<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 0-7320
FARM FISH, INC.
-----------------------------------------------------------------------------
(Name of small business issuer in its charter)
MISSISSIPPI 64-0532896
- ----------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Post Office Box 23109
Jackson, MS 39225-3109
- ----------------------------- ----------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (601) 354-3801
Securities Registered under Section 12(g) of the Exchange Act:
No-Par Common Stock
--------------------------------
(Title of Class)
Check whether 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 such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
Revenues for the year ended December 31, 1997 were $3,231,053.
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of December 31, 1997 - Indeterminate*
(2,688,605 shares issued and outstanding as of December 31, 1997)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be mailed to the shareholders of
Registrant in connection with the Annual Meeting of Shareholders to be held on
May 26, 1998 are incorporated by reference into Part III of this Form 10-KSB.
__________________________
* For purposes of the response to this item only, Delta Industries, Inc. and
all directors of the Registrant have been deemed affiliates of the Registrant.
* The Registrant has been advised by two broker sources who have heretofore
traded in the stock of the Registrant that there is insufficient basis for
establishing a market value.
Page 1 of 30 Pages
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FARM FISH, INC.
FORM 10-KSB
TABLE OF CONTENTS
Item Page(s)
PART I
1. Description of Business 5-6
2. Description of Property 7
3. Legal Proceedings 7
4. Submission of Matters to
a Vote of Security Holders 7
PART II
5. Market for Registrant's
Common Stock and Related
Stockholder Matters 8
6. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-10
7. Financial Statements 11-22
8. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure 7
PART III
9. Directors, Executive Officers, Incorporate by Reference
Promoters and Control Persons; Compliance Pursuant to General
With Section 16(a) of the Exchange Act Instruction E
Page 2 of 30 Pages
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10. Executive Compensation Incorporated by Reference
Pursuant to General
Instruction E
11. Security Ownership of Incorporated by Reference
Certain Beneficial Pursuant to General
Owners and Management Instruction E
12. Certain Relationships Incorporated by Reference
and Related Transactions Pursuant to General
Instruction E
13. Exhibits and Reports on Form 8-K 24
Page 3 of 30 Pages
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THE OFFICERS OF FARM FISH, INC.
Name Office
---- -------
Leland R. Speed Chairman of the Board of Directors
Thomas R. Slough, Jr. President
David Robison Vice-President
Charles E. Horne Secretary-Treasurer
All officers are elected by the Board of Directors. The term of office is not
fixed.
MEMBERS OF THE BOARD OF DIRECTORS
Name Principal Occupation
---- --------------------
W. D. Mounger President of Delta Royalty Company, Inc.,
(engaged generally in the oil and gas
business)
T. L. Reed, III Owner of Silver Creek Plantation (engaged
in agri-business operations)
Thomas R. Slough, Jr. Vice-Chairman of Delta Industries, Inc.
(engaged in marketing ready-mix concrete)
Leland R. Speed Engaged as an officer and/or director in
various corporations, including EastGroup
Properties and Parkway Properties, Inc.
which are real estate investment trusts
engaged in various real estate operations
The term of office for all directors will expire at the Annual Meeting scheduled
for May 26, 1998.
Page 4 of 30 Pages
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DESCRIPTION OF BUSINESS
General
-------
Farm Fish, Inc., "Farm Fish" engages in the hatching and growing of catfish
(generally referred to as "producing" catfish). Farm Fish was organized in 1972
as a Subchapter C corporation. The principal executive offices of Farm Fish are
located at 100 W. Woodrow Wilson Drive, Jackson, Mississippi 39213, and its
telephone number is (601) 354-3801.
The Catfish Industry
--------------------
The catfish farming industry has grown rapidly since its inception in the late
1960's. In 1969, approximately 3.2 million pounds of catfish were sold to
processing plants at an average sale price of approximately $0.37 per pound. In
1997, the number of pounds sold to catfish processors had increased to
approximately 525 million pounds, at sale prices ranging from approximately $.69
to $.73 per pound during the year.
Catfish farming is conducted primarily in Alabama, Arkansas, Louisiana and
Mississippi, with Mississippi dominating the industry.
Farm Fish's Operations
----------------------
Farm Fish's primary production assets are brood ponds, a hatchery, fingerling
ponds and production ponds. The life cycle of a farm-raised catfish begins in a
brood pond, where the eggs ("spawn") are laid and fertilized. The spawn is then
retrieved and taken to the hatchery, where it is placed in water-filled troughs
which are continuously monitored to ensure the water is aerated and kept at the
proper temperature. The hatchery operates for approximately two months each
year, usually from mid-May to mid-July.
The newly hatched catfish, called "fry", are kept in the hatchery briefly and
are then transported to a fingerling pond where they remain until they are four
to six inches in length, at this stage the catfish are referred to as
"fingerlings". Some of the fingerlings may be sold to other catfish farmers,
but typically most are kept and used to stock the farm's production ponds. The
catfish are fed until they reach marketable size (usually one to one-and-a-half
pounds) and harvested with seines.
The catfish are fed a commercially prepared feed consisting of soy bean meal,
corn, wheat and fishmeal. The catfish are fed from approximately mid-March
through the end of October each year. Little food is supplied to the catfish
during the winter months.
Farm Fish conducts its business at its catfish farm in Humphreys County,
Mississippi. The farm consists of approximately 1,750 acres of land, of which
approximately 1,375 water acres are devoted to mostly 20 acre ponds. The farm
is a complete facility for producing "farm-raised" catfish, with brood ponds, a
hatchery, fingerling ponds and production ponds.
Page 5 of 30 Pages
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Processing and Marketing
------------------------
Farm Fish sold its processing operations in March 1986 and no longer engages
in processing live fish or marketing processed products.
Significant Customers
---------------------
The Company's sales are to a limited number of catfish processors. In 1997
three processors represented 68%, 18%, and 8% of the Company's net sales. In
1996, the same three processors represented 61%, 23% and 11% of the Company's
net sales. (See Note 1 to the Consolidated Financial Statements.)
Competition
-----------
There are a substantial number of independent catfish producers in the
general market area. Farm Fish is one of the larger producers of live fish
according to reports published by the USDA's National Agricultural statistical
service. Competition among catfish farmers who produce live fish for sale to
catfish processors is based primarily on price. Production techniques are
becoming more sophisticated as the industry matures, and farmers who take
advantage of the emerging technology in areas such as the maintenance of high
water quality may develop a competitive advantage in terms of cost efficiency.
The Company continually monitors water quality of each pond to ensure optimum
conditions for fish growth. The Company has replaced some of its gas and diesel
powered aeration equipment with more efficient and cost effective electrical
aeration equipment.
Farm Fish Personnel
-------------------
On December 31, 1997, Farm Fish employed approximately 21 employees, all of
whom were engaged in duties related to its catfish farming operations.
Industry Segments
-----------------
Farm Fish operates in only one industry segment, ("catfish production").
Regulatory Matters
------------------
Farm Fish's facilities and operations are subject to regulation by various
federal and state agencies, including, but not limited to, the United States
Department of Agriculture, The Environmental Protection Agency, The Occupational
Safety and Health Administration and corresponding state agencies.
Compliance with existing regulations has not had a material adverse effect on
Farm Fish's earnings or competitive position in the past and is not anticipated
to have a materially adverse effect in the future. Management believes that
Farm Fish is in substantial compliance with existing laws and regulations
relating to the operation of its facilities and does not know of any major
capital expenditures necessary to comply with such regulations.
Page 6 of 30 Pages
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DESCRIPTION OF PROPERTY
Farm Fish owns nearly 1,750 acres of farmland in Humphreys County,
Mississippi, near the town of Louise. Most of this land is devoted to the
ponds, to the banks and levees, which surround and separate the ponds, and to
various service and storage areas. Farm Fish has borrowings from a bank
totaling $1,176,997 at December 31, 1997, which is an unsecured line of credit
guaranteed by Delta Industries, Inc. ("Delta Industries"). See Note 4 to the
Consolidated Financial Statements.
Inventory
---------
Farm Fish owns a substantial inventory of harvestable and growing fingerlings,
and during the spring of the year owns a substantial inventory of spawn and fry.
These catfish are located at the hatchery and in the fingerling and production
ponds on the catfish farm in Humphreys County, Mississippi. The book value of
the live fish inventory as of December 31, 1997 was $5,046,367.
Brood Fish
----------
Farm Fish also owns "brood" fish which are located in the brood fish ponds on
the catfish farm in Humphreys County, Mississippi. The book value of the brood
fish as of December 31, 1997 was $44,987.
Legal Proceedings
As of December 31, 1997, there were no material legal proceedings pending or
threatened against Farm Fish.
Submission of Matters to a Vote of Security Holders
None.
Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Page 7 of 30 Pages
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MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The authorized capital stock of Farm Fish consists of 5,000,000 shares of
common stock. The 2,688,605 issued and outstanding shares of Farm Fish's stock
are held of record by approximately 1,843 stockholders. Although Farm Fish
common stock is registered under the Securities Exchange Act of 1934, there is
no readily ascertainable market value for the stock, since the stock is not
traded on any exchange, is traded infrequently over the counter, and is not
quoted in any newspaper. The stock is listed in the "pink sheets" under the
symbol "FFIH". Farm Fish has been advised by broker sources who have heretofore
traded in the stock of Farm Fish that there is insufficient basis for
establishing a market value.
Holders of Farm Fish common stock have one vote for each share held and are
entitled to accumulate their votes for the election of directors. Shares of
common stock are not subject to redemption and the holders of such shares do not
have preemptive rights. Holders of shares of common stock are entitled to share
ratably in the assets of Farm Fish legally available for distribution to holders
of common stock in the event of the liquidation, dissolution or winding up of
Farm Fish. The holders of common stock are equally entitled to dividends when,
as and if declared by the Board of Directors.
Dividends
---------
No cash dividend has been paid by Farm Fish since May 1, 1982. Any payment of
dividends in the future will depend upon Farm Fish's growth, profitability,
available cash, financial condition and other factors that the Board of
Directors deems relevant.
Page 8 of 30 Pages
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of 1997 to 1996 Results of Operations
------------------------------------------------
Net sales decreased by $36,837 or 1% from 1996. The decrease resulted from a
6.3% decrease in the sale price of catfish, offset by a 231,994 or 5.7% increase
in pounds of catfish sold.
Cost of product sold for 1997 increased $395,342 or 18% as compared to 1996.
The increase is attributable to the 5.7% increase in pounds of catfish sold,
offset by a slight decrease in catfish feed cost in 1997, and an increase in
mortality due to more adverse winter weather conditions in 1997 compared to
1996. The average market price paid for catfish feed decreased 3% in 1997 from
1996. Catfish feed represents the single most significant component of Farms
Fish's cost of product. The market price for catfish feed may fluctuate
substantially and exhibit cyclical characteristics typically associated with
commodity markets. From time to time, the Company establishes prices for a
portion of its anticipated feed purchases through feed purchase agreements.
Selling, general, and administrative expenses increased $15,333 or 12% from
1996. The increase was principally due to an increase in certain professional
fees.
Interest expense increased $15,741 or 32% due to a increase in average
borrowings.
The effective income tax rate was 24.1% in 1997 compared to 37.2% in 1996.
The effective tax rate was lower in 1997 compared to 1996 due to the utilization
of $111,000 of separate return limitation year federal net operating loss
carryforwards of the Company's wholly-owned subsidiary, DAT, Inc., in 1997.
As the result of the above, net income decreased by $335,309 to $211,339 in
1997 from 1996.
Seasonality of Operating Results
--------------------------------
In prior years, the revenues of Farm Fish have been seasonal and cyclical.
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.
However, in 1996 prices were consistent throughout the first three quarters of
the year and decreased slightly during the fourth quarter, and in 1997 prices
were consistent through the first two quarters of the year and decreased
slightly in the last two quarters.
Page 9 of 30 Pages
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Liquidity and Capital Resources
-------------------------------
The Company had $823,003 available under a short-term line of credit with a
bank at December 31, 1997 and had borrowings outstanding of $1,176,997. The
borrowings under the line of credit bear interest at floating rates based upon
LIBOR (7.53% at December 31, 1997), and are unsecured. The line of credit is
guaranteed by Delta Industries, Inc. ("Delta Industries").
Additional borrowings may be necessary to meet cash flow needs during the 1998
feeding season. Although there is no binding commitment from Delta Industries,
Farm Fish expects Delta Industries to continue its prior policy with respect to
assisting Farm Fish in financing its operations, in light of Delta Industries'
ownership of eighty percent (80%) of Farm Fish's outstanding common stock. Delta
Industries also has represented that it plans to seek repayment of the
$2,169,856 owed to it by Farm Fish as of December 31, 1997 only as cash becomes
available from operations.
During 1997, Farm Fish purchased $158,195 of property, buildings and equipment
principally with the proceeds from borrowings under the line of credit. Cash
flows provided by operating activities was $179,068 in 1997 compared to $63,212
used in operating activities in 1996. The increase is due principally to
decreased net income offset by a smaller increase in inventories in 1997
compared with 1996.
At year end 1997, Farm Fish's ratio of current assets to current liabilities
was 1.53 to 1 and the ratio of stockholders' equity to total liabilities was
1.17 to 1. At year end 1996, Farm Fish's ratio of current assets to current
liabilities was 1.60 to 1 and the ratio of stockholders' equity to total
liabilities was 1.16 to 1.
Inflation
---------
Farm Fish's operations are sensitive to changes in the cost of feed and the
market price of live fish. As with other agricultural enterprises, these prices
are responsive to the wide range of conditions generally affecting crop prices
and food prices, and are not within Farm Fish's control.
Page 10 of 30 Pages
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FARM FISH, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Report of Independent Auditors........................... 12
Audited Consolidated Financial Statements
Consolidated Balance Sheets.............................. 13
Consolidated Statements of Income........................ 14
Consolidated Statements of Shareholders' Equity.......... 15
Consolidated Statements of Cash Flows.................... 16
Notes to Consolidated Financial Statements............... 17
Page 11 of 30 Pages
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Farm Fish, Inc.
We have audited the accompanying consolidated balance sheets of Farm Fish, Inc.
and subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Farm Fish, Inc.
and subsidiary at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Jackson, Mississippi
March 2, 1998
Page 12 of 30 Pages
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FARM FISH, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1997 1996
------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 50,144 $ 80,815
Accounts receivable 207,264 174,230
Advances to employees 6,260 6,872
Inventories, principally live fish (Note 4) 5,067,783 4,656,796
Prepaid expenses 5,220 --
------------------------------
Total current assets 5,336,671 4,918,713
Property, buildings and equipment (Note 4):
Land 738,259 738,259
Ponds and improvements 2,193,131 2,112,070
Brood fish 44,987 44,987
Buildings 316,040 316,040
Machinery and equipment 2,166,795 2,089,661
------------------------------
5,459,212 5,301,017
Accumulated depreciation 3,289,677 3,025,014
------------------------------
2,169,535 2,276,003
Other assets:
Investments in cooperatives (Notes 3 and 4) 328,807 301,139
Other noncurrent assets 7,523 7,523
------------------------------
336,330 308,662
------------------------------
Total assets $7,842,536 $7,503,378
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable (Note 4) $1,176,997 $ 705,000
Accounts payable 11,428 2,179
Accrued expenses 159,011 97,123
Payable to shareholder (Note 2) 2,132,856 2,175,171
Current maturities of long-term debt -- 100,000
------------------------------
Total current liabilities 3,480,292 3,079,473
Long-term debt, less current maturities (Note 4) -- 270,000
Deferred income taxes (Note 5) 126,000 129,000
Shareholders' equity (Note 2):
Common stock, no par value:
Authorized shares - 5,000,000
Issued and outstanding shares - 2,688,605 4,424,336 4,424,336
Additional paid-in capital 475,776 475,776
Retained earnings (deficit) (663,868) (875,207)
------------------------------
Total shareholders' equity 4,236,244 4,024,905
------------------------------
Total liabilities and shareholders' equity $7,842,536 $7,503,378
==============================
See accompanying notes.
Page 13 of 30 Pages
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FARM FISH, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1997 1996
-------------------------
Net sales (Note 3) $3,231,053 $3,267,890
Cost and expenses:
Cost of products sold 2,582,174 2,186,832
Selling, general and administrative 148,507 133,174
Interest 64,809 49,068
Other, net (Note 3) 156,965 27,976
-------------------------
2,952,455 2,397,050
-------------------------
Income before income taxes 278,598 870,840
Income taxes (Note 5) 67,259 324,192
-------------------------
Net income $ 211,339 $ 546,648
=========================
Net income per basic and diluted share $ .08 $ .20
=========================
Weight average basic and diluted shares outstanding 2,688,605 2,688,605
=========================
See accompanying notes.
Page 14 of 30 Pages
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FARM FISH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
----------------------------------- Paid-in Earnings Shareholders'
Shares Amount Capital (Deficit Equity
-------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,688,605 $4,424,336 $475,776 $(1,421,855) $3,478,257
Net income for 1996 -- -- -- 546,648 546,648
--------------- --------------------------------------------------------------
Balance at December 31, 1996 2,688,605 4,424,336 475,776 (875,207) 4,024,905
Net income for 1997 -- -- -- 211,339 211,339
--------------- --------------------------------------------------------------
Balance at December 31, 1997 2,688,605 $4,424,336 $475,776 $(663,868) $4,236,244
=============== ==============================================================
</TABLE>
See accompanying notes.
Page 15 of 30 Pages
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FARM FISH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1997 1996
----------------------
OPERATING ACTIVITIES
Net income $ 211,339 $ 546,648
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 264,663 251,854
Gain on sale of equipment -- (6,480)
Deferred income taxes (benefit) (3,000) 6,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and
advances to employees (32,422) 29,397
Increase in inventories (410,987) (935,457)
Net decrease in investments in cooperatives 83,558 74,584
Increase in other assets (5,220) (5,891)
Increase (decrease) in trade accounts payable and
accrued expenses 71,137 (23,867)
----------------------
Net cash provided by (used in) operating activities 179,068 (63,212)
INVESTING ACTIVITIES
Purchases of property, buildings and equipment (158,195) (349,466)
Proceeds from sales of equipment -- 6,480
Purchases of cooperative stock (111,226) --
----------------------
Net cash used in investing activities (269,421) (342,986)
FINANCING ACTIVITIES
Net increase in note payable to bank 471,997 705,000
Principal payments on long-term borrowings (370,000) (300,000)
Net change in payable to shareholder (42,315) 59,782
----------------------
Net cash provided by financing activities 59,682 464,782
----------------------
Increase (decrease) in cash and cash equivalents (30,671) 58,584
Cash and cash equivalents at beginning of year 80,815 22,231
----------------------
Cash and cash equivalents at end of year $ 50,144 $ 80,815
======================
See accompanying notes.
Page 16 of 30 Pages
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FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
BUSINESS
Farm Fish, Inc. ("the Company") is engaged in catfish farming on approximately
1,375 water acres within the State of Mississippi. Catfish farming is conducted
in a few southern states, principally Mississippi, Louisiana, Alabama and
Arkansas. The Company's sales are to a limited number of processors. In 1997,
three processors represented 68%, 18%, and 8% of the Company's net sales. In
1996, three processors represented 61%, 23% and 11% of the Company's net sales.
Delta Pride Catfish, Inc. ("Delta Pride") is the Company's most significant
customer. The Company's significant customers are located within the state of
Mississippi. Processed catfish are sold principally to retail grocery stores,
food brokers and restaurants.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, DAT, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of average cost or market. Live fish
inventories generally require a growing period of one to one and one-half years
from the time the fingerlings are hatched until they reach a weight that fish
are typically harvested. Cost associated with live fish 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. Because the Company's
production cycle for fish generally exceeds one year, management anticipates
certain live fish inventories on hand at December 31, 1997 may not be sold in
1998. Live fish inventories are classified as a current asset in the
accompanying balance sheets which is consistent with the industry practice.
Page 17 of 30 Pages
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FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
INVENTORIES (CONTINUED)
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. 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 takes appropriate
actions to minimize the risk of loss from mortality. Given the nature of the
live fish inventories, it is reasonably possible that the Company's actual live
fish mortality will vary significantly from estimates. In 1997 and 1996, the
Company estimated its fish grow-out to be 2.5 pounds of feed fed per one pound
of live fish growth.
Inventories consist of the following:
DECEMBER 31
1997 1996
---------------------------
Live fish $5,046,367 $4,635,380
Feed and supplies 21,416 21,416
---------------------------
$5,067,783 $4,656,796
===========================
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 of ten to
twenty years for ponds and improvements, thirty to forty years for buildings and
three to ten years for machinery and equipment.
INVESTMENT IN COOPERATIVES
Investments in cooperatives consist of common stock at cost and the Company's
share of the cooperatives' allocated earnings and losses.
Page 18 of 30 Pages
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FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are accounted for using the liability method and relate to
temporary differences between assets and liabilities recognized differently for
financial reporting and for income tax purposes.
REVENUE RECOGNITION
Revenue is recognized when product is shipped to customers.
NET INCOME PER SHARE
Net income per share is based on the average number of shares of common stock
outstanding during each year presented. In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earnings per Share. Statement 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The Company had no options, warrants or convertible
securities outstanding during the years ended December 31, 1997 and 1996.
Accordingly, the adoption of the requirements on Statement 128 had no effect on
the computation of earnings per share.
USE OF ESTIMATES
The 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 may differ from those estimates.
Page 19 of 30 Pages
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FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PAYABLE TO SHAREHOLDER AND RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, the Company had non-interest bearing advances
payable to Delta Industries, Inc. ("Delta") totaling $2,132,856 and $2,175,171,
respectively. Delta owns 80% of the outstanding stock of the Company. Delta has
not charged the Company any allocation of Delta's corporate expenses.
3. INVESTMENTS IN COOPERATIVES
Investments in cooperatives consist of the following:
DECEMBER 31
1997 1996
--------------------------
Delta Pride Catfish, Inc. $163,035 $130,678
Producers Feed Corporation 151,793 156,482
Other 13,979 13,979
--------------------------
$328,807 $301,139
=========================
The ownership of Delta Pride stock provides the Company the right to sell live
catfish to Delta Pride. During 1997, the Company purchased 591 shares of Delta
Pride stock for $111,226 from a member of the Company's Board of Directors. In
1997 and 1996, the Company recorded $249,622 and $135,141, respectively, of
operating losses from Delta Pride which are included in other cost and expenses
in the accompanying consolidated statements of income. The Company paid $170,753
to Delta Pride in 1997 applicable to the allocated operating losses.
Substantially all of the Company's catfish feed purchases were from Producers
Feed Corporation ("Producers") in 1997 and 1996. In 1997 and 1996, Producers
allocated patronage dividends of $80,778 and $79,231, respectively, to the
Company, which are included in other cost and expenses, net. The Company
received patronage dividend payments from Producers of $85,467 and $84,249 in
1997 and 1996, respectively.
Page 20 of 30 Pages
<PAGE>
FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE AND LONG-TERM DEBT
Note payable at December 31, 1997 consisted of borrowings under a line of credit
with a bank with interest at 1.75% above the 90 day LIBOR (7.53% at December 31,
1997). The Company had $823,003 and $195,000 available to borrow under the line
at December 31, 1997 and 1996, respectively.
Long-term debt at December 31, 1996 consisted of a note payable to a bank, due
in annual installments of $100,000 plus quarterly payments of interest at a
floating rate based on prime (8.42% at December 31, 1996). The note was paid in
1997.
Interest paid by the Company totaled $64,894 and $49,137 in 1997 and 1996,
respectively.
5. INCOME TAXES
The Company and its subsidiary are included in Delta's consolidated federal and
state income tax returns. The Company's income tax expense for financial
reporting purposes is determined on a separate company basis.
The components of deferred tax assets and liabilities are as follows:
DECEMBER 31
1997 1996
-----------------------
Deferred tax liabilities--Property,
buildings and equipment $134,000 $136,000
Deferred tax assets (8,000) (7,000)
Net operating loss carryforward of DAT, Inc. (50,000) (88,000)
Valuation allowance for net operating loss carry-
forward 50,000 88,000
-----------------------
Net deferred tax liabilities $126,000 $129,000
=======================
Page 21 of 30
<PAGE>
FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31
1997 1996
-----------------------
Current:
Federal $55,881 $275,539
State 14,378 42,653
-----------------------
70,259 318,192
Deferred:
Federal (2,750) 5,200
State (250) 800
-----------------------
(3,000) 6,000
-----------------------
$67,259 $324,192
=======================
The reconciliation of income taxes computed at the federal statutory rate to
income tax expense is as follows:
YEAR ENDED DECEMBER 31
1997 1996
-----------------------
Taxes at federal statutory rate $ 94,723 $296,086
State income taxes, net 9,324 28,679
Utilization of net operating loss carryforward
of DAT, Inc. (37,000) --
Other - net 212 (573)
-----------------------
$ 67,259 $324,192
=======================
The Company's wholly-owned subsidiary, DAT, Inc. has a $147,000 net operating
loss carryforward available to reduce future taxable income of DAT, Inc. through
2001. Management has recorded a valuation allowance to offset the deferred tax
asset.
Page 22 of 30
<PAGE>
FARM FISH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OPERATING LEASES
The Company leases five tractors and a bulldozer under operating leases which
expire in August 1999 and February 2000, respectively. The leases require the
Company to pay maintenance, insurance, and a fee for usage in excess of
specified limits in addition to the minimum annual rentals. Annual rentals
applicable to the leases are $72,174 through 1999 and $4,493 in 2000. Rent
expense applicable to operating leases totaled $26,641 in 1997 and $44,568 in
1996.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents approximate their fair values
at December 31, 1997. The carrying amount for investments in cooperatives was
$328,807 and the fair value totaled $694,000 at December 31, 1997 based upon
recent sale prices of stock of the cooperatives obtained by management. The
fair value of the note payable, which is at a variable interest rate,
approximates the carrying amount at December 31, 1997.
Page 23 of 30 Pages
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-B:
3(a) Articles of Incorporation - Incorporated by reference from
Form 10-K for year ended
April 30, 1981
3(b) Bylaws D - Incorporated by reference from
Form 10-K for year ended
April 30, 1981
3(c) Amendment to Bylaws - Incorporated by reference from
Form 10-K for year ended
December 31, 1984
3(d) Amendment to Articles of Incorporated by reference from
Incorporation - Form 10-K for year ended
December 31, 1984
(10) Material Contracts None
10(a) Asset Purchase Agreement, dated Incorporated by reference from
February 28, 1986 Form 10-K for year ended
December 31, 1985
10(b) Note Agreements - Loans from Incorporated by reference from
Deposit Guaranty National Bank, Form 10-K for year ended
dated June 28, 1993 - December 31, 1993
10(c) Promissory Note - Loan from Incorporated by reference from
Deposit Guaranty National Bank, Form 10-KSB for year ended
dated December 24, 1996 December 31, 1996
27 Financial Data Schedule Filed herein
(b) Reports on Form 8-K None
Page 24 of 30 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FARM FISH, INC., REGISTRANT
By: /s/ Thomas R. Slough, Jr.
-------------------------
Thomas R. Slough, Jr.,
President
DATE: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
By: /s/ Thomas R. Slough, Jr.
-------------------------
Thomas R. Slough, Jr.,
Director
DATE: March 24, 1998
Page 25 of 30 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
FARM FISH, INC., REGISTRANT
By: /s/ David Robison
--------------------------------
David Robison,
Vice President
DATE: March 24, 1998
Page 26 of 30 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
FARM FISH, INC., REGISTRANT
By: /s/ Charles E. Horne
---------------------------------
Charles E. Horne,
Secretary,
Principal Financial Officer
and Principal Accounting
Officer
DATE: March 24, 1998
Page 27 of 30 Pages
<PAGE>
DIRECTOR'S SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
By: /s/ W. D. Mounger
-----------------------------
W. D. Mounger, Director
DATE: March 24, 1998
Page 28 of 30 Pages
<PAGE>
DIRECTOR'S SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
By: /s/ Leland R. Speed
-------------------
Leland R. Speed, Director
DATE: March 24, 1998
Page 29 of 30 Pages
<PAGE>
DIRECTOR'S SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
By: /s/ T. L. Reed, III
-------------------
T. L. Reed, III, Director
DATE: March 24, 1998
Page 30 of 30 Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 50,144
<SECURITIES> 0
<RECEIVABLES> 207,264
<ALLOWANCES> 0
<INVENTORY> 5,067,783
<CURRENT-ASSETS> 5,336,671
<PP&E> 5,459,212
<DEPRECIATION> 3,289,677
<TOTAL-ASSETS> 7,842,536
<CURRENT-LIABILITIES> 3,480,292
<BONDS> 0
0
0
<COMMON> 4,424,336
<OTHER-SE> (188,092)
<TOTAL-LIABILITY-AND-EQUITY> 7,842,536
<SALES> 3,231,053
<TOTAL-REVENUES> 3,231,053
<CGS> 2,582,174
<TOTAL-COSTS> 2,582,174
<OTHER-EXPENSES> 305,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,809
<INCOME-PRETAX> 278,598
<INCOME-TAX> 67,259
<INCOME-CONTINUING> 211,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,339
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
