U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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.)
16945 Northchase Dr., Ste 1800, Houston, TX 77060-2151
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(Address of principal executive offices)
(281) 875-9100
--------------
(Issuer's telephone number)
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 ( )
As of September 8, 1999 there were 1,451,000 shares of Seven J Stock Farm,
Inc. common stock $1.00 par value outstanding.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
JULY 31, JULY 31,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
REVENUES:
Pipeline operations $ 73 $ 72 $ 206 $ 217
Oil and gas royalties - net of
excise taxes 42 48 119 168
Farm produce sales 36 108 123 118
Pasture and ranch lease rentals 29 29 89 89
-------- -------- -------- --------
Total revenues $ 180 $ 257 $ 537 $ 592
-------- -------- -------- --------
COSTS AND EXPENSES:
Operating expenses $ 85 $ 115 $ 229 $ 221
Administrative and general expenses 68 41 198 147
Depreciation and amortization 31 30 85 79
Equity in loss of 50% owned affiliate 56 - 273 -
Interest expense 7 - 13 -
Other (income) - net (9) (16) (28) (26)
Taxes other than income taxes 17 15 35 33
-------- -------- -------- --------
Total costs and expenses $ 255 $ 185 $ 805 $ 454
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES $ (75) $ 72 $ (268) $ 138
Provision for income taxes (6) 11 (2) 32
-------- -------- -------- --------
NET INCOME (LOSS) $ (69) $ 61 $ (266) $ 106
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE
(1,451,000 weighted average shares
outstanding) $ (.04) $ .04 $ (.18) $ .07
======== ======== ======== ========
DIVIDENDS PER SHARE NONE NONE NONE .04
======== ======== ======== ========
The notes to the condensed consolidated financial statements
are an integral part of this statement.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 1999
(IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE DATA)
(UNAUDITED)
JULY 31,
ASSETS 1999
---------
CURRENT ASSETS:
Cash and cash equivalents $ 23
Accounts receivable 138
Inventories-growing crops 51
Refundable income taxes 19
Other 3
---------
Total current assets $ 234
INVESTMENT AND ADVANCES TO 50% OWNED AFFILIATE 36
PROPERTY AND EQUIPMENT - net 1,700
OTHER ASSETS 1
---------
TOTAL $ 1,971
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 142
Current maturities of long-term debt 43
Accounts payable 100
Accrued liabilities-other 31
Accrued taxes - other than taxes on income 21
Accrued income taxes 1
---------
Total current liabilities $ 338
---------
OTHER LIABILITIES AND CREDITS:
Long-term debt $ 100
Deferred income taxes $ 103
Unearned lease income 9
---------
Total other liabilities and credits $ 212
---------
SHAREHOLDERS' EQUITY:
Common stock, par value $1.00 per share,
authorized 1,500,000 shares; issued and
outstanding 1,451,000 shares $ 1,451
Retained earnings (Deficit) (30)
---------
Total shareholders' equity $ 1,421
---------
TOTAL $ 1,971
=========
The notes to the condensed consolidated financial statements
are an integral part of this statement.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE
MONTHS ENDED
JULY 31,
------------------
1999 1998
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (266) $ 106
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 85 79
Deferred income taxes 6 11
Equity in loss of 50% owned affiliate 273 -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 38 (51)
Inventories (51) 138
Other current assets (7) 23
Increase (decrease) in liabilities:
Accounts payable and other 59 (48)
Accrued income taxes (30) (1)
Accrued taxes - other than taxes
on income (4) (8)
Deferred income taxes - (1)
-------- --------
Net cash provided by operating
activities $ 103 $ 248
-------- --------
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
FOR THE NINE
MONTHS ENDED
JULY 31,
------------------
1999 1998
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Expenditures for property and equipment $ (143) $ (257)
Loan to agricultural lessee - (10)
Investment and advances to 50% owned affiliate (239) (50)
-------- --------
Net cash used in investing activities $ (382) $ (317)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividend paid $ - $ (58)
Proceeds from note payable 142 -
Proceeds from long-term debt 150 -
Payment on long-term debt (7) -
-------- --------
Net cash provided by (used in) financing activities $ 285 $ (58)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 6 $ (127)
CASH AND CASH EQUIVALENTS - beginning of period 17 132
-------- --------
CASH AND CASH EQUIVALENTS - end of period $ 23 $ 5
======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 9 $ -
======== ========
Income taxes $ 39 $ 14
======== ========
The notes to the condensed consolidated financial statements
are an integral part of this statement.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements are
unaudited and include the accounts of Seven J Stock Farm, Inc. (the "Company")
and its wholly owned subsidiary, Madison Pipe Line Company.
The unaudited interim condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying unaudited interim
condensed consolidated financial statements and related notes should be read
in conjunction with the financial statements and related notes included in the
Company's 1998 Annual Report to Shareholders.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the Company's financial position as of July 31, 1999 and the
results of its operations and its cash flows for the periods ended July 31,
1999 and 1998. Such adjustments consisted only of normal recurring items.
The results of operations for the periods ending July 31, 1999 and 1998 are
not necessarily indicative of the results to be expected for the full year.
Interim results are subject to year-end adjustments and audit by independent
public accountants.
Certain items and amounts have been reclassified. The reclassifications
have no effect on net income.
NOTE 2 - PROVISION FOR INCOME TAXES
The reported income tax rate on income excluding equity in loss of 50%
owned affiliate in the first nine months of fiscal year 1999 was 26.5% which
is the Company's current estimate of the effective tax rate for the entire
year. The reported tax rate in the corresponding period of the previous
year was 23.2%. The Company's effective tax rate for the year ended October 31,
1998 was 28.8%.
NOTE 3 - 50% OWNED AFFILIATE
On July 2, 1998, the Company purchased a 50% interest in Trinity Valley Pecan
Company (the "50% owned affiliate") Condensed unaudited financial statements
of the 50% owned affiliate are as follows:
BALANCE SHEET (unaudited) July 31, 1999
- ----------------------------------------------------- -------------
(in thousands)
Assets:
Current assets $ 64
Noncurrent assets (primarily property and equipment) 931
-------------
Total $ 995
=============
Liabilities:
Current liabilities $ 704
Noncurrent liabilities 434
Shareholders' equity:
Common stock and paid-in capital 500
(Deficit) (643)
-------------
$ 995
=============
FOR THE NINE
MONTHS ENDED
JULY 31, 1999
-------------
(in thousands)
STATEMENT OF INCOME (LOSS) (unaudited)
- -----------------------------------------------------
Revenues $ 321
Cost and expenses 820
-------------
Income (loss) before provision for income taxes $ (499)
Provision for income taxes 47
-------------
Net income (loss) $ (546)
=============
Equity in loss of 50% owned affiliate of the nine months ended July 31, 1999
was $273,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Pipeline Operations:
Revenue for the nine months ended July 31, 1999 decreased $11,000 or 5.1%
as compared to the nine months ended July 31, 1998. This is primarily due
to a decrease in gas volume transported.
Net Oil and Gas Royalties:
Revenue for the nine months ended July 31, 1999 decreased $49,000 or 29.2%
as compared to the nine months ended July 31, 1998. The decrease is due to
the decline in oil and gas prices.
Farm Produce Sales:
Revenue for the nine months ended July 31, 1999 increased $5,000 or 4.2%
as compared to the nine months ended July 31, 1998. The increase is due to
the Company receiving during 1999 government farm production and subsidy
payments. The Company received crop insurance proceeds during 1998 for
crops destroyed by extreme crop conditions. Growing crops of corn and
cotton are expected to be harvested during October and November, 1999.
Operating Expenses:
Expenses for the nine months ended July 31, 1999 increased $8,000 or 3.6%
as compared to the nine months ended July 31, 1998. Farm operating expenses
for the period ended 1999 increased $17,000 as compared to the period ended
1998 because the 1998 crops were destroyed by drought. Pipeline operating
expenses for the period ended 1999 decreases $12,000 as compared to the
period ended 1998 because of the decrease in gas volume transported.
Administrative and General Expenses:
Expenses for the nine months ended July 31, 1999 increased $51,000 or 34.7%
as compared to the nine months ended July 31, 1998. This increase is
primarily the result of an increase in allocated salaries.
Depreciation and Amortization:
Expenses for the nine months ended July 31, 1999 increased $6,000 or 7.6%
as compared to the nine months ended July 31, 1998. The increase is
attributable to additions to the Company's property and equipment.
Equity in loss of 50% owned affiliate:
The Company's investment in Trinity Valley Pecan Company produced a loss of
$273,000. The loss was a result of pecans not being available due to bad
weather conditions and start-up production costs.
Interest Expense:
The Company borrowed monies from banks during the period ended 1999 to
finance its investment in Trinity Valley Pecan Company and its farming
operations on land previously farmed by an agricultural lessee.
Provision for Income Taxes:
Provision for income taxes for the nine months ended July 31, 1999 decreased
$34,000 as compared to the nine months ended July 31, 1998. The decrease
is attributable to a decrease in income before provision for income taxes
excluding equity in loss of 50% owed affiliate.
Liquidity and Capital Resources
The Company had net cash flow from operating activities of $103,000 for the
nine months ended July 31, 1999 as compared to the net cash flow from operating
activities of $248,000 for the nine months ended July 31, 1998. During the
current period, the Company borrowed $125,000 for investment in Trinity Valley
Pecan Company, a 50% owned affiliate The Company had previously guaranteed a
loan of the affiliate in the amount of $514,000. During the quarter ended
July 31, 1999 the plant operations of Trinity Valley Pecan Company were shut
down. It is anticipated that Trinity Valley Pecan Company's pecan shelling
operations will commence during the last two weeks of September, 1999 and
continue through May, 1999. It is anticipated that revenue will be generated
from operations before the end of October, 1999. The Company anticipates that
adequate working capital will continue to be provided from future operations.
During the period, the Company borrowed $142,000 to finance the farming
operations on land previously leased to an agricultural lessee.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - none
(B) Reports on Form 8-K - there were no reports on Form 8-K filed for
the quarter ended July 31, 1999.
SIGNATURES
Pursuant to the requirements 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.
Date: September 13, 1999 SEVEN J STOCK FARM, INC.
(Registrant)
R. F. Pratka
------------------------------------------
R. F. Pratka, Vice-President and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEVEN J
STOCK FARM, INC. CONSOLIDATED BALANCE SHEET AT JULY 31, 1999 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED JULY 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
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<PP&E> 3733
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