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  Fish meal, the principal product made from menhaden, is sold primarily as a
high-protein ingredient. It is also used as a protein supplement in feed
formulated for pigs and other livestock. Each use requires certain standards to
be met regarding quality and protein content, which are determined by the
freshness of the fish and by processing conditions such as speed and
temperatures. Fish solubles are a liquid protein product used as an additive in
fish meal and also marketed as an independent product to animal feed
formulators and the fertilizer industry.
 
  Fish oil from menhaden is widely used for human consumption as an edible fat
in Europe. Refined and hydrogenated menhaden oils have a wide variety of
applications as ingredients of margarine, cooking oil and solid cooking fats
used in baked goods. The U.S. Food and Drug Administration has approved the use
of fully hydrogenated menhaden oil and partially hydrogenated menhaden oil for
human consumption in the United States and is considering a petition for use of
refined unhydrogenated menhaden oil for human consumption in the United States.
 
  In October 1995, the Company announced plans to cease processing operations
in 1996 at its Dulac, Louisiana plant. The Company's decision was based on the
anticipated capital expenditures and operating capital requirements necessary
to maintain the long-term viability of the Dulac processing operation. The
entire harvesting effort previously managed from this location, as well as a
significant portion of the processing assets, will be redeployed to other
Company facilities. Therefore, the Company's harvesting efforts in future years
are expected to remain comparable to recent years, and the Company's processing
capabilities will not be significantly changed.
 
  In August 1993, the Company acquired a 60% equity interest in Venture Milling
Company ("Venture"), a Delaware corporation involved in the milling of animal
feeds and protein-ingredient products for the poultry, hog and dairy
industries. Venture leases and operates a feed mill in Seaford, Delaware and
manages its processing operations and sales activities independently of the
Company. The Company consolidates the financial results of Venture. The
Company's financial results for the 1995 or 1994 fiscal years were not
materially impacted by activity related to Venture.
 
  Marketing. Most of the Company's marine protein products are sold directly to
about 300 customers by the Company's marketing department, while a smaller
amount is sold through independent sales agents. Total product inventory (at
the lower of average cost or market) was $22,947,000 as of September 30, 1995
compared to $34,143,000 on September 30, 1994. While the fishing season usually
extends from April into December, sales from inventory continue throughout the
year.
 
  The Company's fish meal is primarily sold to domestic feed producers for
utilization as a high-protein ingredient for the poultry industry. Fish oil
sales primarily involve export markets where the fish oil is refined for use as
an edible oil. One customer for fish oil, Unilever Raw Material B.V., accounted
for approximately 11.9% of the Company's consolidated revenues in fiscal 1995,
and lesser amounts in the two preceding years. Sales to Unilever Raw Material
B.V. were approximately $12.3 million in 1995.
 
  Competition. The principal competition for the Company's fish meal and fish
solubles is from other protein sources such as soybean meal and other vegetable
or animal products. The Company believes, however, that these other sources are
not complete substitutes because fish meal offers nutritional values not
contained in such sources. Vegetable fats and oils, such as soybean and palm
oils, provide the primary market competition for fish oil. In addition, the
Company competes against domestic, privately owned menhaden fishing companies
as well as international producers of fish meal and fish oil derived from
species such as anchovy and mackerel.
 
  Fish meal prices generally bear a direct relationship to prevailing soybean
meal prices, while prices for fish oil are generally influenced by prices for
vegetable fats and oils, such as soybean and palm oils. Thus, the prices for
the Company's products are established by worldwide supply and demand
relationships over which the Company has no control and tend to fluctuate to a
significant extent over the course of a year and from year to year.
 
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