UPDATE: Investors Claim They Were Misled But Jury Disagrees

by Mark Friedman  on Monday, Sep. 20, 2004 12:00 am  

Scathing Report

"Where are we? Out of money!" Mack's report said, which was quoted in the lawsuit.

A loss of $200,000 in May 2001 brought the company's annual loss to more than $2 million.

"There is no reason to be in the business based on these returns [other than control and delivery rights], nor will a financial institution find this attractive," Mack said.

What was killing the company was Farm Fresh had no operating or strategic leadership, he concluded. Also, Farm Fresh wasn't able to plan or pay for preventative maintenance or repairs in a timely manner.

Worse, its customers were getting their fish elsewhere. Between December 2000 and May 2001, 25 companies had stopped buying catfish from Farm Fresh.

"The 25 companies' sales loss totaled $13 million over six months — annualizing the sales loss amounts to $26 million annual loss!!" Mack wrote.

Piling on Farm Fresh's troubles was the loss of salesman David Tyson.

"He sold/controlled $13 [million to] $15 million of annual business," Mack wrote. "He left [Farm Fresh] out of frustration, lack of comfort with the direction of the company, and lack of financial commitment of ownership."

The best plan for Farm Fresh was recapitalization, he said.

Stock Offer

Sometime between mid-July and Aug. 15, 2001, the Friday firm's Gardner created a 133-page private offering memorandum.



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