U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-1394
SEVEN J STOCK FARM, INC.
------------------------
(Name of small business issuer as specified in its charter)
Texas 74-1110910
----- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
808 Travis Street, Suite 1453, Houston, TX 77002
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (713) 228-8900
Securities registered under Section 12(b) of the Exchange Act:
None
----
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $1.00 a share
-------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Check if 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. (X)
Issuer's revenues for the fiscal year ended October 31, 1996 were $541,000.
The aggregate market value of common stock held by non-affiliates on
January 7, 1997 was $1,605,000.
As of January 7, 1997 there were outstanding 1,451,000 shares of Seven J Stock
Farm, Inc. common stock $1.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE - Portions of the annual information
statement for the fiscal year ended October 31, 1996 are incorporated by
reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
- ------------
Seven J Stock Farm, Inc. was incorporated in Texas in 1948. The
principal operations of Seven J Stock Farm, Inc. and Subsidiary (the
"Company") consist of producing and selling field crops, leasing pastures,
and gathering of natural gas through pipelines. In addition, the Company
receives oil and gas royalties for minerals underlying the land owned in fee.
As disclosed in the following discussion, the Company receives a material
amount of its income from transactions with major customers, including related
parties.
Agricultural and Ranch Leases
- -----------------------------
The Company's leased land is as follows:
PERCENT OF
TOTAL COMPANY
LAND LEASED TO AREA LEASED LAND
----------------------- ------------- -------------
Unrelated parties:
Agricultural leases 2,612 acres 23.4 %
Ranch lease 1,200 acres 10.8
Related party:
Ranch lease - Estate
of J. R. Parten (a
shareholder of the
Company) 6,972 acres 62.6 %
In accordance with the terms of the agricultural leases, the Company is
entitled to 25% of the cotton production and 30% of the milo, wheat, or corn
production from the leased lands. The Company is also liable for its
respective share of certain costs of crop production, including the expense
of a new irrigation system on one of the agricultural leases.
In accordance with the ranch leases encompassing 8,172 acres or 73% of
Company land, the annual rent, payable monthly, is $16 per net acre (7,442
aggregate net acres). The Company is liable for payment of property taxes,
repairs to water wells, and a portion of maintenance expense of the levee
system. The ranch lease with an unrelated party is for a term of five years
ending July 31, 1998 with an option to renew for an additional five year term.
The ranch lease with the Estate of J. R. Parten, a related party, was renewed
on October 31, 1994 for an additional five years, subject to earlier
termination by either party by giving three calendar months notice to the other
party.
For the two fiscal years ended October 31, 1996 and 1995, revenue
generated from the leasing activities represented 52% and 56%, respectively,
of the Company's total revenue.
Pipeline Operations
- -------------------
In 1977, Madison Pipe Line Co., a wholly-owned subsidiary which owns a
gas gathering system, commenced operating its natural gas pipelines. For
fiscal years ended October 31, 1996 and 1995, pipeline income represented 30%
and 29%, respectively, of the Company's total revenue. The principal service
rendered by the subsidiary is to maintain and operate gas gathering systems
which deliver natural gas to various gas purchasers' pipelines. Currently,
the subsidiary is servicing six wells which are operated by Parten Operating,
Inc. which is owned by the Estate of J. R. Parten.
Oil and Gas Royalties
- ---------------------
The Company receives oil and gas royalties attributable to sixteen
producing oil and gas wells. The royalties are received from various oil and
gas companies, including related parties. The income is of a passive nature
as the Company does not explore for oil and gas and does not participate in
the drilling of oil and gas wells. For the fiscal years ended October 31,
1996 and 1995, net royalty income represented 19% and 16%, respectively, of
the Company's total revenue. Substantially all Company property is leased for
oil and gas exploration. Lessees are related parties.
Major Customers
- ---------------
Customers comprising 10% or greater of the Company's revenues for the
fiscal years ended October 31, 1996 and 1995 are summarized as follows:
FISCAL YEAR ENDED
OCTOBER 31,
-----------------------
1996 1995
---------- ----------
(in thousands)
Ranch lease - Estate of J. R. Parten -
related party $ 100 $ 100
Agricultural leases - Caney Valley Cotton Co. - 257
Pipeline operations - Gathering income
attributable to gas wells partially
owned by Estate of J. R. Parten -
related party 122 150
--------- ---------
Total revenues - major customers $ 222 $ 507
========= =========
Percentage to total revenues - all
customers 41% 74%
========= =========
Employees
- ---------
The Company presently employs two full time ranch employees and seven
part-time individuals through a labor sharing arrangement with related
parties. None of these individuals are represented by a union and management
considers its relations with these individuals to be satisfactory. The
Company has not experienced serious difficulty in hiring qualified employees.
General
- -------
The Company does not own any patents, trademarks, licenses, franchises
or concessions which might be deemed important to the Company or to any of
its segments. The Company does not have backlog orders or contractual
commitments. The Company has not expended a material amount of funds in
research activities. The Company anticipates no material effects on its
business concerning compliance with federal, state and local provisions which
have been enacted or adopted concerning environmental matters.
The Company operates in the United States and does not have foreign
operations or export sales.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns in fee approximately 11,140 acres of land in Houston
County, Texas, adjoining the Trinity River located about 100 miles north
of Houston, Texas. Of this land, approximately 35% is planted as native
pasture, approximately 36% is improved pasture consisting of coastal bermuda
and bahia grasses, approximately 23% is cropland cultivated in cotton, wheat,
milo, and corn, and approximately 6% is wooded pasture or wasteland.
Improvements include approximately twenty miles of roads, approximately
eighty four miles of perimeter and cross fencing, nine water wells, a levee
approximately ten miles long with pumping units, five single family
residences, three buildings, seven barns or warehouses, two sheds, four
corrals, and one stable/tack room. Oil and gas royalties are received from
oil and gas companies. Sixteen oil and gas wells are producing on the
Company's land and six wells are shut-in. The lessees of the minerals
underlying Company land are related parties.
Madison Pipe Line Co. property consists of three pipelines currently
servicing six gas wells located adjacent to Seven J Stock Farm, Inc.
properties.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, not listed in any established public trading
market, is traded over-the-counter. The quoted bid prices of the common
shares for the fiscal years ended October 31, 1996 and 1995 are as follows:
QUOTED BID
PRICE
-------------------------
QUARTER 1996 1995
------- -------- --------
First $ 3.50 $ 3.50
Second 3.50 3.50
Third 3.50 3.50
Fourth 3.50 3.50
The above quoted bid prices were compiled from sporadic market quotations
which may not necessarily represent actual transactions.
As of January 7, 1997, the Company had approximately 851 shareholders.
For the first time in its history, the Company has paid a dividend to
its shareholders.
On October 26, 1996, the Company paid a $.04 per share cash dividend to
shareholders of record as of May 15, 1996.
Although no restrictions exist for the payment of dividends, any future
payment of cash dividends in the future will depend upon the Company's
earnings, financial condition, capital requirements, and other factors deemed
relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
The following table summarizes for the period indicated the percentage
increase (decrease) of revenues and costs and expenses as compared to the
prior period:
PERIOD-TO-PERIOD INCREASE
(DECREASE) FOR FISCAL YEARS
---------------------------
1996 1995
COMPARED COMPARED
TO 1995 TO 1994
---------- ----------
REVENUES:
Pipeline operations (18.8)% 13.9 %
Net oil and gas royalties (4.7) (13.7)
Farm produce sales (39.2) 44.5
Ranch lease rentals - (1.7)
Total revenues (21.1) 14.3
COSTS AND EXPENSES:
Operating expenses (35.3) 33.3
General and administrative expenses 26.1 3.9
Depreciation and amortization 10.6 6.5
Other (income) expense - net (16.7) (20.0)
Taxes - other than income taxes (15.4) 15.5
Total costs and expenses (5.9) 19.2
INCOME BEFORE PROVISION FOR INCOME TAXES (52.0) 5.6
Provision for income taxes (50.8)% 91.2 %
The following is a discussion of material changes in the results of
operations of the Company.
COMPARISON OF FISCAL YEARS 1996 AND 1995
----------------------------------------
REVENUES
- --------
Pipeline Operations - Pipeline gathering revenue for fiscal year 1996
decreased 18.8% as compared to fiscal year 1995. Gathering fees which include
sale of liquefied natural gas products are adjusted for differences between
quantities of natural gas gathered and quantities of natural gas sold. For
fiscal year 1996, the gathering fees decreased by $28,700 for these
differences as compared to fiscal year 1995. Part of the decrease in
gathering fees for fiscal year 1996 is also attributable to a 4.9% decrease
in quantities (million british thermal units - mmbtu) of natural gas volumes
gathered and transmitted (1996 - 762,000 mmbtu; 1995 - 801,000 mmbtu).
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year
1996 decreased 4.7% as compared to fiscal year 1995. A decrease of 29.2% in
natural gas production (thousand cubic feet "MCF")(1996 - 11,095 MCF; 1995 -
15,679 MCF) was partially offset by a 32% increase in natural gas prices
(average price per MCF: 1996 - $2.31; 1995 - $1.75). A decrease of 19.2% in
oil and condensate production (barrel "bbl") (1996 - 4,044 bbl; 1995 - 5,007
bbl) was partially offset by a 20.2% increase in oil and condensate prices
(average price per barrel: 1996 - $20.20; 1995 - $16.81). The Company's
undiscounted future revenues in proved developed oil and gas reserves is
estimated to be approximately $405,000 at October 31, 1996.
Farm Produce Sales - Farm produce sales for fiscal year 1996 decreased
39.2% as compared to fiscal year 1995. As a result of drought followed by
heavy rains during September, the cotton production yield decreased 84.4%
(1996 - 56,000 lbs.; 1995 - 360,000 lbs.). The losses in production due to
destroyed cotton crops for fiscal year 1996 were partially offset by insurance
proceeds received under multi-peril crop insurance policies.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take six years before the pecan grove is
commercially productive. Estimated future annual target yield of the pecan
grove is approximately 300,000 lbs. In accordance with an agreement with a
pecan picking company, the Company receives 40% of harvested pecans from
approximately 100 previously existing pecan trees located on Company land.
As the result of adverse weather conditions, the 1996 pecan crop was
substantially decreased.
Costs and Expenses
- ------------------
Operating Expenses - Operating expenses decreased 35.3% for fiscal year
1996 as compared to fiscal year 1995. The decrease in operating expenses are
attributable to decreases in operating expenses of agricultural leases and
ranch operating expenses. Operating expenses of the agricultural leases were
substantially lower due to the low cotton production yields caused by adverse
weather conditions. Ranch operating expenses for the ranch lease operations
decreased due to a decrease in outside services expense for painting and
maintaining ranch fences and buildings. This decrease in payments to contract
labor was partially offset by an increase in ranch salaries. Operating
expenses of the gathering system for fiscal year 1996 were about the same as
compared to fiscal year 1995.
General and Administrative Expenses - General and administrative expenses
for the fiscal year 1996 increased 26.1% as compared to fiscal year 1995.
The increase in expense is attributable to increases in insurance, legal,
salaries, and office expense. Insurance expense for fiscal year 1996
increased due to increased insurance premiums and retroactive policy
premium adjustments. Legal fees were incurred in connection with the
payment of dividends to shareholders and other matters. Salaries and
office expense increased due to increases in allocated salaries and office
expense from related parties.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1996 increased 10.6% as compared to fiscal year 1995. The increase is
attributable to additions to ranch properties.
Other (Income) Expense - Net - Other (income) expense - net for the
fiscal year 1996 decreased 16.7% as compared to fiscal year 1995. The
decrease is attributable to a reduction in other income derived from charging
related parties for time of ranch personnel.
Taxes - Other Than Income Taxes - Taxes - other than income taxes for
fiscal year 1996 decreased 15.4% as compared to fiscal year 1995 due to a
reduction in franchise taxes.
Provision for Income Taxes - Provision for income taxes for fiscal year
1996 decreased 51% as compared to fiscal year 1995. The decrease is
attributable to a similar decrease in pre-tax accounting income.
COMPARISON OF FISCAL YEARS 1995 AND 1994
Revenues
- --------
Pipeline Operations - Pipeline gathering revenue for fiscal year 1995
increased 13.9% when compared to fiscal year 1994. Gathering fees are
adjusted for differences between quantities of natural gas gathered and
quantities of natural gas sold. For 1995, the gathering fees increased by
$52,000 because of these differences. The above increase was partially offset
by a 17% decrease in quantities (million british thermal units - mmbtu) of
natural gas volumes gathered and transmitted (1995 - 801,000 mmbtu; 1994 -
970,000 mmbtu).
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year
1995 declined 13.7% as compared to fiscal year 1994. A decrease of 21.5% in
natural gas prices (average price per thousand cubic feet "MCF": 1995 - $1.75;
1994 - $2.23) was partially offset by a 17% increase in natural gas production
(1995 - 15,679 MCF; 1994 - 13,414 MCF). An increase of 10% in oil and
condensate prices (average price per barrel ("bbl"): 1995 - $16.81; 1994 -
$15.31) was more than offset by a decrease of 24% in oil and condensate
production (1995 - 5,007 bbls; 1994 - 6,585 bbls). The Company's undiscounted
future revenues in proved developed oil and gas reserves is estimated to be
approximately $551,000 at October 31, 1995.
Farm Produce Sales - Farm produce sales for fiscal year 1995 increased
substantially as compared to fiscal year 1994. Cotton production increased
89% over the prior year (1995 - 360,000 lbs.; 1994 - 190,000 lbs.). Cotton
prices increased 22% over the prior year (1995 - $.72 per lb.; 1994 - $.59
per lb.). There was no milo or corn production in 1995. Amounts for 1994,
were 702,000 lbs. and 286,000 lbs., respectively.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take six years before the pecan grove is
commercially productive. Estimated target yield is approximately 300,000
lbs. per year. During fiscal year 1995, there was no income from the pecan
grove. Any income from the pecan grove before it becomes commercially
productive will be used to reduce the costs of the pecan grove.
In accordance with an agreement with a pecan picking company, the
Company receives 30% of harvested pecans from approximately 100 mature
pecan trees located on Company land. Pecan sales for the fiscal year 1995
of $5,000 increased 40% as compared to fiscal year 1994. A decrease in pecan
production yield of 30% (1995 - 6,900 lbs.; 1994 - 9,000 lbs.) was offset by
a price increase of 59% (1995 - $.70 per lb.; 1994 - $.44 per lb.).
Ranch Lease Rentals - Ranch lease rentals slightly decreased for fiscal
year 1995 as compared to fiscal year 1994. The area leased to the Estate of
J. R. Parten was reduced by the area of land used for the pecan grove.
Costs and Expenses
- ------------------
Operating Expenses - Operating expenses increased 33.3% for fiscal year
1995 as compared to fiscal year 1994. Ranch lease expenses increased due
to the hiring of two full time employees to maintain the ranch lands.
Operating expenses of the agricultural leases for the fiscal year 1995
increased over fiscal year 1994 because of increased use of herbicides and
fertilizer in connection with the cotton crop.
General and Administrative Expenses - General and administrative expenses
for the fiscal year 1995 increased 3.9% as compared to fiscal year 1994 due to
increases in insurance and salaries.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1995 increased 6.5% as compared to fiscal year 1994. The increase is
attributable to depreciation on additions.
Other (Income) Expense - Net - Other (income) expense - net decreased
slightly in fiscal year 1995 as compared to fiscal year 1994.
Taxes - Other Than Income Taxes - Taxes - other than income taxes for
fiscal year 1995 increased as compared to fiscal year 1994. Payroll taxes
increased in fiscal 1995 due to the hiring of two new employees.
Provision for Income Taxes - Provision for income taxes for fiscal year
1995 increased as compared to fiscal year 1994. The increase in due to an
increase in state income taxes and the reduction in the tax effect of the
alternative minimum tax credit.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As indicated by the Company's consolidated statement of cash flows, cash
and cash equivalents at the end of fiscal year 1996 decreased $390,000 as
compared to the end of fiscal year 1995. The Company utilized $74,000 in
operating activities and paid out $58,040 as dividends to shareholders. In
addition, the Company expended $110,000 for an extension to the irrigation
system, $70,000 for a new waterwell pump, $30,000 for ranch buildings and
fences, and $48,000 for other ranch equipment or property.
During fiscal year 1997, the Company has entered into a joint operating
agreement with a related party for the construction and operation of a
compressor station. The Company's expected 50% share of the construction
cost of the compressor station is $86,000. The Company anticipates that
adequate working capital will be provided by operations.
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Shareholders and Board of Directors
of Seven J Stock Farm, Inc.
We have audited the accompanying consolidated balance sheets of Seven J
Stock Farm, Inc. and Subsidiary as of October 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the fiscal years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 financial position of Seven J
Stock Farm, Inc. and Subsidiary as of October 31, 1996 and 1995 and the
results of its operations and its cash flows for the fiscal years then
ended in conformity with generally accepted accounting principles.
MATTISON AND RIQUELMY
January 7, 1997
Houston, Texas
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
(in thousands except for share and per share data)
=============================================================================
OCTOBER 31,
-------------------
1996 1995
-------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 97 $ 487
Accounts receivable 126 71
Accounts receivable - related parties 99 39
Accounts receivable - other 1 1
Inventories 35 5
Refundable income taxes 66 -
Deferred income taxes - 19
Other current assets 13 9
------- -------
Total current assets $ 437 $ 631
PROPERTY AND EQUIPMENT - at cost, less accumulated
depreciation of $1,766 in 1996 and $1,696 in 1995 1,353 1,168
OTHER ASSETS 8 8
------- -------
TOTAL $ 1,798 $ 1,807
======= =======
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
(in thousands except for share and per share data)
=============================================================================
(CONTINUED) OCTOBER 31,
-------------------
1996 1995
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 58 $ 78
Accounts payable - related parties 25 25
Accrued taxes - other than income taxes - 27
Accrued expenses - other 34 32
Accrued income taxes payable 1 14
Deferred income taxes 41 -
------- -------
Total current liabilities $ 159 $ 176
------- -------
OTHER LIABILITIES AND CREDITS:
Deferred income taxes $ 70 $ 81
Unearned lease income 9 9
------- -------
Total other liabilities and credits $ 79 $ 90
------- -------
SHAREHOLDERS' EQUITY:
Common stock, par value - $1 per share; authorized
1,500,000 shares; issued and outstanding 1,451,000
shares $ 1,451 $ 1,451
Retained earnings 109 90
------- -------
Total shareholders' equity $ 1,560 $ 1,541
------- -------
TOTAL $ 1,798 $ 1,807
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1996 AND 1995
(in thousands except for share and per share data)
=============================================================================
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
REVENUES:
Pipeline operations $ 24 $ 21
Pipeline operations - related parties 136 176
Net oil and gas royalties 102 107
Farm produce sales 160 263
Ranch lease rentals 19 19
Ranch lease rentals - related party 100 100
------- -------
Total revenues $ 541 $ 686
------- -------
COSTS AND EXPENSES:
Operating expenses $ 122 $ 191
Operating expenses - related parties 10 13
General and administrative expenses 123 84
General and administrative expenses - related parties 80 77
Depreciation and amortization 73 66
Other (income) expense - net (7) (8)
Other (income) expense - net - related parties (13) (16)
Taxes - other than income taxes 39 48
Taxes - other than income taxes - related parties 5 4
------- -------
Total costs and expenses $ 432 $ 459
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 109 $ 227
Provision for income taxes 32 65
------- -------
NET INCOME $ 77 $ 162
======= =======
NET INCOME PER SHARE (1,451,000 weighted -
average shares outstanding) $ .05 $ .11
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1996 AND 1995
(in thousands)
=============================================================================
COMMON STOCK RETAINED TOTAL
--------------------- EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
--------- --------- --------- -------------
Balance at
October 31, 1994 1,451 $ 1,451 $ (72) $ 1,379
Net income - - 162 162
-------- -------- -------- ------------
Balance at
October 31, 1995 1,451 $ 1,451 $ 90 $ 1,541
Net income - - 77 77
Dividend paid - $.04
per share - - (58) (58)
-------- -------- -------- ------------
Balance at
October 31, 1996 1,451 $ 1,451 $ 109 $ 1,560
======== ======== ======== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
=============================================================================
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 77 $ 162
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 73 66
Deferred income taxes 49 10
Changes in assets and liabilities:
(Increase) decrease in assets:
Inventories (30) 36
Accounts receivable (115) (34)
Refundable income taxes (66) 20
Other assets (4) (5)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (45) 30
Accrued income taxes payable (13) 14
------- -------
Net cash provided by (used in) operating
activities $ (74) $ 299
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (258) $ (188)
Net redemptions of certificates of deposit - 75
------- -------
Net cash provided by (used in) investing
activities $ (258) $ (113)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES - Dividend paid (58) $ -
------- ------
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
=============================================================================
(CONTINUED) FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (390) $ 186
CASH AND CASH EQUIVALENTS - beginning of year 487 301
------- -------
CASH AND CASH EQUIVALENTS - end of year $ 97 $ 487
======= =======
SUPPLEMENTAL CASH FLOW DATA:
Income taxes paid $ 63 $ 28
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Seven J Stock Farm, Inc. was incorporated in Texas in 1948. The
principal operations of Seven J Stock Farm, Inc., and Subsidiary (the
"Company") which are conducted on 11,140 acres of land consist of producing
and selling field crops, leasing pastures, and gathering natural gas through
pipelines. In addition, the Company receives oil and gas royalties for
minerals underling the land owned in fee. All operations are located and
conducted in the State of Texas.
Preparation of Financial Statements - The financial statements reflect,
on a consolidated basis, the accounts of Seven J Stock Farm, Inc. and
Subsidiary. The wholly-owned subsidiary is Madison Pipe Line Co. All
significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and Expense Recognition - Revenues are reflected in operations
when earned and expenses when incurred utilizing the accrual method of
accounting.
Revenue from pipeline operations is recognized based on dates natural
gas is gathered.
Revenue from net oil and gas royalties is recognized based on dates of
production.
Revenue from farm produce sales is recognized when field crops are
harvested.
Revenue from ranch lease rentals is recognized based on lease periods.
Inventories - Inventories of harvested cotton, corn, wheat, milo, and
pecans are stated at current sales price less cost of disposal. Growing
crops are stated at the lower of cost or net realizable value.
Property and Equipment - Property and equipment is recorded at cost.
The straight-line method of computing depreciation is used for financial
reporting purposes. Maintenance and repairs are included in expenses when
incurred. Renewals and betterments which extend the useful life of the
equipment are capitalized. At the time properties are retired or otherwise
disposed of, the cost of the property and accumulated depreciation are
removed from the accounts. The difference between the net book value and the
amount received by sale or salvage is included in income.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
The cost of planting the pecan grove and yearly maintenance and
development costs are capitalized until the grove is ready for commercial
production. Net proceeds from sale of pecans before commercial production
are recorded as a reduction of capitalized costs. Normal losses of trees to
disease and other conditions during the development stage are not treated as
a reduction to the capitalized cost; however, abnormal losses are charged to
current operations. The capitalized cost is depreciated over its estimated
economic life, beginning in the first year of commercial production.
Cash and Cash Equivalents - All highly liquid investment purchases with
a original maturity of three months or less are cash equivalents.
Deferred Income Taxes - In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", the Company
utilizes the asset and liability approach in computing deferred income taxes.
Under the asset and liability approach to accounting for income taxes, a
deferred income tax liability, calculated using projected tax rates, is
recognized on temporary differences which will result in projected future net
taxable amounts. In addition, a deferred income tax asset, calculated using
projected tax rates, is recognized on temporary differences which will result
in projected future net deductible amounts. The deferred income tax asset is
reduced by a valuation allowance based on management's estimate of the amount
that will ultimately be realized or deducted in future years.
Reclassifications - Certain items and amounts have been reclassified.
The reclassifications have no effect on net income.
2. PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
Property and equipment consists of:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Buildings and building improvements $ 538 $ 521
Levee, drainage, irrigation, roads, and
flood control facilities 584 507
Farm implements, trucks, and tractors 50 50
Fences, corrals, and other equipment 637 512
Pipelines 700 700
Pecan grove and irrigation system
(not commercially productive) 310 271
------- -------
$ 2,819 $ 2,561
Less accumulated depreciation 1,766 1,696
------- -------
$ 1,053 $ 865
Land 300 303
------- -------
Property and equipment - net $ 1,353 $ 1,168
======= =======
2. PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION (CONTINUED)
Depreciation of property and equipment is based on the estimated useful
lives. Annual lives for depreciation are as follows:
YEARS
--------
Buildings and building improvements 5 - 40
Levee, drainage, irrigation, roads, and
flood control facilities 7 - 50
Farm implements, trucks, and tractors 5 - 10
Fences, corrals, and other equipment 5 - 20
Pipelines 10 - 20
Pecan grove and irrigation system 20
3. RANCH LEASES
Company property is subject to two separate ranch leases at an annual
rental of $16 per net acre. One lease agreement, expiring July 31, 1998,
with an unrelated party, covers 1,182 net acres. The lessee has an option
to renew the lease for an additional five years subject to possible
escalation. The other lease for 6,260 net acres with the Estate of J. R.
Parten, a related party, expires on October 31, 1998. The lease is subject
to earlier termination by either party by giving three months notice.
Unearned lease income of $9,000 at October 31, 1996 and 1995 represents
prepaid rent attributable to the unrelated party lease.
4. AGRICULTURAL LEASES
Approximately 2,612 acres or 23% of the Company land is leased to
unrelated parties under two lease agreements. The Company is entitled to 25%
of the cotton production and 30% of the milo, wheat, and corn production from
the leased lands. The Company pays for its respective share of certain costs
of crop production.
The lease agreements expire on the harvest date of the 1997 crops. The
lessees have the option to renew the leases on an annual basis for an
additional two years.
5. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited selected quarterly financial data for the fiscal years ended
October 31, 1996 and 1995 are as follows:
1996 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amount)
Revenues $ 93 $ 96 $ 98 $ 254
====== ====== ====== ======
Net income $ 8 $ 11 $ 9 $ 49
====== ====== ====== ======
Net income per share $ - $ .01 $ .01 $ .03
====== ====== ====== ======
5. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
1995 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amount)
Revenues $ 109 $ 100 $ 101 $ 376
====== ====== ====== ======
Net income $ 24 $ 19 $ 26 $ 93
====== ====== ====== ======
Net income per share $ .02 $ .01 $ .02 $ .06
====== ====== ====== ======
The 1996 and 1995 fourth quarter revenues include seasonal sales of
harvested cotton.
6. BUSINESS SEGMENTS
The Company operates in two principal industries, agriculture and oil and
gas. The Company's agricultural industry segments consist of the producing
and selling of field crops and the leasing of ranch land not used in farming
operations. The Company's oil and gas industry segments consist of oil and
gas royalty interests in minerals underlying the land owned in fee and
gathering and transportation of natural gas through pipelines.
Financial information concerning the Company's business segments for the
fiscal years ended October 31, 1996 and 1995 is as follows. There were no
material intersegment sales or transfers. Income before provision for income
taxes represents revenues less operating expenses for each segment and
excludes general corporate expenses and other income and expenses of a general
corporate nature. Identifiable assets, by segment, are those assets that are
used in the Company's operations within that industry. Corporate assets are
those assets maintained for general purposes, principally cash and cash
equivalents.
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
REVENUES:
Agriculture:
Farm produce $ 160 $ 263
Ranch leases 119 119
------- -------
$ 279 $ 382
------- -------
6. BUSINESS SEGMENTS (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
Oil and gas:
Net oil and gas royalties $ 102 $ 107
Pipeline operations 160 197
------- -------
$ 262 $ 304
------- -------
Total revenues $ 541 $ 686
======= =======
OPERATING PROFIT:
Agriculture:
Farm produce $ 108 $ 151
Ranch leases (7) (13)
------- -------
$ 101 $ 138
------- -------
Oil and gas:
Net oil and gas royalties $ 97 $ 102
Pipeline operations 101 138
------- -------
$ 198 $ 240
------- -------
Total operating profit $ 299 $ 378
Other income (expense) - net 20 24
General corporate expenses (210) (175)
------- -------
Income before provision for income taxes $ 109 $ 227
======= =======
IDENTIFIABLE ASSETS:
Agriculture $ 1,307 $ 970
Oil and gas 381 341
Corporate assets 110 496
------- -------
Total assets $ 1,798 $ 1,807
======= =======
TOTAL CAPITAL EXPENDITURES:
Agriculture $ 258 $ 188
Oil and gas - -
------- -------
Total capital expenditures $ 258 $ 188
======= =======
DEPRECIATION AND AMORTIZATION:
Agriculture $ 38 $ 31
Oil and gas 35 35
------- -------
Total depreciation and amortization $ 73 $ 66
======= =======
6. BUSINESS SEGMENTS (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
MAJOR CUSTOMERS:
Customers comprising 10% or greater of the
Company's net revenues are summarized as
follows by business segments:
Ranch lease - Estate of J. R. Parten -
related party $ 100 $ 100
Agricultural leases - Caney Valley Cotton Co.
(1996 less than 10%) - 257
Pipeline operations - Gathering income
attributable to gas wells partially
owned by Estate of J. R. Parten -
related party 122 150
------- -------
Total revenues - major customers $ 222 $ 507
======= =======
Percentage to total revenues - all customers 41% 74%
======= =======
7. RELATED PARTY TRANSACTIONS
The relationship of the Estate of J. R. Parten to the Company is that of
a shareholder. Mr. John R. Parten and Mr. Robert F. Pratka, officers of the
Company, are Co-Executors of the Estate of J. R. Parten.
Information concerning ranch lease to a related party is also disclosed
in Note 4 of the notes to consolidated financial statements.
The following is a description of significant related party transactions
for the fiscal years ended October 31, 1996 and 1995:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
DESCRIPTION OF RELATED PARTY TRANSACTIONS:
Gathering income attributable to production
from gas wells owned by certain shareholders
of the Company $ 136 $ 176
7. RELATED PARTY TRANSACTIONS (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Ranch lease rentals received from the Estate
of J. R. Parten 100 100
Allocated salaries, payroll taxes and other
expenses of two part-time employees by a
company owned by the Estate of J. R. Parten 35 35
Allocated office salaries, payroll taxes, office
rent and other office expenses by the Estate of
J. R. Parten 60 59
Ranch labor income received from a company owned
by Estate of J. R. Parten - 4
Rental income received from:
Pipeline company owned by certain directors,
officers or shareholders of the Company 2 3
Company owned by Estate of J. R. Parten 10 9
Capital expenditures - equipment and labor
charges for construction of irrigation system 16 39
8. FEDERAL INCOME TAXES
The components of the provision for income taxes for the fiscal years
ended October 31, 1996 and 1995 are as follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Current income tax expense (benefit) $ (17) $ 55
Deferred income taxes 49 10
------- -------
$ 32 $ 65
======= =======
Federal taxable income is reported by Seven J Stock Farm, Inc. on the
cash basis and by its subsidiary on the accrual basis.
At October 31, 1996, the Company has a credit for prior year alternative
minimum tax carryover for income tax purposes of $28,000 and a percentage
depletion carryover of $816,000.
8. FEDERAL INCOME TAXES (CONTINUED)
The total deferred income tax liabilities and deferred income tax benefits
with related valuation allowances as of October 31, 1996 and 1995 are as
follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Deferred income tax liabilities:
Excess tax depreciation $ 101 $ 100
Use of cash basis method of accounting 38 -
------- -------
$ 139 $ 100
------- -------
Deferred income tax benefits - net of related
valuation allowances:
Use of cash basis method of accounting $ - $ 22
Credit for prior years alternative minimum
tax carryover 28 16
Valuation allowance - -
------- -------
$ 28 $ 38
------- -------
Net deferred income tax liability $ 111 $ 62
======= =======
A reconciliation of the Company's income tax provision and the amount
computed by applying the statutory Federal income tax rates to earnings before
income taxes for the fiscal years ended October 31, 1996 and 1995 is as
follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Computed Federal income tax at statutory rate of 34% $ 37 $ 77
Tax benefit of graduated Federal income tax rates (4) (4)
Tax benefit of credit for prior year alternative
minimum tax - (9)
Percentage depletion attributable to oil and gas
royalties - (6)
State income tax differential (1) 7
------- --------
Provision for income taxes $ 32 $ 65
======= =======
Effective Federal income tax rate 29.4% 28.6%
======= =======
9. NET OIL AND GAS ROYALTIES
The Company receives oil and gas royalties based on oil and gas well
production from various oil and gas companies. Lessees are related parties
underlying the lands owned in fee.
Oil and gas royalties net of production taxes for the fiscal years ended
October 31, 1996 and 1995 are as follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1996 1995
-------- --------
(in thousands)
Gross oil and gas royalties $ 107 $ 112
Production taxes (5) (5)
------- -------
Net oil and gas royalties $ 102 $ 107
======= =======
10. CONCENTRATION OF CREDIT RISK
The Company maintains cash deposits with banks which from time to time
may exceed federally insured limits. Management periodically assesses the
financial condition of the institutions and believes that any possible loss
is minimal.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated herein by reference to portions of the Company's information
statement filed pursuant to regulations 14A with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year.
ITEM 9A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITION
- ----------------------- ----- --------------------------------------
John R. Parten 47 Chairman of the Board and President;
President of Madison Pipe Line Co.
R. F. Pratka 74 Vice-President and Treasurer;
Vice-President, Secretary, and
Treasurer of Madison Pipe Line Co.
Valerie Coulter 54 Secretary
On November 18, 1992, John R. Parten was elected President of the
Company. He served the Company as Vice-President from 1987 to November 18,
1992. He has served as President of Madison Pipe Line Co. since 1987.
R. F. Pratka has served the Company as Vice-President and Treasurer since
1970 and he has served as Vice-President, Secretary, and Treasurer of Madison
Pipe Line Co. since 1987.
Valerie Coulter was elected Secretary on March 15, 1994.
ITEM 10. EXECUTIVE COMPENSATION, and
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, and
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Part III (Items 10, 11, and 12) is
incorporated by reference from the Company's information statement filed
pursuant to regulations 14A with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
No. Description
- --- ------------
(2) Articles of Incorporation and Bylaws (1)
(10) Material Contract - Ranch Lease - Estate of J. R.
Parten dated March 4, 1993 (2)
(22) Subsidiary of the Registrant
(27) Financial data schedule
- -------------------------------------------------------------------------------
(1) EXHIBIT D to Registration Statement, Form 10, filed with the Securities
and Exchange Commission on June 3, 1965, is incorporated by reference.
(2) Incorporated by reference, Form 10-KSB for the fiscal year ended
October 31, 1994 filed with the Securities and Exchange Commission
on January 30, 1995.
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for the quarter ended October 31, 1996.
EXHIBIT 22
SUBSIDIARY OF REGISTRANT
At October 31, 1996, the Company has one wholly-owned subsidiary, Madison
Pipe Line Co. The subsidiary was organized under the laws of the State of
Texas and the financial statements of this subsidiary are included in the
Company's consolidated financial statements.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SEVEN J STOCK FARM, INC.
January 22, 1997 By s/ R. F. Pratka
------------------------------------
R. F. Pratka, Vice-President and
Treasurer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
January 22, 1997 s/ John R. Parten
------------------------------------
John R. Parten, President and
Director (Chief Executive Officer)
January 22, 1997 s/ R. F. Pratka
------------------------------------
R. F. Pratka, Vice-President,
Treasurer and Director (Chief
Financial and Accounting Officer)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEVEN J
STOCK FARM, INC. CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1996 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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