MIMBRES VALLEY FARMERS ASSOCIATION, INC.
1997 Annual Report on Form 10-KSB
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Letter to Shareholders
The past year has been a difficult and disappointing one for
Mimbres Valley Farmers Association, Inc. ("Farmers"). Increased
competition in grocery retailing resulted in reduced revenues in
Farmers' core and traditionally most-profitable business. In
addition, the recently expanded hardware store has continued to be
unprofitable, and efforts to reduce expenses in this area have yet
to be effective. Mainly due to these to factors, Farmers ended the
fiscal year on June 30, 1997 with a net loss of $568,350.
Many steps have been taken by the Board to reduce expenses,
including closing the furniture and electronics stores, and an
overall reduction of employees from 241 to 152. In time, these
measures should make a significant difference. In the immediate
future, however, the key decision facing the Board is whether to
continue the hardware business in its current location, or to
return it, in a reduced size, to its previous location adjacent to
the Farmers supermarket. This decision will probably be made by
December.
Notwithstanding the current difficulties, the Board believes
that present expenses can be controlled and that Farmers can return
to its traditional profitability.
Over the past year two directors who participated in an
unsuccessful tender offer for Farmers stock in 1996 resigned their
positions. In accordance with the bylaws, the Board elected Gary
Shiflett and Leone Anderson as their replacements. Additional
information on Mr. Shiflett and Ms. Anderson are included in this
annual report and in the proxy statement.
As was done last year, Farmers is combining its annual report
to shareholders with the annual report that it is required to file
with the Securities and Exchange Commission. This procedure avoids
the cost of preparing two separate reports. This year's combined
report, however, is entitled "1997 Annual Report on Form 10-KSB",
while last year's report was entitled "1996 Annual Report on Form
10-K". The different designation results from Farmers' election
starting last October to file reports with the SEC as a "small
business issuer". This choice allows quarterly and annual reports
to the SEC to be prepared according to SEC Regulation S-B rather
than under the more detailed provisions of Regulation S-K, and
should provide a substantial savings over time.
James E. Keeler
President and Chairman of the Board
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1997
Commission File Number 0-13963
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
NEW MEXICO 85-0054230
(State of incorporation) (I.R.S. Employer I.D. No.)
811 South Platinum, Deming, New Mexico 88030
(505) 546-2769
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title on which Registered
Common Stock ($25 par value) None
Indicate by check mark whether Mimbres Valley Farmers
Association, Inc. ("Farmers") (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange acto of 1934
during the preceding 12 months (or for such shorter period that the
company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X YES NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-KSB is not contained herein, and will
not be contained, to the best of Farmers' knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-KSB or in any amendment to this Form 10-KSB. [ ]
Farmers' revenues for its most recent fiscal year were
$19,103,199.
As of August 26, 1997, 13,776 shares of Farmers Common Stock
were outstanding. The aggregate market value of voting stock held by
nonaffiliates of the company is indeterminable since there is no
established market price for the stock and private sales are not
reported to Farmers.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Farmers' 1997 Annual
Meeting of Shareholders to be held on October 29, 1997 are incorporated by
reference to Part III of this Annual Report on Form 10-KSB.
<PAGE>
PART I
Item 1. Business of Issuer
Mimbres Valley Farmers Association, Inc. ("Farmers" or the
"Company") was incorporated in 1913. It has operated in
substantially the same form since that time in the retail grocery,
hardware, dry goods, and feed business in Deming, New Mexico.
The principal business of the Company is retail sales of a
variety of products including groceries, hardware, appliances,
clothing, general merchandise, gasoline and feed and farm supplies.
The Company also operates a self-service laundry and leases certain
retail space which it owns to unrelated parties. The total revenue
derived from the non-retail business activities is less than one
percent of total retail sales.
All of the Company's operations and assets are in or around
Deming, New Mexico, a primarily farming community in the
southwestern part of the state. Deming (population 13,000) is the
county seat and largest municipality in Luna County, which has a
population of approximately 22,000. Because all parts of the
County are distant from other population centers (Las Cruces,
population 62,000, in Dona Ana County, and Silver City, population
11,000, in Grant County, are 62 and 55 miles, respectively, from
Deming), most of the day-to-day shopping of County residents is
done in Deming.
Most of the Company's receipts are generated by retail sales
to the general public. Total revenues for the fiscal year ending
June 30, 1997 were $19,103,199, of which $12,483,400 were from
grocery sales. This continues the same pattern of sales
experienced in the previous two years. In fiscal year 1996 total
sales and grocery sales were $21,949,927 and $15,111,185,
respectively, and in fiscal year 1995 total sales and grocery sales
were $19,615,130 and $14,413,743, respectively. The percentage of
total revenues attributable to grocery sales for the past three
fiscal years is as follows: 65.4% (1997), 68.8% (1996), and 73.5%
(1995). Corresponding percentages for hardware sales are 17.2%
(1997) 11.2% (1996), and 9.9% (1995). No class of similar products
or services other than the grocery business and the hardware
business amounted to ten percent or more of total revenues.
The Company's grocery business is conducted at two locations:
the main 24,000 square-foot supermarket at 811 South Platinum in
Deming, and a convenience store with a laundromat (together
totalling approximately 7,000 square feet) at 501 North Gold in
Deming. The convenience store location includes underground tanks
and pumps for retail sales of gasoline. The Company obtains
substantially all of its grocery supplies from Fleming Foods, a
wholesaler based in Oklahoma City which maintains a warehouse in El
Paso, Texas. Farmers is a member of the IGA advertising group, and
sells groceries under the IGA trademark. Prior to 1996, Farmers'
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principal grocery competitor had been a Furrs supermarket in
Deming. However, in late June 1996 a new independent grocery
competitor, Peppers, opened a 40,000 square foot store, resulting
in Deming and surrounding area now having three large grocery
supermarkets. The Company believes that the 17.4 percent decrease
in grocery revenues from fiscal year 1996 to fiscal year 1997 is
primarily due to the presence of Peppers. The Company did not make
any significant changes in its grocery business during the past
fiscal year.
During the early part of 1996, Farmers expanded its hardware
business by moving it from a location adjoining the main
supermarket to 40,000 square feet of leased space in a former KMart
store on Highway 70-80 East in Deming, which the Company
refurbished for the new operations. The new site, which opened for
business in March, 1996, allows a greater selection of building
materials and increased storage, while freeing parking spaces at
the old site for grocery patrons. The lease term for the new site
expires in 2002, and the lease contains options to renew for five
additional terms of five years each. Farmers' hardware store is
part of the True Value chain, and sells products under the True
Value trademark. Farmers has two local major competitors for its
hardware business, which are Foxworth-Galbraith Lumber Company and
Surplus City, both of which are located in Deming. Competition in
the hardware business is based on both price and selection.
Farmers believes that its prices are competitive, and that with its
expanded inventory it may have a competitive advantage with respect
to selection. Although the expanded hardware store has increased
hardware sales from $2.46 million in fiscal year 1996 to $3.29
million in fiscal year 1997, costs of operations associated with
the expanded hardware operation have also been high. Options
concerning the hardware business are discussed in Item 6
(Management's Discussion and Analysis of Financial Condition and
Results of Operations).
All of Farmers' other retail operations located near the main
supermarket, either in the Company's strip mall that the
supermarket occupies in part, or, in the case of the feed and farm
supply store, immediately across the street.
For several years prior to the 1997 fiscal year, Farmers
operated a craft and dry goods store under a V&S franchise. In
1995, however, the franchisor, Cotter and Company, discontinued its
V&S division. Farmers then converted the store to a Ben Franklin
franchise; however, the Ben Franklin franchisor filed Chapter 11
bankruptcy on July 26, 1996, and ceased supplying goods.
Accordingly, Farmers has converted the former craft store to a
clothing and general merchandise business, which it does not
operate under a trademark.
In June, 1996, Farmers opened a furniture and appliance store,
a new retail venture for the Company, in the strip mall at 811
South Platinum. The appliance portion of the business has been
moved to the Company's hardware store, and the furniture business
has been discontinued.
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For several years prior to fiscal year 1997, Farmers also
operated a Radio Shack franchise adjacent to the supermarket. The
franchise has now been sold, with the buyer choosing to operate in
a different location.
During the past three years Farmers also cleaned edible beans
for local farmers at the feed store warehouse, and maintained a
automotive service center at a leased site in north Deming. During
the 1997 fiscal year, the bean processing operations were
discontinued, and the service center was closed. The lease for the
service center site has been terminated.
No other Farmers retail operations have experienced any
significant changes in the past fiscal year.
In addition to its retail operations, Farmers leases space to
other retail business at the main supermarket site. These
activities are discussed in more detail in Item 2 (Description of
Property).
Due mainly to the expansion of the hardware operations,
Farmers increased its total employment during the 1996 fiscal year,
and the end of that fiscal year employed 241 persons, compared with
total employment of 179 persons at the end of the 1995 fiscal year.
The Company has now reduced employment to 152 at the end of the
1997 fiscal year, of which 60 are part-time employees. The
reduction in employment resulted from the discontinuance of the
electronics and furniture business, a decrease in staffing at the
hardware store, and a general decrease in employment at other
locations. The Company does not anticipate additional reductions
in employment in the coming fiscal year.
In the retail sales business in which the Company competes,
inventory turnover is rapid and inventories must be maintained at
high levels. However, neither the Company nor other businesses in
the retail food industry have had problems maintaining the
inventories at desired levels. Businesses like the Company are not
dependent on any single customer or a small number of customers.
The retail grocery business is not seasonal in nature; however, the
Company's December sales are typically 1% to 2% higher than sales
for other months. The Company has no material backlog orders.
Sales revenues, operating profits or losses and other
financial information for the last three fiscal years are shown on
the financial statements attached to this report as described in
Item 13.
Farmers does not foresee any unusual potential future
expenses, except (1) costs associated with a possible return of the
hardware business to 811 South Platinum (see Item 6 (Management's
Discussion and Analysis of Financial Condition and Results of
Operations)), and (2) that the Company may incur expense for
remediation of leakage from an underground storage tank, removed
during the 1996 fiscal year, at the convenience store site. This
potential liability is discussed under Item 3 (Legal Proceedings).
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Item 2. Description of Property.
The Company owns or leases the following properties:
(1) A strip shopping mall totalling approximately 60,300
square feet of retail space, located at 811 South
Platinum Street, Deming, New Mexico, which the Company
owns in fee. The property is the site of the Company's
principal supermarket (approximately 24,000 square feet),
and its clothing and general merchandise store
(approximately 9000 square feet). Three other areas in
the mall are leased to separate tenants for retails
purposes: (1) a variety store which occupies
approximately 8,050 square feet, (2) a Little Caesar's
pizza franchise which occupies approximately 1,200 square
feet, and (3) a video rental outlet which occupies
approximately 1,200 square feet. The remaining 17,000
square feet of the mall is currently unoccupied. Pending
a decision on whether to keep the hardware operations at
the current location, Farmers will seek to lease this
unoccupied space to other tenants.
(2) The feed and farm supply store, which is located in an
approximately 2500 square feet building across the street
from the shopping mall, at 913 South Diamond Street.
Farmers owns this property in fee.
(3) A convenience store with an attached laundromat,
totalling together approximately 7000 square feet, which
Farmers owns in fee. This building is located at 501
North Gold Street, Deming, New Mexico.
(4) The hardware store, consisting of approximately 40,000
square feet, which Farmers leases. The lease provides
for an initial term that expires in 2002, with lease
options for a total of 25 additional years. The leased
premises, which are located on Highway 70-80 East in
Deming, total 3.76 acres, including parking areas and
associated grounds.
(5) A five-acre parcel of undeveloped land within the Deming
city limits, adjoining the Columbus highway (State Route
11). The Company intends to retain ownership of this
parcel as a possible site for business expansion.
(6) A warehouse on West Rancho Avenue in Deming, which the
Company leases from the Union Pacific Railroad on a year-
to-year basis. The Company uses the warehouse, which is
served by a railroad spur, primarily for the receipt and
storage of bulk animal feed products.
Farmers does not have any present renovation plans for any of
the properties, all of which are in satisfactory condition.
<PAGE>
Item 3. Legal Proceedings.
In addition to legal proceedings involving account collections
and other matters in the ordinary course of business, during the
course of the 1997 fiscal year the Company was involved in the
following legal matters.
A. Underground Storage Tank. Farmers has sold gasoline to
the public at its convenience store for many years. The fuel is
dispensed from underground storage tanks, which Farmers previously
leased from a petroleum wholesaler. During the 1996 fiscal year,
the leased tanks were removed and replaced with tanks that Farmers
owns, at which time it was determined that there had been some
leakage from one of the leased tanks. Examination of the tank
revealed a hole towards the top which presumably would have leaked
only when the tank was full or nearly full. Based on this
information, Farmers believes that the amount of leakage and the
corresponding contamination may have been minimal. Nevertheless,
the State Environment Department has instituted a remedial action,
which remains pending, against the owner of the tank. It is
unclear whether further investigation under the remedial action
will reveal significant contamination, and also unclear how
extensive or costly remedial measures imposed by the Environment
Department may be. Remediation expenses for leaking underground
storage tanks may be significant, particularly if contamination of
underground water is threatened.
Although the Environment Department is not currently requiring
any action from Farmers, the Company could have liability based on
its status as an "operator" under the New Mexico Underground
Storage Tank regulations (the "Regulations"). If so, however,
Farmers will vigorously pursue a claim for indemnity from the owner
of the tank. If Farmers is determined to be in compliance with the
Regulations, it will also qualify for reimbursement from a
"corrective action fund" established under the state Groundwater
Protection Act, which would potentially pay for all but $10,000 of
the Company's remediation expenses. On the other hand, the Company
has not yet sought or received a determination that it qualifies
for reimbursement from the fund. In addition, the state has no
obligation to reimburse parties if claims exceed the amount
available in the fund, and in the past claims have exceeded the
fund balance. Currently, however, the fund has a surplus, and
since the fund is constantly replenished by a fee on petroleum
products, the likely result of a deficiency in the fund would be a
delay in payment, rather than an outright denial of payment based
on insufficient monies.
B. Resolution of Tender Offer. On June 3, 1996, a tender
offer (the "Tender Offer") was made for all outstanding shares of
Farmers common stock. The bidders making the Tender Offer (the
"Bidders") included two Farmers directors, John V. Brownfield and
James Walter Donaldson, Jr., as well as the Company's independent
auditor, Harold Morrow, who resigned his position on June 4, 1996.
The other Bidders (excluding numerous persons who were listed in
the Tender Offer for the sole purpose of holding legal title, as
<PAGE>
opposed to beneficial ownership, of purchased stock) were John
Keck, Frederick H. Sherman, and Kenny Stevens. Mr. Stevens had
been the General Manager of Farmers until his resignation on March
8, 1996, and at the time of the Tender Offer was employed by
Farmers as a consultant. The Tender Offer was made without any
prior notice by any of the Bidders.
On June 20, 1996, Farmers filed a complaint against the
Bidders, and a motion for injunctive relief, in the U.S. District
Court for the District of New Mexico, in Albuquerque. In its
complaint, and as the basis for its motion for injunctive relief,
Farmers asserted that the Tender Offer violated Section 14(e) of
the federal Securities Exchange Act of 1934. The Court
subsequently issued a temporary restraining order against the
Bidders, following which Farmers and the Bidders entered into an
agreement under which the Bidders agreed to extend the term of the
Tender Offer.
In October, 1996, Farmers and the Bidders entered into a
settlement agreement under which, among other things, (1) the
Bidders agreed to terminate the Tender Offer without purchasing any
shares tendered pursuant to the Tender Offer, (2) Farmers agreed to
dismiss its complaint against the Bidders, (3) each of the parties
released the other from all claims arising out of occurrences prior
to the date of the agreement, and (4) each party agreed to bear its
own expenses arising from the Tender Offer. To the best of the
Company's knowledge, both parties have fully complied with the
settlement agreement, and all legal matters pertaining to the
Tender Offer have now been fully resolved.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the security holders of
the Company during the fourth quarter of the fiscal year ended June
30, 1997.
PART II
Item 5. Market Price and Dividends on the Company's Common
Equity and Related Stockholder Matters.
There is no established public trading market for the
Company's common stock, and no public quotations for the stock.
Accordingly, there is no verifiable record maintained of any stock
prices. Sales of the Company's common stock, as indicated by
changes in ownership on the Company's registration book, are
infrequent. Price has been established historically by private
party negotiations. Since the Company has no systematic or
reliable method of determining share prices, the Company does not
disseminate any specific information regarding price. The Company
does not know the most recent sales price of its stock.
In the Tender Offer (discussed above in Item 3 (Legal
Proceedings)), the Bidders stated that, to their knowledge, "the
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purchase price for previous purchases of [s]hares have historically
ranged from $12.00 per [s]hare to as much as the par value price
[of] $25.00 per [s]hare", except for one sale of $30.00 per share.
Farmers does not have definite information about the accuracy or
inaccuracy of these statements, but mentions them simply for
whatever information they may provide. Under the Tender Offer, the
Bidders offered $50 per share. On August 22, 1996, the Company
released a valuation report (the "Valuation Report") prepared by
Rogoff, Diamond & Walker LLP, an independent accounting firm, which
indicated a value to the bidders or another unified control group,
if they acquired all of Farmers' stock, of $283 per share, and a
value to shareholders, as of circumstances on June 3, 1996, of $106
per share. Farmers has no reliable information on trading of
stock, or trading prices, since release of the Valuation Report.
The Valuation Report has not been updated or revised to reflect
financial developments since June 3, 1996; nor has the Company
prepared or commissioned any similar report since that time.
As of August 26, 1997, there were 841 holders of record of the
common stock of the Company. The Company's common stock is the
only authorized class of equity of the Company. The Company has
not issued any stock in the last three years.
A $1.00 per share dividend was declared for 1995 fiscal year,
but no dividend was declared for the 1996 fiscal year, which ended
with an operating loss. In light of the operating loss for the
1997 fiscal year, the Board does not expect to approve a dividend
this year.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Farmers' total sales in fiscal year 1997 were $19,103,199, a
13% decrease from the previous year. Grocery sales decreased 17.4%
(from $15,111,185 to $12,483,400), hardware sales increased 34.0%
(from $2,458,000 to $3,293,000), and other sales decreased 24.0%
(from $4,380,000 to $3,326,799). Corresponding changes from fiscal
year 1995 to fiscal year 1996 were an 11.90% increase in total
sales, a 4.84% increase in grocery sales, a 25.50% increase in
hardware sales, and a 35.07% increase in other sales.
The sales increases during the 1996 fiscal year resulted
largely from expansions of Farmers' business activities, especially
the expansion of the hardware business and the opening of a
furniture store. These expansions, however, were accompanied by
both significant capital expenditures and large increases in
operating costs. Accordingly, the increases in sales during fiscal
year 1996 did not fully compensate for the additional costs, and
Farmers ended that year with a pre-tax loss of $319,309 (reduced by
an income tax benefit to a total loss of $197,678).
In the current (i.e., 1997) fiscal year, the capital
expenditures associated with the expansion ceased, but the
operating costs arising from the expansion have remained stubbornly
high. In an effort to control costs, the Board decided to
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discontinue the furniture business, which was outside of the
Company's traditional scope of retail activity, and to move the
appliance business to the hardware store. The Radio Shack
franchise, historically a poor financial performer, was sold. High
inventory levels, especially in the hardware business, have been
reduced, and total employment has been reduced to 152 as opposed to
241 a year ago, for a total decrease of 37%. Notwithstanding these
cost-cutting measures, however, Farmers ended the year with a loss
of $568,350.
Even without additional cost-cutting efforts, Farmers costs in
the coming year should be reduced, for two reasons. First, the
full benefit of the measures described above, which were instituted
throughout the year, were not realized in that year, but will be
fully applicable to future years. Second, the Company paid in the
current year almost all of the substantial legal and accounting
costs of defending the Tender Offer, and those costs will not
reoccur. Nevertheless, the Board is not satisfied that the actions
taken to date will ensure Farmers' return to profitability in
fiscal year 1998.
In comparing Farmers' current circumstances with the Company's
consistently profitable operations prior to fiscal year 1996, two
factors stand out: increased competition in the grocery business,
and increased operating costs associated with the hardware
operations.
Prior to Peppers' opening in June, 1996, Farmers shared the
Deming retail grocery market with only a Furrs' store. The entry
of a third "supermarket" competitor could only be expected to
reduce, at least initially, Farmers' grocery sales, and that is
exactly what has happened. In the first full year of Peppers'
operation, Farmers' grocery sales decreased 17.4%. The Board does
not believe, however, that this indicates that any major changes
are necessary or desirable with respect to the Farmers'
supermarket. Competition in the grocery business is based
primarily on price and selection, and the Board feels that Farmers
remains an effective competitor in both of these areas, due largely
to the low prices and large selection available to the Company from
its supplier, Fleming Foods. In addition, Farmers has a loyal
customer base, including many shareholders. Accordingly, the
grocery business should be able to be profitable in the near future
with only incremental adjustments and improvements.
The operations of the hardware store are of much greater
concern. Although sales are up significantly at the new location,
operating costs have increased proportionally more. The new
location has yet to make an operating profit, despite several
adjustments to inventory, staffing levels, and other factors. If
results do not improve in the next few months in response to recent
operating changes, the Board may have to decide whether or not to
return the hardware business to it original location adjacent to
the supermarket, and, it is hoped, to its original profitability.
Such a move would involve certain risks. First, Farmers would
still be obligated under its lease for the current hardware
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location until 2002. Although there is a potential of subleasing
the space and thereby offsetting at least a portion of the rental
cost, the large size of the building could make it difficult to
find subtenants, and therefore to avoid any of the rent. Second,
the physical move itself would involve costs, including a partial
loss of business during the term of the move. Third, while space
is currently available in the mall for the hardware operations,
location of the hardware operations there would completely
eliminate potential revenues from renting the space to a third
party. Notwithstanding these problems, however, the Board is
unwilling to allow the hardware operations to continue to be a drag
on all other portions of the Company's business.
The Board has adopted a new credit policy requiring all
requests for credit to be approved by the Board. An aggressive
collection effort has been implemented for all past due accounts.
Item 7. Financial Statements.
Financial statements required by Item 310(a) of Regulation S-B
are attached to this report as described in Item 13. The financial
data schedule is submitted electronically and is attached hereto as
Exhibit 27.
Item 8. Changes and Disagreements with Accountants on Accounting
and Financial Disclosure.
Certain information on the Company's independent accountant is
included under the caption "Independent Public Accountants" in the
Company's definitive Proxy Statement relating to the annual meeting
of shareholders be held on October 29, 1997. Such information is
incorporated herein by reference.
The letter from a former accountant addressed to the
Securities and Exchange Commission, pursuant to Item 304(a)(3) of
Regulation S-B, is attached hereto as Exhibit 16.
PART III
Item 9. Directors and Executive Officers of the Registrant.
During fiscal year 1997, two directors of the Board resigned:
James W. Donaldson, Jr., on October 16, 1996, and John V.
Brownfield, on February 5, 1997. Pursuant to the Company's Bylaws,
the Board appointed Gary Shiflett on February 28, 1997 to fill the
directorship held by Mr. Brownfield, and appointed Leone Anderson
on September 23, 1997 to fill the directorship held by Mr.
Donaldson.
The current directors and executive officer of the Company are
as follows:
1. Leone Anderson, age 65, has been a director of the Company
since September 23, 1997. She is a retired school teacher
whose family has been active in farming in Luna County. Ms.
Anderson was elected by the Board to fill the vacancy created
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by the resignation of James W. Donaldson, Jr. Her term ends
in 1997, and she is a nominee for re-election.
2. Jim T. Hyatt, age 45, has been a director of the Company since
1993. His occupation for the last five years has been
ranching. He is a partner in Hyatt & Hyatt, a general
partnership, and president of Quartzite, Inc. Both Hyatt &
Hyatt and Quartzite, Inc. are ranching businesses. Mr.
Hyatt's terms as director ends in 1998.
3. William R. Johnson, III, age 47, has been a director of the
Company since 1993, and has been Treasurer since October,
1996. His occupation for last five years has been farming and
ranching. He is a partner in W. R. Johnson and Sons, a
general partnership in the business of farming and ranching,
and a director of Carzalia Valley Gin, Inc., a corporation
involved in processing of agricultural products. Mr.
Johnson's directorship ends in 1998.
4. James E. Keeler, age 64, has been a director of the Company
since 1968, and President since 1993. He is Chairman of the
Board of Directors. His occupation for the last five years
has been farming and the operation of a produce business. His
term as director ends in 1997, and he is a nominee for re-
election.
Judy Phillips, age 82, has been a director of the Company
since 1974. She has been the Company Secretary since 1993.
Ms. Phillips is a retired rancher. Her directorship ends in
1998.
6. Gary Shiflett, age 38, has been a director of the Company
since February 28, 1997. His occupation for last five years
has been farming. He was elected by the Board to fill the
vacancy created by the resignation of John V. Brownfield. Mr.
Shiflett's term expires in 1998.
7. Douglas Tharp, age 77, has been a director of the Company
since 1973 and Vice-President since 1993. Mr. Tharp's has
been employed for the past five years as manager of a cotton
warehouse in Deming, and as the owner and operator of Deming
Auction Service. His directorship ends in 1997, and he is a
nominee for re-election.
8. Officer: Garry S. Carter, age 54, has been general manager of
the Company and Board Secretary since February 28, 1997. In
his position he generally supervises and directs all of the
departments of the Company's business and makes all personnel
decisions. From 1991 to 1996 he was Senior Vice President of
First National Bank in Big Spring, Texas (which became Norwest
Bank Big Spring, Texas following its acquisition in 1995), and
from September 1996 to February, 1997, was Executive Vice
President of First Savings Bank in Deming.
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There are no family relationships between any of the directors
or officers. There are no directors who hold directorships in any
other company with a class of stock registered under the Securities
Exchange Act of 1934 or any company registered as an investment
company.
The Company has no standing audit, nominating or compensation
committees. During the fiscal year ended June 30, 1997 the Board
of Directors held ten regular meetings and one special meeting.
Except for Messrs. Brownfield, Donaldson and Shiflett, none of the
directors have attended less that 75% of the Board meetings held
during the fiscal year. Mr. Shiflett has not attended less than
75% of the Board meetings in the fiscal year since his appointment.
Section 16(a) Compliance. Based on a review of the relevant
reporting forms furnished to the Company, there were no late
reports concerning reportable transactions.
Item 10. Executive Compensation
Directors of the Company receive the sum of $100 per regular
meeting attended, and no other compensation. During the 1997
fiscal year the board of directors held ten regular meetings. The
following table sets forth compensation paid to Daniel Gonzales and
Garry S. Carter, General Managers, who are the Company's only paid
"executive officers" as that term is used in Item 402 of Regulation
S-B under the Securities Exchange Act of 1934. Mr. Gonzales served
as General Manager of the Company from March 18, 1996 until
February 28, 1997. Prior to his appointment as General Manager,
Mr. Gonzales served as Assistant General Manager. After February
28, 1997, he was employed by the Company in the hardware store, but
currently is no longer employed by the Company in any capacity.
Mr. Carter has served as General Manager since February 28, 1997.
The following tables include all compensation paid to Messrs.
Gonzales and Carter during the time indicated, regardless of their
positions.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
(A) (B) (C) (D) (E)
Name and Principal Fiscal Salary Bonus Other Annual
Position Year Compensation
Garry S. Carter, 1997 $18,461 n.a. n.a.
General Manager 1996 n.a. n.a. n.a.
1995 n.a. n.a. n.a.
Daniel Gonzales, 1997 $42,015 n.a. n.a.
General Manager & 1996 51,194 n.a. n.a.
Asst. Gen. Manager 1995 40,000 n.a. n.a.
</TABLE>
Mr. Carter serves as general manager of the Company under a
one year agreement for a salary of $60,000.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Information on beneficial ownership of the Company's voting
securities by each director and all officers and directors as a
group, and by any person know to beneficially own more than 5% of
any class of voting security of the Company is included under the
caption "Security Ownership of Certain Beneficial Owners and
Management: in the Company's definitive Proxy Statement relating to
the annual meeting of shareholders to be held on October 29, 1997.
Such information is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
None of the reporting requirements of Item 404 of Regulation
S-B are applicable to this report.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
The documents listed below are filed as part of this report
and attached hereto.
1. Financial Statements and Financial Statement Schedules
(i) Financial Statements
Report of Independent Public Accountants
Balance Sheet as of June 30, 1997
Statements of Operations for the years ended June
30, 1997 and 1996
Statements of Stockholders' Equity for the year
ended 1997, 1996 and 1995
Statements of Cash Flows for the years ended June
30, 1997 and 1996
Notes to Financial Statements
(ii) Financial Statement Schedules
None.
2. Reports on Form 8-K. No reports on Form 8-K were filed
during the last quarter of fiscal year 1997.
3. Exhibits required by Item 601. All exhibits required by
Item 601 of Regulation S-B which are applicable to the Company and
currently in effect are incorporated by reference as follows:
<PAGE>
Exhibits 3(i) and 3(ii): Articles of Incorporation and
Bylaws of Mimbres Valley Farmers Association, Inc., as
currently in effect, were filed as an exhibit to the Company's
registration statement filed in 1985 and are incorporated
herein by reference.
Exhibit 16: Letter on change in certifying accountant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: October 9, 1997.
MIMBRES VALLEY FARMERS
ASSOCIATION, INC.
By: James E. Keeler
James E. Keeler
President and Chairman of the
Board
By: Garry S. Carter
Garry S. Carter, General
Manager, Financial and
Accounting Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and the dates
indicated.
Date
V. Leone Anderson October 9, 1997
V. Leone Anderson, Director
Jim T. Hyatt October 9, 1997
Jim T. Hyatt, Director
William R. Johnson, III October 9, 1997
William R. Johnson, III,
Director and Treasurer
James E. Keeler October 9, 1997
James E. Keeler, Director,
Chairman of the Board and
President
Judy Phillips October 9, 1997
Judy Phillips, Director and
Secretary
Gary Shiflett October 9, 1997
Gary Shiflett, Director
Douglas Tharp October 9, 1997
Douglas Tharp, Director and
Vice-President
<PAGE>
EXHIBIT INDEX
Exhibit Number Nature of Exhibit Page
3(i) Articles of Incorporation Incorporated
by reference
3(ii) Bylaws Incorporated
by reference
16 Letter on Change in 17
Certifying Accountant
99 Financial Statements 18
27 Financial Data Schedule 19
Exhibit 16
LETTER ON CHANGE OF CERTIFYING ACCOUNTANT
Morrow & Company
Certified Public Accountants
800 West Florida
Deming, New Mexico 88030
505-546-6528
Fax (505) 544-6528
Members Of Members Of
New Mexico Society Of American Institute Of
Certified Public Accountants Certified Public Accountants
September 17, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Re: Disclosure for Mimbres Valley Farmers
Association, Inc. Proxy Statement
During the two fiscal years preceding our resignation as
independent auditors, fiscal 1994 and 1995, and all
subsequent interim periods, September 1995, through March
1996, there were no disagreements on matters of
accounting principals or practices or financial statement
disclosures. The fiscal year 1994 and fiscal year 1995
reports on Farmers' financial statements did not contain
an adverse opinion or a disclaimer of opinion, and were
not qualified or modified as to uncertainty, audit scope
or accounting principles.
Sincerely,
Harold C. Morrow, CPA
Morrow and Company, CPA's
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Mimbres Valley Farmers Association, Inc.
d.b.a. Farmers, Inc.:
We have audited the accompanying balance sheet of Mimbres Valley
Farmers Association, Inc. d.b.a. Farmers, Inc. (a New Mexico
corporation) as of June 30, 1997, and the related statements of
operations, shareholders' equity and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these 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
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the 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 financial statements referred to above present
fairly, in all material respects, the financial position of Mimbres
Valley Farmers Association, Inc. d.b.a. Farmers, Inc. as of June
30, 1997, and the results of its operations and its cash flows for
each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
As explained in Note 1 to the financial statements, Mimbres Valley
Farmers Association, Inc. d.b.a. Farmers, Inc. changed its method
of reporting cash flows from operating activities from the direct
method to the indirect method during 1996.
Albuquerque, New Mexico
September 22, 1997
<PAGE>
<TABLE>
<CAPTION>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
BALANCE SHEET
AS OF JUNE 30 1997
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 414,538
Accounts receivable net of
allowance for doubtful accounts of $36,168:
Trade 258,841
Related parties 14,531
Inventories 1,871,922
Prepaid expenses 97,659
Income taxes receivable 23,950
Deferred income taxes 454,449
----------
Total current assets 3,135,890
----------
PROPERTY AND EQUIPMENT net 2,040,264
----------
OTHER NON-CURRENT ASSETS:
Notes receivable - supplier 59,667
Investments in supplier 71,629
----------
Other non-current assets net 131,296
----------
Total assets $ 5,307,450
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,205,396
Current portion of long-term debt and
capital leases 249,509
Accrued expenses 219,070
----------
Total current liabilities 1,673,975
----------
NON-CURRENT LIABILITIES:
Deferred income taxes 224,814
Long-term debt and capital leases
less current portion 1,663,863
----------
Total non-current liabilities 1,888,677
----------
Total liabilities 3,562,652
----------
SHAREHOLDERS' EQUITY:
Common stock: $25 par value;
500,000 authorized; 13,910 issued
and 13,776 outstanding 347,750
Retained earnings 1,400,398
Less: 134 shares of treasury stock (3,350)
----------
Total shareholders' equity 1,744,798
----------
Total liabilities and shareholders'
equity $ 5,307,450
==========
<FN1>
<FN>
<FN1> The accompanying notes to financial statements are an
integral part of this balance sheet.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMER'S, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
------------ ------------
<S> <C> <C>
NET SALES AND GROSS REVENUE $ 19,103,199 $ 21,949,927
COST OF SALES 15,323,385 17,743,893
------------ ------------
Gross profit 3,779,814 4,206,034
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,686,171 4,624,030
------------ ------------
OPERATING LOSS (906,357) (417,996)
OTHER INCOME (EXPENSE):
Other income 211,885 269,916
Interest expense (215,976) (171,229)
------------ ------------
Loss before income tax
benefit (910,448) (319,309)
INCOME TAX BENEFIT (342,098) (121,631)
------------ ------------
Net loss $ (568,350) $ (197,678)
============= ============
Net loss per common share $ (41.26) $ (14.35)
============= ============
<FN1>
<FN>
<FN1> The accompanying notes to financial statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
Total
Common Retained Treasury Shareholders'
Stock Earnings Stock Equity
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE,
JUNE 30, 1995 $ 347,750 $ 2,166,426 $ (3,350) $ 2,510,826
Net loss - (197,678) - (197,678)
---------- ---------- ----------- -----------
BALANCE,
JUNE 30, 1996 347,750 1,968,748 (3,350) 2,313,148
Net loss - (568,350) - (568,350)
---------- ---------- ----------- -----------
BALANCE,
JUNE 30, 1997 $ 347,750 $ 1,400,398 $ (3,350) $ 1,744,798
========== =========== =========== ===========
<FN1>
<FN>
<FN1> The accompanying notes to financial statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($568,350) ($197,678)
Adjustments to reconcile net
loss to net cash provided
(used) for operating activities -
Depreciation and amortization 307,998 213,584
Provision for uncollectible
accounts receivable 50,168 19,652
Changes in assets and
liabilities:
Accounts receivable, net 183,095 (252,479)
Inventories 991,396 (574,546)
Prepaid expenses 8,710 (39,394)
Income taxes receivable 227,170 (251,120)
Deferred income taxes (267,172) (67,119)
Notes receivable -
supplier - 45,063
Accounts payable (353,453) 798,017
Accrued expenses (111,263) 150,341
Income taxes payable - (119,769)
---------- ----------
Net cash provided (used)
for operating activities 468,299 (275,448)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment (74,526) (813,431)
Proceeds from sale of property
and equipment 46,470 -
(Increase) decrease in investments
in supplier (3,578) 21,169
---------- ----------
Net cash used for investing
activities (31,634) (792,262)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt
and capital leases 305,649 2,567,925
Repayments of long-term debt
and capital leases (620,939) (1,370,922)
---------- ----------
Net cash (used) provided
by financing activities (315,290) 1,197,003
---------- ----------
NET INCREASE IN CASH 121,375 129,293
CASH at beginning of year 293,163 163,870
---------- ----------
CASH at end of year $ 414,538 $ 293,163
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest $ 208,522 $ 165,157
========== ==========
Cash paid for income taxes,
net of refunds received $ (300,777) $ 189,600
========== ==========
<FN1>
<FN>
<FN1> The accompanying notes to financial statements are an
integral part of these statements.
</FN>
</TABLE>
<PAGE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Mimbres Valley Farmers Association, Inc. d.b.a. Farmers, Inc.
("Farmers" or the "Company"), a New Mexico corporation, currently
operates two retail food stores, a hardware store, a clothing and
craft store and a feed store. The Company also leases certain
retail space to unrelated parties and operates a self-service
laundry. All operations are located in Deming, New Mexico
("Deming"). The economy of Deming is dependent mainly on
agriculture and related agri-business.
Use of Estimates
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.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments
with original maturities of three months or less to be cash
equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company grants credit to customers, substantially all of whom
are residents of Luna County, New Mexico. Management of the
Company has established an allowance for doubtful accounts to
cover possible losses inherent in the accounts receivable
portfolio. Ultimate losses may vary from the current estimates.
Inventories
Inventories, which represent merchandise available for sale, are
stated at the lower of cost or market, determined on a first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost, including capitalized
interest and labor incurred to construct major additions, and are
depreciated on a straight-line basis over the estimated useful
lives of the respective assets.
<PAGE>
Capital leases are amortized using the straight-line method over
the shorter of the estimated useful life of the property or the
lease term. The estimated useful lives for property and
equipment are as follows:
Buildings - 30 years
Furniture, fixtures and equipment - 3 to 10 years
Leasehold improvements - 5 years
Gains and losses upon retirement or disposal of property and
equipment are recognized as incurred. Additions and major
improvements are capitalized, and repairs and maintenance, and
minor improvements are expensed as incurred.
Income Taxes
The Company records deferred income taxes to reflect the tax
consequences on future years of differences between the tax basis
of assets and liabilities and their financial reporting amounts.
Advertising
The Company expenses costs of advertising as incurred. For the
years ended June 30, 1997 and 1996, advertising expense was
$253,278 and $267,652, respectively.
Net Loss per Common Share
Net loss per share is computed by dividing the net loss by the
number of shares of common stock outstanding during the period.
Change in Reporting
The Company changed its method of reporting cash flows from
operating activities from the direct method to the indirect
method during 1996.
Reclassification
Certain prior year balances have been reclassified to conform
with the 1997 financial statement presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment as of June 30, 1997 consist of the
following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment $2,806,693
Buildings 2,354,121
Land 80,203
Leasehold improvements 61,961
----------
5,302,978
Less: Accumulated depreciation
and amortization (3,262,714)
-----------
$2,040,264
===========
</TABLE>
<PAGE>
3. NOTES RECEIVABLE - SUPPLIER:
The notes receivable - supplier at June 30, 1997, are unsecured
and have maturities which range from December 1998 to 2000, with
interest rates ranging from 6.5% to 8.2%.
4. INVESTMENTS IN SUPPLIER:
Investments in supplier, at cost, as of June 30, 1997 consist of
the following:
693 shares of Class B non-voting stock $ 70,610
10 shares of Class A non-voting stock 1,019
---------
$ 71,629
=========
The Class A and B stock of the supplier were received as
patronage dividends. None of the stock shown as investments in
supplier is readily marketable.
5. LONG-TERM DEBT AND CAPITAL LEASES:
Long-term debt and capital leases as of June 30, 1997 consist of
the following:
<TABLE>
<S> <C>
Fixed rate note payable to Norwest Bank
("Bank"), due in monthly installments of
$16,788 with a balloon payment of $1,314,459
due on January 24, 2001. Interest at the
rate of 9.50%, and secured by real estate
mortgages. $1,535,982
Variable rate notes payable to Bank, due
in monthly installments ranging from $975
to $1,675. Interest at Bank prime rate
plus 1% to .75% (9.50% and 9.25% at June
30, 1997), secured by real estate mortgages,
inventory, and accounts receivable. 174,678
Capital leases, net 111,748
Notes payable to Supplier, due in monthly
installments ranging from $272 to $2,322.
Interest rates ranging from 9.25% to 10.50%,
secured by equipment and notes receivable
supplier. 90,964
----------
1,913,372
Less: Current portion 249,509
----------
$1,663,863
==========
</TABLE>
Future maturities of long-term debt and capital leases as of June
30, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 249,509
1999 139,091
2000 141,755
2001 1,383,017
-----------
Total $1,913,372
==========
</TABLE>
<PAGE>
Certain of the notes payable to a Bank require the Company to
comply with debt covenants at June 30, 1997 including, but not
limited to: (a) Minimum working capital balance of $1.2 million or
greater, (b) total liabilities to net worth of 1.15 to 1 or lower,
(c) $100,000 additional principal reduction beyond scheduled
payments for fiscal year 1997 and (d) profitable operations by
December 31,1996. The Company is not in compliance with several of
its debt covenants at June 30, 1997. Consistent with the prior
year, the Company has obtained a waiver from the Bank for all
exceptions to its debt covenants through September 22, 1997.
Management believes the Bank will forbear acceleration of the
collection of these notes, and accordingly, the notes have not been
classified as current liabilities in the accompanying balance
sheet.
Property and equipment, net financed under capital leases was
$113,551 as of June 30, 1997.
6. OPERATING LEASES:
Future minimum rental payments under operating leases that have
initial or remaining noncancellable lease terms in excess of one
year as of June 30, 1997, are as follows:
<TABLE>
<S> <C>
1998 $110,000
1999 110,000
2000 110,000
2001 110,000
2002 82,503
--------
Total future minimum rental payments $522,503
========
</TABLE>
7. OTHER INCOME:
Other income as of June 30, consists of the following:
<TABLE>
<S> <C> <C>
1997 1996
-------- -------
Rental of retail space $47,932 $115,004
Check cashing fees 32,419 51,159
Western union commissions 31,586 28,999
Other 99,948 74,754
-------- -------
Total other income $211,885 $269,916
======== ========
</TABLE>
8. RENTAL INCOME:
The Company leases retail space to customers with terms generally
ranging from 2 to 10 years. The leases generally contain
provisions for renewal options of 5 to 10 years.
<PAGE>
The future minimum rental payments on operating leases that have
initial or remaining noncancellable lease terms in excess of one
year as of June 30, 1997, are as follows:
<TABLE>
<S> <C>
1998 $ 52,472
1999 51,939
2000 42,872
2001 26,872
2002 10,872
Thereafter 28,992
--------
Total future minimum rental payments $214,019
========
</TABLE>
9. TENDER OFFER:
During the fiscal year ended June 30, 1996, the Company was
involved with legal proceedings concerning a tender offer for all
the outstanding shares of Farmers common stock. During the
fiscal year ended June 30, 1997, the Company and the participants
of the tender offer entered into a settlement agreement, in which
the tender offer was withdrawn.
10. LITIGATION:
The Company is engaged in various legal proceedings, including an
action involving an environmental claim, all of which are
incidental to its normal business activities. In the opinion of
the Company, none of such proceedings are material in relation to
the Company's financial position or operations.
11. SUPPLIER BANKRUPTCY:
During the fiscal year ended June 30, 1996, the franchisor of the
supplier of the Company's craft store filed for bankruptcy
reorganization under Chapter 11 of the Federal Bankruptcy Code.
Sales of inventory for this franchise represented approximately
3% of the Company's revenue for fiscal year 1996. The Company
contracted with various other suppliers to ensure a continued
supply of inventory for the craft store. Management has elected
not to operate the clothing and craft store as a franchise outlet
and believes that the operations of the clothing and craft store
will not be significantly impacted. During the fiscal year ended
June 30, 1997, the Company moved the clothing business into the
craft store and combined their retail operations.
12. MAJOR SUPPLIERS:
A substantial portion of the inventory of the Company is
purchased from a limited number of suppliers. During the years
ended June 30, 1997 and 1996, two such suppliers accounted for
74% and 64% of inventory purchases, respectively. In addition,
a certain related party of the Company is a guarantor for amounts
outstanding to certain major suppliers.
<PAGE>
13. MANAGEMENT'S PLANS FOR FUTURE OPERATIONS (UNAUDITED):
The Company incurred operating losses, deterioration of working
capital and violated its debt covenants in the preceding year.
The Company's viability as a going concern is dependent upon
several factors, including the its ability to restructure fixed
operating expenses in relation to the overall decline in gross
sales and to identify unprofitable products, services or
locations and the management fortitude to discontinue such
unprofitable ventures while continuing its tradition of
competitive prices and quality service. Management of the
Company is expecting a return to profitability and positive cash
flows from operations as soon as the second quarter of fiscal
year 1998. They attribute this to the following factors:
The Company expects to carry back fiscal year 1997 losses to
prior years resulting in refunds of previous income taxes paid
amounting to approximately $250,000.
In fiscal year 1997, the Company discontinued its furniture
business, Radio Shack store, garage and service center and its
bean cleaning operations. Also, the Company terminated the
Ben Franklin franchise and combined its clothing store with
the crafts store and combined the appliance store with the
hardware store. Savings associated with these activities
should contribute to improved operating income in the 1998
fiscal year.
Certain costs incurred in fiscal year 1997 for legal and
accounting relating to the Tender Offer are not expected to
occur in fiscal year 1998.
The Company implemented a purchase order system in mid 1997
fiscal year, and savings will accrue throughout the entire
1998 fiscal year.
The Company implemented strict credit standards and aggressive
collection efforts that should reduce credit losses in fiscal
year 1998.
The Company is reviewing all its product lines in regards to
gross margin and inventory turnover to insure profitability.
The Company in progress of installing a new computer system to
ultimately interface all its stores and departments to provide
timely and accurate information while reducing operating
expenses.
The Company is monitoring the operating results of its
hardware store at its new location. Although sales are up
significantly, operating costs have increased significantly
more. The new location has yet to make an operating profit
despite adjustments to inventory, staffing levels and other
factors. If results do not improve in response to recent
operating changes, the Company may have to decide whether or
not to return the store to its original location adjacent to
the supermarket and hope it would return to its original
profitability. Such a move could potentially involve certain
risks. Farmers would continue to be obligated under its lease
on the building until the year 2002. Also, there are certain
costs associated with the move, such as loss of business and
loss of potential rent of the now vacant space.
<PAGE>
Certain savings in fiscal year 1997, such as a decrease in
interest expenses, reduction in payroll expense and
advertising were only partially realized in fiscal year 1997
and should have positive affect on 1998 fiscal year.
The Company has rented all available owned rental space in the
mall resulting in additional cash flow and additional customer
traffic in fiscal year 1998.
In fiscal year 1997, the Company has reduced it monthly debt
service by approximately $7,000. The Company is considering
a working capital bank loan for $300,000 to be repaid by its
tax refund.
14. INCOME TAXES:
Components of the net deferred income tax liability at June 30,
1997, are as follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Net operating loss carryback and carryover $ 385,203
Inventory method change 92,995
Inventory capitalization 26,265
Allowance for doubtful accounts 13,563
Other 9,155
------------
Deferred income tax asset 527,181
Valuation allowance (72,732)
------------
Deferred income tax asset,
net of valuation allowance $ 454,449
=============
Deferred income tax liability related
to depreciation $ (224,814)
</TABLE>
The Company had a current year loss for federal tax purposes of
approximately $991,000; approximately $919,000 of this amount
will be carried back to the fiscal years ended June 30, 1993 and
1994. The remaining losses will be carried forward resulting in
a deferred tax asset of $24,308. The Company had prior and
current year losses for state tax purposes of approximately
$1,384,000, which will be carried forward resulting in a deferred
tax asset of $48,424. Due to recent operating losses and
deterioration of working capital, the entire federal and state
deferred tax asset balance of $72,732 which relates to operating
losses to be carried forward has been reserved for through a
valuation allowance.
The income tax benefit consists of the following for the fiscal
years ended June 30:
<TABLE>
<S> <C> <C>
1997 1996
------------ ------------
Deferred income tax benefits:
Federal $ (310,169) $ (110,279)
State (31,929) (11,352)
------------ ------------
Total $ (342,098) $ (121,631)
============ ============
</TABLE>
<PAGE>
The income tax benefit is reconciled with the expected Federal
statutory rates for the years ended June 30, as follows:
<TABLE>
<S> <C> <C>
1997 1996
------------ ------------
Provision computed at Federal
statutory rate $ (309,552) $ (108,565)
State taxes net Federal benefit (21,031) (7,376)
Non-deductible meals and
entertainment 2,040 1,194
Recovery of previously paid taxes (74,926) -
Valuation allowance 72,732 -
Other (11,361) (6,884)
------------ ------------
Total $ (342,098) $ (121,631)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE JUNE 30, 1997 AUDITED FINANCIAL STATEMENTS INCLUDED AS ITEM 7
TO
FORM 10-KSB TO WHICH THIS SCHEDULE IS ATTACHED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 414,538
<SECURITIES> 0
<RECEIVABLES> 351,891
<ALLOWANCES> 18,852
<INVENTORY> 1,871,922
<CURRENT-ASSETS> 3,135,890
<PP&E> 2,040,264
<DEPRECIATION> 3,262,714
<TOTAL-ASSETS> 5,307,450
<CURRENT-LIABILITIES> 1,673,975
<BONDS> 1,663,863
0
0
<COMMON> 347,750
<OTHER-SE> 1,400,398
<TOTAL-LIABILITY-AND-EQUITY> 5,307,450
<SALES> 19,103,199
<TOTAL-REVENUES> 19,315,084
<CGS> 15,323,385
<TOTAL-COSTS> 20,009,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,852
<INTEREST-EXPENSE> 215,976
<INCOME-PRETAX> (910,448)
<INCOME-TAX> (342,098)
<INCOME-CONTINUING> (568,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,350)
<EPS-PRIMARY> (41.26)
<EPS-DILUTED> (41.26)
</TABLE>
