<PAGE>   1
                                   FORM 10-KSB

                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549


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

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

         For the transition period from January 1, 1997 to June 30, 1997
                                        --------------------------------

                         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.)

                  4307 Central Pike, Hermitage, Tennessee 37076
               ---------------------------------------------------
               (Address of Principal executive offices) (Zip Code)

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

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

       Title of each class           Name of each exchange on which registered
               None                                   None
       -------------------           ------------------------------------------

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

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

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes   No  X
                                                                      ---   ---

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not 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 $ 1,203,468

         The aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of September 1, 1997 was $17,198,669,
based on recent sales by issuer at a price of $6.25 per share for 2,188,587 
outstanding shares of common stock and $10.00 per share for 352,000
outstanding shares of Series A Preferred Stock held by non-affiliates.

         As of September 1, 1997, Registrant had outstanding 2,670,667 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>               <C>                                                                                       <C>
PART I   ..............................................................................................................-1-
         Item 1.           Description of Business.....................................................................-1-
         Item 2.           Description of Property....................................................................-17-
         Item 3.           Legal Proceedings..........................................................................-19-
         Item 4.           Submission of Matters to a Vote of Security Holders........................................-19-

PART II  .............................................................................................................-19-
         Item 5.           Market for Common Equity and Related Stockholder Matters...................................-19-
         Item 6.           Management's Discussion and Analysis or Plan of Operation..................................-21-
         Item 7.           Financial Statements.......................................................................-24-
         Item 8.           Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.......-24-

PART III .............................................................................................................-25-
         Item 9.           Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 
                           16(a) of the Exchange Act..................................................................-25-
                            
         Item 10. Executive Compensation..............................................................................-27-
         Item 11. Security Ownership of Certain Beneficial Owners and Management......................................-29-
         Item 12. Certain Relationships and Related Transactions......................................................-30-
         Item 13. Exhibits and Reports on Form 8-K....................................................................-42-
         FINANCIAL STATEMENTS......................................................................................... F-1
</TABLE>

<PAGE>   3
                                     PART I

Item 1.           Description of Business

General

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


         Mr. Hastings, the Company's Chairman and Chief Executive Officer caused
Circle Creek to be incorporated in 1983 under the name of Hastings & Company,
Inc. It changed to its current name in March 1995. Until 1996, the business of
Circle Creek was primarily the sponsorship and operation of catfish farming
investment limited partnerships. 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 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
of CCA V, CCA VI, CCA VII, and CCA VIII (the "Recent Consolidation"). See Part
III, Item 12, "Certain Relationships and Related Transactions."

         Mr. Hastings sponsored and acted as sole general partner for the first
six Circle Creek Partnerships which were formed between 1989 and 1994. In 1995
and 1996, Mr. Hastings and the Company co-sponsored, and acted as co-general
partners of, CCA VII and CCA VIII. Effective December 31, 1995, Mr. Hastings
assigned all of his economic interest as general partner of each of the eight
Circle Creek Partnerships to the Company. These interests consisted of a one
percent (1%) interest in Partnership capital, profits and losses and a
promotional contingent interest of twenty-five percent (25%) of Partnership
distributions following a minimum cumulative return to the limited partners. To
date, neither AquaPro or the general partner are entitled to receive any 
distributions pursuant to this contingent promotional interest in any of the 
Circle Creek Partnerships.

         The Company has changed its fiscal year to June 30 commencing with the
period ended June 30, 1997. The Company is now on a June 30 fiscal year.
Management believes the change in fiscal year will allow its accounting period
to better reflect operations during the normal catfish Aquaculture business
cycle and thus more accurately reflect the Company's performance in its business
segment.

                                       -1-

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         The Company's corporate offices are located at 4307 Central Pike,
Hermitage, Tennessee 37076. The Company's catfish farms are located in the north
central area of Mississippi in the region known as the "Mississippi Delta" or
the "Delta." The address of the Company's farm management offices is 1100
Highway 3, Sunflower, MS 38778.

The Catfish Farming Industry

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

         According to the National Fisheries Institute, farm-raised catfish now
ranks as the fifth most popular seafood in America, with a per capita annual
consumption of one pound. The National Agricultural Statistic Service ("NASS")
of the Agricultural Statistic Board, U.S. Department of Agriculture, has
released its annual survey data for the catfish farming industry for 1996. NASS
reports that catfish growers in the fifteen (15) major producing states had
total sales of $417 million during 1996, up 4% from $400 million in 1995. Sales
of all food-size catfish totaled $389 million in 1996, up 3% from $378 million
in 1995, and in 1996, sales of fingerling and fry totaled $21.6 million compared
to $16.1 million during 1995. During 1996 direct sales to processors accounted
for 96% of total sales of food-size catfish. NASS also reports that on January
1, 1997, the total number of catfish Aquaculture operations was 1,302, down 2%
from the 1,328 operations reported at January 1, 1996. However, the number of
operations in the top four (4) catfish producing states, Alabama, Arkansas,
Louisiana and Mississippi increased by 1% during this time. NASS also reports
that on January 1, 1997, water acres used for catfish Aquaculture totaled
177,000 acres, up 6% from July 1, 1996, and that an additional 4,650 acres are
currently under construction and are expected be in use by July 1, 1997. NASS
reports all food-size catfish on-hand at January 1, 1997 total 271 million, up
19% from 228 million on-hand the previous year. Medium food-size showed the
largest increase of the three categories from January 1, 1996, increasing by
30%. Also, 872 million fingerlings were reported on January 1, 1997, up 6% from
823 million on-hand at January 1, 1996.

         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 thirteen years, according to the U.S. Department of Agriculture, are as
follows:


                                       -2-

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<TABLE>
<CAPTION>
                   Historic Average Processor Price for Catfish 
                   -------------------------------------------- 
                    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 (through 7/31)       72.6              
</TABLE>          

         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 6 weeks of
delivery and does not require collateral for payment. For the six-month period
ended June 30, 1997, one processor represented 90% of net sales. Three
processors represented 55%, 25% and 11%, respectively, of the Company's net
sales for the year ended December 31, 1996 and 51%, 25% and 18%, respectively,
for the year-ended December 31, 1995. These cooperatives sell processed catfish
both to retail grocers 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. Management believes that 5,000 stocker fish and 8,000-10,000 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. Management believes only stocking rates greater than
7,000 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

                                       -3-

<PAGE>   6



pounds of catfish per water acre per year, although the industry average is
less. Catfish farms in the Mississippi Delta average 4,000 to 5,000 pounds of
catfish production per acre per year.

         The time period required for a catfish to progress from fingerling to
its optimum weight of 1 to 1-1/2 pounds is 8 to 12 growing months, depending on
the feeding, health, density of population and other factors, many of which,
including climatic conditions, will be outside the control of Management. There
are normally 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 price), catfish are most easily grown
in a location where average daily water temperatures are above 70(degree) for at
least 180 days a year, with at least 120 days above 80(degree). Thus, climate is
one reason for choosing the Mississippi Delta region to grow the fish. When the
water approaches 50(degree) Fahrenheit, feeding activity slows, almost stopping
as temperature drops further. In the Mississippi Delta region, the heaviest
feeding times are spring, summer, and fall. (Channel catfish can survive,
however, for long periods of time at water temperatures ranging from just above
freezing to about 104(degree)).

         The Company cultures its fingerlings until they reach marketable size
(or weight). Within the catfish farming industry, three sizes of food-size fish
are recognized. Large food-size catfish are 3 pounds and above. Medium food-size
catfish are 1-1/2 to 3 pounds, and small food-size catfish are 3/4 to 1-1/2
pounds. While catfish of 3/4 of a pound or more are considered market weight,
Management intends to market the Company's catfish at a weight of 1 to 1-1/2
pounds. In Management's experience, this is the optimum size for marketing
because it yields the best fillet when processed. The highest demand for catfish
production is for fillet cuts. Accordingly, the catfish will be fed and
maintained until they weigh 1 to 1-1/2 pounds before any will be ready to
harvest and sell to a processor. As catfish are sold, additional fingerlings
will be purchased periodically to restock the ponds. Generally, the Company
would replace inventory with 5" to 6" fingerlings. This is because, for
production during a full growing season, it is generally more efficient to
purchase 5" to 6" fingerlings than to devote one or more of the Company's ponds
to catfish spawning. The price paid for fingerlings ranges between .75(cent) and
1.50(cent) per inch. Management anticipates that this price range will remain
fairly constant. However, fry are much less costly than larger stock-size fish,
and where ponds are newly refurbished or reworked they are sterile and ideal for
growing fry-size fish. As the Company refurbishes several of its ponds in 1997 
and 1998, management plans to stock 270 acres of its Hidden Lakes farm with
fry to supply its fingerling needs on its other seven farms.

         Necessary Resources and Materials. As discussed in further detail
below, the raw materials necessary for the Company's agriculture operations
consist primarily of stock fish, feed, electricity and gasoline. The Company
also requires equipment and general supplies to maintain its operations. The
Company purchases its feed principally through cooperatives. The price of feed
closely reflects the costs of the raw materials used in the synthesis thereof,
including soybean, corn and other agricultural products. Accordingly, the price
of feed fluctuates in response to the prices of these commodities on the world
markets. The Company uses significant amounts of electricity and gasoline in
operating its aerators, particularly during the warmer months (principally
spring and summer) during which fish increase activity and thus, oxygen
consumption is greatest. Thus, the Company is subject to fluctuations in
electricity and gasoline prices.

                                       -4-

<PAGE>   7



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 have been available at competitive prices and
terms to the Company, primarily because of the concentration of catfish farming
in the Delta area and as a result of the historic high rate of turnover of
catfish farming operators. The Company anticipates this trend will continue and
anticipates that both new and used equipment will continue to be readily
available to the Company as needed. Another major expense of the Company's
business is labor. The Company currently employs a non-organized labor field
staff. Most of the Company's field staff requires low level skills and training
and thus, the Company believes that competent labor at competitive prices will
continue to be available to the Company in the area of its operations.

         Feed. Catfish are fed a diet of "puffed" high protein, floating food
pellets which are a mixture of soybean, corn, wheat, vitamins, minerals and fish
meal, produced by fish mills. The food is scientifically formulated, not only to
provide an optimal level of nutrition to the individual fish but also to produce
a meat of a mild, sweet flavor and the absence of any "fishy" odor during
cooking. One of the advantages of catfish Aquaculture is the higher
feed/conversion ratio of this meat source. Laboratory studies have shown
conversion ratios for channel catfish as high as 1.75 pounds of feed per one
pound of fish produced. However, based on its experience, Management believes
the "real life" conversion rate for catfish grown under commercial conditions,
including mortality, is closer to 2.5:1 and management uses this rate in its
inventory control and monitoring procedures. By comparison, chicken has a
conversion ratio of approximately 3:1; pork has a conversion ratio of
approximately 4:1; and beef has a conversion ratio of approximately 8:1.

         Feed prices can vary greatly from year to year. In 1995, feed prices
averaged $235 per ton. Increases in soybean, corn and wheat prices in 1996 and
early 1997 pushed feed prices to $287 per ton in early 1997. Higher feed prices
directly resulted in increased costs of products sold. The price of feed is
subject to crop yields, which cannot be predicted with certainty. In order to
help control its feed costs, the Company owns shares in Indi-Bell Feed Mill
Cooperative ("Delta Western"). As a member of this Cooperative, the Company has
the opportunity to buy feed at wholesale prices and to purchase feed on an "as
needed" basis on two days' prior notice. Thus, the Company can avoid having to
purchase and store large amounts of catfish feed in order to lock in current
prices. 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 has contracted to purchase at a price of $252 per ton for approximately
85% of its budgeted feed consumption for calendar year 1997.

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

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

                                       -5-

<PAGE>   8



cross over into another pond. Frequent monitoring is also necessary in order to
maintain proper water chemistry.

         Harvesting and Restocking. When Management determines that the catfish
of a particular pond are ready for market, the pond is seined using a net of
appropriate size, which will allow the smaller catfish to escape while trapping
the larger catfish in the net. The catfish will then be loaded live on trucks
and transported to the processor where the fish are cleaned, processed, and
chilled or frozen in less than three minutes. The processing plants pay an
agreed upon price per pound for the delivered fish. The Company owns shares in
the Delta Pride 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 fingerlings 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 statistical models. Typically, farmers will
use both techniques and cross-check the results to determine consistent
estimates.

         The most certain physical sampling method would be the draining of
ponds and physical counting of fish inventory. However, this is only done at
such times as ponds are drained for rehabilitation because physical removal of
fish results in significant loss and is not a practical method of inventory
determination. Therefore, typical sampling involves periodic seining of ponds
and observation of fish population number and size, observed actual mortality,
and observed food consumption patterns and rates. These physical sampling
techniques involve different degrees of subjective judgment and non-random
procedures. However, when used in conjunction with statistical estimations,
they serve as important cross-checks or verification of the statistical
estimates.

         Management employs statistical techniques to estimate inventory based
on known factors, such as number and size of fingerling introduction, amounts
and timing of feed, and amounts harvested. Management estimates inventory size
and number based on these factors using statistical models. The Company
currently uses two statistical estimation procedures; its historical,
empirically evolved statistical procedures and the Fishy statistical program
developed in Mississippi under the leadership of Dr. Wallace E. Killcreas,
professor and economist at Mississippi State University. The latest version of
the Fishy program, Fishy 3.1, is quickly becoming a standard in the fish farming
industry. Fishy is a micro-computer program designed to help fish producers make
better production management decisions. The program is a complete fish
production management system designed for pond-raised catfish. When properly and
diligently used, the program's creators believe it will accumulate the end
report data needed to make economically efficient decisions. It allows users to
enter and analyze all information needed to compute out-of-pocket costs of
growing catfish. The general features of the program include gathering and
reporting historical production data, such as food purchased and fish stocked
and fed, lost, harvested and marketed.

                                       -6-

<PAGE>   9



The program also allows water quality data assimilation, reporting and graphing.
The program calculates information such as feed conversion ratios, percentages
of body weight to feed, and projections of fish growth and feed needed for
future production.

         While Management believes that its inventory control and estimating
procedures are consistent with the most advanced available to the Aquaculture
industry, its degree of accuracy is difficult to quantify. In the past, physical
inventory counts made by Management in conjunction with pond drainings and
reconstruction have varied significantly from statistically derived inventory
estimates for the same ponds. Management now estimates a mortality rate of 1.6%
per month, based on the Fishy program. Management then compares these estimates
against its expected conversion of fingerlings to pounds of production marketed
using a lower than industry average conversion factor of one pound of growth
per 2.5 pounds of feed used. While Management believes that it has determined
the basis of these variances and has made adjustments to its statistical
procedures, including mortality rates and food conversion rates, in order to
eliminate these variances in the future, there is no assurance that it has been
able to do so. It is reasonably possible that the Company's actual live fish
mortality will vary significantly from estimated mortality.

         Employees. The Company currently employs 32 full-time persons.

Recent Developments

         Community Bank Credit Line. Effective April 16, 1997, the Company has
obtained a revolving credit line in the amount of $750,000 from Community Bank,
Indianola. The purpose of the credit line is to provide financing for catfish
feed purchases from Delta Western. Borrowings under the credit line bear
interest at the rate of prime plus 165 basis points (1.65%). The credit line
matures on March 5, 1998. The Company paid a commitment fee of 1% ($7,500).
Under the credit line, the Company has established an operating deposit account
with the Bank's Indianola Branch into which the Company must deposit proceeds
from pledged inventory sales and accounts receivable. One-half of these amounts
are applied to repayment of the credit line balance and the remaining balance
is then available to the Company. The credit line is represented by the
Company's promissory note which is secured by a first lien on certain stock in
processing cooperatives owned by the Company, and a first lien on inventory and
accounts receivable of the Company and the Partnerships. Mr. George S. Hastings
has personally guaranteed the credit line.

         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 live fish deliveries during the year ended June 30, 1997. The
current assessment is three cents ($0.03) per pound processed, and payable in
installments of $0.01 per pound each on July 31, August 29, and September 30,
1997. In addition, Delta Pride has informed its members of an additional
assessment of up to five cents ($0.05) per pound, which would be payable in
installments over the period from late 1997 through early 1998. The assessment
is necessary primarily to cover operating losses incurred by Delta Pride during
the year ended June 30, 1997. The Company's share of Delta Pride's operating
losses for the year ended June 30, 1997 have been reflected as a redemption in
the Company's investment in Delta Pride stock as of June 30, 1997. The total of
these losses has only been recently determined and were previously undetected
and unexpected by the Delta Pride Board of Directors due to internal accounting
irregularities. 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.


                                       -7-

<PAGE>   10



         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. In general, Delta Pride members are responsible
for paying all assessments relating to their delivery rights during the year
ended June 30, 1997, whether or not the delivery rights were used by the member
or by an assignee of the member. During the year ended June 30, 1997, the
Company assigned its Delta Pride delivery rights for approximately 580,000
pounds of catfish to other party farmers because it could not use the rights a
scheduled. In general, these assignees are contractually obligated to the
Company to pay any assessments relating to their use of the Company's Delta
Pride delivery rights, and the Company believes it can successfully recover
these amounts from these contractees. The Company has paid each of its July,
August and September assessment installments. Payment of the Delta Pride
assessments will materially reduce the Company's cash flow for the year ending
June 30, 1998 while the charges increased its net loss by $272,000 for the year
ended June 30, 1997.

         Resignation of Mr. Jones. Mr. Austin Jones, the Company's Vice
President - Production, has resigned effective August 1, 1997. The Company does
not intend to immediately replace Mr. Jones, who was an officer and part-time
employee of the Company. At the time of his departure, Mr. Jones served as an
administrative level consultant to the Company. Most of his field duties were
assumed by the Company's area managers pursuant to its staff reorganization in
1996 and management does not expect Mr. Jones' departure to adversely affect the
Company's production, staffing or performance. Mr. Jones was a co- founder of
American Fisheries Corporation in 1987, a predecessor of the Company, and
continued to be employed in a supervisory production capacity after American was
acquired in 1989.

         Adjustment to Mr. Hastings' Salary. Effective August 1, 1997, Mr.
Hastings has agreed and the Board of Directors has approved a change in Mr.
Hastings' compensation whereby his salary is reduced to $1 per year and the
Board increased the number of stock options granted to Mr. Hastings to 50,000
per quarter, with a maximum of 200,000 per year, to be exercisable over a seven
year period. The option exercise price will be $5.63 per Share (i.e. 90% of the
$6.25 price on which the Consolidation Units were based). The exercise price
will be adjusted to the average trading price of the Common Stock for the first
65 days after listing on a national exchange, as defined for the purposes of the
Series A Preferred Stock.

Risk Factors

         The Company and its securities are subject to a number of risks. Set
forth below is a description of the more material of these risks.

         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.


                                       -8-

<PAGE>   11



         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 are 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 monitoring schedule and will have on its premises
sufficient electric aerators to maintain

                                       -9-

<PAGE>   12



pond oxygen levels under anticipated conditions. Nevertheless, unanticipated
conditions such as prolonged loss of electric power may render unavailable the
electric aerating equipment. A substantial loss of the Company catfish inventory
due to a failure to maintain oxygen levels would negatively impact the Company's
profitability and its ability to remain in business.

                  Price of Catfish Feed. Catfish feed, which is the greatest
single production cost in catfish farming operations, is subject to large
fluctuations. Industry groups report in recent years, fluctuation between $180
and $300 per ton. Feed prices are currently as high as $252 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. There is
no assurance that the Company will be able to purchase feed in the future as
needed at a cost that will allow it to operate profitably or remain in business.

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

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

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

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

                                      -10-

<PAGE>   13



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.

                  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 primarily
to two cooperative processors of which it is a member. 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 benefited through price concessions, rebates and/or distributions.
To the extent cooperatives operate unprofitably, members are subject to
assessments to fund such losses. The failure to pay assessments generally
results in a loss of delivery rights and sometimes in the loss of membership
interests. Accordingly, the Company's ability to market its catfish in volumes
and at prices necessary for profitable operations substantially depends on the
ability of management of the cooperative processors of which the Company is a
member to operate their processors in an efficient manner. Moreover, fish the
Company cannot sell to its cooperative processors must be sold to other
processors on a negotiated basis in competition with other catfish producers.
While there are a number of processors located in the Mississippi Delta,
management does not believe there is sufficient competition among processors to
provide any substantial leverage to the catfish producers in negotiating prices.
These circumstances do not allow the Company to depend on stable catfish prices
for its future production. Thus, there is no assurance that the Company will be
able to sell its catfish production at a price which will allow it to realize a
profit.

                  Assessments By Delta Pride. The Company's principal catfish
processing cooperative, Delta Pride Catfish, Inc. has assessed its member
stockholders, including the Company, $.03 per pound of catfish processed to
cover operating losses sustained by Delta Pride during its fiscal year ended
June 30, 1997. Delta Pride has also notified its members that it may assess up
to an additional $.05 per pound of catfish processed which would be payable in
installments over a period from the end of 1997 through early 1998. As a member
of this cooperative, the Company must pay these assessments in order to retain
its member catfish delivery rights. In 1996, and for

                                      -11-

<PAGE>   14



the six months ended June 30, 1997, the Company sold 55% and 90%, respectively,
of its total catfish production to Delta Pride. The assessments were recorded as
a $272,000 charge to earnings during the six-month period ended June 30, 1997
and are expected to be paid out and thereby reduce the cash flow of the
Company during the next year. Moreover, although Delta Pride has instituted
significant measures, including a change in executive management, to end future
operating losses, there is no assurance it will be able to do so. Should Delta
Pride continue to operate at a loss, its members, including the Company, can
anticipate additional assessments in the future.

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

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

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

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

                                      -12-

<PAGE>   15



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.

         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 reported
a net loss for the six-month period ended June 30, 1997 of $1,487,525 and had an
accumulated deficit of $5,484,760 as of such date. 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

                                      -13-

<PAGE>   16



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. The Company
intends to acquire the farming operations of its four affiliated limited
partnerships in consideration for the issuance of its equity and debt securities
(the "Recent Consolidation"). The Company believes the acquisition of these
additional properties is necessary for it to achieve efficiencies of scale of
operations and will facilitate its ability to achieve profitable operations. See
Part III, Item 12 "Certain Relationships and Related Transactions." There can be
no assurance, however, that the Company will successfully complete the Recent
Consolidation. 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 the farms acquired from Circle Creek Partnerships 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 and proceeds, if any, from the Rights Offering, 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.

                  Disproportionate Effect of Inaccurate Valuation. The estimated
exchange values upon which the consideration paid to the partnerships
participating in the Recent Consolidation were based on consideration paid by
the Company in the Prior Consolidation. There is no assurance that such values
are not greater than those which would result from arms-length negotiations
between unrelated parties. The values used are one of a number of possible
reasonable estimates of the fair value of the net assets of the Company and the
participating partnerships. Therefore, it is likely that these estimated values
would differ from the actual value which would be paid by Shareholders of the
Company for each partnership's net assets to an unrelated party. In the event
these estimated values of the net assets of these partnerships are greater than
such actual fair value, the overvaluation would favor the limited partners of
those Partnerships over the Company. See Part III, Item 12.

                  Restrictions on Payment of Dividends. The terms of the
Company's 10.35% Notes and 7.15% Convertible Notes, and present institutional
credit arrangements restrict the Company from paying dividends on its capital
stock, in certain circumstances. Also, the Company may, in the future, enter
into credit arrangements which restrict the Company's ability to pay dividends
on its Series A Preferred Stock. In general, these credit agreements provide
that for as long as there is no default in the payment of principal or interest
or any other default causing the acceleration of indebtedness, the Company will
be

                                      -14-

<PAGE>   17



permitted to pay dividends on its Series A Preferred Stock. The restrictions on
the payment of dividends could prevent the payment of dividends on the Series A
Preferred Stock in the event the Company were unable to make the payment of
principal or interest as required by its credit agreements.

                  Absence of Earnings and Profits. Because the Company presently
has a deficit in accumulated earnings and profits for United States federal
income tax purposes, in general, unless the Company generates earnings and
profits each year in an amount at least equal to the amount of dividends payable
on the Series A Preferred Stock (and all other stock ranking senior thereto or
on parity therewith), all or part of the distributions made by the Company on
the Series A Preferred Stock will be treated as returns of capital rather than
dividends eligible for the dividends-received deduction. No assurance can be
given that the Company will be able to generate sufficient earnings and profits
to prevent all or a part of the distributions on the Series A Preferred Stock
from being treated as returns of capital.

                  Dependence on Management. The feasibility and profitability of
the Company will depend significantly upon the continued participation of Mr.
Hastings, Ms. Hastings and Mr. Braschwitz. Each of these persons is expected to
continue in his or her position with the Company. However, one or more of these
persons may in the future be unable or unwilling to continue with the Company.
The unavailability of any of these persons 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.


                                      -15-

<PAGE>   18




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

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

         The Company has substantial obligations with respect to its 10.35%
Notes 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 line with Community Bank is due in March 1998 and its other significant
debt is due between 1998 and 2002. In the event the Company is unable to
refinance these obligations or is otherwise unable to raise funds sufficient to
repay these obligations as scheduled, the Company would be in default of these
obligations. The Company's ability to repay these obligations when they mature
will be dependent upon its ability to obtain adequate refinancing or to
negotiate an extension. The Company's ability to obtain replacement financing
for these obligations will be dependent on, among other things, its financial
condition at the time and the economic conditions in general. Accordingly, there

                                      -16-

<PAGE>   19



is no assurance that, if necessary, AquaPro will be able to obtain replacement
financing for any of these obligations upon their maturity.

Item 2.           Description of Property

         Real Property. The Company owns eight non-contiguous farms having a
total of 137 ponds comprising 1,843 water acres situated on a total of 2,417
land acres. The farms are located in the Mississippi Delta area of Mississippi.
The table below sets forth information regarding these properties.

<TABLE>
<CAPTION>
                   Information Regarding The Company's Real Property
                   -------------------------------------------------
           Name                                                  Unpaid Balance of
       (Location of            Total Acres        Number          Mortgage Loan at
         Property)            (Water Acres)      of Ponds          June 30, 1997
       ------------           -------------      --------        ------------------
<S>                           <C>                <C>             <C>   
Circle Creek                    275(210)            15                $ None
(Sunflower County, MS)

Panther Run                     278(211)            15                  None
(LeFlore County, MS)

Balmoral                        318(270)            21               304,000(1)
(Sunflower County, MS)

Cypress Lake                    254(193)            13               212,500(2)
(LeFlore County, MS)

Hidden Lakes                    668(443)            43              1,055,244(3)
(Bolivar County, MS)

Stillwater                      170(140)             8               134,700(4)
(Sunflower County, MS)

Crystal Waters                  212(189)            11               267,100(5)
(Bolivar County, MS)

Niagara                         242(188)            11               244,995(6)
(Bolivar County, MS)
</TABLE>

---------------------------------
(1)      Note payable to an insurance company with current annual principal
         payments of $16,000 through 2000 and the final installment of $256,000
         due in 2001, with interest payable semi-annually at 7.7%. Note is
         secured by real property with a book value of $830,000.

(2)      Note payable to insurance company requiring annual principal payments
         of $7,500 through 2002 and a final principal payment of $182,500 due in
         2002 with interest payable semi-annually at 8.1%. Note is secured by
         real property with a book value of $580,000.

(3)      Note payable to a bank monthly principal and interest payments of
         $11,754 through March 2000 and a final payment of approximately
         $970,000 due April 2000 with interest at Prime plus 2 1/4%. Note is
         secured by real property and equipment with a book value of $1,060,000.


                                      -17-

<PAGE>   20



(4)      Note payable to Metropolitan Life Insurance Company requiring annual
         payments of $6,100 through March 2004 and a final payment of $92,000
         due September 2004 with interest payable semi-annually at 9.5%. Note is
         secured by real property with a book value of $240,000.

(5)      Note payable to a bank collateralized by land with a book value of
         $370,000 requiring annual payments of $34,307, including interest at
         variable rates (9.05% at June 30, 1997) through 2015.

(6)      Note payable to a bank collateralized by land with a book value of
         $500,000 requiring annual payments of $31,732, including interest at
         variable rates (9.05% at June 30, 1997) through 2015.


         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.


                                      -18-

<PAGE>   21



Item 3.           Legal Proceedings

         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

         The Company submitted the following matters to its shareholders for
approval and/or ratification at their annual meeting held on April 16, 1997.

         1.       To elect four persons to the Company's Board of Directors 
(the "Board"). Each of Management's nominees was elected to office.

         2.       Approval of the recent consolidation, including the merger 
transactions involving the four affiliated Circle Creek Partnerships. See Part
III, Item 12, "Certain Relationships and Related Transactions."

         3.       Approval and ratification of the following two amendments 
to the Company's Articles of Incorporation, each of which was approved by the
shareholders.

                  (a)      Increase the authorized number of Preferred Shares 
of the Company to 2,000,000 (two million) Shares.

                  (b)      Approve and ratify the Board's authority to 
designate one or more series or classes of the authorized preferred stock.

         4.       Approve and ratify the Company's Share Purchase Rights Plan 
(the "Rights Plan"), subject to approval by the Board. The shareholders approved
this proposal. A Rights Plan has not yet been approved by the Board.

         5.       Approve the Company's Stock Option Plan, subject to approval
by the Company's Board of Directors. The shareholders approved the proposal. An
option plan has not yet been approved by the Board. 

         6.       Ratify the Board's selection of Ernst & Young LLP as 
independent accountants for the Company. The shareholders approved this
proposal.

                                     PART II

Item 5.           Market for Common Equity and Related Stockholder Matters

         Market for the Company's Common Equity: The Company's equity securities
are not currently registered or traded on any exchange or in any market.

         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 one for five
stock split effective September 18, 1996. See Part I, Item 8 above.


                                      -19-

<PAGE>   22



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

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

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

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

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

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

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

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

         During the years ended December 31, 1995 and 1996 and during the six
month period ended June 30, 1997, the Company issued seven year, $6.25 stock
options to officers for 54,000, 54,000 and 51,000 shares, respectively, and
9,000, 12,000 and 12,000 shares, respectively, to directors. The options were
issued as compensation to the Company's Officers and Board of Directors. Also,
during the years ended December 31, 1995 and 1996 and during the six month
period ended June 30, 1997, the Company issued a total of 20,000, 20,000 and
22,500 restricted common shares valued at approximately $3.125 each,
respectively, to officers. In issuing the foregoing shares and options, the
Company relied on the exemptions under Section 4(2) of the 1933 Act and Rule
701, promulgated thereunder. Each transaction effected in reliance upon the
exemption under Section 4(2) shares or options were issued either to an officer
or director of the Company. In the case of directors and executive officers, as
control persons, and their familiarity with

                                      -20-

<PAGE>   23



the Company, the Company felt determined that their level of sophistication was
sufficient to support the exemption. With respect to the three issuances to
lower level executive personnel, the Company relies on the exemption under Rule
701.

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

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

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

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

Item 6.           Management's Discussions and Analysis of Financial Condition 
                  and Results of Operations

Introduction

     AquaPro Corporation consists of the combination of eight catfish farms
which, individually, were Limited Partnerships prior to December 31, 1995 (CCA
I, CCA II, CCA III and CCA IV), American Fisheries Corporation (the farm
management company), and Circle Creek Aquaculture, Inc. (the syndication
company for the catfish farming limited partnerships) or June 30, 1997 (CCA V,
CCA VI, CCA VII, and CCA VIII).  The mergers of these entities with AquaPro
have been accounted for as though they were a pooling of interests because of
the common control of the entities and AquaPro.  Prior to these mergers, the
limited partnerships pursued short-term goals of pass-through tax benefits and
maximum cash distributions rather than focusing on longer-term plans and goals.
AquaPro owns and manages catfish aquaculture farms with the purpose of raising
and selling catfish to food processors.

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

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

     The Limited Partnerships were not profitable as individual entities.
Also, the financial statements show that AquaPro, even after the first
consolidation, has not been profitable since inception.  This discussion should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements included elsewhere herein.

     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 herein, 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 Six Months Ended June 30, 1997 Compared to Six Months
Ended June 30, 1996

         Revenue. Net sales during the six month period ended June 30, 1997
totaled $1,203,468 compared to $1,891,390 for the same period in 1996. This
represents a decline of $687,922 or 36.4%. Volume decreased 755,000 pounds to
1,638,000 pounds of fish sold compared to 2,393,000 pounds sold during the six
month period ended June 30, 1996. Accordingly, volume represented a 31.5%
decline during the six months ended June 30, 1997 compared to the same period in
1996. The remainder of the decline was due to a price decrease of approximately
6 cents a pound to 73 cents realized in 1997 compared to 1996 when the average
price of fish sold was 79 cents. This decrease in average price resulted from
lower prices received by the Company's major customers from food distributors,
restaurants, and grocers due to an increase in competitive pricing policies as
processors attempted to increase their market share. The Company's major
customers in turn passed on the lower prices to the catfish farmers, including
the Company. This trend did not follow historical price patterns since,
typically, catfish prices increase during the Lenten season. Furthermore, the
trend of these lower prices has continued into the summer months, and the
Company cannot predict when more favorable prices will occur.

                                      -21-

<PAGE>   24



         During the first six months of 1996, the Company increased its efforts
and expenditures to adequately stock its ponds for future sales growth. Due to
the 12 to 18 month grow-out period for catfish to reach marketable size, this
stocking was not ready for market by the second calendar quarter of 1997.
Additionally, unusually cool spring weather prevented normal feeding and growth
patterns of catfish and, accordingly, fewer fish were of food size and available
for sale by June 30, 1997. Management expects to substantially increase sales
beginning July 1, 1997 as a result of the availability of the stocking in
the first half of 1996 discussed above. Sales for the first fiscal quarter
ending September 30, 1997 are expected to total approximately 1,800,000 pounds
which compares to 1,683,000 pounds sold during the first six months of 1997.
However, due to the unusually cool spring weather and poor feeding season,
optimal production and sales levels of 2,200,000 pounds of fish per quarter are
not expected to be achieved until April 11998 when the feeding season begins
next year. Catfish grow to marketable size during the warmer weather months from
the middle of March through the Middle of October.

         Cost of Products Sold and Margin. Cost of Products Sold was $1,188,159,
a decrease of $425,751 or 26.4% compared to the first six months of 1996, while
net sales decreased 36.4%. Margin from fish sales was 1.3% during the six month
period ended June 30, 1997 as compared to 14.7% in the same period in 1996. 
These margin levels were both below expected margins of 20 to 25% based on
recent price and cost structures. During the first six months of 1997, the
Company recorded $244,000 of additional reserves for mortality. These reserves
were deemed necessary as spring weather approached and inventory was physically
observed, indicating that winter kill of catfish was higher than previously
estimated. Had this reserve not been required, margin from fish sales would
have been 21.6% for the six month period ended June 30, 1997. In the six months
ended June 30, 1996, certain ponds were emptied for refurbishing and mortality
adjustments of approximately $220,000 were recorded in cost of products sold.
Had these mortality adjustments not occurred, margin from fish sales would have
been 26.3%. The lower margin from fish sales was due, in part, to the higher
cost of feed for the six months ended June 30, 1997 compared to the same period
in 1996. The Company's average cost of feed in 1997 was $263 per ton compared
to $244 per ton in 1996.  Management believes that these reserve and mortality
adjustments were unusual and of a nonrecurring nature but cannot predict with
certainty due to risks beyond its control that such adjustments will not be
necessary in the future.

         Selling, General and Administrative. Selling, General and
Administrative expenses during the first six months were $1,055,540 or $390,557
higher than in the six month period ended June 30, 1996. This increase was
primarily due to an increase in legal and accounting fees of approximately
$213,000 incurred during 1997 to facilitate the acquisition of the four
remaining catfish farming limited partnerships by the Company. This acquisition
was accomplished effective June 30, 1997. Additionally, legal and accounting
fees increased in 1997 compared to the same period in 1996 as the Company
prepared to become a public company registered with the Securities and Exchange
Commission.

         Delta Pride Assessment. During the six month period ended June 30,
1997, the Company was required to record a net charge of $272,000 for its share
of losses of Delta Pride's operations. In 1996, the charge was $79,969. About
April 15, 1997, Delta Pride disclosed that it was experiencing significant
operating losses and that, since it operates as a cooperative, shareholders are
allocated these operating losses during the year ending June 30, 1998.
Management had previously expected a chargeback of $80,000 or less. Most recent
information from Delta Price indicates that operating losses will be incurred
during the year ending June 30, 1998 and the Company's portion of these loses
will total $80,000 or more. The Company cannot predict with any certainty what
its share of Delta Price's losses will be, and unless major

                                      -22-

<PAGE>   25



changes occur at Delta Pride, the charge for the year ending June 30, 1998 could
be substantially higher than $80,000. The Company is taking steps to reduce its
dependency on Delta Pride as a major customer but, because of the limited number
of catfish processors, there can be no assurance that it will be able to do so.

         Interest Expense. Interest expense decreased $17,485 or 7.6% to
$212,685 in the six month period ended June 30, 1997 compared to the same period
in 1996. Debt levels were slightly lower during the 1997 period compared to 1996
and interest rates were slightly lower due to variable rate adjustments on
ceratin debt effective January 1, 1997. Management anticipates higher levels of
debt and interest expense during the year ending June 30, 1998 due to higher
than anticipated borrowings for catfish feed resulting from the delay in
production and sales discussed above, partially offset by a reduction in the
balance of Investor Notes converted to Preferred Stock (see Liquidity and
Capital Resources discussion below).

         Income taxes as of June 30, 1997. The Company had net operating loss
carry-forwards of approximately $2,600,000 available to reduce taxable income
through the year 2012.

         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.

Results of Operations 1996 Compared to 1995

     Revenue.  Net sales in 1996 increased to $3,906,954, an increase of
$914,667 or 30.6% over 1995.  The increase resulted from a 1,167,000 pound or
30.5% increase resulting in 4,999,000 pounds of fish being sold in 1996.

     The net price per pound was 78 cents in 1996 and 1995.

     The increase in net sales was attributable to more food-sized fish
available for sale, additional processing rights available to the Company in
1996, and the opportunity to sell more fish to processors in excess of
contractual rights.  AquaPro anticipates increased revenues in 1997 as a result
of the grow-out of an increased number of fingerlings placed into pond
inventory in early 1996.  Also, in early 1997 the Company contracted to sell an
additional 1,500,000 pounds of fish during 1997.  This contractual arrangement
will allow the Company to increase sales beyond existing delivery agreements.

     Cost of Products Sold.  Cost of products sold was $3,525,405, an increase
of $1,222,211 or 53.1% over 1995, while net sales increased only 30.6%.  Margin
from fish sales was 9.8% in 1996 compared to 23.0% in 1995.  As ponds were
emptied for refurbishing during 1996, mortality adjustments of approximately
$438,000 were required to be recorded in cost of products sold.  Had these
mortality adjustments not occurred, margin from fish sales would have been
21.0%, which was lower than in 1995 principally due to higher feed costs in
1996 compared to 1995.

     Catfish feed is a major portion of cost of products sold.  Uncertainties
in the grain futures markets and high demand for soybean and corn resulted in
higher feed costs during the second half of 1996.  The Company has contracted
to purchase approximately 85% of its 1997 feed needs at an average cost of $252
per ton which was lower than the $287 per ton cost on the spot market in March
1997.

     Selling, General and Administrative.  Selling, General and Administrative
("SG&A") expenses were $1,349,499 in 1996, $27,539 higher than in 1995.  During
1995, approximately $132,000 of legal and accounting expenses were incurred in
connection with the Prior Consolidation.  Selling costs increased in 1996 over
1995 due to the increase in sales volume.

     Interest Expense.  Interest expense decreased in 1996 to $555,974 from
$674,149 in 1995.  This decrease resulted from $1,932,103 reduction in debt
during 1996 principally from the conversion of $1,678,762 in investor notes to
the Company's common stock, rights, and warrants in AquaPro as part of the
Prior Consolidation.  The balance of the debt reduction resulted from
application of part of the proceeds of  exercise of the Company's  Rights
Offering in 1996.

Liquidity and Capital Resources

         As of June 30, 1997, the Company had a current ratio of 3.4 to 1, as
compared to 3.9 to 1 at December 31, 1996. Current assets exceeded current
liabilities by $4,289,944 compared to $4,405,922 in December 1996. Cash and cash
equivalents decreased during the six month period ended June 30, 1997 by
$556,163.

         Cash and cash equivalents were used primarily to fund operating losses
and grow live fish inventories. Live fish inventories increased by almost
$1,200,000 during the six month period ended June 30, 1997. As discussed above,
net sales declined when compared to the previous year and the increase in live
fish inventories was funded by a $533,298 decrease in trade accounts receivable
and a $318,368 increase in accounts payable since December 31, 1996 as well as
cash on hand. Inventories normally increase during this period but the increase
was greater than normal due to the decline in sales.

         During the six month period ended June 30, 1997, the Company purchased
approximately $530,000 in property and equipment. The Company's budget for the
calendar year 1997 was $750,000 and these purchases were within the planned
expenditures. For the fiscal year ending June 30, 1998, the Company's budget for
capital expenditures is $900,000. To increase production capacity, certain major
pond reworking programs are scheduled to be completed at a cost of approximately
$400,000. Management believes that in order to maintain productive catfish
farming operations over the long-term, 10 percent of ponds need to be reworked
each year and that capital will be required to maintain high levels of
production. The remaining $500,000 in property and equipment purchases planned
during the next year include additional aeration equipment to provide double
aeration to the refurbished ponds and vehicles and tractors to replace older
equipment. 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

                                      -23-

<PAGE>   26



Sunflower, Mississippi. The total cost of this move was approximately $150,000,
including the trailers, utility hook-ups, well construction, and ground
preparation.

         During the six month period ended June 30, 1997, the Company realized
proceeds from the sale of preferred stock and additional long-term borrowings of
$1,089,239 and $312,722, respectively. These funds were used to fund the
Company's operations and to increase its inventory as discussed above.
Additionally, principal payments totaling $149,708 were made to reduce long-term
debt and preferred stock dividends of $65,427 were paid during the six months
ended June 30, 1997.

         The Company intends to fund its operations primarily through fish
sales, cash reserves, $925,000 in feed credit lines, the proceeds of sales from
the Company's stock rights offering, additional credit lines and long and
short-term debt, if needed. On April 16, 1997, a $750,000 credit line was
established with a bank in Mississippi as a revolving line of credit for catfish
feed purchases. Borrowings (which totaled $497,571 at June 30, 1997) are 
secured by shares of the Company's cooperative processing stock and all
accounts receivable and live fish inventories on and related to seven of the
Company's eight farms. Interest is paid monthly and principal is paid with 50
percent of all collections of accounts receivable from sales of the seven
farms. Interest accrues at the prime rate plus 165 basis points and the
commitment expires March 8, 1998 with no prepayment penalty. During the quarter
ending December 31, 1997, the Company intends to attempt to obtain an
additional credit facility of up to $3,000,000. The Company anticipates its
cash needs during the year ending June 30, 1998 will exceed its current
borrowing capacity. It is anticipated any new credit facility obtained will
replace the revolving line of credit mentioned above. This new credit facility,
if obtained, will give the Company added flexibility to access funds for
general corporate purposes in addition to catfish feed purchases.

         In addition to the $750,000 credit line described above, the Company
has a $175,000 revolving feed credit line with a feed and processing company.
Approximately $31,000 was used at June 30, 1997. The interest rate is 10.25%
and the lender applies 34 cents for each pound of fish sold from the Balmoral
Farm as payment on the credit line. The collateral is a first lien on the
catfish inventory of the Balmoral Farm.

         Management believes that additional capital will be necessary to
support the Company's growth. Management believes that the net proceeds from the
1997 stock rights offering, combined with its existing cash and cash
equivalents, long and short term debt and product sales, will be adequate to
fund its planned existing operations and capital requirements discussed above
through June 30, 1998. Subsequent to June 30, 1997, $900,000 of the Company's 
10.35% convertible notes were exchanged by debt holders into preferred stock.
Also, approximately $525,000, net of offering expenses, was raised from the
Preferred Stock rights offering. However, the Company may require additional
capital, which it may seek through equity or debt financing, collaborative
arrangements with corporate partners, equipment lease financing or funds from
other sources. No assurance can be given that these funds will be available to
the Company on acceptable terms, if at all. In addition, because of the
Company's 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.


Item 7.           Financial Statements and Supplementary Data

         The financial statements are attached hereto beginning on page F-1.

Item 8.           Changes In and Disagreements with Accountants on Accounting
                  and Financial Disclosure

         The Company had no disagreements with or changes in its independent
accountants.


                                      -24-

<PAGE>   27

                                    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          Director of the
                                                             Company (or a              Company (or
      Name and Age                 Position               Predecessor of the         Predecessor) Since
      ------------                 --------                 Company) Since           ------------------
                                                          ------------------         
<S>                       <C>                             <C>                        <C>      
George S. Hastings, Jr.   Chairman of the Board                  1983                       1983
Age 50                    Chief Executive Officer
                          President

Patricia G. Hastings      Executive Vice President,              1983                       1983
Age 49                    Secretary and Director

Eric P. Braschwitz        Chief Financial Officer                1997                        --
Age 40

Debra D. Kelly            Vice President/National                1994                        --
Age 40                    Marketing Director

Roger Daley*              Director                                --                        1996
Age 74

Joseph Duncan, Sr.*       Director                                --                        1995
Age 70
</TABLE>

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

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

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

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

                  George S. Hastings, Jr. has been involved in the catfish 
Aquaculture industry since 1986. Mr. Hastings has sponsored eight catfish
farming programs, including the Partnerships. Mr. Hastings has substantial
experience in all levels of catfish farm management. Mr. Hastings serves as an
officer and director of the Company's wholly-owned subsidiaries, American and
Circle Creek, the predecessor of which he co-founded in 1983. From 1976 through
1983, Mr. Hastings worked in various capacities for Advanced Financial Planning
Corporation in Nashville, Tennessee, a financial planning firm emphasizing the
formation and sale of real estate investment programs. From 1983 to 1995 Mr.
Hastings owned 50% of and operated the Hastings/Huntingdon Companies which
provided financial planning, advisory and brokerage services to private
individuals and organizations. Mr. Hastings received his B.S. Degree in Finance
with a minor in accounting from the University of Tennessee and holds a J.D.
Degree from the University of Tennessee

                                      -25-

<PAGE>   28



College of Law. Mr. Hastings has been a member of the State Bar of Tennessee and
the U.S. Tax Court since 1976.

                  Patricia G. Hastings has been involved in the catfish 
Aquaculture industry since 1986. Ms. Hastings also serves as an officer and
director of American and Circle Creek, which she co-founded in 1983. From 1983
to 1995, Ms. Hastings owned 50% of and operated the Hastings/Huntingdon
Companies which provided financial planning, advisory and brokerage services to
private individuals and organizations. Ms. Hastings and Mr. Hastings are
married. Ms. Hastings holds a B.A. Degree in English magna cum laude, Phi Beta
Kappa from the University of Tennessee and a J.D. Degree from the University of
Tennessee College of Law. Ms. Hastings was admitted to the Tennessee State Bar
in 1976.

                  Eric P. Braschwitz joined the Company on March 3, 1997.
Previously, Mr. Braschwitz served as assistant controller for Camping World,
Inc., a $200 million retailer with 25 store locations. At Camping World, Mr.
Braschwitz was responsible for all accounting and financial reporting and
directly supervised a staff of twelve and indirectly managed eighteen others.
Prior to joining Camping World in 1993, Mr. Braschwitz served for fourteen years
in progressively more responsible positions at Ernst & Young LLP and its
predecessor firms. Mr. Braschwitz has performed auditing services for a number
of public companies and has extensive experience in, among other fields,
Securities and Exchange Commission accounting and reporting. He has been a
certified public accountant since 1981. Mr. Braschwitz is 40 years old and
received his Bachelors degree in Business Administration with Option in
Accounting degree from The University of Texas at El Paso.

                  Debra D. Kelly has served as an officer of the Company since 
1994. Previously, Ms. Kelly worked as an international commodities trader in
precious metals and foreign currency for ten years. She also has financial
planning experience in mutual funds and annuities and was an independent public
relations coordinator for an internationally recognized firm for over five
years. Ms. Kelly is listed in Who's Who in Women of Finance and Marquis Who's
Who of American Women.

                  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

                                      -26-

<PAGE>   29



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.

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

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 is only one 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 Hastings, Jr.                1997(1)    $75,000      $10,400          $28,125             36,000
Chief Executive Officer(3)          1996       150,000       56,000           28,125             36,000
                                    1995        56,931         None           28,125             36,000

Patricia G. Hastings                1997(1)    $37,500       $5,200          $18,750              9,000
General Counsel, Vice President,    1996        75,000        6,000           18,750              9,000
Secretary(3)(4)                     1995        56,931         None           18,750              9,000
</TABLE>

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

(1)      A transitional six-month fiscal year.

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

(3)      Options are exercisable for a 7-year period commencing on the date of 
         issuance at a price of $6.25 per Common Share. See discussion below.

(4)      Mr. Hastings and Ms. Hastings have agreed between themselves to share 
         equally their combined compensation from the Company.

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

         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 1997 fiscal year.


                                      -27-

<PAGE>   30

                       Option/Warrant Grants in 1997(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.           36,000                        70.6%                       $6.25            3/31/2004

Patricia G. Hastings               9,000                        17.6%                       $6.25            3/31/2004
</TABLE>

---------------------------
(a)      Six-months ended June 30, 1997.
---------------------------


         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, 1997.

                  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.                  117,000/None                          None/None(1)

Patricia S. Hastings                      36,000/None                          None/None(1)
</TABLE>

---------------------------
(1)      No Options are in-the-money based on the value of the Company's Common
         Stock, which, as of June 30, 1997, is estimated to be $6.25 per Share
         for the purposes of this table, as adjusted for the September 18
         Dividend.
---------------------------


         Employment Contracts. The Company has entered into separate written
employment agreements with Mr. George Hastings and Ms. Patricia Hastings.
Pursuant to their agreements each receives a base salaries of $150,000 per annum
and $75,000 per annum, respectively. In addition each is entitled to awards of
restricted stock and stock options and 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 contracts are exercisable for a term of seven years at an exercise
price equal to $6.25 per share and are exercisable upon issuance. Each 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.

         Explanation of Long-Term Compensation. The employment contracts for
each of the executive employees provide for yearly issuances of Restricted
Stock, in the amounts stated, during the term of their contracts. Thus, total
stock of approximately 3% of the total outstanding will be issued each year.
Under their respective employment contracts, each of the executive employees is
awarded stock options in the amount stated entitling the holder to purchase
shares at a price of $6.25 per share. These options are for a term of seven
years.

                                      -28-

<PAGE>   31


         Compensation of Directors. The Company does not pay its Directors cash
remuneration for their service but does reimburses each Director for his or her
out-of-pocket expenses incurred in connection with attending meetings. In
addition, commencing for its fiscal year 1995, the Company annually awards each
Director (including Directors who are officers of the Company) options for the
purchase of 3,000 Shares (the "Director Options"). The Director Options have a
term of seven years and are exercisable at a price equal to the estimated market
value of the common shares on the date of issuance. These options have a term of
seven years.

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

Item 11.          Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information as of June 30, 1997,
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.                                          369,774(2)(3)                     (11.76%)
President, Chief Executive Officer and Chairman of the Board

Patricia G. Hastings                                             369,774(2)(3)                     (11.76%)
Executive Vice President, Secretary and Director

Debra Kelly                                                       18,000(4)                         (0.57%)
Vice President of Marketing

Roger Daley                                                       61,373(5)                         (1.95%)
Director

Joseph F. Duncan, Sr.                                             32,933(6)                         (1.00%)
Director

All officers and directors as a group (five persons)             482,080                           (15.33%)
---------------------------------------------
</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

                                      -29-

<PAGE>   32



         other person. The $6.25 Compensatory Options and Director Options
         referenced in the table and below, are adjusted to reflect the
         September 18 Dividend and previous to such adjustments had an exercise
         price of $7.50.

         The total number of Common Shares outstanding is 3,144,609 as of June
         30, 1997, which includes 2,670,667 Common Shares issued and
         outstanding, 313,224 Common Shares issuable on the mandatory conversion
         of 235,507 shares of Series A Preferred Stock outstanding at June 30,
         1997 and 160,718 issuable upon conversion of the Investor Notes assumed
         by the Company in the Recent Consolidation. Neither Mr. Hastings nor
         Ms. Hastings owns any shares of the Series A Convertible Preferred
         Stock. No shares of the Series A Preferred Stock will remain
         outstanding after the mandatory conversion date.

         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.

(2)      Includes the following Common Shares, warrants and options held of 
         record by Mr. Hastings: 108,776 Common Shares and 117,000 Common Shares
         issuable upon the exercise of 108,000 $6.25 Compensatory Options and
         9,000 Director Options.

(3)      Includes the following Common Shares, warrants and options held of 
         record by Ms. Hastings: 107,998 Common Shares and 36,000 Common Shares
         issuable upon the exercise of 27,000 $6.25 Compensatory Options and
         9,000 Director Options.

(4)      Includes 9,000 Common Shares held of record and 9,000 Common Shares 
         issuable upon the exercise of $6.25 Compensatory Options.

(5)      Includes 55,373 Common Shares held of record and 6,000 Common Shares
         issuable upon the exercise of Director Options. 

(6)      Includes 23,993 Common Shares held of record and 9,000 Common Shares 
         issuable upon the exercise of $6.25 Director Options.

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

Item 12.          Certain Relationships and Related Transactions

Formation of Registrant

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

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



                                      -30-

<PAGE>   33
The Prior Consolidation

         General. On December 31, 1995 (the "Closing Date"), Registrant (i)
acquired by statutory merger all of the assets and liabilities of the four
participating partnerships (CCA I, CCA II, CCA III, and CCA IV) in consideration
for the issuance of units of its equity securities and/or 10.35% convertible
Notes (the "Prior Consolidation") and (ii) retired certain debt obligations of
the participating partnerships ("Investor Notes") in exchange for the 10.35%
Notes.

         The foregoing prices and amounts of the securities issued in the Prior
Consolidation have been adjusted to reflect the September 18, 1996 stock
dividend. Each unit issued in the Prior Consolidation was comprised of one stock
right entitling the holder to purchase one and two-tenths (1.2) share of the
Company's no par value common stock (a "common share") for $6.04; one warrant
entitling the holder to purchase one and two-tenths (1.2) common share for
$6.875 within twelve (12) months following the Closing Date; and one warrant
entitling the holder to purchase one common share for $8.75 within twenty-four
(24) months following the closing date, which warrant, if not exercised prior to
expiration, is converted into thirty-six one hundredths (0.36) common share.

         Terms of Acquisition. The table below sets forth the following with
respect to the Prior Consolidation: (a) the estimated Net Asset Value ("NAV") at
the Closing Date for each of the partnerships; (b) the maximum number of units
allocable to each of the partnerships; and (c) the maximum number of units
allocable to the participating limited partners and the maximum number of 10.35%
Notes that the participating limited partners could receive in lieu of units.


<TABLE>
<CAPTION>
                                                                                              Allocation Per $1,000 of
                                                                  Maximum Allocation           Original Investment by
                                                                  to Limited Partners        Limited Partners in Either
                                                               in Units or 10.35% Notes       Units or 10.35% Notes (5)
                                                               ------------------------      --------------------------

                 Estimated Net    Percentage of Aggregate     Number of           Face Value  Number of              Face Value
Partnership       Asset Value     Est. Net Asset Value(1),(2) Units(3)           of Notes(4)  Units(3)                of Notes
-----------      -------------    --------------------------- ---------          -----------  ---------              ----------
<S>              <C>              <C>                         <C>                <C>          <C>                    <C> 
CCA I            $        659,735 13.22%                        79,168            $   263,894  57.72                   $481
CCA II           $        868,805 17.42%                       104,257            $   347,522  74.88                   $624
CCA III          $      1,126,041 22.57%                       135,124            $   450,416  82.80                   $690
CCA IV           $      1,544,627 30.96%                       185,354            $   617,850 100.08                   $834
                 ---------------- -----                        -------            ----------- ------                   ----
TOTAL Units
Offered to
Partnerships:    $      4,199,208 84.17%                    503,903             $1,679,682
</TABLE>

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

(1)      "Percentage of Aggregate Estimated Net Asset Value" represents the
         percentage of the total Net Asset Value of the consolidated AquaPro
         corporation, of which the partnerships together represented 84.17%.

(2)      Neither the General Partner nor AquaPro received units or 10.35% Notes
         in connection with the general partner interest or a sponsor's
         "promotional" interest in a participating partnership.

(3)      This represents the maximum number of units which could have been
         issued by AquaPro to the limited partners with respect to their
         interest in the partnership. Based upon the respective partnership NAV
         and computed by dividing the partnership's NAV by the price per unit.
         Calculations use a unit price of $8.33 per unit.

(4)      The issuance of the 10.35% Notes was subject to the Note Restriction
         and, as a result, the total face value of the 10.35% Notes is shown as
         40% of the estimated aggregate Net Asset Value of a participating
         partnership. Based upon the estimates of Net Asset Value used in the
         Allocation Table, this represents the maximum aggregate principal
         amount of the 10.35% Notes that AquaPro could have issued to the
         limited partners of the partnerships in lieu of the units to which the
         limited partners would otherwise be entitled. The Table does not
         reflect units which were issued in exchange for Investor Notes or in
         exchange for short-term debt owed Mr. Hastings by CCA III.

(5)      The initial capital contribution for investment L.P. Unit in a 
         partnership was $19,895 for each of the partnerships. All comparisons
         have been made in reference to an original capital contribution of
         $1,000. Calculations use a unit price of $10 per unit.

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

         In the Prior Consolidation, the limited partners of the participating
partnerships received the Company's units and 10.35% notes through their
respective New Corps as follows:

                                      -31-

<PAGE>   34




<TABLE>
<CAPTION>
New Corp                      Units                     10.35% Notes
--------                      -----                     ------------
<S>                          <C>                        <C>
CCA I                         64,318                    $ 16,746.60
CCA II                        83,146                    $ 37,243.50
CCA III                      108,412                    $ 41,182.70
CCA IV                       148,888                    $ 53,925.30
                             -------                    -----------
                             404,764                    $149,098.10
                             =======                    ===========
</TABLE>


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

         The number of units issued in the Prior Consolidation was derived by
dividing the NAV of each partnership by a $8.33 unit price, as adjusted for the
September 18 Dividend. A unit price of $8.33 was chosen based on a value of
$6.25 per common share, which was the price used for the purposes of the Prior
Consolidation and was not based on any market or trading price. The 10.35% Notes
were offered in exchange at their par.

         On the closing date, each of the four participating partnerships were
incorporated and were merged into the Company in accordance with the Amended
Plan and Agreement of Consolidation. In accordance with this agreement, each
participating partnership organized a new corporation (a "New Corp"), and, on
the Closing Date, transferred all of its assets and liabilities to its New Corp
in consideration for the New Corp's stock and debt obligations. The Respective
New Corps were then merged into Registrant. In the mergers, each limited partner
received a pro rata share of Registrant's units or 10.35% Notes for their
limited partner interests. Following the Closing Date, each participating
partnership dissolved and liquidated in compliance with Tennessee law.

         The Investor Note exchange phase of the Prior Consolidation expired on
January 30, 1996. As a result, holders of the Investor Notes elected to receive
units or 10.35% Notes in the exchange for their Investor Notes. As a result of
the Investor Note exchange offer, the Company issued a total of 163,753 units
and a total of $214,495 principal amount of 10.35% Notes to the holders of the
Investor Notes.

         Neither Mr. Hastings or Ms. Hastings nor the Company received units or
10.35% Notes in connection with the General Partner interest in the
participating partnerships. The Hastings received no other compensation in
connection with the Prior Consolidation other than units in exchange for the
L.P. units they owned in the participating partnerships. Mr. Hastings owned 1.25
L.P. units in CCA II, 1.0 L.P. units in CCA III and 1.0 L.P. units in CCA IV and
elected to receive units for his limited partnership interests in the Prior
Consolidation. In addition, Mr. Hastings exchanged approximately $136,764 of
debt owed to him for cash advances by the participating partnerships for units
and for Stock upon the exercise of $7.25 Stock Rights received thereby.

         Description of The Acquired Partnerships. Each of CCA I, CCA II, CCA
III, CCA IV was sponsored by Mr. Hastings, as sole General Partner, for the
purpose of acquiring a specified farming property and operating thereon a
catfish Aquaculture business. Each of these partnerships was intended to operate
its catfish farm for a period of approximately ten (10) years after which the
General Partner would, if practical, attempt to sell or otherwise dispose of the
Partnership's farming property and business for a profit.

                                      -32-

<PAGE>   35
  


Accordingly, each of the Partnerships was formed for long-term investment with a
life cycle ranging from 10 to 15 years or longer. Each of the Partnerships was
organized under Tennessee law. The following tables provide selected information
regarding the Investments of the Prior Partnerships.

                 Partnership Organization and Capitalization
                 -------------------------------------------

<TABLE>
<CAPTION>
                            
   Name of          No. of      Date of          Original Limited Partner   Investor Notes    Mortgage Debt (1)
 Partnership       Partners   Organization         Capital (L.P. Units)     at 7/31/1995(1)     at 7/31/1995
 -----------       --------   ------------       ------------------------   ---------------   -----------------
<S>                <C>          <C>              <C>                        <C>               <C>
CCA I                56         3-31-1989               $1,372,755            $1,189,500              --
CCA II               63         4-16-1990               $1,392,650             $ 962,600              --
CCA III              59         9-23-1990               $1,631,390             $ 260,951          $336,000
CCA IV               80         5-30-1991               $1,850,235                 --             $227,500
</TABLE>                                                                   

                 Information Regarding Partnership Properties
                 --------------------------------------------

<TABLE>
<CAPTION>

                                                                         Appraised
                   Total Acres                       Purchase Price    Value of Farm
   Name of        (Water Acres)       Number of         of Farm         Property at
 Partnership          Owned          Ponds Owned      Property(1)        7/31/1995
 -----------      -------------      -----------     --------------    -------------
 <S>              <C>                <C>             <C>               <C>     
    CCA I           275 (210)             15            $204,875         $482,479
    CCA II          278 (211)             15            $222,400         $466,700
    CCA III         318 (270)             14            $625,100         $524,700
    CCA IV          254 (193)             13            $488,813         $387,550
</TABLE>

              Information Regarding Partnership Tangible Assets
              -------------------------------------------------

<TABLE>
<CAPTION>

                   Cash and
                   Accounts           Catfish      Investments in     Equipment and      Total Tangible
   Name of       Receivable at     Inventory at     Cooperatives      Real Property         Assets at
 Partnership     7-31-1995(1)      7-31-1995(1)   at 7-31-1995(1)   at 7-31-1995(1)(2)    7/31/1995(1)
 -----------     -------------     ------------   ---------------   ------------------   ---------------
<S>              <C>               <C>            <C>               <C>                  <C>       
CCA I              $ 77,787          $556,426         $134,123           $541,220          $1,309,556
CCA II             $106,238          $711,939         $181,135           $594,512          $1,593,824
CCA III            $106,243          $661,313         $311,665           $689,568          $1,768,789
CCA IV             $ 47,975          $472,345         $334,442           $548,880          $1,403,642
</TABLE>

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

(1)  Unaudited.  July 31, 1995 was the appraisal date for the Prior 
     Consolidation.
(2)  Net of accumulated depreciation.


The Recent Consolidation

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

         The Company and the partners of each Participating Partnership approved
the Consolidation on April 16, 1997 and June 30, 1997, respectively. The
Company's Shareholders approved the Consolidation by a greater than 85% vote.
More than 98% of the Limited Partners of each Partnership approved the

                                      -33-

<PAGE>   36



Consolidation by written consent. No Shareholder of the Company elected to
exercise his or her dissenter's rights with respect to the Consolidation as may
have been provided under Tennessee corporate law.

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

         Terms of the Mergers. The Company offered up to 722,232 Units and/or up
to $658,606 in principal amount of its 7.15% Notes to acquire the assets of the
Partnerships. Participating Limited Partners will have the right to elect either
Units or Notes with respect to the L. P. Units. The amount of Units and Notes
the Company offered to the Partnerships in the Consolidation was determined in
accordance with two sets of procedures: first, procedures for the external
allocation of the consideration among the Participating Partnerships; and
second, procedures for the internal allocation of the consideration payable to
each Participating Partnership among the Participating Limited Partners.

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

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

                  The 7.15% Notes. The Notes will bear interest at the rate of
7.15% per annum for the period from and including the date of original issuance
(expected to be the Closing Date). The Notes are convertible into common shares
at any time at the election of the holder at a price of $10.00 per share. The
Notes are redeemable at any time, or from time to time, by AquaPro for a
Redemption Price equal to their unpaid principal balance plus accrued interest
to the date called for prepayment. The extent to which the Company issues Notes
in place of Units in the Recent Consolidation will depend upon elections of the
Dissenting Partners whose elections to receive Notes will be honored in full
prior to elections for Notes by other Participating Limited Partners. 

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


                                      -34-

<PAGE>   37



         The Company has relied upon the exemption from registration under the
Securities Act of 1933 (the "1933 Act") contained in Section 3(a)10 thereof. The
Company bases its reliance upon the fairness hearing held by the California
Commissioner of Corporations pursuant to Section 25142 of the California
Corporate Securities Law of 1968 on March 31, 1997, and on the Certificate of
Issuance of Permit and the issuance of permit dated April 30, 1997. For your
information, we supplementally enclose copies of the Notice of Hearing mailed to
all shareholders of the Company and limited partners and investor note holders
of each the subject Partnerships. We note that the Commission has held in
numerous no-action letters that fairness hearings pursuant to Section 25142 of
the California Corporate Securities Law satisfy the fairness hearing
requirements for the 3(a)10 exemption.

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

         Participating Limited Partners who are subject to income tax will
realize taxable gain or loss in the Recent Consolidation. The amount of any gain
or loss recognized by Participating Limited Partners who are subject to income
tax will be based upon the allocation provisions of the Partnership Agreement,
as amended, of their Partnership as of the date of the Recent Consolidation. No
special distributions of cash will be made to Participating Limited Partners for
the payment of any tax. In general, any gain or loss will be recognized in the
year of the Recent Consolidation. The gain or loss from a Recent Consolidation
generally will be treated as arising from the sale of assets used in a trade or
business and will be characterized as capital gain or loss or ordinary income or
loss, depending upon the amount of each Participating Limited Partner's gains or
losses attributable to any sales of assets used in a trade or business.
Participating Limited Partners who are not subject to income tax will not
recognize a material amount of unrelated business taxable income (UBTI) in the
Recent Consolidation.

         The Company intends to use the net proceeds from the sale of the Series
A Preferred Stock pursuant to the exercise of the Stock Rights, if any, for
operating expenses, scheduled maintenance and capital improvements on farming
properties, the repayment of debt, and, to the extent such proceeds are
available, for expansion of its catfish inventories and working capital. There
is no assurance that the Company will realize proceeds from the Stock Rights
Offering or that such proceeds to the extent realized will be sufficient to
accomplish one or more of the foregoing.

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

<TABLE>
<CAPTION>
Partnership               Number of Units           7.15% Notes
---------------------------------------------------------------
<S>                       <C>                       <C>    
CCA V                         340,662                $37,056
CCA VI                        152,773                 23,379
CCA VII                       109,518                   None
CCA VIII                      105,973                  8,147
                              -------                -------
Total                         708,926                $68,582
</TABLE>


                                      -35-

<PAGE>   38





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

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

         Pursuant to the terms of the Recent Consolidation, the Company is
offering to retire the Investor Notes in exchange for shares of its Series A
Preferred Stock (the "Investor Note Exchange"). This offer will terminate on or
before September 5, 1997. In the Investor Note Exchange, the Company is offering
to exchange shares of its Preferred Stock for the Investor Notes at the rate of
1.30 shares of Preferred Stock per $10.00 of unpaid balance of principal and
interest on the Investor Note as of the date of exchange. Up to 149,176 shares
of the Series A Preferred Stock could be issued in the Investor Note Exchange.
The Investor Notes of those persons electing not to exchange their Investor
Notes will remain outstanding and will be assumed by AquaPro pursuant to the
Consolidation.

         Allocation of Units. The number of Units offered to each Partnership
was derived by dividing the Net Exchange Value ("NEV") of that Partnership by
the Exchange Ratio. See "Terms of the Mergers Computation of Net Exchange
Values" below. The Units (and the Notes) were allocated among the Partnerships
in accordance with their respective NEV, subject to adjustment in limited
circumstances. Under the Consolidation Agreement with each Partnership, each
participating Limited Partner was entitled to his or her pro rata share of the
consideration allocated to the Partnership based upon the participating Limited
Partners' relative percentage ownership of L.P. Units in his or her Partnership.
Each participating Limited Partner could elect to receive Notes subject to
satisfaction of elections by any Dissenting Partners and subject to the Note
Restriction.

         The Table below sets forth: (a) the NEV of each Partnership for the
purposes of the offer; (b) the maximum number of Units allocable to each
Partnership; and (c) the maximum number of Units allocable to the participating
Limited Partners of each Partnership and the maximum number of Notes that the
Participating Limited Partners could receive in lieu of Units.


                                      -36-

<PAGE>   39



<TABLE>
<CAPTION>
                                           Maximum Offered to Limited        Amount Offered Per $1,000 of Original
                                                    Partners                 Investment by Limited Partners in  
                                             in Either Units or Notes            Either Shares or Notes(4)      
                                             ------------------------            -------------------------
                           Net Exchange                                         Number of          Face Value
Partnership                  Value(1)   Number of                Face Value       Units             of Notes
                                         Units(2)               of Notes(3)
<S>                        <C>           <C>                    <C>           <C>                  <C>
CCA V                      $1,582,104    346,989                  $316,421        102.95             $469.38

CCA VI                        719,962    157,903                   143,992        157.90              719.96

CCA VII                       499,338    109,515                    99,868        103.25              470.76

CCA VIII                      491,628    107,825                    98,326        119.14              543.24

TOTAL                      $3,293,032    722,232                  $658,607          ---                 ---
100%
Partnership
Participation
</TABLE>

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

(1)      These amounts were subject to adjustment at the Closing under limited 
         circumstances.

(2)      This represents the maximum number of Units issuable by AquaPro to the
         Limited Partners with respect to their L.P. Units in the Partnership
         based upon the respective Partnership NEV and computed by multiplying
         the Partnership's NEV by the Exchange Ratio.

(3)      The issuance of the Notes was subject to the Note Restriction and as a
         result the total face value of the Notes is shown as 20% of the
         estimated aggregate Net Exchange Value of a Participating Partnership.
         Based upon the estimates of Net Exchange Value used in the Allocation
         Table, this represents the maximum aggregate principal amount of the
         Notes that AquaPro was prepared to issue to the Limited Partners of the
         Partnerships in lieu of the Units to which the Limited Partners would
         otherwise be entitled.

(4)      All comparisons have been made in reference to an original capital 
         contribution of $100 per L.P. Unit.

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

         Terms of Acquisition

         The number of Units offered to each Partnership for its assets was
determined by the following formula:

Number of Units = Partnership's NEV x EXCHANGE RATIO

Where: EXCHANGE RATIO = (Total Units Offered by AquaPro in Prior Consolidation)
                        -------------------------------------------------------
                            Total NEV of CCA I, CCA II, CCA III and CCA IV

         The Units and the Notes were allocated among the Partnerships in
accordance with the NEV of each Partnership (subject to adjustment in limited
circumstances, as described below). Under the merger agreements, each
Participating Limited Partner is entitled to his or her pro rata share of the
consideration allocated to his or her Participating Partnership based upon his
or her percentage Limited Partner interest in the Participating Partnership.
Each Participating Limited Partner had the opportunity to elect to receive Notes
rather than Units subject to satisfaction of elections by any Dissenting
Partners and subject to restriction that the Notes issued to a Participating
Partnership could not exceed 20% of that Partnership's NEV ("the Note
Restriction").

                                      -37-

<PAGE>   40


         The fairness of the methodology of determining the respective values of
the Partnerships and AquaPro for the purposes of the Consolidation and the
determination of the amount of Units offered to the Partnerships in the
Consolidation was reviewed by Bishop-Crown Investment Research, Inc.
("Bishop-Crown"), an independent investment valuation and research firm.
Bishop-Crown rendered its Fairness Opinion for the Consolidation. Bishop-Crown
also issued a fairness opinion in the consolidation of CCA I-IV.

                  Determination of Exchange Ratio. The Exchange Value was
determined based on the ratio of units issued for the value of the net assets of
CCA I, CCA II, CCA III and CCA IV in the prior consolidation principally because
the Company and Bishop-Crown believed that this ratio was the simplest and most
reasonably likely method of assuring equal treatment of all of the Circle Creek
Partnerships. Because the businesses and assets of each of the eight Circle
Creek Partnerships were essentially qualitatively the same, the ratio of units
to unit of Net Asset Value for each of the Partnerships should have been the
same. This assumes that the method of determining the Net Asset Value of each of
the Partnerships was equally applicable and consistently applied to each
Partnership. Any bias in the method towards a higher or lower value would be
more or less equally applied to each of the Partnerships and equally reflected
in the exchange ratio.

         Allocation of Units. The company offered up to 722,232 Units to the
Partnerships in the merger transactions. The number of Units offered to each
Partnership was derived by dividing the total of the NEV of that Partnership by
the Exchange Ratio. See "Determination of Net Exchange Values" below. The Units
(and the Notes) were allocated among the Partnerships in accordance with their
respective NEV, subject to adjustment in limited circumstances. Under the
Consolidation Agreement with each Partnership, each participating Limited
Partner was entitled to his or her pro rata share of the consideration allocated
to the Partnership based upon the participating Limited Partners' relative
percentage ownership of L.P. Units in his or her Partnership. Each participating
Limited Partner could elect to receive Notes subject to satisfaction of
elections by any Dissenting Partners and subject to the Note Restriction.

         Computation of Net Exchange Values. The NEV of each of CCA I, CCA II,
CCA III, and CCA IV ("CCA I - CCA IV") was determined as of December 31, 1995
(the Closing Date of the Prior Recent Consolidation) in the same manner as
described above for CCA V, CCA VI, CCA VII, and CCA VIII in the Recent
Consolidation.

         The NEV of each Partnership was calculated as the sum of the fair value
of the respective assets of each Partnership as of September 30, 1996 (the
"Appraisal Date"), less their respective Liabilities on the Appraisal Date,
including the Partnership's Investor Notes. For the purposes of allocating Units
in the Recent Consolidation, the estimated Net Exchange Value of CCA I -CCA IV
were calculated as of December 31, 1995, the closing date of the Prior
Consolidation. These estimated Net Exchange Values were calculated in the same
manner as those for the Partnerships. The value of the assets of each
Partnership was calculated based on the appraised values of the Partnerships'
real and personal property, as described below.

                  Adjusted Cash. A total of $131,678 of Consolidation costs were
charged to CCA I-IV and reflected on their respective December 31, 1995
financial statements. Consolidation expenses have not been charged to the
Partnerships and are not reflected in their respective NEVs. Thus, these charges
to CCA I-IV were credited to cash to determine their combined NEV. A total of
$149,136 was included in Adjusted Cash. This amount represents pond
improvement/reconstruction expenditures by CCA III and CCA IV during 1995 which
were not reflected in the Appraisals for those Partnerships.


                                      -38-

<PAGE>   41



                  Live Fish Inventory. The market value of each Partnership's
live fish inventory was determined by estimating the number and respective size
by weight of the Partnership's inventory fish at December 31, 1995 for CCA I-IV
and September 30, 1996 for CCA V, CCA VI, CCA VII and CCA VIII. The market value
was then calculated based on the prevailing wholesale price per pound for food
fish and a fingerling price of $1.20 per pound at the time of estimation. The
estimated number of each size of fish is based on the Company's inventory
accounting procedures, actual inventory sampling and the FISHY program
statistical estimates. In valuing the inventory, rates of loss by reason of
future mortality or delays in the sale and/or delivery of inventory were
ignored. The inventory values reflect all adjustments to the date of valuation
by reason of mortality loss rate and reserve changes. Adjustments after the
respective valuation dates are not taken into account. Thus, the inventory for
CCA I-IV at December 31, 1995 does not reflect the subsequent adjustments of
$450,923 for mortality loss and loss reserves against future mortality loss made
to certain of the CCA I-IV inventories. Even though such adjustments were, at
least in part, made as of December 31, 1995, they were not included in valuing
the CCA I-IV inventory because, among other things (1) they were made after the
closing of the Prior Consolidation, (2) the consolidation agreement for the
Prior Consolidation placed the risk of subsequent asset adjustments on the
Company, not the transferring Partnership, and (3) the terms of the Prior
Consolidation did not provide for adjustment of the consideration (i.e. number
of Units) paid by reason of the Consolidation in the event of subsequent asset
adjustments. Moreover, in the Recent Consolidation, the same terms will apply
and none of the Participating Partnerships will be at risk for inventory or
other asset adjustments occurring after the closing date.

                  Machinery and Equipment. The value of the machinery and
equipment of each Partnership and the CCA I-IV Partnerships is the highest
estimated market value realizable upon resale of the Partnership's farm
equipment and machinery. The Value for each Partnership (and CCA I-IV as a
group) was determined as a fraction of undepreciated costs. The fraction applied
was determined based on the general condition and age. The following fractions
were applied.

<TABLE>
Partnership             CCA I-IV       CCA V        CCA VI       CCA VII        CCA VIII
<S>                     <C>            <C>          <C>          <C>            <C>    

Value as fraction of      0.60         0.60          0.50         0.60            0.60
undepreciated cost.
</TABLE>

                  Investment in Circle Creek Seining Partnership. Circle Creek
Seining Partnership ("CCSP") is a cooperative partnership formed and operated to
share inventory, transportation and certain maintenance equipment costs among
its partners. Its assets consist almost entirely of machinery and equipment
which for the valuation purposes were valued at 50% of its original cost on the
same basis as the valuation of the machinery and equipment of each Partnership.
See discussion above. Because each Partnership's investment in CCSP represents
the depreciated cost of its investment in CCSP, for valuation purposes, each
Partnership's investment in CCSP was treated as a direct interest in CCSP's
machinery and equipment.

                  Real Property.  The value of the real property of each
Partnership and of the CCA I-IV Partnerships is the appraised value of the
property determined by Mr. William J. Toler, independent real estate appraiser,
and is supported by an appraisal report by Mr. Toler.

                  Cooperative Stock.  The cooperative stock owned by each 
Partnership and the CCA I-IV Partnerships was valued at its cost.

         The table below sets forth the calculation of the NEV for each
Partnership.


                                      -39-

<PAGE>   42

<TABLE>
<CAPTION>



               At 12/31/1995 (Unaudited)                                            At 9/30/1996 (Unaudited)
               ------------------------                             ------------------------------------------------------
                                                    Partnerships
                                                     (CCA I-IV)        CCA V          CCA VI       CCA VII       CCA VIII
<S>                                                 <C>             <C>              <C>          <C>            <C>    
ASSETS
Adj. Cash(1)                                         $  356,538     $   30,786       $ 22,302     $  25,848      $  21,188
Acc. Receivable                                         100,503         37,146         52,419        25,392         43,407
Prepaid Expenses                                         65,100          -0-            -0-              -0-         -0-
Inventory (at Market  Value)                          3,019,915      1,931,450        574,430       526,430        693,240
Coop Stock                                              659,912        319,755        145,900        43,950         60,000
C.C. Seining (at  Market Value)                          61,712         52,224         25,054        30,000         32,465
Machinery & Equip.(at  Mkt Value)                       364,268        171,689         60,902       108,520        141,641
Real Property (at  appraised value) (2)               1,861,429        950,000        268,300       359,740        445,197
                                                     ----------     ----------     ----------    ----------     ----------
Total Assets at Fair  Market Value                   $6,489,377     $3,493,050     $1,149,307    $1,119,880     $1,437,138

LIABILITIES
Current Liabilities                                                 $  267,650     $  110,776      $ 27,118       $ 28,432
Long-Term Liab.                                                      1,643,295        318,569       593,424        917,078
                                                     ----------     ----------     ----------    ----------     ----------

Total Liabilities                                    $4,191,814     $1,910,945     $  429,345      $620,542       $945,510
                                                     ----------     ----------     ----------    ----------     ----------

Net Exchange Value (NEV)(3)                          $2,297,563     $1,582,105     $  719,962      $499,338       $491,628
                                                     ----------     ----------     ----------    ----------     ----------
EXCHANGE RATIO
Original Capital                                                    $3,370,550     $1,000,000    $1,060,700     $  905,000
                                                                    ----------     ----------    ----------     ----------

NEV per original $1000 investment                                   $   469.39     $   719.96    $   470.76     $   543.24
Units Offered(4)                                        419,921

Ex Div-x1.20                                            503,905
Units Offered (5)                                                      346,989        157,903       109,515        107,825
Units Offered per original $1000 investment                             102.95         157.90        103.25         119.14
                                                                    ----------     ----------    ----------     ----------
7.15% Note/$1000 inv.(6)                                            $   469.39     $   719.96    $   470.76     $   543.24
                                                                    ----------     ----------    ----------     ----------
</TABLE>
---------------------------
Notes:   

(1)      Includes cash equivalents and certain adjustments. See discussion
         above.

(2)      Based on independent appraisals.

(3)      Net Exchange Value equals "Total Assets (appraised)" less "Total
         Liabilities."

(4)      The maximum number of Units offered to L.P.s of CCA I-IV in the Prior
         Consolidation.

(5)      The number of Units to be offered to each of CCA V, VI, VII and VIII is
         based on the same ratio of Units per amount of Net Exchange Value (the
         "Exchange Ratio") offered to CCA I, CCA II, CCA III and CCA IV, as a
         group, in the Prior Consolidation as follows:

                  (NEV of Partnership) X (the Exchange Ratio)


                                      -40-

<PAGE>   43



(6)      The principal amount of 7.15% Notes offered to dissenting Limited
         Partners equals their Partnership's NEV per $1,000 of their original
         investment.

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

         Description of the Partnerships. Each of the Partnerships was sponsored
by the Company or its predecessor. The Company owns all of the General Partner's
economic interest in each Partnership. The investment objectives of the
Partnerships are to acquire and operate a single catfish farm with a view
towards potential capital gain from appreciation of the farming operations and
real estate. Each Partnership was initially capitalized through the issuance of
its L.P. Units which constitute units of Limited Partner interests. The rights,
preferences and privileges of the L.P. Units are set forth in the Agreements of
Limited Partnership of their respective Partnership (the "Partnership
Agreements"). The Partnership Agreements of each Partnership have substantially
the same material terms and conditions. Each Partnership sold its L.P. Units to
its partners at a price of $100 per L.P. Unit. Set forth in the Table below is
certain information concerning each of the Partnerships.

                   Partnership Organization and Capitalization

<TABLE>
<CAPTION>
                                                       Original
                                                     Limited Partner       Investor     Mortgage
      Name of         No. of       Date of               Capital           Notes at     Debt at
    Partnership      Partners    Organization         (L.P. Units)         3/31/1997    3/31/1997
    <S>              <C>         <C>                 <C>                   <C>         <C>
      CCA V             196      04/01/1993            $3,397,300          $ 312,700   $1,070,349(1) 
      CCA VI             41      05/27/1994             1,000,000             -0-      $  140,800(2) 
      CCA VII            51      12/31/1994             1,060,700           239,292    $  267,100(3) 
      CCA VIII           60      08/15/1995               905,000           595,521    $  244,995(4) 
</TABLE>
----------------------------
                                                                               
(1)      Note payable to a bank monthly principal and interest payments of
         $11,754 through April 2000 and a final payment of $1,012,802 due April
         2000 with interest at Prime plus 2 1/2%.

(2)      Note payable to Metropolitan Life Insurance Company requiring annual
         payments of $6,100 through March 2004 and a final payment of $92,000
         due September 2004 with interest payable semi-annually at 9.5%.

(3)      Note payable to a bank collateralized by land and equivalent requiring
         annual payments of $34,307, including interest at variable rates (9.05%
         at June 30, 1997) through 2015.

(4)      Note payable to a bank collateralized by land and equipment requiring
         annual payments of $31,732, including interest at variable rates 
         (9.05% at June 30, 1997) through 2015.

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

                 Information Regarding Partnership Real Property
<TABLE>
<CAPTION>

                                                        Cost of Real           Appraised
                    Total Acres                      Property Before         by Value of
     Name of       (Water Acres)       Number of     Depreciation at         Real Property
   Partnership         Owned          Ponds Owned       12/31/1996           At 9/30/1996
   ------------        -----          -----------       ----------           ------------
   <S>             <C>                <C>            <C>                     <C>    
    CCA V           668  (443)            43              $950,654             $950,000
    CCA VI          170  (140)             8               281,846              268,300
    CCA VII         212  (189)            11               325,586              359,740
    CCA VIII         242 (188)            11               451,393              445,197
</TABLE>




                                      -41-

<PAGE>   44

                Information Regarding Partnership Tangible Assets
<TABLE>
<CAPTION>


                                                          Investments in
                      Cash and                            Cooperatives &   Machry., Equip.
                      Accounts                             Circle Creek    & Real Property          Tangible
     Name of        Receivable at   Catfish Inventory         Seining      Net of Acc. Depr.         Assets
   Partnership      12/31/1996(1)    at 12/31/1996(1)      at 12/31/1996     at 12/31/1996       at 12/31/1996
----------------    -------------   ----------------      --------------   ----------------      -------------
<S>                 <C>             <C>                   <C>              <C>                     <C>    
CCA V                  $139,143          $1,145,621           $407,922          $1,125,910         $2,818,596
CCA VI                  246,963             249,635           $194,023             343,336          1,033,957
CCA VII                   2,569             504,616           $101,286             404,104          1,012,575
CCA VIII                  1,531             565,229           $124,066             538,771          1,229,597
</TABLE>



   Historical Cash Distribution and Estimated Net Exchange Values per $1,000
                                 Original Investment

<TABLE>
<CAPTION>

                                           Cumulative Distribution to Limited    Total Received
                         Year of First       Partners Through 12/31/1996 per    as a Percent of
Partnership Name          Investment          $1,000 Original Investment(1)      1,000 Invested
----------------         -------------     ----------------------------------   ---------------
<S>                      <C>                 <C>                                <C>   
CCA V                        1993                          119                       11.9%
CCA VI                       1994                          113                       11.3%
CCA VII                      1994                          78                         7.8%
CCA VIII                     1995                          42                         4.2%
</TABLE>

---------------------
(1)      This column represents the amount of cumulative distributions per
         $1,000 of original investment that were received by investors in excess
         of the amount of cumulative net income per $1,000 of original
         investment. Depreciation on the Partnerships' properties is the primary
         component of the return of capital.

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



Item 13.          Exhibits and Reports on Form 8-K

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

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

                                      -42-

<PAGE>   45



                              AquaPro Corporation

                       Consolidated Financial Statements

   Six months ended June 30, 1997 and years ended December 31, 1996 and 1995

<TABLE>
<CAPTION>

                                                CONTENTS
<S>                                                                                                      <C>
Report of Independent Auditors...........................................................................F-2

Audited Consolidated Financial Statements

Consolidated Balance Sheets..............................................................................F-3
Consolidated Statements of Operations....................................................................F-5
Consolidated Statements of Changes in Stockholders' Equity...............................................F-6
Consolidated Statements of Cash Flows....................................................................F-8
Notes to Consolidated Financial Statements...............................................................F-9
</TABLE>





                                     F-1
<PAGE>   46






                         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, 1997 and December 31, 1996 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the six months ended June 30, 1997 and the years ended
December 31, 1996 and 1995. 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, 1997 and December 31, 1996,
and the consolidated results of their operations and their cash flows for the
six months ended June 30, 1997 and the years ended December 31, 1996 and 1995
in conformity with generally accepted accounting principles.

                                                              Ernst & Young LLP

Jackson, Mississippi
August 21, 1997

                                                                  



                                     F-2
<PAGE>   47



                              AquaPro Corporation

                          Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                     JUNE 30       DECEMBER 31
                                                       1997           1996
                                                   -----------------------------
<S>                                                <C>           <C>
ASSETS
Current assets:
   Cash and cash equivalents                       $   202,894   $   759,057
   Trade accounts receivable (Note 5)                  108,009       598,307
   Receivables from affiliates                          27,998        27,998
   Live fish inventories (Note 5)                    5,740,124     4,549,528
   Prepaid expenses                                     10,516         3,753
                                                   -----------   -----------
Total current assets                                 6,089,541     5,938,643

Property, buildings and equipment (Note 5):
   Land                                              1,781,078     1,781,078
   Ponds and improvements                            3,014,785     2,925,494
   Buildings                                           346,416       280,103
   Machinery and equipment                           2,364,743     1,989,925
                                                   -----------   -----------  
                                                     7,507,022     6,976,600
   Accumulated depreciation                          1,867,269     1,550,735
                                                   -----------   -----------
                                                     5,639,753     5,425,865

Investments in cooperatives (Notes 4 and 5)            883,518     1,198,517
Delivery rights and other intangible assets, net       104,161       110,522








                                                   -----------   -----------
Total assets                                       $12,716,973   $12,673,547
                                                   ===========   ===========
</TABLE>




                                     F-3
<PAGE>   48





<TABLE>
<CAPTION>
                                                                             JUNE 30         DECEMBER 31
                                                                               1997             1996
                                                                        --------------------------------
<S>                                                                     <C>                 <C>        
LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
   Notes payable (Note 5):
     Bank                                                               $   497,571         $         -
     Officer and director                                                   161,254             161,254
     Others                                                                  30,637             576,292
   Accounts payable                                                         523,255             184,076
   Accrued salaries                                                         239,994             240,662
   Accrued interest and other                                                74,628              94,771
   Current maturities of long-term debt                                     272,258             275,666
                                                                        -----------         -----------
Total current liabilities                                                 1,799,597           1,532,721

Long-term debt, less current maturities (Note 5)                          4,102,980           3,867,976

Stockholders' equity:
   Series A Preferred Stock, no par value - authorized
     1,900,000 shares, cumulative, convertible, issued and
     outstanding 235,507 at June 30, 1997 and 104,534
     at December 31, 1996 (Note 8)                                        1,837,408             748,169
                                                                          
   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 2,670,667 shares at
     June 30, 1997 and 2,452,819 shares at December 31,
     1996 (Note 6)                                                        10,588,311          10,568,989
   Unearned compensation                                                   (126,563)           (112,500)
   Retained earnings (deficit)                                           (5,484,760)         (3,931,808)
                                                                        -----------         -----------
Total stockholders' equity                                                6,814,396           7,272,850
                                                                        -----------         -----------
Total liabilities and stockholders' equity                              $12,716,973         $12,673,547
                                                                        ===========         ===========
</TABLE>





See accompanying notes.

                                                                              


                                     F-4

<PAGE>   49



                              AquaPro Corporation

                     Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                 SIX MONTHS
                                                   ENDED
                                                  JUNE 30       YEAR ENDED DECEMBER 31
                                                   1997           1996           1995
                                               -----------------------------------------
<S>                                            <C>            <C>            <C>        
Revenues:
Net sales                                      $ 1,203,468    $ 3,906,954    $ 2,992,287
Management fees from affiliates (Note 10)            9,000         18,000         18,000
                                               -----------    -----------    -----------
                                                 1,212,468      3,924,954      3,010,287

Cost of products sold                            1,188,159      3,525,405      2,303,194
Selling, general and administrative (Note 6)     1,055,540      1,349,499      1,321,960
Impairment loss on long-lived assets                  --        1,019,000           --
                                               -----------    -----------    -----------   
Operating loss                                  (1,031,231)    (1,968,950)      (614,867)

Other income (expense):
   Equity in losses on investment
     in cooperatives                              (272,000)      (109,969)       (69,501)
   Interest expense                               (212,685)      (555,974)      (674,149)
   Other, net                                       28,391        128,038         91,836
                                               -----------    -----------    -----------
                                                  (456,294)      (537,905)      (651,814)
                                               -----------    -----------    -----------
Net loss                                       $(1,487,525)   $(2,506,855)   $(1,266,681)
                                               ===========    ===========    ===========
Net loss per common share                      $      (.51)   $     (1.02)   $     (0.64)
                                               ===========    ===========    ===========
Weighted average common shares outstanding       2,910,620      2,467,764      1,972,315
                                               ===========    ===========    ===========
</TABLE>


See accompanying notes.

                                                                              



                                     F-5

<PAGE>   50



                              AquaPro Corporation

           Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
                                                                                          AquaPro Corporation
                                                                                     -------------------------------
                                                     General           Limited
                                                     Partners'         Partners'              Common Stock
                                                     Capital           Capital          Shares           Amount
                                                     ---------------------------------------------------------------
<S>                                                   <C>          <C>                       <C>   <C>
Balance at January 1, 1995                            $(402,848)   $ 2,523,502           510,099   $ 2,315,357
Capital contributions                                     1,000           --
Sale of limited partnership units                          --        2,654,008
Reorganization and merger (Note 2)                      442,784     (4,717,030)        1,134,282     4,178,915
                                                      ---------    -----------         ---------    ----------
                                                         40,936        460,480         1,644,381     6,494,272
Net loss for the year ended December 31, 1995
Cash distributions                                      (30,085)      (368,341)
Retirement of limited partnership units
Common stock issued to employees for services                                             20,000       150,000
Amortization of unearned compensation
Conversion of limited partnership units
   to notes payable                                                                                   (149,098)
                                                      ---------    -----------         ---------    ----------
Balance at December 31, 1995                             10,851         92,139         1,664,381     6,495,174
Net loss for the year ended December 31, 1996
Cash distributions                                      (10,851)       (97,665)
Retirement of limited partnership units
Sale of limited partnership units                                        5,526
Common stock issued to employees
   for future services                                                                    20,000       150,000
Amortization of unearned compensation
Conversion of debt to stock (Note 5)                                                     186,740     1,717,305
Sale of common stock (Note 6)                                                            362,704     2,137,928
Sale of preferred stock (Note 8)
One-for-five common stock split                                                          218,994
Preferred stock-cash dividend
                                                      ---------    -----------         ---------    ----------
Balance at December 31, 1996                               --             --           2,452,819    10,500,407
Net loss for the six months ended June 30, 1997
Common stock issued to employees for services                                             22,500       140,625
Cancellation of common stock
   granted to former employees                                                            (9,000)      (56,250)
Amortization of unearned compensation
Conversion of warrants to common stock                                                   203,834
Sale of common stock (Note 6)                                                                514         3,529
Sale of preferred stock (Note 8)
Preferred stock cash dividend
                                                      ---------    -----------         ---------   -----------
Balance at June 30, 1997                              $      --    $        --         2,670,667   $10,588,311
                                                      =========    ===========         =========   ===========
</TABLE>






                                     F-6

<PAGE>   51







<TABLE>
<CAPTION>
                            AquaPro Corporation
-------------------------------------------------------------------------------
                                   Additional                          Retained          Total
       Preferred Stock              Paid-In          Unearned          Earnings       Stockholders'
    Shares           Amount         Capital        Compensation       (Deficit)          Equity
-----------------------------------------------------------------------------------------------------
<S>             <C>             <C>                 <C>           <C>                    <C>
        --      $       --      $   19,894          $     --      $   (153,047)          $4,302,858
                                                                                              1,000
                                                                                          2,654,008
                                    26,749                                                  (68,582)
----------      ----------      ----------          --------      ------------           ----------
        --              --          46,643                --          (153,047)           6,889,284
                                                                    (1,266,681)          (1,266,681)
                                                                                           (398,426)
                                   (19,894)                                                 (19,894)
                                                    (150,000)                                    --
                                                      56,250                                 56,250

                                                                                           (149,098)
----------      ----------      ----------         ---------      ------------           ----------
        --              --          26,749           (93,750)       (1,419,728)           5,111,435
                                                                    (2,506,855)          (2,506,855)
                                                                                           (108,516)
                                   (26,749)                                                 (26,749)
                                                                                              5,526

                                                    (150,000)                                    --
                                                     131,250                                131,250
                                                                                          1,717,305
                                                                                          2,137,928
   104,534         748,169                                                                  748,169
                                                                        (5,225)              (5,225)
----------      ----------      ----------          --------        ----------           ----------
   104,534         748,169              --          (112,500)       (3,931,808)           7,204,268
                                                                    (1,487,525)          (1,487,525)
                                                    (131,250)                                 9,375

                                                      56,250                                     --
                                                      60,937                                 60,937
                                                                                                 --
                                                                                              3,529
   130,973       1,089,239                                                                1,089,239
                                                                       (65,427)             (65,427)
----------      ----------     -----------         ---------       -----------           ----------  
   235,507      $1,837,408     $        --         $(126,563)      $(5,484,760)          $6,814,396
==========      ==========     ===========         =========       ===========           ==========
</TABLE>

See accompanying notes.

                                                                            



                                     F-7
<PAGE>   52



                              AquaPro Corporation

                     Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                            SIX MONTHS
                                                                               ENDED
                                                                              JUNE 30              YEAR ENDED DECEMBER 31
                                                                               1997              1996                 1995
                                                                         ----------------------------------------------------
<S>                                                                      <C>                <C>                <C>
OPERATING ACTIVITIES
Net loss                                                                 $  (1,487,525)     $   (2,506,855)    $   (1,266,681)
Adjustments to reconcile net loss to net cash used in
    operating activities:
     Depreciation and amortization                                              400,706            692,351            505,835
     Impairment loss on long-lived assets                                             -          1,019,000                  -
     Equity in losses on investment in cooperatives                             272,000            109,969             69,501
     Payments of loss allocations on investment in cooperative                        -            (79,969)                 -
     Changes in operating assets and liabilities:
       (Increase) decrease in trade accounts receivable                         533,298           (366,935)            (3,423)
       Increase in live fish inventories                                     (1,190,596)          (276,659)          (820,029)
       Increase in prepaid expenses and other assets                            (14,263)           (17,969)           (36,173)
       Increase in accounts payable and accrued expenses                        318,368             11,653            285,774
                                                                         --------------     --------------     --------------  
Net cash used in operating activities                                        (1,168,012)        (1,415,414)        (1,265,196)

INVESTING ACTIVITIES
Purchase of certain assets of Fat Cat Corporation (Note 3)                            -                  -         (1,850,358)
Purchases of property and equipment                                            (530,422)          (591,474)        (1,348,680)
Purchases of cooperative stock                                                        -            (62,000)          (300,500)
                                                                         --------------     --------------     --------------  
                                                                               (530,422)          (653,474)        (3,499,538)
FINANCING ACTIVITIES
Net increase (decrease) in notes payable                                        (48,084)          (743,758)           505,310
Principal payments on long-term borrowings                                     (149,708)          (741,152)           (78,717)
Proceeds from long-term borrowings                                              312,722            503,178          2,594,771
Proceeds from exercise of common stock purchase rights                                -          2,137,928                  -
Proceeds from issuance of preferred stock                                     1,089,239            748,169                  -
Proceeds from exercise of common stock warrants                                   3,529                  -                  -
Proceeds from sale of limited partnership units                                       -              5,525          2,654,008
Capital contributions from general partners                                           -                  -              1,000
Cash distributions to partners                                                        -           (108,516)          (398,426)
Retirement of limited partnership units                                               -            (26,749)           (19,894)
Payments of preferred stock dividends                                           (65,427)            (5,225)                 -
                                                                         --------------     --------------     --------------  
Net cash provided by financing activities                                     1,142,271          1,769,400          5,258,052
                                                                         --------------     --------------     --------------  
Net increase (decrease) in cash and cash equivalents                           (556,163)          (299,488)           493,318
Cash and cash equivalents at beginning of period                                759,057          1,058,545            565,227
                                                                         --------------     --------------     --------------  
Cash and cash equivalents at end of period                               $      202,894     $      759,057     $    1,058,545
                                                                         ==============     ==============     ==============
SUPPLEMENTAL CASH FLOW INFORMATION-
Interest paid                                                            $      238,394     $      501,960     $      691,877
                                                                         ==============     ==============     ==============

NON-CASH FINANCING ACTIVITIES-
Conversion of notes payable and long-term debt to common stock           $            -     $    1,717,305     $            -
                                                                         ==============     ==============     ==============
Common stock issued to employees for future services                     $      140,625     $      150,000     $      150,000
                                                                         ==============     ==============     ==============
Conversion of long-term debt to 10.35% convertible notes payable         $            -     $      214,495     $            -
                                                                         ==============     ==============     ==============
Conversion of limited partnership units to notes payable                 $       68,582     $            -     $      149,098
                                                                         ==============     ==============     ==============
</TABLE>
See accompanying notes.




                                     F-8
<PAGE>   53



                              AquaPro Corporation

                   Notes to Consolidated Financial Statements

                                 June 30, 1997

1.  SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND BUSINESS

AquaPro Corporation (the "Company") and its wholly owned subsidiaries American
Fisheries Corporation ("American") and Circle Creek Aquaculture, Inc. ("Circle
Creek") own and operate eight catfish farms located in the delta area of the
State of Mississippi. The Company acquired the catfish farms by merger with
eight affiliated limited partnerships (see Note 2). These mergers have been
accounted in a manner similar to a pooling of interests because of common
control. The accompanying consolidated financial statements as of and for the
six months ended June 30, 1997 and as of December 31, 1996 and for the years
ended December 31, 1996 and 1995 have been restated to give effect to the
mergers described above and in Note 2. All material intercompany transactions
and balances have been eliminated in consolidation.

Effective January 1, 1997, the Company changed its fiscal year end to June 30
from December 31. Accordingly, the most recent financial statements presented
are as of June 30, 1997 and for the six month period then ended.

The Company conducts catfish farming activities on 1,843 water acres within the
State of Mississippi. Catfish farming is concentrated in a few southern states,
principally Mississippi, Louisiana, Alabama and Arkansas. Catfish are sold
principally to retail grocery stores and restaurants by catfish processors. The
Company's sales are to a limited number of processors and collateral is
generally not required. One processor represented 90% of the Company's net
sales for the six months ended June 30, 1997 and three processors represented
55%, 25% and 11%, respectively, for the year ended December 31, 1996 and 51%,
25%, and 18%, respectively, for the year ended December 31, 1995.

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




                                     F-9
<PAGE>   54

                              AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)





1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

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 of
disposal. 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 out to a marketable size over 9 to 18 months. Because
the Company's production cycle for fish generally exceeds one year, management
anticipates certain live fish inventories on hand at June 30, 1997 may not be
sold during the year ending June 30, 1998. Live fish inventories are classified
as a current asset in the accompanying balance sheets which is consistent with
the industry practice. The quantities of live fish inventories are determined
based upon estimated growth from feed fed to each pond and are reduced for the
actual quantities sold and estimated mortality. The Company estimates fish
grow-out based upon 2.5 pounds of feed fed per one pound of live fish growth.
Cost associated with live fish production are accumulated during the growing
period and consist principally of feed, labor and overhead costs required to
grow the live fish to a marketable size. Each pond is closed periodically and
the estimated pounds are adjusted to the actual harvest. Live catfish are
highly susceptible to disease, oxygen depletion and extreme temperatures which
could result in high mortality. Management continually monitors each pond and
attempts to take 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




                                     F-10
<PAGE>   55

                              AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LIVE FISH INVENTORIES (CONTINUED)

actual live fish mortality will vary significantly from estimates. The cost of
producing fish for harvest is subject to the cost of grains which is
susceptible to significant fluctuations in the commodity markets. The Company
establishes prices for a portion of its anticipated feed purchases over
specified periods of time through various feed purchase agreements.

PROPERTY, BUILDINGS AND EQUIPMENT

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

INVESTMENTS IN COOPERATIVES

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

PROFIT-SHARING PLAN

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

INCOME TAXES

Income taxes are accounted for by the Company using the liability method in
accordance with Statement of Financial Accounting Standards 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.



                                     F-11
<PAGE>   56
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

STOCK SPLIT

During 1996, the Company's Board of Directors declared a one-for-five stock
split effected in the form of a stock dividend. All historical share and per
share data presented herein have been restated for the effect of the stock
split.

NET LOSS PER COMMON SHARE

Net loss per share is computed by dividing net loss applicable to common stock
(net loss less dividend requirements for preferred stock of $65,427 in 1997 and
$5,225 in 1996) by the weighted average number of common shares outstanding
(2,910,620 shares in 1997, 2,467,764 shares in 1996 and 1,972,315 shares in
1995, adjusted for the one-for-five stock split). As a result of the mergers
described in Note 2, the common stock outstanding on December 31, 1995 is
considered outstanding for the entire year in 1995 for purposes of the weighted
average shares calculation. Common equivalent shares (stock options and
warrants) outstanding have not been included, due to their antidilutive
effects.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption by the Company of
Statement 121 resulted in a non-cash charge of $1,019,000 from the write-down
of land, ponds and improvements, buildings and goodwill to their estimated fair




                                     F-12
<PAGE>   57
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

values. The charge represents the adjustment required to remeasure long-lived
assets at the lower of the carrying amount or fair value based upon 1996
appraisals obtained from an independent appraiser in connection with the merger
as described in Note 2.

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate any prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. The impact of Statement 128 on the calculation of
earnings per share is not expected to be material.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to 1997 presentation.

2.  MERGERS

Effective June 30, 1997, the Company acquired the assets and assumed the
liabilities of Circle Creek Aquaculture V, L.P., Circle Creek Aquaculture VI,
L.P., Circle Creek Aquaculture VII, L.P., and Circle Creek Aquaculture VIII,
L.P., ("Circle Creek V-VIII"). Circle Creek V-VIII are engaged in catfish
farming in the State of Mississippi and were previously managed by the Company
pursuant to management agreements. In consideration for the assets and
liabilities of Circle Creek V-VIII, the Company issued 708,926 "Units" and
$68,582 of 7.15% Convertible Notes based upon the relative fair value of the
net assets of the Company and Circle Creek V-VIII. A Unit consisted of 1.6
shares of common stock and one 90-day right to purchase one share of the
Company's 7.0% Series A Preferred Stock for $9.50 (the "Preferred Stock
Rights"). Also, as part of the merger, the Company offered its Series A
Preferred Stock in exchange for $1,147,513 in principal amount of certain
10.35% notes of Circle Creek V-VIII (the "Investor Notes"). This exchange offer
commenced subsequent to June 30, 1997 and each holder of Investor Notes was
offered 1.3 shares of Series A Preferred Stock for each $10 of




                                     F-13
<PAGE>   58
                              AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


Investor Notes. In the aggregate, approximately $900,000 of Investor Notes were
exchanged for approximately 117,000 shares of Series A Preferred Stock.

2.  MERGERS (CONTINUED)

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

<TABLE>
<CAPTION>
                                  SIX MONTHS
                                     ENDED
                                    JUNE 30        YEAR ENDED DECEMBER 31
                                      1997           1996           1995
                                  ---------------------------------------------
<S>                               <C>            <C>            <C>        
Revenues:
    AquaPro Corporation           $   604,805    $ 2,837,274    $ 2,701,451
    Circle Creek V-VIII             1,129,114      1,667,751        997,021
    Elimination of intercompany
      transactions                   (521,451)      (580,071)      (688,185)
                                  -----------    -----------    -----------
    Total                         $ 1,212,468    $ 3,924,954    $ 3,010,287
                                  ===========    ===========    ===========
Net loss:
    AquaPro Corporation           $  (972,102)   $  (886,786)   $  (691,936)
    Circle Creek V-VIII              (482,522)    (1,592,813)      (408,721)
    Elimination of intercompany
      transactions                    (32,901)       (27,256)      (166,024)
                                  -----------    -----------    -----------
    Net loss, as reported         $(1,487,525)   $(2,506,855)   $(1,266,681)
                                  ===========    ===========    ===========
</TABLE>



Effective as of the close of business on December 31, 1995, The Company issued
105,334 shares of its common stock in exchange for all of the outstanding
common stock of American and Circle Creek, Inc.

Also, effective as of the close of business on December 31, 1995, all assets
and liabilities of Circle Creek Aquaculture, L.P., Circle Creek Aquaculture II,
L.P., Circle Creek Aquaculture III, L.P., and Circle Creek Aquaculture IV, L.P.
("Circle Creek I-IV") were merged into the Company by vote of the limited
partners of Circle Creek I-IV. In consideration for the Merger, AquaPro issued
404,764 "Units" to the limited partners (see Note 6) and $149,098 of 10.35%
convertible notes due on December 31, 2002 (see Note 5).




                                     F-14
<PAGE>   59
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



2.  MERGERS (CONTINUED)

The mergers are accounted for as a reorganization of the entities under common
control into the Company. Accordingly, the transactions are accounted for on
the historical cost basis of American, Circle Creek, Inc., Circle Creek I-IV
and Circle Creek V-VIII. The carrying amounts for common stock of American and
Circle Creek, Inc. and the general and limited partners' capital of Circle
Creek I-IV and Circle Creek V-VIII were transferred to the Company's common
stock as of January 1, 1995.

In connection with the mergers, approximately $213,000 and $132,000 of merger
costs and expenses were incurred and have been included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations for the six months ended June 30, 1997 and for the year ended
December 31, 1995, respectively. The merger costs and expenses consisted
principally of legal and consulting fees.

3.  PURCHASES OF BUSINESS

In April 1993, Circle Creek Aquaculture V, L.P. ("Circle Creek V") entered into
a two-year agreement for the lease of substantially all of the land, ponds and
improvements, machinery and equipment, and other assets used in the
partnership's operations. Pursuant to the lease agreement, Circle Creek V had
the option to purchase for fair value the leased assets at the end of the lease
term. In March 1995, the Partnership exercised its option to purchase the
leased assets for $1,972,852 including acquisition costs of $174,852 of which
$122,494 was paid in 1994. The acquisition was accounted for by the purchase
method of accounting. Lease payments for 1995 totaled $45,000 and were included
in the cost of producing live fish inventories.

4.  INVESTMENTS IN COOPERATIVES

Investments in cooperatives consist of the following:

<TABLE>
<CAPTION>
                                           JUNE 30      DECEMBER 31
                                            1997           1996
                                          ------------------------
      <S>                                 <C>           <C>       
      Delta Pride Catfish, Inc.           $714,278      $1,029,277
      Fishco, Inc.                         112,000         112,000
      Indi-Bell, Inc.                       57,240          57,240
                                          --------      ----------
                                          $883,518      $1,198,517
                                          ========      ==========
</TABLE>




                                     F-15

<PAGE>   60
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



4.  INVESTMENTS IN COOPERATIVES (CONTINUED)

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 were from Indi-Bell,
Inc. during the six month period ended June 30, 1997 and the years ended
December 31, 1996 and 1995.

5.  NOTES PAYABLE AND LONG-TERM DEBT

Notes payable-bank consists of borrowings under a $750,000 revolving line of
credit used solely to fund purchases of feed. Interest accrues at the prime
rate plus 1.65% and the revolving line of credit expires March 8, 1998.
Interest is paid monthly and principal is paid with 50 percent of all
collections of accounts receivable from sales of seven of the Company's eight
farms.

The notes payable-officer and director are unsecured and bear interest at prime
plus 1/2%. Included in notes payable-others were borrowings of $30,636 at June
30, 1997 and $176,925 at December 31, 1996 under a revolving $175,000 credit
facility for feed purchases from one of the Company's customers who is also a
feed supplier. Borrowings accrue interest at 10.25%.

Also included in notes payable-other were borrowings of $376,190 at December
31, 1996 under a revolving $376,190 line of credit with one of the Company's
major feed suppliers. This line of credit was replaced in April 1997 by the
arrangement with the bank described above.





                                     F-16
<PAGE>   61
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



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

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                    JUNE 30           DECEMBER 31
                                                                                      1997                1996
                                                                             ------------------------------------
<S>                                                                                 <C>                <C>
Note payable to a bank with monthly principal and interest
payments of $11,754 through March 2000 and a final payment of 
approximately $970,000 due April 2000 with interest at prime plus
2 1/2% (11% at June 30, 1997)                                                       $1,055,244         $1,070,349

Convertible notes payable with interest due quarterly at 10.35% and
principal due December 1999 ($551,992) and December 2000
($595,521)                                                                           1,147,513          1,147,513

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

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

Note payable to an insurance company with annual principal
payments of $16,000 through June 2000 and a final installment of
$256,000 due in June 2001 with interest payable seminannually at
7.7%                                                                                   304,000            320,000

Note payable to an insurance company with annual principal
payments of $7,500 through February 2002 and a final payment of
$182,500 due in February 2002 with interest payable seminannually
at 8.1%                                                                                212,500            220,000

Note payable to an insurance company with annual principal
payments of $6,100 through March 2004 and a final payment of
$92,000 due September 2004 with interest payable seminannually
at 9.5%                                                                                134,700            140,800

Note payable to the Federal Land Bank with annual payments of
$34,307 including interest at variable rates (9.05% at June 30,
1997) through January 2015                                                             267,100            267,100

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

Note payable to the Federal Land Bank with annual payments of
$31,732 including interest at variable rates (9.05% at June 30,
1997) through January 2015                                                            $244,995           $244,995
</TABLE>



                                     F-17
<PAGE>   62
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


<TABLE>
<S>                                                                                   <C>                <C>
Notes payable to a finance company with annual payments aggregating
approximately $72,000 including interest at rates ranging from 6% to 10.65%,
maturing at various dates from July 1998 through March 2001                               200,603          228,476

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                                                                 180,300                -

Notes payable to various finance companies with monthly payments aggregating
$9,400 including interest at rates ranging from 8.25% to 9%, maturing at
various dates through January 2000                                                        141,931          140,816

Note payable to a bank with monthly payments of $1,156 including interest at
prime plus 1.65% (10.4% at June 30, 1997) through June 2002                                54,177                -
                                                                                         --------         --------
Less current maturities                                                                 4,375,238        4,143,642
                                                                                          272,258          275,666
                                                                                        ---------        ---------
                                                                                       $4,102,980       $3,867,976
                                                                                       ==========       ==========
</TABLE>

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

During 1996, certain holders of the unsecured and convertible (prime plus 3%)
notes payable converted notes with a principal balance of $1,678,762 into
167,876 units (see Note 5). Also in 1996, certain holders of the unsecured
notes payable and convertible notes payable (prime plus 3%) converted notes
with a principal balance of $214,495 into the 10.35% convertible notes payable.
The remaining unsecured notes payable and convertible (prime plus 3%) totaling
$505,356 were paid in 1996.




                                     F-18
<PAGE>   63
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



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

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

Substantially all trade accounts receivable, live fish inventories and
property, buildings and equipment are pledged as collateral to the note payable
to bank and long-term debt.

The aggregate annual maturities of long-term debt at June 30, 1997 are as
follows:
<TABLE>
         <S>                           <C>
         1998                          $  272,258
         1999                             770,871
         2000                           1,752,686
         2001                             394,402
         2002                             616,444
         Thereafter                       568,577
                                       ----------
                                       $4,375,238
                                       ==========
</TABLE>

Subsequent to June 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 which expired
August 31, 1997 (see Note 2). In the aggregate, approximately $900,000 of these
notes were exchanged for approximately 117,000 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.

6.  COMMON STOCK

Effective December 31, 1995, AquaPro issued 404,764 "Units" in connection with
the merger with Circle Creek I-IV described in Note 2. In 1996, certain holders
of unsecured notes payable converted notes with principal balances totaling
$1,678,762 into 167,876 units. A Unit consisted of one share of the Company's
common stock, one $7.25 stock purchase right, one $8.25 stock purchase warrant
and one $10.50 stock purchase warrant. The stock rights expired on June 14,
1996 which allowed the holder to purchase one share of the Company's common
stock for $7.25. The $8.25 stock purchase warrants, which allowed the holder to
purchase one share of the Company's common stock for $8.25 (1.2 shares at
$6.875 post split), expired on December 31, 1996. The $10.50 stock purchase
warrants had an expiration date of December 31, 1997 and allowed the holder to
purchase one share of the Company's common stock for $10.50 (1.2 shares at
$8.75 post split);




                                     F-19
<PAGE>   64
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



6.  COMMON STOCK (CONTINUED)

however, on June 30, 1997, the Company exercised its option to convert the
$10.50 stock purchase warrants into 203,834 shares of the Company's common
stock. None of the $8.25 stock purchase warrants or the $10.50 stock purchase
warrants were outstanding at June 30, 1997. There were 235,507 $7.50 stock
purchase warrants outstanding at June 30, 1997 pertaining to preferred stock
issued in 1997 and 1996 (see Note 8.)

During 1996, the Company received $2,137,928, net of related expenses
pertaining to broker-dealer commissions, legal, printing, travel and other,
from the sale of 358,221 shares (429,865 shares post split) of common stock at
$7.25 per share pursuant to the exercise of the $7.25 stock purchase rights and
4,483 shares (5,380 shares post split) of common stock at $8.25 per share
pursuant to the exercise of the $8.25 stock purchase warrants. In connection
with the exercise of the $7.25 stock purchase rights, the Company granted
broker-dealers options to purchase 32,598 shares of the Company's common stock
at $11.25 per share (39,117 shares at $9.38 per share post split). The options
are exercisable at any time through June 2001. None of the options have been
exercised as of June 30, 1997.

During the six months ended June 30, 1997, the Company granted 22,500 shares of
common stock to key employees. The Company granted 20,000 shares (24,000 shares
post split) of common stock to key employees during the year ended December 31,
1996 and 1995, 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 9,000 were canceled
during the six-month period ended June 30, 1997.




                                     F-20
<PAGE>   65
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



7.  EMPLOYEE STOCK OPTIONS

The Company granted directors and certain key employees options to purchase
shares of common stock at $6.25 per share as follows:

<TABLE>
<CAPTION>
                                               SIX MONTHS
                                                  ENDED
                                                 JUNE 30         YEAR ENDED DECEMBER 31
                                                   1997          1996             1995
                                             -------------------------------------------
<S>                                             <C>             <C>               <C>      
Outstanding-beginning of period                 129,000         63,000                 -
Granted                                          63,000         66,000            63,000
Exercised                                             -              -                 -
Forfeited                                       (12,000)             -                 -
                                                -------        -------            ------
Outstanding-end of period                       180,000        129,000            63,000
                                                =======        =======            ======
</TABLE>

All outstanding options at June 30, 1997 were exercisable. The options were
granted for a seven-year period and, accordingly, the 1997 options, the 1996
options, and the 1995 options are exercisable at any time through March 31,
2004, March 31, 2003, and March 2002, respectively.

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 .01 for the six
months ended June 30, 1997, and the years ended December 31, 1996 and 1995;
weighted-average expected life of options of three years; risk-free interest
rate of 6%; and no dividend yield.

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




                                     F-21
<PAGE>   66
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)



7.  EMPLOYEE STOCK OPTIONS (CONTINUED)

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 six months ended June 30, 1997, and the years ended December
31, 1996 and 1995 is amortized to expense over the vesting period. The
Company's pro forma net losses were $1,538,525, $2,572,855 and $1,329,681 for
the six months ended June 30, 1997 and the years ended December 31, 1996 and
1995, respectively, and the Company's pro forma loss per common share was
$(.53), $(1.04) and $(.67), respectively, for those same periods. The
weighted-average fair value of options granted during the six months ended June
30, 1997 and the years ended December 31, 1996 and 1995, respectively, was
$1.00.

8.  PREFERRED STOCK

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

At June 30, 1997, 708,926 Preferred Stock Rights (see Note 2) were outstanding.
Subsequent to June 30, 1997, the Company received approximately $525,000, net
of offering expenses, from the exercise of approximately 75,000 Preferred Stock
Rights.

The Series A Preferred Stock has cumulative annual dividends of $0.175 per
share, payable quarterly. Each share (235,507 shares outstanding at June 30,
1997) may be converted, at the option of the holder, into 1.33 shares of the
Company's common stock. The Company may redeem the Series A Preferred stock at
any time on or after January 1, 2000 at $10 per share plus accrued dividends.
The Series A Preferred Stock will be



                                     F-22
<PAGE>   67
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


mandatorily converted into the Company's common stock on the sixty-sixth
trading day following the listing of the Company's common stock on a national
exchange. On the

8. PREFERRED STOCK (CONTINUED)

mandatory conversion date, each share of Series A Preferred Stock will
automatically be converted into the greater of 1.33 shares of the Company's
common stock or $10 divided by the current market price, as defined. In the
event of the Company's liquidation, the holders of the Series A Preferred Stock
are entitled to $10 per share plus accrued dividends.

The Series A Preferred Stock has no voting rights. However, in the event that
three consecutive quarterly dividend payments are in arrears, each share of
Series A Preferred Stock will have 25 votes.

9.  INCOME TAXES

For the year ended December 31, 1995, taxable income and losses of Circle Creek
I-IV and Circle Creek V-VIII were reported on the tax returns of the partners.
For the year ended December 31, 1996 and the six months ended June 30, 1997,
taxable income and losses of Circle Creek V-VIII were reported on the tax
returns of the partners. Accordingly, income taxes have not been provided in
the accompanying consolidated financial statements applicable to losses of
Circle Creek I-IV and Circle Creek V-VIII for 1995 or losses of Circle Creek
V-VIII for 1996 and for the six months ended June 30, 1997 . The merger
described in Note 2 was treated as a taxable transaction by the partners with
the excess of the fair value of the related assets and liabilities over the tax
basis reported as taxable income to the partners.

The Company had net operating loss carryovers of approximately $2,600,000 at
June 30, 1997, to reduce future taxable income through 2012.

AquaPro and its wholly-owned subsidiaries, American and Circle Creek, Inc.,
file a consolidated federal income tax return with operations subject to income
taxes at the corporate level.



                                     F-23
<PAGE>   68
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


9.  INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                  JUNE 30     DECEMBER 31
                                                   1997          1996
                                              ---------------------------
<S>                                           <C>            <C>        
Deferred tax assets - current:
   Inventories                                $    80,000    $   168,000
   Accrued expenses                                89,000         89,000
Deferred tax assets - noncurrent:
   Goodwill for income tax purposes             2,440,000        457,000
   Net operating loss carryforward                960,000        575,000
   Other                                           37,000         11,000
                                              -----------    -----------
                                                3,606,000      1,300,000
Valuation allowance for deferred tax assets    (3,606,000)    (1,300,000)
                                              -----------    -----------
Net deferred tax assets                       $        --    $        --
                                              ===========    ===========
</TABLE>

Deferred income taxes were reinstated for temporary differences between
financial and income tax basis in connection with the merger of the Company and
Circle Creek I-IV, effective December 31, 1995 and in connection with the
merger of the Company and Circle Creek V-VIII, effective June 30, 1997.

10.  RELATED PARTY TRANSACTIONS

Management fees from affiliates consist of management fees of $9,000 for the
six month period ended June 30, 1997 and $18,000 for the years ended December
31, 1996 and 1995, respectively, received from a catfish production farm in
which an officer of the Company is an owner of the catfish production farm.

For the years ended December 31, 1996 and 1995, the Company purchased
fingerling fish at prevailing market rates totaling $38,758 and $50,356,
respectively, from an affiliate.

11.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash and cash equivalents approximate their fair
values at June 30, 1997 and December 31, 1996. The carrying amount for
investments in cooperatives approximates their fair value at June 30, 1997 and
December 31, 1996 based upon estimates of recent sales of stock of the
cooperation obtained by management.



                                     F-24
<PAGE>   69
                            AquaPro Corporation

             Notes to Consolidated Financial Statements (continued)


11.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Notes payable to banks and officers and directors were at variable rates which
approximated fair value at June 30, 1997 and December 31, 1996. The fair value
of notes payable-other and long-term debt, which was estimated using discounted
cash flow analysis based upon the Company's incremental borrowing rates for
similar borrowings arrangements, approximated their carrying amounts at June
30, 1997 and at December 31, 1996.


                                 

                                     F-25


<PAGE>   70


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Company 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.



                                          AQUAPRO CORPORATION


Date: September 26, 1997                  By: /s/ George S. Hastings, Jr.
                                              ----------------------------------
                                          George S. Hastings, Jr.
                                          Chairman of the Board, Chief Executive
                                          Officer, President and Director

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>

          Name                         Title                        Date
          ----                         -----                        ----                     
<S>                           <C>                             <C>                  
/s/ George S. Hastings, Jr.   Chairman of the Board, Chief    September 26, 1997
---------------------------   Executive Officer, President,
George S. Hastings, Jr.       and Director (Principal
                              Executive Officer)       

/s/ Patricia G. Hastings      Vice President, General         September 26, 1997
---------------------------   Counsel, Secretary, and
Patricia G. Hastings          Director

/s/ Eric P. Braschwitz        Chief Financial Officer         September 26, 1997
---------------------------   (Principal Financial
Eric P. Braschwitz            and Accounting Officer)

/s/ Joseph Duncan, Sr.        Director                        September 26, 1997
---------------------------
Joseph Duncan, Sr.
                 
/s/ Roger A. Daley            Director                        September 26, 1997
---------------------------
Roger A. Daley
</TABLE>



<PAGE>   71


                               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                                              3.9

Articles of Merger of CCA V - VIII and AquaPro Corporation       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                                        4.8

Form of $9.50 Stock Rights Agreement                             4.9

Exchange Form for Investor Notes                                 4.10

Form of 10.35% Collateralized Convertible Note                   4.11
 
Form of Agency Agreement 10.35% Collateralized 
Convertible Notes                                                4.12

Form of Security Agreement 10.35% Collateralized
Convertible Notes                                                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

</TABLE>


<PAGE>   72


<TABLE>
<S>                                                              <C> 
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)                10.8

Note, Deed of Trust, Loan Agreement, and Finance Charge    
Agreement with Metropolitan Life (CCA VI)                        10.9

Deed of Trust, Assumption Agreements, Modification and
Loan Agreements and other communications with Federal
Land Bank (CCA VII and VIII)                                     10.10

Unaudited Condensed Consolidated Financial Statements
for June 1996                                                     28
</TABLE>

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