999. The Company's share of Delta Pride's losses of
$339,838 ($0.093 per pound of fish sold to Delta Pride) has been recorded as a
charge to earnings during the year ended June 30, 1999 and reflected as a
liability in the Company's balance sheet as of June 30, 1999. 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. The Company is attempting to reduce its dependence upon Delta
Pride. Mr. Hastings has become a member of the Board of Directors of Delta Pride
in an attempt to help reduce its losses.

         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, 2000
while the charges increased its net loss for the year ended June 30, 1999.

         ADDITION OF OFFICERS. Mr. Randle Willoughby was named Vice-President of
Production in November 1998. Also, Mr. Mike W. Jackson was hired in October 1998
as Controller and Secretary to replace Eric P. Braschwitz, who had resigned in
September 1998.

         RELOCATION OF OFFICE. In April 1999, the Company moved its
administrative and accounting offices from Nashville, TN to Sunflower, MS.
Investor relations personnel remain in Nashville.

         EXECUTIVE COMPENSATION. The Company has outstanding seven-year options
to purchase stock at $.06875 to $3.25 per share that were issued from 1995 to
1999. As of June 30, 1999, the Company has outstanding 765,000 such options.

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.



                                       -9-


<PAGE>   12



         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 the 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 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



                                      -10-


<PAGE>   13



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 fluctuations 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 with Delta Western to
purchase 11,000 tons at a price of $190 per ton for its budgeted feed
consumption for calendar year 1999. This feed is still being used as of
September 1999. In addition, as part of the contract to purchase an additional
farm location in June 1999, the Company purchased 1,028 tons of prepaid feed at
Fish-belt Feeds, Inc. at $198 per ton. The Company has since purchased from
Fish-Belt an additional 876 tons of feed at an average cost of approximately
$179 per ton. The feed purchased from Fish-Belt was on a prepaid basis, whereas
the Company draws the feed from Fish-Belt as needed, and is still being used as
of September 1999.

         Management expects to contract for its year 2000 feed needs at
approximately $190 to $200 per ton, although it has not yet done so as of
September 1999. 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 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



                                      -11-


<PAGE>   14



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 feeding and maintaining the catfish population. Catfish industry groups are
currently conducting studies to determine the cause and treatment of
"off-flavor" conditions. The state of Mississippi has received permission for
calendar year to use the algecide diuron to control blue-green algae.

                  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



                                      -12-


<PAGE>   15



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 $0.093 per pound (all of
which 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, 1999.
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,
1999, June 30, 1998, the six month period ended June 30, 1997, and the year
ended December 31, 1996, the Company sold 51%, 52%, 90%, and 55%, respectively,
of its total catfish production to Delta Pride. The total assessment was
recorded as a $339,838 charge to earnings during the year ended June 30, 1999
and is expected to require payments of that amount during the months September
1999 through March 2000. Accordingly, this will significantly reduce the cash
flow of the Company during the next year. The assessment totaled $262,112
($0.079 per pound) for the fiscal year ended June 30, 1998, of which $205,556
($0.05) was paid in cash during the year ended June 30, 1999.

         Moreover, although Delta Pride has instituted significant measures,
including a change in executive management in 1997 and 1998, 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. Delta Pride
recently decided that, effective with the fiscal year ending June 30, 2000, it
will no longer assess its member stockholders for losses incurred. In the event
that Delta Pride continues to incur losses, the absence of such assessments,
while not directly impacting the Company's cash flows, may substantially further
impair the value of the Company's investment in Delta Pride. Also, should Delta
Pride continue to sustain significant losses, 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. 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. Additionally, none of the
other farms incur the costs of being a publicly-held 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



                                      -13-


<PAGE>   16



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 use 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 in the catfish and poultry feed manufactured and distributed by one
producer. The FDA proposed to immediately 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.



                                      -14-


<PAGE>   17



         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, 1999 of $1,543,185. The Company had an accumulated deficit of
$8,897,071 as of June 30, 1999. Also, none of the individual Circle Creek
Partnerships whose farming operations the Company has acquired has 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 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, 1999, the Company acquired the property, inventory and equipment of an
existing farm consisting of approximately 320 water acres. Also, 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 Company believed the acquisitions 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 $1,543,185 for the year
ended June 30, 1999. 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.



                                      -15-


<PAGE>   18




                  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 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.

                  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.



                                      -16-


<PAGE>   19



         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.

                  Risks of Balloon Payments. Generally, the Company's debt
obligations require balloon payments at the end of their term. The Company's
credit lines with Community Bank are due in March 2000, and another note used to
finance the purchase of the Company's Hidden Lakes location is due in May 2000 .
Other significant debt is due between 2000 and 2004. 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, The Company will
be able to obtain replacement financing for any of these obligations upon their
maturity.



                                      -17-


<PAGE>   20



ITEM 2. DESCRIPTION OF PROPERTY

         REAL PROPERTY. The Company owns nine non-contiguous farms having a
total of 173 ponds comprising 2,126 water acres situated on a total of 2,841
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, 1999
    ---------                 -------------      --------          -------------
<S>                           <C>                <C>             <C>
Circle Creek                    275 (210)           15           Pledged under two
(Sunflower County, MS)                                           lines of credit(1)

Panther Run                     278 (211)           15           Pledged under two
(LeFlore County, MS)                                             lines of credit(1)

Balmoral                        318 (234)           21           Pledged under the
(Sunflower County, MS)                                         Farm Bank of Texas(2)

Cypress Lake                    254 (191)           13           Pledged under the
(LeFlore County, MS)                                           Farm Bank of Texas(2)

Hidden Lakes                    668 (443)           46              $997,140(3)
(Bolivar County, MS)

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

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

Niagara                         242 (188)           16        Pledged under the
(Bolivar County, MS)                                          Farm Bank of Texas(2)

Kroeker Farm                    424 (320)           28             $1,888,593(4)
(Sunflower & Leflore
County, MS)
</TABLE>

----------------------------
(1)      Two notes payable to a bank under $1,100,000 revolving lines of credit
         used to fund purchases of feed and production of fish; combined
         outstanding balance of $890,052 at June 30, 1999. Interest accrues at
         the prime rate plus 1.65% and the arrangement expires March 15, 2000.
         Interest and principal are paid with from all collections of accounts
         receivable.

(2)      Note payable to Farm Credit Bank of Texas with annual principal and
         interest payments of approximately $142,000 due beginning April 1, 1999
         through 2018; interest accrues at a variable rate at the bank's
         discretion but subject to a number of factors (7.65% at June 30, 1999).

(3)      Note payable to a bank monthly principal and interest payments of
         $11,754 through March 2000 and a final payment of approximately
         $966,000 due April 2000 with interest at prime plus 2 1/2% (10.25% at
         June 30, 1999).

(4)      Seller-financed note payable. Annual principal and interest payments of
         $200,000 due April 30, 2000 through April 2014. Interest accrues at 6%
         through the first payment and thereafter at a rate of prime less 1.75%.



                                      -18-


<PAGE>   21




         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 Catfish, Inc. ("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, 1999.



                                      -19-


<PAGE>   22



                                     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, $3.25 and $2.00 for the period from April 1, 1998
through June 30, 1998 and $2.00 and $0.38 for the period from July 1, 1998
through June 1, 1999.

         STOCKHOLDERS: As of September 16, 1999, there were approximately 1,700
stockholders of record of the 4,890,381 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
dividend.

         During the fiscal year ended June 30, 1999, the Company issued to its
directors as compensation, options to purchase a total of 36,000 shares of
common stock. These options had exercise prices ranging from $0.6875 to $1.00
per share, the bid price of the stock on the date of grant. These options have a
term of seven years from the date of grant. During the year ended June 30, 1998
and the six month period ended June 30, 1997, the Company issued seven year
stock options to officers for 232,000 and 51,000, 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. During the
Company's fiscal year ended June 30, 1999, the Company issued to its executive
officers options to purchase a total of 305,000 shares of stock at prices
ranging from $0.6875 to $1.875 per share, the bid price of the stock on the date
of grant. These options have a term of seven years from the date of grant. Also
during the period, the Company granted its executive officers a total of 13,000
shares of common stock. On the dates of issuance, these shares had market values
ranging from $0.6875 to $1.875 per share. 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.

         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. On May 10, 1999, the Company issued to an unrelated party in
consideration for consulting services, warrants for the purchase of 22,200
shares at a price of $0.625. These warrants have a term of six years from the
date of grant. These securities were issued upon reliance on the exemption under
Section 4(2) of the 1933 Act.

         Effective September 18, 1996, the Company issued 218,994 shares
pursuant to a one-for-five stock dividend declared by the Board.



                                      -20-


<PAGE>   23



         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.

         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 convertible 7.15% Notes to the
approximately 340 Limited Partners of four affiliated Tennessee limited
partnerships in connection with their merger with the Company. 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 udpaid dividends (see
notes 5 and 7 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 his note to 7,930 shares of the Company's common
stock.

         During August and September 1998, four individual investors loaned the
Company a total of $155,000 to purchase catfish feed. The Company issued
$155,000 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.

         On December 31, 1998, holders of the Company's outstanding warrants for
the purchase of 235,296 shares exchanged their warrants in accordance with their
terms for a total of 70,589 shares of common stock.



                                      -21-


<PAGE>   24



         The Company relied on the exemption from registration under Section
4(2) 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.

         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. Circle Creek I - IV were consolidated
with AquaPro as of December 31, 1995 and Circle Creek V - VIII were consolidated
as of June 30, 1997. These consolidations were accounted for in a manner similar
to a pooling of interests because of common control. AquaPro owns and manages
catfish aquaculture farms with the purpose of raising and selling catfish to
food processors. In 1999, the Company further expanded by purchasing the
property, equipment and live inventory of an additional farm.

         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 AquaPro 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 line, 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.

RESULTS OF OPERATIONS YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30,
1998

         REVENUE. Net sales during the year ended June 30, 1999 totaled
$5,614,284 compared to $5,041,463 for the year ended June 30, 1998. Volume
increased 746,085 pounds to 7,672,085 pounds of fish sold during the year ended
June 30, 1999 compared to 6,926,000 pounds sold during the year ended June 30,
1998.



                                      -22-


<PAGE>   25



Accordingly, the increase in volume represented 10.8% of the 11.4% increase in
net sales. The remainder of the increase in sales was due a higher average
selling price received from the Company's major customers. The average price of
fish sold was 73.2 cents per pound during the year ended June 30, 1999 compared
to 72.8 cents per pound during the year period ended June 30, 1998. A shortage
in fish supply during the spring of 1999 caused an increase in the average
price. Prices decreased from July 1998 through February 1999, at which point
they began to rise until reaching 80.0 cents per pound as of the Company's
fiscal year end in June 1999. The Company cannot predict the future trend of
fish prices.*

         Management expects the assets of the additional farm location purchased
in June 1999 to increase the Company's volume of sales.* Based on the Company's
average stocking rates, management expects the additional ponds to increase
sales volume by approximately 10 to 15 percent annually.* Due to the grow-out
time required for product, the full potential for increase in sales volume from
the additional location will probably not be realized until after the fiscal
year ending June 30, 2000.*

         Sales for the first fiscal quarter ending September 30, 1999 are
expected to total approximately 2,500,000 pounds which compares to 2,245,820
pounds sold during the quarter ended September 30, 1998.* Management expects to
sell approximately 8.9 million pounds of fish during the year ending June 30,
2000 which would exceed the 7.7 million pounds sold during the year ended June
30, 1999.*

         COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold was
$4,422,616, or 57.6 cents per pound sold, for the year ended June 30, 1999
compared to $4,316,032, or 62.3 cents per pound sold, for the year ended June
30, 1998. Gross margin from fish sales was 21.2% during the year ended June 30,
1999 compared to 14.4% for the year ended June 30, 1998. 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. The largest
component of cost of products sold is feed, which substantially decreased in
price from fiscal 1998 to 1999. The Company's average cost of feed was
approximately $220 per ton in the fiscal year ended June 30, 1999, compared to
an approximate cost of $245 in the fiscal year ended June 30, 1998. Feed costs
are largely dependent on crop yields, which can vary greatly from year to year,
and cannot be predicted with certainty.* 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, 2000 due to lower feed costs and higher
inventory turnover.* However, there is no assurance that increases in other
charges, such as utilities, fuel and mortality, will not offset these lower
costs of feed.*

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses during the year ended June 30, 1999 were $1,633,693
compared to $1,652,570 during the year ended June 30, 1998. Accordingly,
selling, general and administrative expenses were 21.3 cents per pound sold for
the year ended June 30, 1999 compared to 23.9 cents per pound sold for the year
ended June 30, 1998. While selling, general and administrative expenses
decreased only slightly in terms of actual dollars, sales volume increased
enough to decrease the expenses on a per-pound basis by over two cents.

         EQUITY IN LOSSES IN INVESTMENT IN COOPERATIVE. During the year ended
June 30, 1999, the Company recorded a net charge of $339,838 for its share of
Delta Pride's losses. This compared to $260,112 for the year ended June 30,
1998. For the year ending June 30, 2000, Delta Pride has announced that it will
not charge its shareholders for any loss incurred in that fiscal year. In the
event that Delta Pride continues to incur losses, the absence of such
assessments, while not directly impacting the Company's cash flows, may
substantially further impair the value of the Company's investment in Delta
Pride. 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.*



                                      -23-


<PAGE>   26



         IMPAIRMENT LOSS ON INVESTMENT IN COOPERATIVE. Based upon Delta Pride's
recurring losses, management determined that there was an other-than-temporary
impairment of the Company's investment in Delta Pride at June 30, 1999.
Accordingly, the carrying amount of the Company's investment in Delta Pride was
adjusted to an estimated fair value obtained by management resulting in an
impairment charge of $628,000 in fiscal 1999.

         INTEREST EXPENSE. Interest expense was $493,172 for the year ended June
30, 1999 compared to $460,393 for the year ended June 30, 1998. Both long-term
debt levels and average borrowings on the Company's lines of credit increased
during the year ended June 30, 1999 compared to the year ended June 30, 1998.
Management anticipates higher levels of debt and interest expense during the
year ending June 30, 2000 due in part to the June 1999 acquisition of additional
property (see Liquidity and Capital Resources discussion below).*

         INCOME TAXES AS OF JUNE 30, 1999. The Company has net operating loss
carry-forwards of approximately $8,800,000, which expire at various dates
through 2019, available to reduce taxable income.

         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.*

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1999, the Company had a current ratio of 1.9 to 1,
compared to 4.8 to 1 at June 30, 1998. Working capital at June 30, 1999 totaled
$3,159,751 compared to $4,776,156 at June 30, 1998. Cash used in operating
activities totaled $117,348 for the year ended June 30, 1999 which compared to
$1,256,140 for the year ended June 30, 1998.

         The Company's net losses totaled $1,543,185 and $1,536,161 for the
years ended June 30, 1999 and June 30, 1998, respectively. The Company funded
these losses and uses of cash for operating activities through the sale of
preferred stock and from additional long-term borrowings. The Company realized
net proceeds of $1,763,286 from the sale of preferred stock during the year
ended June 30, 1998. Proceeds received from long-term debt were $116,240 and
$1,953,461 during the years ended June 30, 1999 and June 30, 1998.

         During the years ended June 30, 1999 and June 30, 1998, the Company
purchased $466,078 and $1,052,597, respectively, in property and equipment.
These expenditures for property and equipment were primarily funded by the net
proceeds from preferred stock and long-term debt discussed above. During the
year ended June 30, 1999, the Company purchased an additional farm location and
certain equipment for $1,259,982, which was financed by a seller note payable.
Also in the year ended June 30, 1999, the Company spent approximately $278,000
in refurbishing one of its existing farms to increase production capacity.
Management believes that in order to maintain productive catfish farming
operations over the long-term, approximately 10 percent of ponds need to be
reworked each year and that



                                      -24-


<PAGE>   27
capital will be required to maintain high levels of production. Approximately
$188,000 capital expenditures were primarily for trucks and other farm related
equipment. 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 approximately $280,000. 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 in fiscal 1998 was primarily for trucks and
other farm related equipment.

        Effective April 26, 1999 the Company obtained two revolving credit lines
in an amount totaling $1,100,000 from Community Bank in Indianola, Mississippi
(the "Bank"). The Company intends to fund its operations primarily through fish
sales, working capital, and its $1,100,000 feed and production lines of credit
with the Bank. The purpose of the first credit line of $700,000 is to provide
financing for catfish feed purchases from Delta Western. The second credit line
of $400,000 is used for catfish production. Borrowings under both credit lines
bear interest at prime plus 165 basis points (1.65%). The credit lines mature on
March 15, 2000. The Company paid a commitment fee of 1% ($11,000) to obtain
these credit lines. Under the lines of credit, the Company has an account with
the Bank into which the Company must deposit proceeds from all inventory sales
and accounts receivable. From these deposit amounts, 50 percent are applied to
the feed line of credit, and the remaining 50 percent are applied to the
production line. The credit line is represented by the Company's promissory note
which is secured by a first lien on all inventory, accounts receivable, and
certain stock in processing cooperatives owned by the Company, a first lien on
553 acres of land, a second lien on 647 acres of land, a blanket lien on all
equipment, and an assignment of $1,000,000 of cash value life insurance on two
of the Company's officers. Mr. George S. Hastings, President, has also
personally guaranteed repayment of the credit line.

         The Company has a balloon note payable with a bank that matures in
April 2000, at which time the principal balance will be approximately $966,000.
Management will soon begin negotiations to refinance this note, which was
obtained to finance the purchase of the Company's Hidden Lakes farm. The Company
spent approximately $200,000 in the year ended June 30, 1999 to refurbish the
real property on this farm, which management believes has enhanced its
production capacity and thereby its appraised value.

         The Company had non cash financing transactions during the year ended
June 30, 1999. As discussed above, in June 1999 the Company purchased an
additional farm location equipment and certain fish inventory for $1,888,593.
The amount of this purchase was financed by a seller note payable. Also, on
December 31, 1998, the Company converted preferred stock purchase warrants into
common shares at a ratio of 0.3 shares for each warrant share which had not been
exercised. These warrants pertained to preferred stock issued September 10, 1996
through June 30, 1997. Accordingly, 70,589 shares of common stock were issued as
of the expiration date of December 31, 1998. The market value of the shares as
of this date was $48,350.

         Through the middle of September 1999, the Company has continued to feed
the fish at normal levels through its peak feeding season and as a result has
experienced a cash flow shortage. The Company is current on all of its notes
payable and long-term debt, payroll, and payroll tax obligations. However,
unsecured vendor accounts payable of approximately $200,000 relating to
purchases in July and August 1999 are past due. As discussed above, the
Company's feed and production credit lines require that 50 percent of all
collections of accounts receivable be applied to the outstanding balance of each
until paid. The Company has reached the credit limit on its $400,000 production
line of credit and has available borrowings its feed line of credit of
approximately of $100,000. The Company anticipates



                                      -25-


<PAGE>   28



it will take approximately two to three months to become current with its
unsecured vendor accounts payable.

         The Company has obtained a $350,000 unsecured credit facility from a
creditor that manages short-term loans to businesses. Loan proceeds are paid
directly to the Company's vendors, and the Company repays proceeds and loan fees
of 2 1/2% to the creditor over a period of six months. Borrowings bear interest
at 12% per annum. During May through August 1999, the Company utilized the
revolver from this creditor for purposes of land improvements, stocking of
ponds, and purchases of feed in addition to those funded by the Company's bank
line of credit. As of June 30, 1999, the Company's outstanding balance with the
short-term creditor was $226,000 and approximately $270,000 in the middle of
September 1999.

         The Company has also arranged to borrow approximately $100,000 from an
individual investor in September 1999 to purchase feed and fund other operating
costs. As the feeding season normally ends in October, the requirements for cash
decrease during the winter months. Sales of catfish are traditionally the
highest during the late fall and winter. Furthermore, when the Bank lines of
credit are paid off, the Company will have cash flow from all of its accounts
receivables.

         Notwithstanding the above, management believes that additional capital
will be necessary to support the Company's growth. Management believes that
current cash on hand combined with cash proceeds from sales of fish will be
adequate to fund its planned existing operations through June 30, 2000. Recent
equipment purchases will allow the Company to improve its own ponds, thereby
reducing the need to hire outside vendors to make such improvements. However,
additional capital will be needed to finance any future acquisitions. Moreover,
the Company may require additional capital for operations and capital
expenditures, 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.

         YEAR 2000. 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 conducted a review of its internal computer systems to
determine the extent of any Year 2000 problem including potential problems with
the Company's computer system relying on computer chips or software that use
dates stored as its first two digits (e.g., 99) versus four digits (e.g., 1999).
The review addressed both information technology (IT) and non-IT systems. Non-IT
systems typically include embedded technology such as micro controllers.

         Based on discussions with the vendors of both its hardware and software
components, the Company determined during the year ended June 30, 1999 that
certain facets of the system required further upgrading to become compliant with
Year 2000. In April, the Company moved its accounting and information systems
from Tennessee to Mississippi. As part of the move, the Company engaged an
outside firm to handle these upgrades along with the dismantling of the system
at the old location and setting up in Mississippi. The Company believes that its
hardware and software systems are now compliant with Year 2000. Any Year 2000



                                      -26-


<PAGE>   29



problems that may occur are not expected to have a material adverse effect on
the Company's future operating results or financial condition. The cost of the
move and the verification was approximately $6,000.

         In regard to the Non-IT systems and micro controllers, the Company has
determined that the type of equipment employed on its catfish farms do not
utilize micro controllers or do not utilize micro controllers that are
date-sensitive. Modern farm trucks, however, do utilize computers to control
ignition and other functions to cause the engine to operate. Discussions with
the vendors of these vehicles indicated that those functions are not
date-sensitive.

         The Company's major suppliers or customers face the same Year 2000
issues. If they are not Year 2000 compliant, some disruption of the Company's
operations, sales or collections could occur.

         The Company has made inquiries to its feed vendor and major customers.
In each of these cases, the response has been that the respective company views
the Year 2000 issues with all seriousness, is working on the issue internally,
and expects to be fully prepared well before the end of 1999. Those companies
have agreed to update their progress with the Company to assure of their
compliance or so that the Company can modify its own plans accordingly.

         The Company's major supplier, comprising approximately half of the
Company's expense budget for a year is Delta Western. However, feeding normally
begins in late February of each year, and, accordingly, the Company does not
anticipate a Year 2000 problem associated with its feed vendors.

         The Company's credit facilities ($1,100,000) are through Community
Bank. As the proceeds from sales of catfish are received, Community withholds
funds on sales to apply against the outstanding balances of the lines of credit.
Community Bank officials have addressed their significant Year 2000 issues and
have indicated that the bank is compliant with Year 2000.

         The Company's major customers are catfish processors. In every case,
management's discussions have revealed that the processors intend to be ready
for Year 2000. The processors have hired outside consultants that are reviewing
both the micro controllers in the plant processing equipment and the office
information systems. Their contingency plans would include reverting to a manual
recording of fish deliveries, sales of processed fish to their customers,
billing, collections, and payment to fish farmers. This could result in the
processors paying less for fish or increasing market prices thereby reducing
demand and sales of catfish. This would cause a decrease in sales dollars and/or
cause the Company to sell fewer pounds of fish.

         The Company's worst case Year 2000 scenarios would include the
processors' or suppliers' information technology failure. Any switch to manual
record keeping would require the Company to hire additional personnel which
could add between one and two cents ($ .01 - .02) per pound sold. Management
does not believe that sales to processors and the mechanical day-to-day
operations would cease. It should be noted that the time of the year which Year
2000 problems could occur is during a period of slow activity on a catfish farm.
The winter is normally a time to maintain equipment, fine tune budgets for the
coming feeding season and finalize credit lines. AquaPro has attempted to
diversify its customer base to limit its exposure to customers who do not
effectively deal with their Year 2000 issues.

         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. Redbow Industries
(formerly Flohr



                                      -27-


<PAGE>   30



Metal Fabricators Inc.), Teknotherm Inc., Ocean's Edge Inc., and AquaPro have
combined their respective talents to form the Strategic Alliance (the
"Alliance").

         The Alliance offers catfish processors the ability to reclaim a
significant portion of the catfish offal currently being sold to rendering
plants at one-half cent per pound ($.005/lb.) into high quality blocked minced
fish protein with a global market supporting forty to seventy cents per pound
($.40-.70/lb.) The Alliance offers to processors a turnkey system to design,
install, coordinate operations, and market offal recovery products within 90 to
120 days of the agreement with the catfish processor.

         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 AquaPro in which
the processor provides the offal and AquaPro's alliance provides the expertise
to capture the minced product for sale.

         As of September 1999, two processors, Delta Pride and Farmland
Industries, are in negotiations with the Company as a representative of the
Alliance. Delta Pride and the Company are deferring a decision on the
implementation of the system. Farmland Industries has completed its due
diligence and is in the process of determining whether or not to proceed with
the Company.

         Redbow Industries (formerly Flohr Metal Fabricators Inc.), is a
57-year-old company in Seattle, Washington. Its key employees 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.



                                      -28-


<PAGE>   31



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 52                    Chief Executive Officer
                          President

Randle Willoughby         Vice-President of                      1997                        --
Age 35                    Production

Mike W. Jackson           Controller & Secretary                 1998                        --
Age 41

Kenneth Ostebo*           Director                                --                        1998
Age 42

Roger Daley*              Director                                --                        1996
Age 76

Joseph Duncan, Sr.*       Director                                --                        1995
Age 72
</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. received his Bachelor of Science Degree in
Finance with a minor in Accounting from the University of Tennessee in 1973 and
a Doctor of Jurisprudence Degree from the University of Tennessee College of Law
in 1975. He has been a member of the State Bar of Tennessee and the United
States Tax Court since 1976. Mr. Hastings has been involved in the catfish
aquacultural industry since 1986 and has substantial experience in all levels of
catfish farm management. Mr. Hastings is also on the board of directors at Delta
Pride, and is actively involved with an alliance of companies seeking to bring
the process of recovering high quality minced catfish protein to the industry.
In the spring of 1999, he arranged the purchase of a ninth farm by the Company.



                                      -30-


<PAGE>   33



         Randle Willoughby has been involved in the management of catfish
farming since 1983. Until 1992, Mr. Willoughby was with a 4,000 acre operation
where he began as an oxygen checker and was eventually promoted to overall
general manager. In this position, Mr. Willoughby worked directly with the
Production Credit Association in obtaining a satisfiable inventory analysis.
From 1992 until 1996, he was general manager a 500 acre farm where he raised the
farm's average sales from 3,500 to 6,200 pounds of product per acre. This
represented a 75% increase in sales while costs increased only 50%. Mr.
Willoughby joined the Company in 1997, and has assembled management team with
over 68 years of combined experience in aquacultural management. He recently
initiated a performance bonus program giving the farm management team the
incentive to strive towards improved production.

         Mike W. Jackson joined the Company in October 1998. Previously, Mr.
Jackson served as controller of a locally owned distributor of petroleum
products in the Mississippi Delta. In this position, he was responsible for the
administration of all accounting and financial functions. Prior to this, Mr.
Jackson was an accountant from 1990 until 1996 in the Retail Accounting
department at the Indianola, MS division of SuperValu, Inc., where he performed
accounting services for independently owned retail stores that were serviced by
SuperValu. He has been a certified public accountant since 1989. Mr. Jackson
received his BBA degree in Accounting from Delta State University in Cleveland,
MS in 1986.

         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 and is also an investor in Circle Creek V.

         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



                                      -31-


<PAGE>   34



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.

         Based upon a review on the Forms 4 and 5 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.

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.            1999     $ 87,000     $     0       $ 8,391        303,000
Chief Executive Officer            1998       70,558      15,616       $19,500        223,000
                                   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 fiscal year.

(2)      Shares issuable on April 1 through 1998, quarterly beginning July 1,
         1998. Stock is 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. Shares valued
         at a weighted average of $1.08 for 1999.

(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 options 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).
         The options issued in the year ended June 30, 1999 are also exercisable
         for 7-year periods commencing on July 1, 1998 at $1.875 per common
         share (42,000 shares), October 1, 1998 at $0.75 per common share
         (87,000 shares), January 1, 1999 at $0.6875 per common share (87,000
         shares), and April 1, 1999 at $1.00 per common share (87,000 shares).
         See discussion below.


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


                                      -32-


<PAGE>   35



         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 1999 fiscal year.

                        OPTION/WARRANT GRANTS IN 1999(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.          303,000                        88.9%                 $0.6875 to $1.875      3/31/2006
</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, 1999.

                    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.                  679,000/None                        $277,313/None(1)
</TABLE>

----------
         (1) Options in-the-money are based on the value of the Company's Common
         Stock which, as of September 13, 1999, is $1.0625 per Common Share
         based on the closing price reported on the NASD Bulletin Board.
----------

         EMPLOYMENT CONTRACTS. The Company has a written employment agreement
with Mr. George Hastings. Pursuant to this agreement, he receives a base salary
of $87,000 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.

         EXECUTIVE COMPENSATION. The Company had 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.

         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



                                      -33-


<PAGE>   36



total outstanding may be issued each year. Also, under his employment contract,
Mr. Hastings is awarded stock options in the amount stated entitling the holder
to purchase shares at a price equal to the fair market value at the date which
the options are issued. 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, as of June 30, 1998, the Company annually
awarded 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. In August 1998, the Board voted to award
each Director (including Directors who are officers of the Company) options for
the purchase of 3,000 Common Shares each quarter at an option price equal to the
closing stock price on the first day following each calendar quarter.

         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.

         DIRECTOR LIABILITY. The Tennessee Business Corporation Act permits a
Tennessee corporation to limit or eliminate a director's liability to the
corporation or its shareholders for monetary damages for certain breaches of
fiduciary duty. The statute provides, however, that a Tennessee corporation may
not eliminate or limit liability for breaches of the duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of the law, the unlawful purchase or redemption of stock, or the
payment of unlawful dividends. Although the Tennessee courts have not tested the
validity and scope of that statutory provision, the provision clearly applies
only to breaches of duty by directors as directors and not in their capacity as
officers, employees or agents of the corporation.



                                      -34-


<PAGE>   37



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of June 30, 1999,
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.                                           912,322(2)             (16.13%)
President, Chief Executive Officer and Chairman of the Board

Randle Willoughby                                                  19,088(6)              (0.34%)
Vice-President of Production

Mike Jackson                                                        3,000(5)              (0.05%)
Controller & Secretary

Kenneth Ostebo                                                      9,000(7)              (0.15%)
Director

Roger Daley                                                        73,373(3)              (1.30%)
Director

Joseph F. Duncan, Sr.                                              44,933(4)              (0.79%)
Director

All officers and directors as a group (five persons)            1,061,716                (18.77%)
</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 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 4,890,481 as of June
         30, 1998. The total number of options outstanding is 765,000 as of such
         date. Accordingly, the total number of outstanding Common Shares
         considered outstanding for purposes of computing the above percentages
         is 5,655,481.

(2)      Includes the following Common Shares, warrants and options held of
         record by Mr. Hastings: 233,322 Common Shares and 679,000 Common Shares
         issuable upon the exercise of 658,000 Compensatory Options and 21,000
         Director Options.

(3)      Includes 55,373 Common Shares held of record and 18,000 Common Shares
         issuable upon the exercise of Director Options.

(4)      Includes 23,933 Common Shares held of record and 21,000 Common Shares
         issuable upon the exercise of Director Options.


                                      -35-


<PAGE>   38



(5)      Includes 1,000 Common Shares held of record and 2,000 Common Shares
         issuable upon the exercise of Compensatory Options.

(6)      Includes 4,088 Common Shares held of record and 15,000 Common Shares
         issuable upon the exercise of Compensatory Options.

(7)      9,000 Common Shares issuable upon the exercise of Director Options.

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None

                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

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

         One Report on Form 8-K was filed by the Company during the last quarter
         covered by this Report. This report, dated June 30, 1999 addressed the
         acquisition by the Company of certain real property, equipment and fish
         inventory.




                                      -36-


<PAGE>   39



                                LIST OF EXHIBITS
                               AQUAPRO CORPORATION

<TABLE>
<CAPTION>
                    ITEM                                                                     EXHIBIT 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

Form of 10.35% Collateralized Convertible Note (2)                                               4.11
</TABLE>



                                      -37-


<PAGE>   40



<TABLE>
<S>                                                                                           <C>
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 (4)                                             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 (4)                                                                  10.13

Contract of Purchase and Sale (5)                                                                10.1

Supplemental Agreement dated June 29, 1999 (5)                                                   10.2

Commitment Letter & Note Agreements with Community
Bank dated April 26, 1999                                                                        10.14

Financial Data Schedule                                                                          27

-------------------------------------------------------------------------------------------------------------------
</TABLE>



                                      -38-


<PAGE>   41



(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).

(4) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-KSB filed September 25, 1998 (File #
000-29258).

(5) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K filed June 29, 1999 (File # 000-29258).





                                      -39-


<PAGE>   42


                               AquaPro Corporation

                        Consolidated Financial Statements


                       Years ended June 30, 1999 and 1998


                                    CONTENTS

<TABLE>
<S>                                                                                <C>
Report of Independent Auditors.....................................................1

Audited Consolidated Financial Statements

Consolidated Balance Sheets........................................................2
Consolidated Statements of Operations..............................................4
Consolidated Statements of Changes in Stockholders' Equity.........................5
Consolidated Statements of Cash Flows..............................................7
Notes to Consolidated Financial Statements.........................................8
</TABLE>


<PAGE>   43



                         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, 1999 and 1998 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for the years then ended 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
August 26, 1999

                                              /s/ ERNST & YOUNG LLP

                                                                               1




<PAGE>   44

                               AquaPro Corporation

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                      JUNE 30
                                                                               1999              1998
                                                                           ------------------------------

<S>                                                                        <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                $    86,264      $   112,631
   Trade accounts receivable                                                    243,136          349,148
   Other receivables                                                            104,000           27,998
   Live fish inventories                                                      6,264,923        5,533,276
   Prepaid expenses                                                              21,038           21,303
                                                                           ------------------------------
Total current assets                                                          6,719,361        6,044,356

Property, buildings and equipment:
   Land                                                                       2,005,829        1,783,425
   Ponds and improvements                                                     4,012,719        3,263,405
   Buildings                                                                    468,330          458,014
   Machinery and equipment                                                    3,580,312        2,901,160
                                                                           ------------------------------
                                                                             10,067,190        8,406,004

   Accumulated depreciation                                                   3,032,124        2,402,841
                                                                           ------------------------------
                                                                              7,035,066        6,003,163

Investments in cooperatives                                                     411,456          833,894
Other assets                                                                    170,205          166,779






                                                                           ------------------------------
Total assets                                                                $14,336,088      $13,048,192
                                                                           ================================
</TABLE>



                                                                               2
<PAGE>   45

<TABLE>
<CAPTION>
                                                                                      JUNE 30
                                                                               1999              1998
                                                                           ------------------------------

<S>                                                                        <C>               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable:
     Bank                                                                  $    890,052      $    586,459
     Others                                                                     498,441            13,505
   Accounts payable                                                             548,768           195,318
   Accrued expenses                                                              99,002            46,344
   Current maturities of long-term debt                                       1,523,347           426,574
                                                                           ------------------------------
Total current liabilities                                                     3,559,610         1,268,200

Long-term debt, less current maturities                                       4,334,081         3,829,981

Stockholders' equity:
   Series A Preferred Stock, no par value - authorized 900,000 shares,
       cumulative, convertible, 590,623
       issued, none outstanding                                                      --                --
   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 4,890,381 and 4,818,354
     shares at June 30, 1999 and 1998                                        15,371,912        15,405,803
   Unearned compensation                                                        (32,444)         (101,906)
   Retained earnings (deficit)                                               (8,897,071)       (7,353,886)
                                                                           ------------------------------
Total stockholders' equity                                                    6,442,397         7,950,011
                                                                           ------------------------------
Total liabilities and stockholders' equity                                 $ 14,336,088      $ 13,048,192
                                                                           ==============================
</TABLE>



See accompanying notes.

                                                                               3

<PAGE>   46

                               AquaPro Corporation

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED JUNE 30
                                                                                1999              1998
                                                                           ------------------------------
<S>                                                                        <C>               <C>
Net sales                                                                  $  5,614,284      $  5,041,463
Cost of products sold                                                         4,422,616         4,316,032
                                                                           ------------------------------
Gross profit                                                                  1,191,668           725,431
Selling, general and administrative                                           1,633,693         1,652,570
                                                                           ------------------------------
Operating loss                                                                 (442,025)         (927,139)

Other income (expense):

   Equity in losses on investments in cooperatives                             (339,838)         (260,112)
   Impairment loss on investment in cooperative                                (628,000)               --
   Interest expense                                                            (493,172)         (460,393)
   Patronage dividends                                                          305,701           130,724
   Other, net                                                                    54,149           (19,241)
                                                                           ------------------------------
                                                                             (1,101,160)         (609,022)
                                                                           ------------------------------
Net loss                                                                   $ (1,543,185)     $ (1,536,161)
                                                                           ==============================
Net loss attributable to common stockholders                               $ (1,543,185)     $ (1,869,126)
                                                                           ==============================
Basic and diluted net loss per common share                                $       (.32)     $       (.65)
                                                                           ==============================
Weighted average basic and diluted
   common shares outstanding                                                  4,821,232         2,870,743
                                                                           ==============================
</TABLE>


See accompanying notes.

                                                                               4



<PAGE>   47

                               AquaPro Corporation

           Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                     Common Stock
                                                                Shares          Amount
                                                             ----------------------------
<S>                                                           <C>            <C>
Balance at July 1, 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
Sale of preferred stock
Cash dividend on preferred stock
Conversion of preferred stock to common stock                 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
Net loss for the year ended June 30, 1999
Common stock issued to employees for future services             13,000            13,781
Cancellation of common stock granted to former employees        (12,000)          (48,000)
Amortization of unearned compensation
Conversion of preferred stock warrants to common stock           70,589
Issuance of common stock                                            438               328
                                                             ----------------------------
Balance at June 30, 1999                                      4,890,381      $ 15,371,912
                                                             ============================
</TABLE>






                                                                               5
<PAGE>   48







<TABLE>
<CAPTION>
                                                 Retained        Total
     Preferred Stock            Unearned         Earnings     Stockholders'
  Shares         Amount       Compensation      (Deficit)        Equity
---------------------------------------------------------------------------
<S>           <C>             <C>              <C>              <C>
  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
                                                (1,543,185)      (1,543,185)

                                  (13,781)                               --
                                   48,000                                --
                                   35,243                            35,243
                                                                         --
                                                                        328

---------------------------------------------------------------------------
       --     $        --     $   (32,444)     $(8,897,071)     $ 6,442,397
===========================================================================
</TABLE>



See accompanying notes.

                                                                               6



<PAGE>   49

                               AquaPro Corporation

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JUNE 30
                                                                                1999             1998
                                                                            ------------------------------
<S>                                                                          <C>              <C>
OPERATING ACTIVITIES
Net loss                                                                     $(1,543,185)     $(1,536,161)
Adjustments to reconcile net loss to net cash used in
    operating activities:
     Depreciation and amortization                                               759,485          700,341
     Equity in losses on investments in cooperatives                             339,838          260,112
     Impairment loss on investment in cooperative                                628,000               --
     (Gain) loss on disposals of equipment                                       (32,598)          41,835
     Payments of loss allocations on investment in cooperative                  (205,558)        (191,376)
     Changes in operating assets and liabilities:
       (Increase) decrease in trade accounts receivable                          106,012         (240,483)
       (Increase) decrease in live fish inventories                             (103,036)         206,192
       Increase in prepaid expenses, other receivables, and other assets        (132,576)        (130,379)
       Increase (decrease) in accounts payable and accrued expenses               66,270         (366,221)
                                                                            ------------------------------
Net cash used in operating activities                                           (117,348)      (1,256,140)

INVESTING ACTIVITIES
Purchases of property and equipment                                             (466,078)      (1,052,597)
Proceeds from disposals of equipment                                              56,250           35,592
                                                                            ------------------------------
Net cash used in investing activities                                           (409,828)      (1,017,005)

FINANCING ACTIVITIES
Net increase in notes payable                                                    788,529           60,706
Principal payments on long-term borrowings                                      (403,960)      (1,428,667)
Proceeds from long-term borrowings                                               116,240        1,953,461
Proceeds from issuance of preferred stock                                             --        1,763,286
Payments of preferred stock dividends                                                 --         (165,904)
                                                                            ------------------------------
Net cash provided by financing activities                                        500,809        2,182,882
                                                                            ------------------------------
Net decrease in cash and cash equivalents                                        (26,367)         (90,263)
Cash and cash equivalents at beginning of year                                   112,631          202,894
                                                                            ------------------------------
Cash and cash equivalents at end of year                                     $    86,264      $   112,631
                                                                            ==============================

SUPPLEMENTAL CASH FLOW INFORMATION-
Interest paid                                                                $   454,000      $   503,000
                                                                            ==============================
NON-CASH FINANCING ACTIVITIES
Common stock issued to employees for future services                         $    13,781      $    68,250
                                                                            ==============================
Conversion of notes payable and long-term debt to common stock                        --      $   $39,661
                                                                            ==============================
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
                                                                            ==============================
Issuance of long-term debt:
   Live fish inventories                                                     $   628,611      $        --
                                                                            ==============================
   Land and ponds and improvements                                           $   714,032      $        --
                                                                            ==============================
   Machinery and equipment                                                   $   545,950      $        --
                                                                            ==============================
</TABLE>



See accompanying notes.


                                                                               7



<PAGE>   50

                               AquaPro Corporation

                   Notes to Consolidated Financial Statements

                                  June 30, 1999

1.  SIGNIFICANT ACCOUNTING POLICIES

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. All material intercompany transactions and balances have
been eliminated in consolidation.

The Company conducts catfish farming activities on 2,126 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. Two processors represented 51% and 34% of the Company's
net sales for the fiscal year ended June 30, 1999, and three processors
represented 52%, 31% and 10% of the Company's net sales for the fiscal year
ended June 30, 1998.

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.

CASH EQUIVALENTS

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




                                                                               8
<PAGE>   51

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, 1999 may not be sold during the year ending
June 30, 2000. 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.

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.



                                                                               9
<PAGE>   52

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

BASIC AND DILUTED NET LOSS PER COMMON SHARE

Basic net loss per 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) 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.



                                                                              10
<PAGE>   53

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

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. 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. The adoption of FASB No.
130 and 131 did not have an impact on the Company in fiscal 1999.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities. FASB
Statement No. 133 requires all derivatives to be recorded on the balance sheet
at fair value, and establishes "special accounting" for derivatives that are
hedges. Derivatives that are not hedges must be adjusted to fair value though
income. Management has not determined the effect of the adoption of this
statement to the earnings and financial position of the Company when it becomes
effective for fiscal 2001.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to fiscal 1999 presentation.



                                                                              11

<PAGE>   54

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

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 years ended June 30,
1999 and 1998, the Company incurred net losses of $1,543,185 and $1,536,161,
respectively, had aggregate accumulated deficits in operations at June 30, 1999
of $8,897,071 and had deficient cash flow from operating activities of $117,348
and $1,256,140, respectively, for those same periods. These factors create
substantial doubt about the Company's ability to continue as a going concern.

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, 1999, the Company reached the limit on borrowings
available under the $400,000 revolving line of credit and had approximately
$100,000 remaining under the revolving line of credit used solely to fund
purchases of feed (see Note 4). Management attributed these additional
borrowings to increased catfish production, as compared to the prior year, along
with the end of the growing season approaching. Management also arranged to
borrow approximately $100,000 from a third party to purchase feed and fund other
operating costs. The growing season, or months in which catfish are fed,
generally is from March through October. As described in Note 4, the required
principal and interest payments on borrowings under the revolving lines of
credit consist of collections on accounts receivable applied equally to each
line of credit.

Based upon management's projected sales volume at current sales prices for the
period July 1, 1999 through June 30, 2000, management anticipates the Company's
fish sales should be sufficient to repay borrowings under the revolving lines of
credit prior to the maturity dates of the lines of credit on March 15, 2000, to
bring its unsecured obligations current and to fund operating expenses through
March 31, 1999. Based upon the anticipated repayment of the revolving lines 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 lines of credit for the same amounts or obtain credit
agreements with similar terms. The revolving line of credit is collateralized by
accounts receivable (book value of $243,136 at June 30, 1999), live fish
inventories (book value of



                                                                              12

<PAGE>   55

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

2.  GOING CONCERN (CONTINUED)

$6,264,923 at June 30, 1999), investment in certain cooperative stock (book
value of $354,216 at June 30, 1999), and certain property and buildings (book
value of $818,754 at June 30, 1999). 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, 2000 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, 2000 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 2000 feeding season.

In addition the Company has a note payable to a bank at prime plus 2 1/2% with a
balance of $997,140 at June 30, 1999 that matures in April 2000. The note is
collateralized by property, buildings and equipment with a book value of
$1,439,529 at June 30, 1999. Management believes that the Company will be able
to renew the present note under similar terms or obtain borrowings
collateralized by such property, buildings and equipment from another lender.
While management believes it can extend or refinance current obligations as they
become due, there are no assurances that such extensions or refinancings will
occur or at terms favorable to the Company.

3.  INVESTMENTS IN COOPERATIVES

Investments in cooperatives consist of the following:

<TABLE>
<CAPTION>
                                                     JUNE 30
                                             1999             1998
                                    --------------------------------
<S>                                        <C>              <C>
         Delta Pride Catfish, Inc.         $242,216         $664,654
         Fishco, Inc.                       112,000          112,000
         Indi-Bell, Inc.                     57,240           57,240
                                    --------------------------------
                                           $411,456         $833,894
                                    ================================
</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.


                                                                              13
<PAGE>   56

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

3.  INVESTMENTS IN COOPERATIVES  (CONTINUED)

Based upon Delta Pride's recurring operating losses, management determined that
there was an other-than-temporary impairment of the Company's investment in
Delta Pride at June 30, 1999. Accordingly, the carrying amount of the Company's
investment in Delta Pride was adjusted to an estimated fair value obtained by
management resulting in an impairment charge of $628,000 in fiscal 1999.

4.  NOTES PAYABLE AND LONG-TERM DEBT

Notes payable-bank consist of borrowings under a $700,000 revolving line of
credit used solely to fund purchases of feed ($508,171 outstanding at June 30,
1999) and a $400,000 revolving line of credit ($381,881 outstanding at June 30,
1999). Interest accrues at the prime rate plus 1.65% and each line of credit
expires March 15, 2000. Interest and principal is paid with collections of
accounts receivable applied equally to each line of credit.

Included in notes payable-others are borrowings under a $350,000 credit facility
from a financial institution ($226,000 outstanding at June 30, 1999). Borrowings
under the facility are unsecured, have fees of 2 1/2% and bear interest at 12%.
Borrowings are due six months from the date of the advance. Also included in
note payable-other is a $200,000 note payable to an individual. The note bears
interest at 12% and is due in April 2000.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                         JUNE 30
                                                                                    1999         1998
                                                                                -------------------------
<S>                                                                               <C>          <C>
Note payable to Farm Credit Bank of Texas with annual principal and interest
payments of approximately $142,000 through 2018; interest
accrues at a variable rate (7.65% at June 30, 1999)                               $1,389,702   $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% (10.25% at June 30, 1999)                         997,140    1,033,654

Convertible  notes  payable with  interest due  quarterly at 10.35% and
principal due December 1999 ($63,500) and December 2000 ($100,000)                   163,500      163,500
</TABLE>



                                                                              14

<PAGE>   57

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

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

<TABLE>
<S>                                                                               <C>          <C>
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 through 2003;
interest accrues at prime rate plus one percent (8.75%
at June 30, 1999) and is payable semi-annually                                       174,439      218,048

Convertible notes payable with interest due quarterly at 7.15% and
principal due December 2003                                                           25,212       28,921

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 through April 2003                                         166,877      242,806

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                                             109,471      146,430

Note  payable to an officer and  director of the Company  with  monthly
payments of $3,810 including interest at 8.75%, maturing April 2003                  148,407      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                149,172      182,515

Notes payable to various finance companies with monthly payments aggregating
$9,853 including interest at rates ranging from 4.92% to 14.5%, maturing
at various dates through October 2002                                                188,608      230,006

Note payable to a bank with monthly payments of $1,156 including interest at
prime plus 1.65% (9.4% at June 30, 1999) through June 2002                            35,746       45,447

Note payable to an individual with annual payments of $200,000 including
interest at 6% in the first year and at a prime less 1.75%
thereafter, maturing April 2014                                                    1,888,593           --

Note payable to a finance company with annual payments of $14,512
including interest at 8.6%, maturing March 2005                                       56,968           --
                                                                                -------------------------
                                                                                   5,857,428    4,256,555
Less current maturities                                                            1,523,347      426,574
                                                                                -------------------------
                                                                                  $4,334,081   $3,829,981
                                                                                =========================
</TABLE>



                                                                              15


<PAGE>   58
                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

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

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 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. 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.

The aggregate annual maturities of long-term debt at June 30, 1999 are as
follows:

<TABLE>
<S>                                        <C>
                  2000                     $1,523,347
                  2001                        526,923
                  2002                        730,180
                  2003                        295,195
                  2004                        169,488
                  Thereafter                2,612,295
                                        -------------
                                           $5,857,428
                                        =============
</TABLE>

5.  COMMON STOCK

In connection with the exercise of stock purchase rights in fiscal 1996, 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. During fiscal 1999, 235,507 stock purchase warrants
pertaining to preferred stock issued in fiscal 1997 and fiscal 1996 were
converted into 70,589 shares of the Company's common stock pursuant to the terms
of the warrants. No other stock purchase rights or warrants are outstanding at
June 30, 1999.






                                                                              16
<PAGE>   59

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

5.  COMMON STOCK (CONTINUED)

During the fiscal years ended June 30, 1999 and 1998, the Company granted to key
employees 13,000 shares of common stock at $0.995 per share, and 21,000 shares
of common stock at $3.25 per share , respectively. 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 12,000 and 5,567
previously granted were canceled during the fiscal years ended June 30, 1999 and
1998, respectively.

6.  EMPLOYEE STOCK OPTIONS

The Company granted directors and certain key employees options to purchase
shares of common stock at $0.6875 to $1.875 and $2.84 to $3.25 per share during
the fiscal years ended June 30, 1999 and 1998, respectively, as follows:

<TABLE>
<CAPTION>
                                                               Weighted Average
                                                 Shares         Exercise Price
                                           ----------------------------------------
       <S>                                       <C>           <C>
       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
       Granted                                     341,000             0.94
                                           -------------------
       Outstanding at June 30, 1999                765,000            $1.87
                                           ===================
       </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 March 31,
2006. The weighted average remaining life of the options is 5.5 years. During
fiscal 1999, the Company reduced the exercise price of 171,000 options from
$6.25 per share to $2.00 per share.

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 2.377 and 1.076 for the
fiscal years ended June 30, 1999 and 1998, respectively; weighted-average
expected life of options of three years; risk-free interest rate of 6%; and no
dividend yield.




                                                                              17

<PAGE>   60

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

6.  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 years ended June 30, 1999 and 1998 is amortized to
expense over the vesting period. The Company's pro forma net losses were
$1,853,495 and $2,078,258 for the fiscal years ended June 30, 1999 and 1998 ,
respectively, and the Company's pro forma basic and diluted loss per common
share was $(.38) and $(.84) , respectively, for those same periods. The weighted
average fair value of options granted during the fiscal years ended June 30,
1999 and 1998 was $0.91 and $2.14, respectively.

7.  PREFERRED STOCK

During the fiscal 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. 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 at
$0.70 per share per annum. 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.



                                                                              18
<PAGE>   61

                               AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)

8.  INCOME TAXES

The Company has net operating loss carryforwards for income tax purposes of
approximately $8,800,000 at June 30, 1999, which expire at various dates through
2019.

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

<TABLE>
<CAPTION>
                                                                   JUNE 30
                                                            1999             1998
                                                     ----------------------------------
<S>                                                      <C>              <C>
         Deferred tax assets - noncurrent:
            Net operating loss carryforward              $ 3,268,000      $ 2,766,000
            Goodwill for income tax purposes                 375,000          408,000
            Inventories                                      520,000        1,009,000
            Other                                            187,000           42,000
                                                     ----------------------------------
                                                           4,350,000        4,225,000
         Valuation allowance for deferred tax assets      (4,350,000)      (4,225,000)
                                                     ----------------------------------
         Net deferred tax assets                         $        --      $        --
                                                     ==================================
</TABLE>

9.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash and cash equivalents approximate their fair values
at June 30, 1999 and 1998. The carrying amount for investments in cooperatives
approximates their fair value at June 30, 1999 and 1998 based upon appraisals or
estimates of recent sales of stock of the cooperatives obtained by management.

Notes payable to banks were at variable rates which approximated fair value at
June 30, 1999 and 1998. The fair value of notes payable-others 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, 1999 and 1998.



                                                                              19
<PAGE>   62


                                   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 Sunflower,
Mississippi on September 28, 1999.

                                         AQUAPRO CORPORATION

Dated: September 28, 1999                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 28, 1999
    -----------------------------------
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 28, 1999
    -----------------------------------
Roger Daley, Director

By: /s/ Joseph F. Duncan, Sr.                             September 28, 1999
    -----------------------------------
Joseph F. Duncan, Sr., Director

By: /s/ Ken Ostebo                                        September 28, 1999
    -----------------------------------
Ken Ostebo, Director