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, 1999
( ) 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.)
16945 Northchase Dr., Suite 1800, Houston, TX 77060
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (281) 875-9100
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, 1999 were $816,000.
The aggregate market value of common stock held by non-affiliates on
January 10, 2000 was $1,587,672.
As of January 10, 2000 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, 1999 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.
The Company has invested and advanced $350,000 for a 50% interest in
Trinity Valley Pecan Company ("Trinity") which shells and markets pecans and
pecan products. The other 50% owner is the J. R. Parten Ranch Trust ("Ranch
Trust"), a related party. Approximately two acres of land are leased by the
Company to Trinity for operations. On July 9, 1998, Trinity entered into a loan
agreement with a bank covering an obligation of $554,000. The interest rate is
9.95% with maturity in 2005. Proceeds of the loan were used for construction of
a pecan shelling plant located on the leased land. The Company and the Ranch
Trust have guaranteed the loan. In addition, the Company and the Ranch Trust
have guaranteed Trinity's $200,000 line-of-credit with a bank.
For the fiscal year ended in 1999, The Company's reported loss
attributable to Trinity is $405,000. Management of Trinity is currently
considering permanently discontinuing operations.
Trinity is currently negotiating with a bank to obtain long-term
financing. Under the proposed terms of the financing, the Company will
guarantee and pledge land in order for Trinity to secure a $300,000 line-of-
credit. The proceeds of the loan will be used in part to pay-down on exiting
debt and provide Trinity with working capital.
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 2,404 acres 21.7 %
Ranch lease 1,299 acres 10.8
Related parties:
Ranch lease - Ranch Trust
created under will of J. R.
Parten (Estate of J. R. Parten
- shareholder of the Company) 7,180 acres 64.7%
Land Lease
John R. Parten, Officer,
Director and Shareholder
of the Company 6 acres 0.1%
Trinity Valley Pecan Company,
50% - owned affiliate 2 acres -%
In accordance with the term of the agricultural lease agreements, 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.
During fiscal year ending in 1999, 1,691 acres of land were leased under
an agricultural lease agreement. On January 4, 2000, an additional 713 acres of
land were leased under an agriculture lease agreement.
In accordance with the ranch leases encompassing 8,380 acres or 73% of
Company land, the annual rent, payable monthly, is $16 per net acre (7,650
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 was renewed on July 31, 1998
for a term of five years ending July 31, 2003. The ranch lease with the Estate
of J. R. Parten and Ranch Trust created under the will of J. R. Parten, related
parties, was renewed on October 31, 1999 for an additional five years, subject
to earlier termination by either party by giving three calendar months notice
to the other party.
Under a lease agreement beginning September 1, 1997, the Company leased
approximately six acres of land to John R. Parten, an officer, director, and
shareholder of the Company. Under the terms of the lease agreement, the company
is entitled to an annual rent of $200, subject to escalation after ten years.
The lessee is responsible for property taxes, utilities, insurance, and the cost
of construction of any buildings or improvements. Upon lease termination,any
buildings or improvements constructed on the leased land becomes the Company's
property. The lease term is fifty years.
Under a lease agreement beginning September 1, 1998, the Company leased
approximately two acres of land to Trinity. Under the terms of the lease
agreement, the Company is entitled to rent of $1,500 per month, subject to
escalation after ten years. The lessee is responsible for property taxes,
utilities, insurance, and the cost of construction, repairs, or maintenance of
any buildings or improvements. The lease term is fifty years. Upon lease
termination, any buildings or improvements constructed on the leased land
becomes the Company's property.
For the two fiscal years ended October 31, 1999 and 1998, revenue
generated from the leasing activities including share of crops represented 44%
and 32%, 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, 1999 and 1998, pipeline income represented 33%
and 38%, 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 pipelines.
Effective December 1, 1996, the subsidiary entered into a joint operating
agreement with another pipeline company ("operator") owned by John R.
Parten, an officer, director and shareholder of the Company. Under the
agreement, the subsidiary and operator share the cost of constructing a central
compression and dehydration facility on an equal basis. In addition, the
subsidiary and operator share on an equal basis the revenues, costs and
expenses of operating the combined gathering systems and central compression
and dehydration facility. The term of the agreement is for one year and for
month-to-month thereafter until cancelled. The combined gathering systems are
currently servicing fifteen producing gas wells. Thirteen wells are operated
by Parten Operating Inc., which is owned by John R. Parten.
Oil and Gas Royalties
- ---------------------
The Company receives oil and gas royalties attributable to seventeen
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,
1999 and 1998, net royalty income represented 23% and 30%, 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, 1999 and 1998 are summarized as follows:
FISCAL YEAR ENDED
OCTOBER 31,
----------------------
1999 1998
--------- ---------
(in thousands)
Ranch lease - Estate of J. R. Parten and
Ranch Trust created under will of J. R. Parten-
related parties $ 100 $ 100
Agricultural leases:
U.S. Dept. of Agriculture (1998 less than 10%) 132 -
Crop growers insurance (1999 less than 10%) - 92
Pipeline operations - Gathering income
attributable to gas wells partially
owned by related parties 184 207
--------- ---------
Total revenues - major customers $ 416 $ 399
========= =========
Percentage to total revenues - all
customers 51.0% 50.7%
========= =========
Employees
- ---------
The Company presently employs four full-time ranch employees and four
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 the 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 any 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. Seventeen 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, and a 50% undivided interest in a compression and dehydration
facility.
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 average prices of the common
shares for the fiscal years ended October 31, 1999 and 1998 are as follows:
QUOTED AVERAGE
PRICE
-------------------------
QUARTER 1999 1998
------- -------- --------
First $ 4.4375 $ 4.375
Second 4.00 4.375
Third 4.00 4.4375
Fourth 4.00 4.4375
The above quoted average prices were compiled from sporadic market
quotations which may not necessarily represent actual transactions.
As of January 10, 2000, the Company had approximately 800 shareholders.
No dividends were paid to shareholders during the fiscal year ended
October 31, 1999.
Although no restrictions exist for the payment of dividends, any future
payment of cash dividends 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
--------------------------
1999 1998
COMPARED COMPARED
TO 1998 TO 1997
-------- --------
REVENUES:
Pipeline operations (12.2)% 53.0 %
Net oil and gas royalties (17.9) (6.8)
Farm produce sales 82.4 (26.8)
Total revenues 3.7 5.4
COSTS AND EXPENSES:
Operating expenses 24.0 38.1
General and administrative expenses 9.7 16.1
Depreciation and amortization 13.0 9.9
Equity in loss of 50% owned affiliate 1,296.6 100.0
Other (income) expense - net (8.6) 9.4
Interest expense 100.0 -
Taxes - other than income taxes (2.3) -
Total costs and expenses 74.2 28.9
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (459.6) (52.1)
Provision for income taxes (313.3) (37.5)
The following is a discussion of material changes in the results of
operations of the Company.
COMPARISON OF FISCAL YEARS 1999 AND 1998
----------------------------------------
REVENUES
- --------
Pipeline Operations - Pipeline gathering revenue for fiscal year 1999
decreased 12% as compared to fiscal year 1998. The Company entered into
a joint operating agreement effective December 1, 1996 to jointly operate its
gas gathering system with a gathering system owned by a pipeline company
("operator") owned by John R. Parten. Under the terms of the agreement, the
Company was charged for its 50% share of the cost of equipment and labor to
construct, as part of the system, a central compression and dehydration
facility required to remove excess water content from the gas before delivery
to a gas plant owned by an unrelated party. The Company and the operator share
equally the income, costs and expenses of operating the gathering system,
including the dehydration facility (Ft. Trinidad Pipeline System). The
decrease in pipeline revenue is attributable to a decrease in the quantity
(mmbtu-million british thermal units) of natural gas transmitted through the
gathering system (1999-630,579 mmbtu; 1998-719,318 mmbtu).
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year
1999 decreased 18% as compared to fiscal year 1998. The decrease is
primarily due to a decline in oil production. Gas royalties increased 2%
because an increase of 15% in natural gas production (thousand cubic
feet "MCF") (1999-19,064 MCF; 1998 - 16,570 MCF)and an increase of 8% in
natural gas prices (average price per MCF: 1999 - $2.77;1998 - $2.57).
Oil and condensate royalties decreased 22% because of a decrease of 29% in oil
and condensate production (barrel "bbl") (1999 - 10,124 bbls; 1998 - 14,251
bbls), was partially offset by an increase of 1% in oil and condensate prices
(average price per barrel: 1999 - $14.45; 1998 - $14.31). Management
anticipates that oil royalties should significantly increase for the fiscal
year 2000 as the result of an oil well re-completion.
Farm Produce Sales - Farm produce sales for fiscal year 1999 increased
82% as compared to fiscal year 1998. During the fiscal year ended 1999, the
Company received 100% of the 1999 crop proceeds including government subsidies.
During the fiscal year ended 1998, the Company was entitled to 25% of the
cotton or 30% of the grain proceeds under the terms of the agricultural lease.
During the fiscal year ended 2000, 713 acres of the 921 acres will be leased
to a tenant farmer under an agricultural lease. The remaining 208 acres of the
921 acres will be leased under a ranch lease agreement to a trust created under
the will of J.R. Parten, a related party.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take an additional two years before the
pecan grove is commercially productive. Estimated future annual target yield
of the pecan grove is approximately 300,000 lbs.
During the fiscal year ended 2000, the Company will plant pine trees on
228 acres of Company land. The pine trees are not expected to be harvested
until the year 2015.
Costs and Expenses
- ------------------
Operating Expenses - Operating expenses increased 24% for fiscal year
1999 as compared to fiscal year 1998.
Pipeline operating expenses decreased 17% for fiscal year 1999 as
compared to fiscal year 1998 as the result of decreased pipeline revenue.
Ranch operating expenses increased 3% for fiscal year 1999 as compared
to fiscal year 1998 as the result of increased ranch labor.
Farm operating expense increased 144% for fiscal year 1999 as compared to
fiscal year 1998. The increase is due to increased crop expenses partially
offset by a decrease in expenses related to an abandoned water project. During
the fiscal year 1998, the Company's crops were destroyed by adverse weather
conditions. Because one tenant farmer did not renew his 921 acre agricultural
lease for the fiscal year 1999, the Company's share of crop expenses increased
to 100% from 25% of cotton or 30% of grain crop expenses under the 1998
agricultural lease agreement. The Company has leased 713 acres of the 921
acres to a tenant farmer for the fiscal year 2000.
General and administrative expenses increased 10% for fiscal year 1999 as
compared to fiscal year 1998. The increase is primarily due to increased
salary expense partially offset by a decrease in expenses incurred in
connection with the Company's 50th anniversary celebration and 1998 special
shareholder's report.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1999 increased 13% as compared to fiscal year 1998. The increase is
attributable to additions to ranch properties and pipeline equipment.
Equity in loss of 50% owned affiliate -The Company's share of loss from
its 50% owned affiliate, Trinity Valley Pecan Company ("Trinity") for the fiscal
year 1999 was $560,000. The Company's financial statement reflects a loss of
$405,000 to the extent of its investment, loan, advances and future commitment
to its 50% owned affiliate. During the fiscal year 1999, Trinity commenced
operations of its pecan shelling facility. Because of production
problems, the operations are unprofitable. Management is currently considering
discontinuing the pecan shelling operations permanently.
Other (Income) Expense - Net - Other (income) expense - net for the
fiscal year 1999 decreased 9% as compared to fiscal year 1998.
Interest expense - The Company borrowed funds from banks and a finance
company to invest in its 50% owned affiliate, purchase two tractors, and to
provide working capital for its farming operations on 921 acres of Company
land.
Provision for Income Taxes - Provision for income taxes for fiscal year
1999 decreased 313% as compared to fiscal year 1998. The decrease is
attributable to decreased income.
COMPARISON OF FISCAL YEARS 1998 AND 1997
REVENUES
- --------
Pipeline Operations - Pipeline gathering revenue for fiscal year 1998
increased 53% as compared to fiscal year 1997. The Company entered into
a joint operating agreement effective December 1, 1996 to jointly operate its
gas gathering system with a gathering system owned by a pipeline company
("operator") owned by John R. Parten. Under the terms of the agreement, the
Company was charged for its 50% share of the cost of equipment and labor to
construct, as part of the system, a central compression and dehydration
facility required to remove excess water content from the gas before delivery
to a gas plant owned by an unrelated party. The Company and the operator share
equally the income, costs and expenses of operating the gathering system,
including the dehydration facility (Ft. Trinidad Pipeline System). The
increased profitability is attributable to selling raw gas rather than
processing the gas through the gas plant. During fiscal year 1997, pipeline
revenues were reduced by gas plant processing fees and by any shrinkage of
natural gas during processing.
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year
1998 decreased 6.8% as compared to fiscal year 1997. The decrease is
primarily due to a decline in oil prices. Gas royalties increased 14.7%
because an increase of 29% in natural gas production (thousand cubic
feet "MCF") (1998-16,570 MCF; 1997 - 12,866 MCF), was partially offset by
decrease of 11% in natural gas prices (average price per MCF: 1998 - $2.57;
1997 - $2.89). Oil and condensate royalties decreased 10.3% because of an
increase of 27.9% in oil and condensate production (barrel "bbl") (1998 -
14,251 bbls; 1997 - 11,144 bbls), and a decrease of 30.9% in oil and
condensate prices (average price per barrel: 1998 - $14.31; 1997 - $20.72).
Farm Produce Sales - Farm produce sales for fiscal year 1998 decreased
26.8% as compared to fiscal year 1997. The 1997 cotton crop was substantially
destroyed by adverse weather conditions. The company received a percentage of
crop insurance proceeds based on historical cotton yields. An agricultural
lease covering 921 acres or 35% of land leased will not be renewed for the
1999 crop year.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take an additional three years before the
pecan grove is commercially productive. Estimated future annual target yield
of the pecan grove is approximately 300,000 lbs.
Costs and Expenses
- ------------------
Operating Expenses - Operating expenses increased 38.1% for fiscal year
1998 as compared to fiscal year 1997.
Pipeline operating expenses increased 28.6% for fiscal year 1998 as
compared to fiscal year 1997 as the result of increased pipeline revenue.
Ranch operating expenses increased 109.1% for fiscal year 1998 as compared
to fiscal year 1997 as the result of increased repairs and maintenance expense
for levees, ditches, and irrigation system.
Farm operating expense increased 9.2% for fiscal year 1998 as compared to
fiscal year 1997. The company abandoned an unsuccessful water project. The
project expenses were partially offset by a reduction in crop expenses as the
result of the crop being destroyed by adverse weather conditions.
General and administrative expenses increased 16.1% for fiscal year 1998
as compared to fiscal year 1997. The increase is primarily due to expenses
incurred with the Company's 50th anniversary party and special shareholder
report.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1998 increased 9.9% as compared to fiscal year 1997. The increase is
attributable to additions to ranch properties.
Equity in loss of 50% owned affiliate - On July 2, 1998, the company
acquired a 50% interest in Trinity Valley Pecan Company. The affiliate
operated a specialty retail store selling primarily pecans and pecan
products.
Other (Income) Expense - Net - Other (income) expense - net for the
fiscal year 1998 increased 9.4% as compared to fiscal year 1997. The
increase is attributable to an increase in interest income.
Provision for Income Taxes - Provision for income taxes for fiscal year
1998 decreased 37.5% as compared to fiscal year 1997. The decrease is
attributable to a decrease in the effective rate of income tax.
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 1999 increased $43,000 as
compared to the end of fiscal year 1998. Net cash provided by operating
activities of $297,000 and net cash provided by financing activities of
$229,000 was utilized to purchase a $51,000 compressor for the Company's
gathering system, $182,000 of ranch property, and investment, loans and
advances to its 50% owned affiliate of $250,000. The Company's liquidity could
be adversely affected due to losses of and loan guarantees for Trinity Valley
Pecan Company. Provision of $85,000 was made attributable to guarantees during
fiscal year ended October 31, 1999. As of October 31, 1999, the Company's
working capital deficit was $118,000. Payments of $128,000 attributable to
notes payable and long-term debt are required during the fiscal year ending
October 31, 2000. It is not anticipated that dividends will be paid in the
near future.
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, 1999 and 1998, and the
related consolidated statements of income (loss), 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, 1999 and 1998 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 14, 2000
Houston, Texas
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
(in thousands except for share and per share data)
- -----------------------------------------------------------------------------
OCTOBER 31,
-------------------
1999 1998
-------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 60 $ 17
Accounts receivable 62 36
Accounts receivable - related parties 76 88
Accounts and note receivable - other 6 52
Deferred income taxes 40 -
Refundable income taxes 16 -
Other current assets 8 15
------- -------
Total current assets $ 268 $ 208
INVESTMENT AND ADVANCES TO 50% OWNED AFFILIATE - 71
PROPERTY AND EQUIPMENT - at cost, less accumulated
depreciation of $2,062 in 1999 and $1,951 in 1998 1,762 1,641
OTHER ASSETS 1 1
------- -------
TOTAL $ 2,031 $ 1,921
======= =======
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
(in thousands except for share and per share data)
- -----------------------------------------------------------------------------
(CONTINUED) OCTOBER 31,
-------------------
1999 1998
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 80 $ -
Current maturities of long-term debt 48 -
Accounts payable 68 11
Accounts payable - related parties 144 38
Accrued taxes - other than income taxes 25 25
Accrued expenses - other 20 23
Accrued income taxes payable 1 31
------- -------
Total current liabilities $ 386 $ 128
------- -------
OTHER LIABILITIES AND CREDITS:
Long-term debt $ 101 $ -
Deferred income taxes 73 97
Other liabilities 94 9
------- -------
Total other liabilities and credits $ 268 $ 106
------- -------
COMMITMENTS AND CONTINGENCIES
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 (Deficit) (74) 236
------- -------
Total shareholders' equity $ 1,377 $ 1,687
------- -------
TOTAL $ 2,031 $ 1,921
======= =======
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 (LOSS)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1999 AND 1998
(in thousands except for share and per share data)
- -----------------------------------------------------------------------------
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1999 1998
-------- ---------
REVENUES:
Pipeline operations $ 82 $ 96
Pipeline operations - related parties 184 207
Net oil and gas royalties 192 234
Farm produce sales 239 131
Ranch lease rentals 19 19
Ranch lease rentals - related party 100 100
------- -------
Total revenues $ 816 $ 787
------- -------
COSTS AND EXPENSES:
Operating expenses $ 254 $ 123
Operating expenses - related parties 128 185
General and administrative expenses 192 139
General and administrative expenses - related parties 69 99
Depreciation and amortization 113 100
Equity in loss of 50% owned affiliate 405 29
Other (income) expense - net (3) (19)
Other (income) expense - net - related parties (29) (16)
Interest expense 19 -
Taxes - other than income taxes 39 35
Taxes - other than income taxes - related parties 3 8
------- -------
Total costs and expenses $ 1,190 $ 683
------- -------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES $ (374) $ 104
Provision for income taxes (64) 30
------- -------
NET INCOME (LOSS) $ (310) $ 74
======= =======
EARNINGS (LOSS) PER SHARE - BASIC (1,451,000 weighted -
average shares outstanding) $ (.21) $ .05
======= =======
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, 1999 AND 1998
(in thousands except for per share data)
- -----------------------------------------------------------------------------
COMMON STOCK RETAINED TOTAL
--------------------- EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
--------- -------- --------- ------------
Balance at
October 31, 1997 1,451 $ 1,451 $ 220 $ 1,671
Net income - - 74 74
Dividend paid - $.04
per share (58) (58)
--------- -------- --------- ------------
Balance at
October 31, 1998 1,451 $ 1,451 $ 236 $ 1,687
Net income (loss) - - (310) (310)
--------- -------- --------- ------------
Balance at
October 31, 1999 1,451 $ 1,451 $ (74) $ 1,377
========= ======== ========= ============
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, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
- -----------------------------------------------------------------------------
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (310) $ 74
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 113 100
Deferred income taxes (64) (32)
Equity in loss of 50% owned affiliate 405 29
Changes in assets and liabilities:
(Increase) decrease in assets:
Inventories - 138
Accounts receivable 32 (31)
Refundable income taxes (16) 52
Other assets 7 3
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 160 (71)
Accrued income taxes payable (30) 30
------- -------
Net cash provided by operating activities $ 297 $ 292
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (233) $ (256)
Proceeds from sale of property - 7
Investment and advances to 50% owned affiliate (250) (100)
------- -------
Net cash (used in) investing
activities $ (483) $ (349)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 166 $ -
Proceeds from notes payable 80 -
Payment on long-term debt (17) -
Dividends paid - (58)
------- -------
Net cash provided by (used in) financing
activities $ 229 $ (58)
------- -------
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
- -----------------------------------------------------------------------------
(CONTINUED) FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 43 $ (115)
CASH AND CASH EQUIVALENTS - beginning of year 17 132
------- -------
CASH AND CASH EQUIVALENTS - end of year $ 60 $ 17
======= =======
SUPPLEMENTAL CASH FLOW DATA:
Income taxes paid (refunds received) $ 46 $ (21)
======= =======
Interest paid $ 16 $ -
======= =======
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
===============================================================================
NOTE 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 underlying the land owned in fee. The company owns a fifty percent
interest in Trinity Valley Pecan Company which is in the business of shelling
and marketing pecans and pecan products. 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 inter-company accounts and transactions have been eliminated.
The equity method of accounting is used for investments in affiliates owned
between 20% and 50%.
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.
NOTE 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.
NOTE 2 - NOTES PAYABLE
Notes payable at October 31, 1999 consists of the following:
OCTOBER 31,
1999
------------
(in thousands)
Revolving line-of credit of $110,000
with a bank; principal and accrued
interest due October 31, 1999; interest
calculated at 1.25% over prime rate
secured by crops produced on 921 acres
of Company land; paid in December, 1999 $ 68
Note payable to a bank; principal and
accrued interest due June 1, 2000;
interest calculated at 1.5% over prime;
secured by a tractor 12
-----------
$ 80
===========
NOTE 3 - LONG-TERM DEBT
Long-term debt at October 31, 1999 is as follows:
OCTOBER 31,
1999
------------
(in thousands)
Note payable in original amount of
$150,000 with a bank; principal
payable in monthly installments begin-
ning May 12, 1999 with final installment
due on November 12, 2002; interest at
1% over prime rate; secured by a deed
of trust on the Company's mineral
interest, and guarantees of an officer
and shareholder of the Company and the
Estate of J.R. Parten, related parties $ 132
Installment obligation with a
finance company; principal and interest
payable in three annual installments;
interest at 9%; secured by tractor 17
------------
$ 149
Less current maturities of long-term debt 48
------------
$ 101
============
Maturities of long-term debt during the five years subsequent to October 31,
1999 are as follows: 2000 - $48,000; 2001 - $48,000; 2002 - $49,000, and
2003 - $4,000.
NOTE 4 - PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
Property and equipment consists of:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1999 1998
-------- --------
(in thousands)
Buildings and building improvements $ 672 $ 669
Levee, drainage, irrigation, roads, and
flood control facilities 660 652
Farm implements, trucks, and tractors 109 52
Fences, corrals, and other equipment 905 809
Gathering system and dehydration facility 850 797
Pecan grove and irrigation system
(not commercially productive) 342 325
-------- --------
$ 3,538 $ 3,304
Less accumulated depreciation 2,062 1,951
-------- --------
$ 1,476 $ 1,353
Land 286 288
-------- --------
Property and equipment - net $ 1,762 $ 1,641
======== ========
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
Gathering system and dehydration facility 10 - 20
Pecan grove and irrigation system 20
NOTE 5 - 50% OWNED AFFILIATE
On July 2, 1998, the Company purchased a 50% interest in Trinity Valley
Pecan Company (the "50% - owned affiliate"). Condensed financial statements
of the 50% - owned affiliate, are as follows:
OCTOBER 31,
------------------
1999 1998
------- -------
(in thousands)
BALANCE SHEET
-------------
Assets:
Current assets $ 367 $ 346
Noncurrent assets (primarily property and
equipment) 620 746
------- -------
TOTAL $ 987 $ 1,092
======= =======
Liabilities:
Current liabilities $ 1,118 $ 370
Noncurrent liabilities 580 514
Shareholders' equity:
Common stock and paid-in capital 500 300
Deficit (1,211) (92)
------- -------
TOTAL $ 987 $ 1,092
======= =======
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
-------- -------
(in thousands)
STATEMENT OF NET INCOME (LOSS)
-----------------------------
Revenues $ 605 $ 67
Costs and expenses 1,677 203
------- -------
Income (loss) before provision for income taxes $ (1,072) $ (136)
Provision for income taxes (benefit) 47 (46)
------- -------
Net income (loss) $ (1,119) $ (90)
======= =======
Equity in loss of 50%-owned affiliate for the fiscal year 1998 of $29,000
includes only 50% of the affiliate's loss from July 2, 1998 (date of
acquisition) through October 31, 1998. At July 2, 1998, the excess purchase
price of $50,000 over 50% of the fair value of the affiliate's underlying net
assets of $14,000. This amount is being amortized over a twenty year period
using the straight-line method.
The Company's share of loss from its 50% owned affiliate, Trinity Valley
Pecan Company ("Trinity") for the fiscal year 1999 was $560,000. The Company's
financial statement reflects a loss of $405,000 attributable to its investment,
loan, advances and future commitment to its 50% owned affiliate. During the
fiscal year 1999, Trinity commenced operations of its pecan shelling facility.
Because of production problems, the operations are unprofitable. Management is
currently considering discontinuing the pecan shelling operations permanently.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the loans of its 50% owned affiliate with a
bank. The principal balances of a plant construction loan and a working capital
line-of-credit at October 31, 1999 were $514,000 and $199,000 respectively. The
loans are also guaranteed by the J.R. Parten Ranch Trust.
The 50% owned affiliate is currently negotiating with a bank to obtain
long-term financing. Under the proposed terms of the financing, the Company
will guarantee and pledge land in order for the 50% owned affiliate to secure a
$300,000 line-of-credit. The proceeds of the loan will be used in part to pay-
down on existing debt and provide Trinity with working capital.
NOTE 7 - RANCH AND LAND LEASES
Company property is subject to two separate ranch leases at an annual
rental of $16 per net acre. One lease agreement with an unrelated party, which
covers 1,182 net acres was renewed July 31, 1998, for an additional five year
term. The other lease for 6,260 net acres with the Estate of J. R. Parten
and Trust created under the will of J. R. Parten, related parties, was renewed
on October 31, 1999. The lease is subject to earlier termination by either
party giving three months notice.
Unearned lease income of $9,000 at October 31, 1999 and 1998 represents
prepaid rent attributable to the unrelated party lease.
Under a fifty year lease agreement beginning September 1, 1997, the
Company is leasing approximately six acres of land to John R. Parten, an
officer, director and shareholder of the Company. Under the terms of the
lease agreement, the Company is entitled to an annual rent of $200, subject to
escalation after ten years, and the lessee is responsible for property taxes,
utilities, insurance and the cost of construction of any buildings or
improvements. Upon lease termination, any buildings or improvements
constructed on the leased land becomes the Company's property.
Under a fifty year lease agreement beginning September 1, 1998, the
Company is leasing approximately two acres of land to it's 50% owned affiliate.
Under the terms of the lease agreement, the Company is entitled to rent of
$1,500 per month, subject to escalation after ten years, and the lessee is
responsible for property taxes, utilities, insurance and the cost of
construction, repairs, or maintenance of any buildings or improvements. Upon
lease termination, any buildings or improvements constructed on the leased
land becomes the Company's property.
NOTE 8 - AGRICULTURAL LEASES
During the fiscal years 1999 and 1998 approximately 1,691 and 2,612 acres
of the Company land was leased to unrelated parties under two lease agreements.
Under the terms of the 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.
During fiscal year 1999, one agricultural lessee did not re-new a lease
covering 921 acres of Company land. For fiscal year 2000, 2,404 acres of
Company land will be leased to unrelated parties under two separate agricultural
leases for a three-year term.
NOTE 9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited selected quarterly financial data for the fiscal years ended
October 31, 1999 and 1998 are as follows:
1999 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amounts)
Revenues $ 166 $ 191 $ 180 $ 279
------- ------- ------- -------
Net income (loss) $ (22) $ (175) $ (69) $ (44)
------- ------- ------- -------
Net income (loss) per share $ (.02) $ (.12) $ (.04) $ (.03)
======= ======= ======= =======
1998 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amount)
Revenues $ 108 $ 169 $ 257 $ 253
------- ------- ------- -------
Net income (loss) $ 8 $ 37 $ 61 $ (32)
------- ------- ------- -------
Net income (loss) per share $ .01 $ .02 $ .04 $ (.02)
======= ======= ======= =======
NOTE 10 - 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, 1999 and 1998 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, loss from 50% owned affiliate 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,
-------------------
1999 1998
-------- --------
(in thousands)
REVENUES:
Agriculture:
Farm produce $ 239 $ 131
Ranch leases 119 119
-------- --------
$ 358 $ 250
-------- --------
Oil and gas:
Net oil and gas royalties $ 192 $ 234
Pipeline operations 266 303
-------- --------
$ 458 $ 537
-------- --------
Total revenues $ 816 $ 787
======== ========
OPERATING PROFIT:
Agriculture:
Farm produce $ 77 $ 66
Ranch leases (80) (62)
-------- --------
$ (3) $ 4
-------- --------
Oil and gas:
Net oil and gas royalties $ 191 $ 231
Pipeline operations 97 111
-------- --------
$ 288 $ 342
-------- --------
Total operating profit $ 285 $ 346
Interest income - 6
Interest expense (19) -
Loss from 50% owned affiliate (405) (29)
General corporate expenses (235) (219)
-------- --------
Income (loss) before provision for income
taxes $ (374) $ 104
======== ========
IDENTIFIABLE ASSETS:
Agriculture $ 1,624 $ 1,584
Oil and gas 339 312
Corporate assets 68 25
-------- --------
Total assets $ 2,031 $ 1,921
======== ========
TOTAL CAPITAL EXPENDITURES:
Agriculture $ 182 $ 256
Oil and gas 51 -
------- -------
Total capital expenditures $ 233 $ 256
======= =======
DEPRECIATION AND AMORTIZATION:
Agriculture $ 75 $ 63
Oil and gas 38 37
------- -------
Total depreciation and amortization $ 113 $ 100
======= =======
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 and Trust
created under will of J.R. Parten, related
parties $ 100 $ 100
Agricultural leases -
U.S. Dept. of Agriculture (1998 less than 10%) 132 -
Crop growers insurance (1999 less than 10%) - 92
Pipeline operations - Gathering income
attributable to gas wells partially
owned by related parties 184 207
------- -------
Total revenues - major customers $ 416 $ 399
======= =======
Percentage to total revenues - all customers 51.0% 50.7%
======= =======
NOTE 11 - RELATED PARTY TRANSACTIONS
The relationship of the Estate of J. R. Parten to the Company is that of
a shareholder. John R. Parten and Robert F. Pratka, officers,
directors and shareholders of the Company, are Co-Executors of the Estate of
J. R. Parten and Co-Trustees of J. R. Parten Ranch Trust, a trust created under
the will of J. R. Parten.
Information concerning ranch and land leases to related parties are also
disclosed in Note 7 of the notes to consolidated financial statements.
The following is a description of significant related party transactions
for the fiscal years ended October 31, 1999 and 1998:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1999 1998
--------- ---------
(in thousands)
DESCRIPTION OF RELATED PARTY TRANSACTIONS:
Gathering income attributable to production
from gas wells owned by related
parties $ 184 $ 207
50% share of operating expenses of gathering
systems operated by pipeline company owned by
John R. Parten 128 154
Ranch lease rentals received from the Estate
of J.R. Parten and Trust created under will
of J.R. Parten 100 100
Allocated salaries, payroll taxes, and other
expenses of two part-time employees by a
company owned by John R. Parten 8 45
Allocated office salaries, payroll taxes, office
rent, and other office expenses by the Estate of
J.R. Parten and Trust under the will of J.R. Parten 64 93
Rental income received from:
Pipeline company owned by John R. Parten 2 2
Company owned by John R. Parten 13 11
Other related parties 3 3
Farm labor hired out 11 -
Capital expenditures - equipment and labor
charges for construction of irrigation system
and central compression and dehydration facility
purchases from pipeline company owned by
John R. Parten 51 12
NOTE 12 - FEDERAL INCOME TAXES
The components of the provision for income taxes for the fiscal years
ended October 31, 1999 and 1998 are as follows:
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
-------- --------
(in thousands)
Current income tax expense $ - $ 62
Deferred income taxes (64) (32)
-------- --------
$ (64)$ 30
======== ========
Federal taxable income is reported by Seven J Stock Farm, Inc. on the
cash basis and by its subsidiary on the accrual basis.
The total deferred income tax liabilities and deferred income tax benefits
with related valuation allowances as of October 31, 1999 and 1998 are as
follows:
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
------- -------
(in thousands)
Deferred income tax liabilities:
Excess tax depreciation $ 108 $ 104
------- -------
$ 108 $ 104
------- -------
Deferred income tax benefits - net of related
valuation allowances (1999 and 1998 - None):
Use of cash basis of accounting by parent Company $ 33 $ 4
Write-off impaired investment in co-op 3 3
Percentage depletion carryover 10 -
Loss contingency 29 -
------- -------
$ 75 $ 7
------- -------
Net deferred income tax liabilities $ 33 $ 97
======= =======
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, 1999 and 1998 is as
follows:
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
------- -------
(in thousands)
Computed Federal income tax at statutory rate of 34% $ (127) $ 35
Tax benefit of graduated Federal income tax rates - (7)
Percentage depletion attributable to oil and gas
royalties (10) (14)
State income tax differential (2) 5
Equity in loss of 50% owned affiliate 75 11
------- -------
Provision for income taxes $ (64) $ 30
======= =======
Effective Federal income tax rate 17.1% 28.8%
======= =======
The Company has a percentage depletion carryover of $28,000 available to
use in future years until utilized.
NOTE 13 - 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, 1999 and 1998 are as follows:
FISCAL YEAR ENDED
OCTOBER 31,
------------------
1999 1998
------- -------
(in thousands)
Gross oil and gas royalties $ 203 $ 249
Production taxes (11) (15)
------- -------
Net oil and gas royalties $ 192 $ 234
======= =======
NOTE 14 - 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. A substantial amount of revenues are derived from related parties
as described in notes 10 and 11 with over 51% of revenues from three customers.
NOTE 15 - YEAR 2000 COMPLIANCE (unaudited)
The Company expects that the cost of converting its computer system to
Year 2000 compliance will not be material to its financial condition. The
Company believes that it wil be able to achieve Year 2000 compliance by the end
of 1999, and it does not anticipate any disruption in its operations as a result
of any failure by the Company to be in compliance.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Reported fair values are based on a variety of factors and assumptions.
Accordingly, the fair values may not represent actual values of the financial
instruments that could have been realized as of October 31, 1999 and
October 31, 1998, or that would be realized in the future and do not include
expenses that could be incurred in an actual sale or settlement. The carrying
amount of cash and cash equivalents approximates fair value due to short-term
maturities of these instruments. The carrying value of long-term debt
approximates fair value because the obligations' interest rates approximates
current rates.
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 50 Chairman of the Board and President
R. F. Pratka 77 Vice-President and Treasurer
Valerie Coulter 57 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.
R. F. Pratka has served the Company as Vice-President and Treasurer since
1970.
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, 1999.
EXHIBIT 22
SUBSIDIARY OF REGISTRANT
At October 31, 1999, 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 27, 2000 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 27, 2000 s/ John R. Parten
------------------------------------
John R. Parten, President and
Director (Chief Executive Officer)
January 27, 2000 s/ R.F. Pratka
------------------------------------
R.F. Pratka, Vice-President,
Treasurer and Director (Chief
Financial and Accounting Officer)
January 27, 2000 s/ Patrick J. Moran
------------------------------------
Patrick J. Moran
Director
January 27, 2000 s/ William C. Bennett
------------------------------------
William C. Bennett
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEVEN J
STOCK FARM, INC. CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1999 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
