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, 2002
( ) 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
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(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)
281-874-2101
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(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 13, 2002 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 OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
July 31, July 31,
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2002 2001 2002 2001
-------- -------- -------- --------
REVENUES
Pipeline operations $ 139 $ 147 $ 384 $ 518
Net oil and gas royalties 61 99 159 231
Ranch lease rentals 56 46 151 146
Farm produce sales 17 23 88 37
Contract and irrigation service 24 - 35 22
Other revenues - 1 1 3
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TOTAL REVENUES 297 316 818 957
COSTS AND EXPENSES
Operating expenses 253 211 556 646
General and administrative expenses 68 32 164 148
Depreciation and amortization 34 32 111 96
Equity in loss of 50% owned affiliate 18 46 104 46
Loss contingency - 45 200 45
Other costs and expenses 4 - - -
Interest expense 2 3 6 13
Taxes - other than income taxes 16 21 46 50
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TOTAL COSTS AND EXPENSES 395 390 1,187 1,044
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LOSS BEFORE INCOME TAXES (98) (74) (369) (87)
INCOME TAX (PROVISION) BENEFIT - (9) 49 (14)
-------- -------- -------- --------
NET LOSS $ (98) $ (83) $ (320) $ (101)
======== ======== ======== ========
NET LOSS PER SHARE -
BASIC AND DILUTED
(1,451,000 weighted average shares
outstanding) $ (.07) $ (.06) $ (.22) $ (.07)
======== ======== ======== ========
DIVIDENDS PER SHARE None None None None
See notes to the condensed consolidated financial statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 2002
(IN THOUSANDS EXCEPT FOR SHARES)
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20
Accounts receivable 18
Accounts receivable - related parties 172
Other current assets 3
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TOTAL CURRENT ASSETS 213
PROPERTY AND EQUIPMENT, net 1,583
OTHER ASSETS 55
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TOTAL ASSETS $ 1,851
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 128
Accounts payable - related parties 198
Accrued expenses 35
Current maturities of long-term debt 100
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TOTAL CURRENT LIABILITIES 461
LONG-TERM DEBT 56
OTHER LIABILITIES 338
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TOTAL LIABILITIES 855
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share:
authorized 1,500,000 shares; issued and
outstanding 1,451,000 shares 1,451
Accumulated deficit (455)
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TOTAL SHAREHOLDERS' EQUITY 996
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,851
=========
See notes to the condensed consolidated financial statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE
MONTHS ENDED
JULY 31,
------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (320) $ (101)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 111 96
Deferred income taxes (57) 14
Equity in loss of 50% owned affiliate 104 46
Loss contingency 200 45
Changes in operating assets and liabilities:
Accounts receivable 87 (8)
Accounts receivable - related parties 51 2
Other current assets - (2)
Accounts payable, accrued expenses, and other 16 59
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NET CASH PROVIDED BY OPERATING ACTIVITIES 192 151
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property and equipment (5) (18)
Advances to 50% owned affiliate (104) (46)
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NET CASH USED IN INVESTING ACTIVITIES (109) (64)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt and notes payable - 71
Long-term debt and notes payable repayments (88) (182)
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NET CASH USED IN FINANCING ACTIVITIES (88) (111)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (5) (24)
CASH AND CASH EQUIVALENTS - beginning of period 25 46
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CASH AND CASH EQUIVALENTS - end of period $ 20 $ 22
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SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 6 $ 13
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Income taxes $ 8 $ -
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Capital expenditures for property and equipment
financed by debt $ - $ 54
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Refinancing of existing debt $ - $ 85
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See notes to the condensed consolidated financial statements.
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. and its
wholly owned subsidiary, Madison Pipe Line Company, collectively referred to as
the "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 accounting principles generally accepted in the United States
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 2001 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, 2002 and the
results of its operations and its cash flows for the periods ended July 31,
2002 and 2001. Such adjustments consisted only of normal recurring items.
The results of operations for the periods ending July 31, 2002 and 2001 are
not necessarily indicative of the results to be expected for the full year.
Certain items and amounts for the prior period have been reclassified to
conform to the current period presentation. The reclassifications have no
effect on net income.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company has guaranteed certain bank loans of approximately, $829,000 of
Trinity Valley Pecan Company, a 50% owned affiliate. These loans are also
guaranteed jointly and severally by another related party. During the nine
months ended July 31, 2002, the Company accrued an additional $200,000 loss
contingency relating to such guarantees due to Trinity Valley Pecan Company's
liquidity problems. As of July 31, 2002, the total amount accrued for the
debt guarantee is approximately $333,000 and is included in other liabilities
in the condensed consolidated balance sheet.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Pipeline Operations - Revenue for the three months ended July 31, 2002
decreased $8,000 or 5% as compared to the three months ended July 31, 2001.
Revenue for the nine months ended July 31, 2002 decreased $134,000 or 26% as
compared to the nine months ended July 31, 2001. Gas volumes for
transportation and dehydration were 275,502 mmbtu for the three months ended
July 31, 2001 and 256,064 mmbtu for the three months ended July 31, 2002.
The decrease in revenues is primarily due to a 42% decrease in transportation
prices and surcharges from $1.26 in 2001 to $0.88 in 2002
The decrease in prices were partially offset by
an increase in gas volumes from transportation and dehydration from 792,312
mmbtu for the nine months ended July 31, 2001 to 867,516 mmbtu for the nine
months ended July 31, 2002.
Net Oil and Gas Royalties - Revenue for the three months ended July 31, 2002
decreased $38,000 or 38% as compared to the three months ended July 31, 2001.
Revenue for the nine months ended July 31, 2002 decreased $72,000 or 31% as
compared to the nine months ended July 31, 2001. The decrease for the three
months ended July 31, 2002 as compared to the three months ended July 31,
2001 is due to a reduction in oil and gas production. The decrease in
revenues for the nine months ended July 31, 2002 as compared to the nine
months ended July 31, 2001 is primarily a result of a decrease in oil and gas
prices from 2001 to 2002 (Avg. gas price $6.86(2001) $3.01 (2002); Avg. oil
price $28.60 (2001) $21.42(2002)).
Farm Produce Sales - Revenue for the three months ended July 31, 2002 decreased
$6,000 or 26% as compared to the three months ended July 31, 2001. This
was the result of hay sales and hay bailing operations.
Contract and irrigation services - Revenue for the nine months ended July 31,
2002 increased $13,000 or 59% as compared to the nine months ended July 31,
2001. This is a result of a increase in outside equipment service.
Operating expenses for the three months ended July 31, 2002 increased $42,000
or 20% as compared to the three months ended July 31 2001. Expenses for the
nine months ended July 31, 2002 decreased $90,000 or 14% compared to the nine
months ended July 31, 2001. The increase for the three months ended July 31,
2002 is due to tractor equipment expense for the hay bailing operations, and
repairs on the levee due to a damaged flood gate. The decrease for the nine
months resulted primarily from lower expenses related to pipeline operations
due to lower cost of gas and compressor expenses.
General and Administrative Expenses - Expenses for the three and nine months
ended July 31, 2002 increased $36,000 and $16,000 or 113% and 11%,
respectively. Increases are primarily the result of outside legal services,
due to corporate legal consulting.
Loss contingency and equity in loss of 50% owned affiliate for the nine months
ended July 31, 2002 represent an additional provision of $200,000 relating
to debt guarantees and $104,000 relating to net advances made to Trinity
Valley Pecan Company used for operations, respectively.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had a positive cash flow of $192,000 for the nine months ended
July 31, 2002 as compared to a positive cash flow of $151,000 from operating
activities for the nine months ended July 31, 2001. The reason for the increase
in cash flows from the prior period is due to a variety of factors. The
Company's revenues were lower than the prior year-to-date revenues as discussed
in the results of operations. This resulted in less cash being collected. This
decrease in revenue and the resulting decrease in collection of accounts
receivable was more than offset by the increase in other liabilities and the
equity in loss of 50% owned affiliate which were the primary reasons for the
increase in cash from operations as compared to the nine months ended July 31,
2001. The loss contingency is related to the bank guarantees for Trinity Valley
Pecan Company and the equity in loss of 50% owned affiliate is related to
additional net advances made to Trinity Valley Pecan Company used for
operations.
The Company's liquidity could be adversely affected due to advances to and loan
guarantees for Trinity Valley Pecan Company. A total of $304,000 was recorded
in the nine months ended July 31, 2002 relating to guarantees of certain debt of
Trinity and net advances made to Trinity.
As of July 31, 2002, the Company's working capital deficit was $248,000.
Payments of approximately $100,000 attributable to notes payable and long-term
debt is required during the next twelve months ending July 31, 2003. It is not
anticipated that dividends will be paid in the near future.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits -
99.1 Certification of Periodic Report by the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Periodic Report by the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K - there were no reports on Form 8-K filed for
the quarter ended July 31, 2002.
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 16, 2002 SEVEN J STOCK FARM, INC.
(Registrant)
By /s/ R.F. Pratka
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R. F. Pratka
(Vice President and Treasurer)
CERTIFICATION
I, John R. Parten, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Seven J. Stock Farm,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 16, 2002
/s/ John R. Parten
- -----------------------------
John R. Parten
Chief Executive Officer and President
CERTIFICATION
I, Robert F. Pratka, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Seven J. Stock Farm,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 16, 2002
/s/ Robert F. Pratka
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Robert F. Pratka
Vice President and Treasurer
Exhibit 99.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(12 U.S.C.(S)1350, AS ADOPTED)
Pursuant to Section 906 of the Corporate Fraud Accountability Act of 2002
(18 U.S.C. Section 1350, as adopted), John R. Parten the Chief Executive Officer
and President of Seven J Stock Farm, Inc. (the "Company") hereby certifies that,
to the best of his knowledge:
1. The Company's Quarterly Report on Form 10Q-SB for the period ended July 31,
2002, and to which this Certification is attached as Exhibit 99.1 (the "Periodic
Report"), fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2. The information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: September 16, 2002
/s/ John R. Parten
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John R. Parten
Chief Executive Officer and President
Exhibit 99.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(12 U.S.C. (S) 1350, AS ADOPTED)
Pursuant to Section 906 of the Corporate Fraud Accountability Act of 2002
(18 U.S.C. Section 1350, as adopted), Robert F. Pratka the Vice President and
Treasurer of Seven J Stock Farm, Inc. (the "Company") hereby certifies that, to
the best of his knowledge:
1. The Company's Quarterly Report on Form 10Q-SB for the period ended July 31,
2002, and to which this Certification is attached as Exhibit 99.2 (the "Periodic
Report"), fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2. The information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: September 16, 2002
/s/ Robert F. Pratka
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Robert F. Pratka
Vice President and Treasurer