U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
_XX_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
____ TRANSITION REPORT UNDER Section 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 0-13963
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
(Name of small business issuer in its charter)
NEW MEXICO 85-0054230
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
811 South Platinum, Deming, New Mexico 88030
(Address of principal executive offices) (Zip code)
Issuer's telephone number (505) 546-2769
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock ($25 par
value)
Name of each exchange on which registered: None
Check whether the issuer(1)filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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. [ ]
There is no established public trading market for the issuer's common
stock, no public quotations for the stock, and no verifiable record of any
common stock prices.
The number of shares outstanding of the issuer's common stock, as of
September 2, 1998, is 13,776.
A portion of the Registrants Proxy Statement for the 1998 Annual Meeting
of Shareholders is incorporated in Part III as set forth therein.
<PAGE>
PART I
This Form 10-KSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-KSB that are not statements
of historical fact may be deemed to be forward looking statements. Without
limiting the foregoing, words like "may", "will", "expect", "believe",
"anticipate", "estimate" or "continue" or comparable terminology are intended
to identify forward looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors.
ITEM 1. BUSINESS.
General
Mimbres Valley Farmers Association, Inc. ("the Company") is a New Mexico
corporation founded in 1913. The Company is a food, dry-goods, feed and farm
supplies, and hardware retailer serving the market area of Deming and
surrounding areas in southwestern New Mexico. The Company currently operates
a supermarket, hardware store, feed and farm supply store, and a convenience
store with gasoline pumps. The Company also operates a self-service laundry
and leases certain retail space which it owns to unrelated parties. The
revenue the Company derives from the non-retail business activities is less
than one percent of the Company's total revenue. See Item 2 "Properties" for
additional information on the Company's leasing activities.
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),the County
residents do most of their day-to-day shopping in Deming.
The Company conducts its grocery business at two locations: the main
24,000 square-foot supermarket at 811 South Platinum in Deming, and a
convenience store with a laundromat (together totaling approximately 7,000
square feet) at 501 North Gold in Deming. The convenience store location
includes underground storage tanks and pumps for retail sales of gasoline.
The Company currently operates its hardware store in a 14,450 square foot
location adjacent to the main supermarket.
All of the Company's other retail operations are 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.
Products
The Company's supermarket offers a large selection of food items,
including dry groceries, fresh meat, dairy products, produce, frozen foods,
deli products and baked goods, as well as many non-food items such as
cigarettes, soaps, paper products, and health and beauty care items. The
Company's hardware store offers a wide selection of merchandise, including
nationally and regionally advertised brands. The Company's merchandising
strategy is to offer a broad selection of quality products at competitive
prices with an emphasis on superior customer service, quality and one-stop
shopping convenience, particularly for the local farming community.
Recent Developments
In April, 1998, the Company relocated the hardware store from the
building it leased from K-Mart Corporation located at 2300 Highway 70/80 (the
"K-Mart Building") back to its original location adjacent to the
supermarket.
The hardware store at the K-Mart Building failed to make an operating profit
despite adjustments to inventory, personnel costs, and other factors. As a
result of the relocation of the hardware store, the Company believes, but has
no assurances, that savings will result from adjustments to personnel costs,
occupancy expense and carrying costs associated with the reduction in its
total inventory items, and that the store will return to profitability. The
Company will continue to monitor the operations of the hardware store at the
811 South Platinum location. For more information see Item 6 "Management's
Discussion and Analysis of Financial Condition and Results of Operation".
No other of the Company retail operations have experienced any
significant changes in the past fiscal year.
Competition
The Company's grocery and retail business is highly competitive, and
characterized by low profit margins. The Company's supermarket is in direct
competition with Furrs supermarket, a regional supermarket chain, and Peppers
supermarket, an independent supermarket ("Peppers"). The Company believes
that the 17.4 percent decrease in grocery revenues from fiscal year 1996 to
fiscal year 1997 and the 3.4% decrease from fiscal year 1997 to fiscal year
1998 is primarily due to the presence of Peppers. The Company's competitors
also include drug stores, convenience stores, discount hardware stores and
large chain discount retailers. Some of these competitors have substantially
greater resources than the Company.
Suppliers
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. The Company believes its current relationship with
Fleming
Foods is satisfactory. The Company is not dependent on this relationship
since groceries and general merchandise are generally available from many
sources.
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.
Personnel
Due mainly to the expansion of the hardware operations, the Company's
total employment during the 1996 fiscal year was 241 persons compared with
total employment of 152 persons at the end of the 1997 fiscal year. The
Company's employment at the end of the 1998 fiscal year is 113 employees, of
which 30 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. None of the Company's employees are
represented by unions.
Trademarks
The Company is a member of the IGA advertising group, and sells
groceries
under the IGA trademark.
Governmental Regulation
The Company is subject to a variety of governmental authorities,
including federal, state and local agencies which regulate the distribution
and sale of milk and other agricultural products, as well as other food and
drug items. The Company is also subject to regulation on labor, health,
safety and environmental matters. Management believes the Company is in
material compliance with all applicable regulations. Except as provided
below, the Company anticipates that its compliance with federal, state and
local laws will not have a significant effect on the Company's
capital expenditures, earnings or competitive practices.
The Company does not foresee any unusual potential future expenses,
except (1) costs associated with a the return of the hardware business to 811
South Platinum, and (2) costs the Company may incur for remediation of
leakage
from an underground storage tank, removed during the 1996 fiscal year, at the
convenience store site. For more information, see Item 6 Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
see Item 3 Legal Proceedings.
ITEM 2. PROPERTIES.
The Company owns or leases the following properties:
1. A strip shopping mall totaling approximately 60,300 square feet of
retail space, located at 811 South Platinum Street, Deming, New Mexico. The
Company owns the real property and the improvements on the real property in
fee. The property is the site of the Company's corporate offices, principal
supermarket (approximately 24,000 square feet), its clothing and general
merchandise store (approximately 9000 square feet) and its hardware store
(approximately 14,450 square fee). Four other areas in the mall are leased
to
separate tenants for retail 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, and (4) an electronics store which
occupies approximately 2,400 square feet.
2. The feed and farm supply store, is located in an approximately 2,500
square feet building across the street from the shopping mall, at 913 South
Diamond Street. The Company owns this real property and improvements in fee,
free and clear of any mortgage or liens.
3. The convenience store with an attached laundromat, totaling together
approximately 7000 square feet is located at 501 North Gold Street, Deming,
New Mexico. The Company owns this real property and improvements in fee,
free
and clear of any mortgages or liens.
4. The Company continues to lease the K-Mart Building located at
Highway
70-80 East in Deming, consisting of approximately 40,000 square feet and
totaling l 3.76 acres, including parking areas and associated grounds, at a
rental rate of approximately $9,100 per month. The lease provides for an
initial term that expires in 2002, with lease options for a total of 25
additional years.
5. A five-acre parcel of undeveloped land within the Deming city
limits,
adjoining the Columbus highway (State Route 11). The Company owns this real
property in fee, free and clear of any mortgages and liens. The Company
intends to retain ownership of this parcel as a possible site for business
expansion.
6. The Company leases a warehouse on West Rancho Avenue in Deming 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.
The Company does not have any present renovation plans for any of the
properties, all of which are in satisfactory condition.
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 1998
fiscal year the Company was involved in the following legal matter.
Underground Storage Tank.
The Company has sold gasoline to the public at its convenience store for
many years. The gasoline is dispensed from underground storage tanks, which
the Company previously leased from a petroleum wholesaler. During the 1996
fiscal year, the leased tanks were removed and replaced with tanks that the
Company 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, the Company believes that the amount
of leakage and the corresponding contamination may have been minimal.
Nevertheless, the New Mexico 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 New Mexico Environment Department is not currently
requiring
any action from the Company, the Company could have liability based on its
status as an "operator" under the New Mexico Underground Storage Tank
regulations (the "Regulations"). If the New Mexico Environment Department
assesses liability against the Company, the Company will vigorously pursue a
claim for indemnity against the owner of the tank. If the Company 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. The Company has not, however, sought or
received a determination that it qualifies for reimbursement from the fund at
this time. 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.
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, 1998.
PART II
ITEM 5. MARKET FOR 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.
As of September 2, 1998, 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.
No dividend was declared for the 1996 or 1997 fiscal years, which both
ended with an operating loss. In light of the operating loss for the 1998
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.
Retail sales to the general public generates most of the Company's
receipts. Total revenues for the fiscal year ending June 30, 1998 were
$15,521,847, of which $12,063,450 were from grocery sales. This continues
the
same pattern of sales experienced in the previous two years. In fiscal year
1997 total sales and grocery sales were $19,103,199 and $12,483,400,
respectively, and in fiscal year 1996 total sales and grocery sales were
$21,949,927 and $15,111,185, respectively. The percentage of total revenues
attributable to grocery sales for the past three fiscal years is as follows:
77.7% (1998), 65.4% (1997), 68.8% (1996). Corresponding percentages for
hardware sales are 10.2% (1998), 17.2% (1997) and 11.2% (1996). No class of
similar products or services other than the grocery business and the hardware
business amounted to more than ten percent of total revenues.
The Company's total sales in fiscal year 1998 were $15,521,847, an 18.7%
decrease from the previous year. Grocery sales decreased 3.4% (from
$12,483,400 to $12,063,450), hardware sales decreased 51.9% (from $3,293,000
to $1,583,819), and other sales decreased 55.2% (from $3,326,799 to
$1,454,628). Corresponding changes from fiscal year 1996 to fiscal year 1997
were a 13% decreased in total sales, a 17.4% decrease in grocery sales, a 34%
increase in hardware sales, and a 24% decrease in other sales.
The sales increases during the 1996 fiscal year resulted largely from
expansions of the Company's 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 the
Company 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 last two fiscal years, 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
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. The sales decreases during the current fiscal year
(i.e.
1998) resulted largely from the relocation and downsizing of its hardware
store in the fourth quarter and the closing of its furniture and appliance
store, the sale of the Radio Shack Store and the closing of its Ben Franklin
craft franchise due to Ben Franklin's bankruptcy. High inventory levels,
especially in the hardware business, have been reduced, and total employment
has been reduced to 113 as opposed to 241 two years ago, for a total decrease
of 48%. The Company was able to improve its overall gross margin slightly
while reducing its inventory by 34%. Notwithstanding these actions,
however,
the Company ended the year with a loss of $357,346.
In comparing the Company's 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, the Company 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,
the Company's grocery sales, and that is exactly what has happened. In the
first full year of Peppers' operation, the Company's grocery sales for fiscal
year 1997 decreased 17.4% and last year decreased 3.4%. The Board does not
believe, however, that this indicates that any major changes are necessary or
desirable with respect to the Company's supermarket. Competition in the
grocery business is based primarily on price and selection, and the Board
feels that the Company 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, the Company 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.
In the fourth quarter of fiscal year 1998, the Company returned its
hardware store to its original location at 811 South Platinum adjacent to the
supermarket in an effort to stop continued operating losses. The move
continues to involve certain risks. The Company expects to incur certain
costs associated with the relocation of its hardware store. The costs
include: loss from discounting of discontinued products, costs of moving,
and
continuing lease expense.
The Company is obligated under its lease on the vacant K-Mart Building
at
Highway 70/80 until the year 2002. The rent is approximately $110,000 per
year payable monthly. The Company is attempting to lease the building and
expects to be totally out of the K-Mart Building by the end of the first
quarter of its current fiscal year. The Company may have to substantially
discount its lease to encourage potential renters. The Company will make
every effort to lease the K-Mart Building to potential tenants for the
remainder of its lease, which matures in the year 2002.
Farmers terminated its hardware purchasing agreement with TRUSERV in the
fourth quarter of the 1997 fiscal year. It signed a similar purchasing
agreement HWI, DO IT BEST to provide merchandise to its hardware store. As a
result of this change in suppliers, the Company converted an existing
investment in TRUSERV in the amount of $125,000 into notes receivable payable
to the Company over five years.
According to a recent news article in the Deming newspaper, a new
hardware store is expected to open in Deming by January 1, 1998. From its
recent experience with Peppers, Farmers expects some reduction of its
hardware sales once the new hardware store opens.
The Company relocated the clothing store and combined it with its craft
and fabric store in the first quarter of its 1998 fiscal year. The clothing
store has not returned to its previous profitability. A new clothing store
in
Deming has also increased competition in the clothing business. Improved
inventory selection and continued cost-cutting measures are expected to
improve the clothing stores operating profitability. The Company will
continue to monitor the operating results of the clothing store. The Company
may consider leasing all or part of the retail space in the mall occupied by
the clothing store to other merchants if the clothing store fails to return
its prior profitability.
The Company is exploring the possibility of refinancing its long-term
debt in an effort to reduce its interest expense and provide funds to improve
its building, make parking lot repairs and replace walk in coolers and
freezers in its grocery store. The Company has not planned any other major
capital expenditures.
Future results from operations may differ from the opinions expressed by
Management in the above Management Discussion and Analysis.
Year 2000
The Company has conducted a review of its computers systems to identify
the systems that could be affected by the year 2000 problem. The year 2000
problem is the effect of computer programs using two digits (rather than
four)
to define the applicable year. Any of the Company's programs that utilizes
date sensitive software could recognize the year "00"as 1900 rather than the
year 2000. This could result in a major computer system failure or
malfunction.
The Company presently believes that, with modifications to existing
software and conversion to new software and replacement of some equipment,
the
Year 2000 problem will not pose a significant operational problem for the
Company's information systems as so modified and converted. However, if such
actions are not timely completed, the arrival of the year 2000 may have a
material impact on the Company's ability to accurately process data. The
Company intends to make its information systems Year 2000 compliant during
the
current fiscal year. The Company does not believe making its information
systems Year 2000 compliant will have a significant effect on the Company's
capital expenditures.
The Company's main supplier, Fleming Foods, has represented to the
Company that it is Year 2000 compliant with respect to its dealings with the
Company.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company are included (with an index
listing all the statements) in a separate financial section at the end of
this
Annual Report on Form 10-KSB.
ITEM 8. CHANGES AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Dismissal of Arthur Andersen
On March 20, 1998, the Company dismissed Arthur Andersen LLP ("Arthur
Andersen") as the principal accountant to audit the Company's financial
statements.
The reports of Arthur Andersen on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion, nor were such reports qualified or modified as to uncertainty,
audit scope or accounting principles.
The decision to dismiss Arthur Andersen was based on cost considerations
and the convenience of working with a firm closer to the Deming, New Mexico
area. The Company's Board of Directors approved the decision.
During the two most recent fiscal years and the subsequent interim
period
preceding March 20, 1998, there were no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen's satisfaction, would have caused Arthur Andersen to make reference
to the subject matter of the disagreement in connection with its report.
In June 1996, the Company made a dual appointment of William D. Kennon,
CPA and Arthur Andersen LLP as independent accountants of the Company. A
management letter was issued September 27, 1996, to the Company's Board of
Directors containing a reportable condition as a result of their audit of the
Company's financial statements at and for the fiscal year ended June 30,
1996. The reportable condition was that the Company did not have qualified
and competent executive level accounting/financial management personnel,
including a principal accounting/financial officer.
The management letter stated the following:
This has led to significant inadequacies in the following areas, among
others:
1. Preparation and review of timely and accurate financial information
(historical and budgeted)
2. Establishment, maintenance and enforcement of internal controls,
including policies and procedures.
3. Use of computerized systems to process and report accounting and
financial data.
4. Compliance with Securities and Exchange Commission requirements.
This material weakness, together with its numerous resultant problems,
inaccuracies, errors and control risks has been discussed previously in
detail
with the Board of Directors, Audit Committee and management of the Company.
The Company rectified the reportable condition in the following manner:
In October 1996, in response to Arthur Andersen's management letter
comment, the Board of Directors hired as the Company's Chief Financial
Officer
a CPA with twelve years experience in public, governmental, and private
industry accounting and a master's degree in business. The Company's
policies, procedures, and internal controls were reviewed. Policies and
procedures were implemented to establish, maintain and enforce internal
controls. The Company has reorganized its accounting department and its
management information system to provide timely and accurate information.
The Company has engaged competent experienced legal and accounting
professionals to ensure compliance with Securities and Exchange Commission
reporting and disclosure requirements.
There were no fourth quarter audit adjustments made to the 1996
financial
statements by the auditors that would have a material effect on prior
quarters
in 1996.
The Company has provided Arthur Andersen with a copy of this disclosure
and requested that Arthur Andersen furnish the Company with a letter
addressed
to the Securities and Exchange Commission (the "Commission") stating whether
it agrees with this disclosure. A copy of the letter from Arthur Andersen to
the Commission is filed as Exhibit 16.1 to this Report.
Engagement of Torres, Jones & Company P.C.
On June 26, 1998, the Company engaged Torres, Jones & Company, P.C. as
the principal accountants to audit the Company's financial statements.
During
the two most recent fiscal years and following interim period, the Company
did
not consult Torres, Jones& Company regarding the application of any
accounting
principals to a specific transaction, an audit opinion or any matter that was
the subject of a disagreement of event identified in Regulation S-B, Item
304(a)(1)(iv).
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS;
COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.
Pursuant to General Instruction E(3), the information required by this
item is incorporated by reference herein to the "ELECTION OF DIRECTORS"
section in the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission on or
about October 1, 1998.
Executive Officers of the Company
The executive officers of the Company who are not also directors of the
Company are as follows:
Name Age Position
Garry S. Carter 54 Chief Executive Officer, General Manager
C. Diane Carter 53 Principal Accounting Officer
Garry S. Carter has been Chief Executive Officer and General Manager of
the Company and Board Secretary since February 28, 1997. 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. Garry Carter is the spouse of Diane Carter.
Diane Carter has been the principal accounting officer of the Company
since October, 1996. Prior to joining the Company, Mrs. Diane Carter was the
Assistant Controller for Howard County Junior College District. Diane Carter
is the spouse of Garry Carter.
ITEM 10. EXECUTIVE COMPENSATION.
Pursuant to General Instruction E(3), the information required by this
item is incorporated by reference herein to the "Executive Compensation"
section in the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission
concurrently with this Annual Report on Form 10-KSB.
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Pursuant to General Instruction E(3), the information required by this
item is incorporated by reference herein to the "COMMON STOCK OWNERSHIP OF
DIRECTORS AND EXECUTIVE OFFICERS" section in the Company's Proxy Statement
for
its 1998 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission concurrently with this Annual Report on Form 10-KSB.
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.
(a) List of Exhibits
Exhibit Number
3.1 Articles of Incorporation, as amended to the date of this report
(incorporated by reference to the Company Registration Statement filed in
1985)
3.2 Bylaws of the Company, as currently in effect (incorporated by
reference to the Company's Registration Statement filed in 1985)
4.1 Specimen certificate representing the Company's Common Stock
(incorporated by reference to the Company's Registration Statement filed
in 1985).
10.1 Assignment and Assumption of Lease with K-Mart Corporation
dated December 1994.
16.1 Letter on change in certifying accountant.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
1. A Form 8-K/A was filed on May 15, 1998 regarding the dismissal of
Arthur Andersen as the Company's accountants.
2. A Form 8-K was filed on June 26, 1998 regarding the engagement of
Torres, Jones & Company, P.C. as the Company's independent accountants. See
Item 8 for more information.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors Report
Balance Sheets
Statement of Operations
Statement of Stockholders Equity
Statement of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders
Mimbres Valley Farmers Association, Inc.
d.b.a. Farmers, Inc.
We have audited the balance sheet of Mimbres Valley Farmers Association,
Inc.,
d.b.a. Farmers, Inc. (a New Mexico corporation), as of June 30, 1998, and the
related statements of operations, shareholders' equity, and cash flows for
the
year then ended. These financials statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Mimbres
Valley Farmers Association, Inc., d.b.a. Farmers, Inc., as of June 30, 1997,
were audited by other auditors whose report dated September 22, 1997,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and preform 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 accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1998 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, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Torres, Jones & Company
TORRES, JONES & COMPANY
A Professional Corporation
6040 Surety Drive
El Paso, TX 79905
September 25, 1998
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
BALANCE SHEETS
June 30, 1998 and 1997
<CAPTION>
ASSETS
CURRENT ASSETS:
1998 1997
<S>
<C> <C>
Cash and equivalents $ 392,092 $
414,538
Accounts receivable, net of allowance
for doubtful accounts of
$25,000 and $36,168
Trade
127,699 258,841
Related parties
4,651 14,531
Inventories
1,232,669 1,871,922
Prepaid expenses
61,074 97,659
Note receivable--supplier
11,741 ------
Income taxes receivable
- ----- 23,950
Deferred income tax asset 240,100
454,449
Total current assets 2
,070,026 3,135,890
PROPERTY AND EQUIPMENT, net 1,746,749 2,040,264
OTHER NON-CURRENT ASSETS:
Note receivable-supplier
47,926 59,667
Investments in supplier
78,400 71,629
Other Assets
37,016 ------
Other non-current assets, net 163,342
131,296
Total assets
3,980,117 5,307,450
The accompanying notes to
financial statements are an
integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
BALANCE SHEETS
June 30, 1998 and 1997
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 1998
1997
<S>
<C> <C>
Accounts payable 503,988
1,205,396
Current portion of long-term
debt and capital leases
141,954 249,509
Accrued expenses payable 163,915
219,070
Total current liabilities
809,857 1,673,975
NON-CURRENT LIABILITIES:
Deferred income taxes
239,469 224,814
Long-term debt and capital leases,
less current portion
1,543,339 1,663,863
Total non-current liabilities 1,782,808
1,888,677
Total liabilities
2,592,665 3,562,652
SHAREHOLDERS' EQUITY:
Common stock, $25 par value,
500,000 authorized:
13,910 issued and 13,776 outstanding 347,750 347,750
Retained earnings 1,043,052
1,400,398
Less:134 shares of treasury stock (3,350)
(3,350)
Total shareholders' equity 1,387,452
1,744,798
Total liabilities and
shareholders' equity 3,980,117
5,307,450
The accompanying notes to
financial statements are
an integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1998 and 1997
<CAPTION>
1998 1997
<S>
<C> <C>
NET SALES AND GROSS REVENUE 15,521,847 19,103,199
COST OF SALES 12,336,511
15,323,385
Gross profit
3,185,337 3,779,814
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,597,593 4,686,171
OPERATING LOSS (412,257)
(906,357)
OTHER INCOME (EXPENSE):
Other income
180,633 211,885
Interest expense
(207,112) (215,976)
Loss before income tax benefit (438,736)
(910,448)
INCOME TAX BENEFIT (81,390)
(342,098)
Net loss
(357,346) (568,350)
Net loss per common share
(25.94) (41.26)
The accompanying notes
to financial statements
are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended June 30,1998 and 1997
<CAPTION>
Total
Common Retained Treasury
Shareholders'
Stock Earnings
Stock Equity
<S> <C> <C>
<C> <C>
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
Net loss
(357,346) (357,346)
BALANCE, JUNE 30,1998 347,750 1,043,052 (3,350) 1,387,452
The accompanying notes to
financial statements are
an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a FARMERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<CAPTION>
1998 1997
<S>
<C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss
(357,346) (568,350)
Adjustments to reconcile net loss
to net cash provided by
operating activities;
Depreciation and amortization 284,257
307,998
Obsolete equipment expense
52,846 -
Provision for uncollectible
accounts receivable
16,424 50,168
Changes in assets and liabilities:
Accounts receivable, net 124,598
183,095
Inventories
639,253 991,396
Prepaid expenses
36,585 8,710
Income taxes receivable
- - 227,170
Deterred income taxes 252,954
(267,172)
Deposits
(37,016) -
Accounts payable (701,408)
(353,453)
Accrued expenses (55,155)
(111,263)
Net cash provided by operating
activities
255,992 468,299
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property and equipment (66,558) (74,526)
Proceeds from sale of
property and equipment 22,970
46,470
Increase in investment in supplier (6,771)
(3,578)
Net cash used for investing activities (50,359)
(31,634)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings on long-term debt
and capital
leases
305,649
Borrowings on short-term debt 180,097
Repayment of long-term debt
and capital leases
(408,176) (620,939)
Net cash used by financing activities (228,079) (315,290)
INCREASE (DECREASE) IN CASH (22,446) 121,375
CASH at beginning of year 414,538
293,163
CASH at end of year 392,092
414,538
SUPPLEMENTAL DISCLOSURES
OF CASH FLOWS INFORMATION:
Cash paid for interest
207,112 208,522
Cash paid for income taxes,
net of refunds received (334,345)
(300,777)
The accompanying notes to
financial statements are
an integral part of these
statements.
</TABLE>
<PAGE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
d.b.a. FARMERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. 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.
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, 1998 and 1997, advertising expense was $133,672 and $253,278
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.
Reclassification
Certain prior year balances have been reclassified to conform to the 1998
financial statement presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment as of June 30, 1998 and 1997, consist of the
following:
1998 1997
Furniture, fixtures
and equipment 2,685,171 2,806,693
Buildings 2,417,468 2,416,082
Land 80,203 80,203
5,182,842 5,302,978
Less: Accumulated
depreciation
and amortization (3,436,093) (3,262,714)
1,746,749 2,040,264
3. NOTES RECEIVABLE-SUPPLIER:
The notes receivable-supplier at June 30, 1998 and 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:
<TABLE>
Investments in supplier, at cost, as of June 30, 1998 and 1997, consist of
the
following :
<CAPTION>
1998 1997
<S> <C> <C>
693 shares of Class B
non-voting stock 71,400 70,610
10 shares of Class A
voting stock 6,000 1,019
20 shares of voting
Common Stock 1,000 ---
78,400 71,629
</TABLE>
Farmers terminated its agreement with one of its suppliers in June 1998. All
Class A and B stock was transferred to the supplier in return for its
promissory notes payable from the supplier over five years.
The Class B stock of the supplier was received as patronage dividends. None
of the stock shown as investments in supplier is readily marketable.
5. LONG-TERM DEBT AND CAPITAL LEASES:
<TABLE>
Long-term debt and capital leases as of June 30, 1998 and 1997 consist of the
following :
<CAPTION>
1998 1997
<S>
<C> <C>
Fixed rate note payable to Norwest Bank ("Bank"), 1,480,224 1,535,982
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.
Variable rate note payable to Bank, due in 34,675
174,678
monthly installments of $1,675 plus interest.
(9.25% and 9.50% at June 30, 1998 and 1997)
secured by real estate mortgages, inventory,
and accounts receivable.
Capital leases, net
100,923 111,748
Notes payable to Supplier, due in
69,471 90,964
monthly installments ranging from $272 to
$2,322. Interest rates ranging from 9.25%
to 10.50%, secured by equipment and
notes receivable-supplier
1,685,293 1,913,372
Less: Current portion
141,954 249,509
1,543,339 1,663,863
</TABLE>
Future maturities of long-term debt and capital leases as of June 30, 1998
are
as follows:
1999 141,954
2000 146,991
2001 1,393,671
2002 2,677
Total 1,685,293
Certain of the notes payable to a Bank require the Company to comply with
debt
covenants at June 30, 1998 and 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 1998
and (d) profitable operations by December 31, 1996. The Company is not in
compliance with several of its debt covenants at June 30, 1998 and 1997.
Consistent with the prior year, the Company has obtained a waiver from the
Bank for all exceptions to its debt covenants through October 1, 1998.
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 $44,446 and
$113,551 as of June 30, 1998 and 1997 respectively.
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,
1998
are as follows:
1999 $ 110,000
2000 110,000
2001 110,000
2002 82,503
Total future minimum rental payments $ 412,503
7. OTHER INCOME (EXPENSE)
<TABLE>
Other income (expense) as of June 30,
1998 and 1997 consists of the following:
<CAPTION>
1998 1997
<S> <C> <C>
Rental of retail space 78,690 47,932
Check cashing fees 17,190 32,419
Western Union commissions 36,956 31,586
Other, net 100,643 99,948
Obsolete equipment expense ( 52, 846) ----
Total other income, net 180,633 211,885
</TABLE>
8. RENTAL INCOME:
The Company leases retail space to customers with terms generally ranging
from
1 to 10 years. The leases generally contain provisions for renewal options
of
5 to 10 years.
The future minimum rental payments on retail rental space that have initial
or
remaining non-cancelable lease terms in excess of one year as of June 30,
1998
and 1997 are as follows:
1999 $ 71,076
2000 61,476
2001 45,474
2002 29,472
2003 10,872
Thereafter 6,342
Total future minimum rental payments $224,712
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. 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, 1998 and 1997,
two such suppliers accounted for 77% and 74% of inventory purchases,
respectively. In addition, a certain related party of the Company is a
guarantor for amounts outstanding to certain major suppliers.
12. MANAGEMENT'S PLANS FOR FUTURE OPERATIONS (UNAUDITED)
The Company incurred operating losses and violated its debt covenants in the
preceding year. The Company's viability as a going concern is dependent upon
several factors:
Restructuring fixed operating expenses in relation to the overall decline in
gross sales
Improving its product profit margins and inventory turn
Identifying unprofitable products, services or locations
Discontinuing such unprofitable ventures while continuing the 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
1999.
They attribute this to the following factors:
In fourth quarter of fiscal year 1998, the Company returned its hardware
store
to its original location adjacent to the supermarket in an effort to stop
continued operating losses. The move continues to involve certain risks.
Farmers is obligated under its lease on the building until the year 2002. In
addition, there is no assurance the hardware store will return to its
original
profitability at its new location.
The Company is in the process of removing all excess inventory and fixtures
from its Highway 70/80 location (KMART Building) and expects to be totally
out of the building by the end of the first quarter. The Company will make
every effort to lease the building to potential tenants for the remainder of
its lease, which matures in the Year 2002.
The Company was able to reduce its Selling, General and Administrative
expenses by $1,032,377 in fiscal year 1998. Substantial savings resulted
from
the implementation of a purchase order system in mid 1997.
The Company installed a new financial computer system in mid 1998. It
provides more timely and accurate information resulting in continuous review
of operating expense.
The Company installed a new point of sale computer system in the IGA
Supermarket. The system provides improved product sales information,
improved
inventory controls and expands the store's ability to produce in-store
signage.
The Company is reviewing the possibility of refinancing its long-term debt in
an effort to reduce its interest expense and improve the Company's liquidity
by reducing its annual debt service requirements by expanding the maturity of
the Company's mortgage debt.
13. INCOME TAXES
<TABLE>
Components of the net deferred income tax asset and liability at June 30,
1998
and 1997 are as follows:
<CAPTION>
1998 1997
<S>
<C> <C>
Deferred income tax assets:
Net operating loss carryback and carryover 267,619 385,203
Inventory method change 62,493
92,995
Inventory capitalization 22,063
26,265
Allowance for doubtful accounts 7,875
13,563
Other
3,145 9,155
Deferred income tax asset 363,195
527,181
Valuation allowance (123,095)
(72,732)
Deferred income tax asset,
net of valuation allowance 240,100
454,449
Deferred income tax liability related to
depreciation
(239,469) (224,814)
</TABLE>
The Company had prior and current year losses for federal tax purposes of
approximately $703,000, which will be carried forward resulting in a deferred
tax asset of $197,061. The Company had prior and current year losses for
state tax purposes of approximately $2,015,000, which will be carried forward
resulting in a deferred tax asset of $70,558. Due to recent operating
losses,
a valuation allowance has been recorded to adjust the federal and state
deferred tax asset.
<TABLE>
The income tax benefit consists of the following for the fiscal years ended
June 30, 1998 and 1997:
<CAPTION>
1998 1997
<S> <C> <C>
Deferred income tax benefits:
Federal (65,994) (310,169)
State (15,396) (31,929)
Total (81,390) (342,098)
</TABLE>
<TABLE>
The income tax benefit is reconciled with the expected Federal statutory
rates
for the years ended June 30, 1998 and 1997, as follows:
<CAPTION>
1998 1997
<S> <C> <C>
Provision computed
at Federal statutory rate (107,772) (309,552)
State taxes net Federal benefit (15,396) (21,031)
Non-deductible meals
and entertainment ------ 2,040
Recovery of previously paid taxes ------ (74,926)
Valuation allowance 50,363 72,732
Other ( 8,585) (11,361)
Total (81,390) (342,098)
</TABLE>
<TABLE>
The Company has net operating loss and contributions carryovers to offset
future income tax. If not used, these credits will expire as follows:
<CAPTION>
Federal
Years Ending Contributions Net Operating Loss Total
<S> <C> <C>
<C>
2001 2,202
- ---- 2,202
2002 5,862
- ---- 5,862
2003 1,919
- ---- 1,919
2012 ---
71,485 71,485
2013 ---
632,307 632,307
Total 9,983 703,792
713,775
</TABLE>
14. YEAR 2000
The Company has conducted a review of its computers systems to identify the
systems that could be affected by the Year 2000 issue. The Year 2000 is
terminology used to describe the effect of computer programs using two digits
(rather than four) to define the applicable year. Any of the Company's
programs utilizing date sensitive software could recognize the year "00" as
1900 rather than the year 2000. This could result in a major computer system
failure or malfunction.
The Company presently believes that, with modifications to existing software
and conversion to new software and replacement of some equipment, the Year
2000 problem will not pose a significant operational problem for the
Company's
information systems as so modified and converted. However, if such actions
are not timely completed, the arrival of the year 2000 may have a material
impact on the Company's ability to accurately process data.
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 28, 1998.
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
By /s/ Garry S. Carter
Garry S. Carter, Chief Executive Officer
By /s/ C. Diane Carter
C. Diane Carter, Principal Accounting
Officer
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.
/s/ V. Leone Anderson September 28, 1998
V. Leone Anderson, Director
/s/ Jim T. Hyatt September 28, 1998
Jim T. Hyatt, Director
/s/ William R. Johnson, III September 28, 1998
William R. Johnson, III, Director
/s/ James E. Keeler September 28, 1998
James E. Keeler, Director,
/s/ Judy Phillips September 28, 1998
Judy Phillips, Director
/s/ Gary Shiflett September 28, 1998
Gary Shiflett, Director
/s/ Douglas Tharp, September 28, 1998
Douglas Tharp, Director
/s/ Garry S. Carter September 28, 1998
Garry S. Carter, Chief Executive Officer
/s/ C. Diane Carter September 28, 1998
C. Diane Carter, Principal Accounting Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Nature of Exhibit
<S> <C> <C>
3.1 Articles of Incorporation Incorporated
by reference
3.2 Bylaws
Incorporated by reference
4.1 Specimen of Stock Certificate Incorporated by
reference
10.1 Lease of K-Mart Building Filed Herewith
at Highway 70-80 East
16.1 Letter on Change in Filed
Herewith
Certifying Accountant
27 Financial Data Schedule Filed Herewith
</TABLE>
/* WordPerfect WARNING - No Equivalent EDGAR Representation */
/* WordPerfect Structure - Footer B Beginning */
12204.00100/MHEN/MISC-3/E629364.1
/* WordPerfect Structure - Footer B Ending */
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT, made as of December 1994, between K-MART CORPORATION, a
Michigan corporation (formerly known as S.S Kresge Company) with an address
at
3100 West Big Beaver Road, Troy, Michigan 48084 ("Assignor"), and MIMBERS
VALLEY FARMERS ASSOCIATION, INC., a New Mexico corporation doing business as
"Farmers, Inc.," with an address at 811 South Platinum, Deming, New Mexico
88030 ("Assignee").
Recitals:
A. Pursuant to Lease, dated March 14, 1977, between C & W Manhattan
Associates ("C&W") and Assignor, as amended by the First Modification of
Lease, dated September 23, 1977 (collectively, the "Lease"), Assignor leases
approximately 40,000 square feet of building space together with the parcel
of
property in the City of Deming, Luna County, New Mexico, more particularly
described in Exhibit A hereto and depicted on Exhibit B hereto (collectively,
the "Premises ") . A Memorandum of the Lease was recorded at page 570 of
Book
112 of Deeds in the Luna County Records. The party holding the interest of
the Landlord under the Lease from time to time is herein referred to as the
"Landlord."
B. The Premises is operated as part of an integrated shopping center
described in Exhibit A-1 hereto and depicted on Exhibit B pursuant to Deed of
Declaration, by C&W, dated August 11, 1977 and recorded at page 157 of Book
114 of Deeds in the Luna County Records, as amended by Addendum, by C&W,
dated
February 2, 1978, and pursuant to Mutual Grant of Cross-Easements, between
James A. and Mary B. Peterson, Earl McLain and C&W, dated April 14, 1981 and
recorded and recorded at page 488 of Book 143 of Deeds in the Luna County
Records (collectively, the "Easement Agreements"). The property described in
Exhibit A-1, including the Premises, and all buildings and improvements
thereon is herein collectively referred to as the "Shopping Center."
C. Assignor desires to assign its interest in and to the Lease to
Assignee and Assignee desires to assume the Lease from Assignor upon the
terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the Premises, the Lease and the
mutual promises contained herein, the parties covenant and agree as follows:
1. (a) Effective on the date Assignor tenders to Assignee the
Premises (the "Effective Date"), Assignor assigns to Assignee all of
Assignor's right, title and interest in and to the Lease, except that
Assignee
shall have no right to exercise the options to extend the term of the Lease
provided in Article 12, subsections (g) through (1), of the Lease, which
options are hereby reserved to Assignor. Effective on the Effective Date,
Assignee accepts the assignment and assumes the Lease and further covenants
and agrees to pay, perform and abide by all of the covenants, terms,
conditions, agreements and other obligations to be performed, paid or
observed
under the Lease or the Easement Agreements.
(b) The foregoing notwithstanding, if Assignee delivers to
Assignor an instrument acceptable to Assignor, executed by Landlord, which
releases Assignor from all liability under the Lease from and after the
expiration of the extended term of the Lease described in Article 12,
subsection (f), of the Lease, then Assignor shall thereupon assign to
Assignee
the options to extend the term of the Lease provided in Article 12,
subsections (g) through (1), of the Lease.
(c) Assignor agrees to tender possession of the Premises to
Assignee with Assignor's signs, fixtures and equipment removed on or before
December 31, 1995.' If Assignor does not tender possession of the Premises to
Assignee by December 31, 1995, then Assignee may, at its option and as its
sole and exclusive remedy, terminate this Assignment, whereupon neither party
will have any further rights or liabilities under this Assignment and each
party hereby thereupon releases and discharges any claim, demand or liability
against the other arising from, pertaining to or involving this Assignment,
the Premises or the Shopping Center.
2. The Lease, the Premises and the Shopping Center are assigned to
Assignee in their then condition by Assignor, without representation or
warranty, express or implied, subject and subordinate to the Easement
Agreements and all other easements, restrictions, encumbrances and recorded
matters affecting the Premises or the Shopping Center, all taxes not yet due
and payable, and all applicable zoning rules, restrictions, regulations,
resolutions and ordinances and building restrictions and governmental
regulations now or hereafter in effect. Assignee has examined the Lease, the
Premises and the Shopping Center and the title to each and has found the same
satisfactory.
BY EXECUTION OF THIS ASSIGNMENT, ASSIGNEE ACKNOWLEDGES AND AGREES
THAT IT HAS INSPECTED THE PREMISES AND THE SHOPPING CENTER AND SHALL ACCEPT
THE SAME ON THE EFFECTIVE DATE IN THEIR THEN "AS IS" AND "WHERE IS"
CONDITION. ASSIGNEE ACKNOWLEDGES AND AGREES THAT NEITHER ASSIGNOR NOR ITS
AGENTS OR EMPLOYEES HAS MADE ANY EXPRESS WARRANTY OR REPRESENTATION REGARDING
THE CONDITION OF THE PREMISES OR THE SHOPPING CENTER, THE QUALITY OF MATERIAL
OR WORKMANSHIP OF THE PREMISES, LATENT OR PATENT, OR THE FITNESS FOR ANY
PARTICULAR USE OF THE PREMISES OR THE SHOPPING CENTER AND THAT NO SUCH
WARRANTY OR REPRESENTATION SHALL BE IMPLIED BY LAW OR EQUITY, IT BEING AGREED
THAT ALL SUCH RISKS ARE TO BE BORNE BY ASSIGNEE.
ASSIGNOR MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE
NECESSITY (OR LACK OF NECESSITY) FOR OR AVAILABILITY OF ANY PERMITS,
LICENSES,
OR OTHER GOVERNMENTAL AUTHORIZATIONS IN ORDER TO MODIFY OR ALTER THE PREMISES
OR TO OPERATE THE PREMISES FOR THE USES INTENDED BY ASSIGNEE, IT BEING AGREED
THAT ALL SUCH RISKS ARE TO BE BORNE BY ASSIGNEE.
3. Any rent, charges or other sums paid or payable by "Tenant" under
the Lease shall be prorated between Assignee and Assignor as of the Effective
Date. All real estate taxes and assessments payable by "Tenant" under
Article
4 of the Lease shall be prorated as of the Effective Date based on the fiscal
year of the taxing authority. Assignee shall arrange, at its cost, to have
the accounts for all utility services which are furnished to the Premises
placed in the name of Assignee. If Assignee fails to cause the transfer of
such utility service accounts and Assignor is billed therefor and pays the
same, Assignee agrees to pay to Assignor the amount of such bill or bills
plus
twenty-five percent (25%) of such bill or bills, which the parties hereby
acknowledge and agree is a fair and reasonable estimate of the administrative
costs which will be incurred by Assignor as a result of Assignee's failure,
the actual amount being impossible or extremely impracticable to ascertain.
4. Except as to claims regarding the physical or environmental
condition of the Premises or of which the Assignee had actual knowledge on
the
date hereof, Assignor shall defend (with counsel reasonably acceptable to
Assignee), indemnify and hold harmless Assignee, its successors and assigns,
from and against any and all damage, loss, liability, claim, cost, expense,
action and cause of action, including, without limitation, attorneys' fees
and
the reasonable cost of investigation, incurred by or asserted against
Assignee, its successors and assigns, accruing under the Lease prior to the
Effective Date or arising from or pertaining to Assignor's use, occupation,
maintenance or alteration of the Premises or the Shopping Center accruing
prior to the Effective Date. Assignee shall defend (with counsel reasonably
acceptable to Assignor), indemnify and hold harmless Assignor, its successors
and assigns, from and against any and all damage, loss, liability, claim,
cost, expense, action and cause of action, including, without limitation,
attorneys' fees and the reasonable cost of investigation, incurred by or
asserted against Assignor, its successors and assigns, accruing under the
Lease or the Easement Agreements or arising from or pertaining to Assign eels
use, occupation, maintenance or alteration of the Premises or the Shopping
Center.
5. In addition to Assignee's agreement to perform and abide by the
covenants and obligations of the Lease and the Easement Agreements as set
forth herein, Assignee covenants and agrees with Assignor as follows:
(a) Assignee shall not use the Premises nor permit the Premises
to be used, directly or indirectly, for: a massage parlor, adult book store
or
pornographic display of any nature; gas station, auto service or repair
center; junk yard or dump; dry cleaner; industrial purposes; or any use
involving the operation of an above or below ground storage tank or the use
or
sale on the Premises of hydrocarbons, petrochemicals, asbestos, or any toxic,
hazardous or explosive substance.
(b) Assignee shall obtain and maintain during the term of the
Lease, at its own expense, a policy for comprehensive, general public
liability insuring against any cost, loss, damage or expense, incurred by
reason of any claim, suit, liability or demand whatsoever for death, personal
injury or property damage arising out of, pertaining to or involving the
Lease
and Assignee's use, occupation, maintenance or alteration of the Premises or
the Shopping Center in the minimum amounts of $2,000,000 for bodily injury or
death to any one person, $3,000,000 for bodily injury death to any number of
persons in any one incident, and $1,000,000 for property damage, with regard
to each such claim, suit, liability or demand. Such insurance shall be
effected under valid and enforceable policies issued by insurers of
recognized
responsibility, licensed to do business in New Mexico, and shall name
Assignor
as an additional insured. Such policy shall also provide that it will not be
canceled or materially amended without at least thirty (30) days prior
written
notice to Assignor and Assignee. Such policy shall not require Assignee or
Assignor to pay any portion of any loss, damage or a claim prior to payment
by
the insurer. A certificate of such insurance shall be delivered to Assignor
on the date this Assignment is executed by both parties and thereafter not
less than fifteen (15) days prior to the expiration date of such policy.
(c) If any alteration shall be desired to the Premises pursuant
to Article 15 of the Lease or Assignee is obligated to restore the Premises
pursuant to Article 19 of the Lease, then Assignee agrees that: (i) prior to
commencing any such alteration or restoration, Assignee shall obtain
Assignor's written consent to complete plans and specifications for each
alteration or restoration, which consent shall not be unreasonably withheld;
(ii) construction thereon shall not unreasonably interfere with the operation
or use of the remainder of Shopping Center or interfere with, hinder or
prevent access to and from the Shopping Center; (iii) prior to commencing any
such alteration or restoration, Assignee shall obtain and deliver to Assignor
a bond payable to Assignor securing Assignee's completion of such alteration
or restoration, without lien or cost to Assignor or the Premises, in
accordance with the approved plans and specifications, which bond shall be in
the amount of one-and-one-half times the estimated cost to complete such
alteration or restoration; and (iv) Assignee shall not construct any addition
to or additional building or structure on the Premises nor make any
structural
alteration to the Premises. Upon completion, Assignee shall deliver complete
as-built plans and specifications for such alteration or restoration. All
submissions to Assignor pursuant to this Section 6(b) shall be delivered to
Assignor's Construction Department, Design Division, marked "Attention:
Criteria Administrator."
(d) Assignee covenants and agrees that it shall not assign or
transfer the Lease or Assignee's interest therein nor sublet the Premises or
part thereof without the written consent of Assignor, which consent shall be
in Assignor's sole and unfettered discretion. In any event, Assignee
covenants and agrees not to assign the Lease or sublet the Premises to any
federal or state Governmental agency, body or entity or enter into any loan
or
agreement which could in any circumstance permit a federal or state
governmental agency, body or entity to succeed Assignee as the tenant or
occupant of the Premises. Any assignment, transfer or subletting not in
conformance with this Section 6(c) shall be void and of no effect. For
purposes of this Section only, the terms, "assign" and "transfer," shall
include entering into any mortgage, deed of trust or other lien secured by
the
interest of Assignee in the Lease or the Premises.
6. Assignor represents and warrants to Assignee that: (i) it is in
good standing under the laws of Michigan and is authorized to do business in
New Mexico; (ii) it has the full right, power and authority to enter into
this
Assignment without the prior consent of any person, corporation or
governmental entity; (iii) the execution of this Assignment is authorized
pursuant to Assignor's Bylaws and constitutes the binding obligation of
Assignor; (iv) the assignment of the Lease will not conflict with or cause
the
breach of Assignee's Bylaws or Articles of Incorporation or any agreement to
which Assignee is or may be bound; (v) to the best of its knowledge, the
Lease
is in full force and effect and Assignor is not in default under the Lease;
(vi) Assignor has not assigned the Lease nor sublet the Premises to any party
other than Assignee; and (vii) the initial term of the Lease described in
Article 2 of the Lease expires November 30, 2002.
Assignee represents and warrants to Assignor that: (i) it is a
corporation in good standing under the laws of New Mexico and has the power
to
own its own property and is authorized to do business in New Mexico; (ii) the
execution of this Assignment and the performance and observance of the Lease
and the Easement Agreements was authorized pursuant to valid resolution of
Assignee's Board of Directors and constitutes the binding obligation of
Assignee; (iii) it has the full right, power and authority to enter into this
Assignment without the prior consent of any other person, corporation or
governmental entity; and (iv) the execution of this Assignment and the
performance and observance of the Lease and the Easement Agreements will not
conflict with or cause the breach of Assignee's Bylaws or Articles of
Incorporation or any agreement to which Assignee is or may be bound.
7. If: Assignee fails to perform or pay any obligation under any
provision of the Lease, the Easement Agreements or this Assignment and shall
not remedy such failure within twenty (20) days of notice from Assignor or
Landlord, whichever first occurs; or Assignee files for bankruptcy or is
adjudicated a bankrupt or insolvent or makes a general assignment for the
benefit of creditors, then Assignor may, in addition to. any other remedy or
indemnity it may have at law or equity or under this Assignment: (a) remedy
such default on behalf of Assignee and Assignee shall reimburse Assignor for
all costs thereof within ten (10) days of receipt of Assignor's statement,
which amount shall bear interest at the annual rate of four percent (4%)
above
the prime rate last announced in the Wall Street Journal, or the highest rate
permitted by law, whichever is less, from the date due until paid; and/or (b)
terminate this Assignment and require Assignee to re-assign the Lease to
Assignor, subject to no liens or other encumbrances, whereupon Assignee shall
immediately surrender the Premises to Assignor and remove its fixtures,
equipment and personal property from the Premises, repairing any damage
caused
thereby; and/or (c) reenter the Premises by summary proceedings, ejectment or
other lawful manner and expel Assignee, and re-assign the Lease or sublet the
Premises at such rent and on such terms as Assignee shall determine in its
sole discretion and receive the benefits therefrom; provided, with regard to
any remedy set forth in this Section 9, Assignee shall remain liable for the
difference between the amount of rent and other charges under the Lease
assumed in such re-assignment or subletting (after deducting therefrom all
costs, including attorneys' fees, for obtaining possession of the Premises
and
any repairs or alterations necessary to re-assign the Lease or sublet the
Premises) and the rent and other charges assumed by Assignee hereunder. In
the event Assignee shall be required to reassign the Lease or is expelled,
Assignee covenants and agrees to execute and deliver to Assignor any and all
documents reasonably necessary to re-assign the Lease and deliver the
Premises
to Assignor, and, if Assignee fails or refuses to execute and deliver such
documents to Assignor, Assignee hereby irrevocably appoints Assignor as its
true and lawful attorney, in Assignee's name and stead and on its behalf, for
the purpose of executing and delivering such documents on behalf of
Assignee.
No re-entry to the Premises shall be construed as a termination of this
Assignment unless Assignor shall deliver to Assignee written notice of such
intention. Regardless of the exercise of any remedy, in the event of default
by Assignee as described above, Assignee covenants and agrees to pay to
Assignor any cost, loss or expense (together with interest thereon at the
annual rate of four percent (4%) above the prime rate last announced in the
Wall Street Journal, or the highest rate permitted by law, whichever is less)
incurred by Assignor as a result of Assignee's default, including, without
limitation, actual attorneys' fees and the reasonable costs of investigation.
8. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given on the date
received when mailed by registered or certified mail, return receipt
requested, with postage pre-paid: (a) if to Assignor, to the address set
forth
above, marked "Attention: Vice President-Real Estate"; or (b) if to Assignee,
to the address set forth above, marked Attn: Mr. Kenny Stevens; or to such
other addresses as shall be furnished in writing by either party to the
other. The name and address of the Landlord last provided to Assignor for
notices was: Silver City Partners at c/o Parkemore Management Corporation,
539
Versailles Drive, Maitland, Florida 32751, and the payee name and address for
the payment of rent under the Lease last provided to Assignor was: Silver
City
Partners at C/o Parkemore Management Corporation, P.O. Box 500, Chadds Ford,
Pennsylvania 19317.
9. Subject to Section 6(d), all terms, conditions and provisions of
this Assignment shall be covenants running with the Premises, or any part
thereof, and all rights and interests therein, and shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
assigns of Assignor and Assignee.
10. This Assignment constitutes the entire agreement between the
parties with regard to the Lease, the Shopping Center and the Premises. Any
prior negotiations, agreements or other writings (except for the short form
described in Section 15) pertaining to the subject matter of this Assignment
are merged herein and extinguished. This Assignment shall be construed under
the laws of New Mexico. This Assignment is the product of negotiation and
the
parties agree that it shall be in accordance with its fair and apparent
meaning and not for or against either party. If any part of this Assignment
shall be found to be invalid or unenforceable, the remainder of the
Assignment
shall be enforceable in accordance with its terms, deleting such
unenforceable
or invalid provisions.
11. This Assignment shall not be recorded. Simultaneously with
execution of this Assignment, the parties shall execute a short form notice
of
the assignment of the Lease, which shall be held in escrow by Assignor. Upon
determination of the Effective Date and if this Assignment is not terminated
pursuant to Section 1(c), the parties direct Assignor to fill in the
Effective
Date on page one of such short form and record it, the cost of recording to
be
shared equally between the parties and Assignee to pay any transfer or
conveyance tax which may be payable or assessed as a result of the assignment
of the Lease or the recording of the short form. If this Assignment is
terminated pursuant to Section 1(c), the parties direct Assignor to destroy
the copies of the short form.
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
day and year first above written.
WITNESSED: K-MART CORPORATION ("Assignor")
By:
Its:
MIMBRES VALLEY FARMERS ASSOCIATION, INC. ("Assignee")
By:
Its: President<PAGE>EXHIBIT A
A tract of land lying in the NE¼NE¼NE¼ Section 35, T.23
S., R.9 W., N.M.P.M., City of Deming, Luna County, New Mexico, more
particularly described as follows: Beginning at a point on the south right
of
way line of U.S. Highway 80, which point bears from the NE corner of said
Section 35 marked by a bolt, WEST along the north line of said Section 35 a
distance of 190.00 feet and S.O°15'48"E. parallel to the east line of
said
Section 35 a distance of 60.00 feet; thence S.O°15'48"E. along a line
parallel to the east line of said Section 35 a distance of 125.00 feet to a
point; thence EAST along a line parallel to the north line of said Section 35
a distance of 140.00 feet to a point; thence S.O°15'48"E. along a line
parallel to and 50.0 feet westerly from the east line of said Section 35 a
distance of 406.51 feet to the SE corner of this tract; thence WEST along a
line parallel to the north line of said Section 35 a distance of 342.92 feet
to the SW corner of this tract; thence NORTH along a line perpendicular to
the
north line of said Section 35 a distance of 531.50 feet to the NW corner of
this tract, a point on the south right of way line of said U.S. Highway 80;
thence EAST along said south right of way line, being parallel to and 60.0
feet south of the north line of said Section 35 a distance of 200.48 feet to
point of beginning. Said tract of land contains 3.7675 acres.<PAGE>EXHIBIT
A-1
A tract of land lying in the NE¼NE¼NE¼ Section 35, T.23
S., R.9 W., N.M.P.M., City of Deming, Luna County, New Mexico, more
particularly described as follows: Beginning at the northeast corner of this
tract, which point bears from the NE corner of said Section 35 marked by a
bolt, S.O°15'48"E. along the east line of said Section 35 a distance of
60.0 feet and WEST along a line parallel to the north line of said Section 35
a distance of 50.0 feet; thence S.O.°15'48"E. along a line parallel to
and
50.0 feet westerly from the east line of said Section 35 a distance of 531.51
feet to the southeast corner of this tract; thence WEST along line parallel
to the north line of said Section 35 a distance of 408.72 feet to point;
thence NORTH along a line perpendicular to the north line of said Section 35
a
distance of 30.0 feet to a point; thence WEST along a line parallel to the
north line of said Section 35 a distance of 94.20 feet to a point; thence
NORTH along a line perpendicular to the north line of said Section 35 a
distance of 501.50 feet to the northwest corner of this tract, a point on the
south right of way line of U.S. Highway 80; thence EAST along said south
right
of way line, being parallel to and 60.0 feet southerly from the north line of
said Section 35 a distance of 500.48 feet to point of beginning. Said tract
of land contains 6.0566 acres and all corners are marked by No. 5 steel rods.
<PAGE>EXHIBIT B
K-Mart # 9192
Deming, New Mexico
Parties
THIS LEASE made and entered into as of this 14th day of March, 1977
between C & W MANHATTAN ASSOCIATES, a Texas Limited Partnership having its
principal office at 3431 West Alabama, Houston, Texas 77027 (herein referred
to as "Landlord"), and S.S. KRESGE COMPANY, a Michigan corporation having its
principal office at 3100 West Big Beaver Road, Troy, Michigan 48084 (herein
referred to as "Tenant").
WITNESSETH: That in consideration of the rents, covenants and
conditions
herein set forth, Landlord and Tenant do hereby covenant, promise and agree
as
follows:
Demised
Premises
1. Landlord does demise unto Tenant and Tenant does take from
Landlord for the term hereinafter provided, and any extension thereof, the
following property: Tenant's completed building or buildings (designated K
mart and K mart Food); site improvements to be constructed, as hereinafter
specified, by Landlord at its expense, together with the land comprising not
less than Three and 76/100 (3.76) acres described in Exhibit "A," attached
hereto and made a part hereof, situated in the City of Deming, County of
Luna,
State of New Mexico, said building or buildings to be in the locations
depicted on Exhibit "B," attached hereto and made a part hereof, and of the
following dimensions:
K-Mart Store: 219 ft. + in Width by
183 ft. + in Depth........40,000 sq. ft. +
Said land, completed buildings and site improvements, together with all
licenses, rights, privileges and easements appurtenant thereto shall be
hereinafter collectively referred to as the "demised Premises."
Term
2. The term of this lease shall commence upon the "date of occupancy
by Tenant," as that term is defined in Article 10 hereof, and shall terminate
upon such date as shall be Twenty-five (25) years from the last day of the
month in which said date of occupancy by Tenant shall occur; provided,
however, the term of this lease may be extended as provided in Article 12
hereof. The phrase "lease term," as used in this lease, shall be the term of
this lease and any extension pursuant to said Article 12.
Annual
Rental
3. Tenant shall, during the lease term, pay to Landlord, at such
place as Landlord shall designate in writing from time to time, an annual
rental of One Hundred Ten Thousand and no/100 Dollars ($110,000.00) unless
abated or diminished as hereinafter provided, in equal monthly installments
on
the first day of each month, in advance, commencing upon the first day of the
lease term; provided, however, in the event the first day of the lease term
shall not be the first day of a calendar month, then the rental for such
month
shall be prorated upon a daily basis.
LETTER ON CHANGE OF CERTIFYING ACCOUNTANT
Dear Sir or Madam:
Arthur Andersen LLP and William D. Kennon, C.P.A., in a joint venture,
performed the audit for Mimbres Valley Farmers Association, Inc. d/b/a
Farmers, Inc. for the years ended December 31, 1996 and 1997. For the year
ended December 31, 1997 and 1996, Arthur Andersen LLP and William D. Kennon,
respectively, served as the principal auditor.
We have read Item 8 "Dismissal of Arthur Andersen" included in Form-10KSB
dated September 28, 1998 of Mimbres Valley Farmers Association, Inc. d/b/a
Farmers, Inc. to be filed with the Securities and Exchange Commission and are
in agreement with the statements contained therein.
Very truly yours,
/s/ Arthur Anderson LLP
Copies to
Mr. Garry Carter, General Manager
Mimbres Valley Farmers Association, Inc. d/b/a Farmers, Inc.
Mr.Steele Jones, Torres, Jones & Company, P.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30,
1998 AUDITED FINANCIAL STATEMENTS INCLUDED AS ITEM 7 TO FORM 10-KSB TO WHICH
THIS FINANCIAL DATA 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-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 392,092
<SECURITIES> 0
<RECEIVABLES> 127,699
<ALLOWANCES> 61,168
<INVENTORY> 1,232,669
<CURRENT-ASSETS> 2,070,026
<PP&E> 1,746,749
<DEPRECIATION> 284,257
<TOTAL-ASSETS> 3,980,117
<CURRENT-LIABILITIES> 809,857
<BONDS> 1,543,339
0
0
<COMMON> 347,750
<OTHER-SE> 1,043,052
<TOTAL-LIABILITY-AND-EQUITY> 3,980,117
<SALES> 15,521,847
<TOTAL-REVENUES> 15,702,480
<CGS> 12,336,511
<TOTAL-COSTS> 15,934,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,168
<INTEREST-EXPENSE> 207,112
<INCOME-PRETAX> (438,736)
<INCOME-TAX> (81,390)
<INCOME-CONTINUING> (357,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (357,346)
<EPS-PRIMARY> (25.94)
<EPS-DILUTED> (25.94)
</TABLE>
