U.S.SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1999.
Commission File Number 0-13963
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
NEW MEXICO 85-0054230
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification
No.)
811 South Platinum, Deming, New Mexico 88030
(505) 546-2769
Check whether the issuer (1) filed all reports required to
be filed by Section or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of November 14, 1999, 13,776 shares of Common Stock of
Mimbres Valley Farmers Association, Inc. ("Farmers" or the
"Company") were outstanding.
Transitional small business disclosure format: Yes No X
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
<CAPTION>
ASSETS
CURRENT ASSETS: SEPT. 30,
1999
JUNE 30, 1999
(unaudited) (audited)
<S> <C>
<C>
Cash and equivalents $ 515,134
$
430,619
Accounts receivable, net of allowance for doubtful
accounts of $4,000 and $25,000
Trade 118,873
181,895
Related parties 6,097
6,097
Other 4,737
4,737
Inventories 1,188,077
1,065,245
Prepaid expenses 66,040
93,078
Note receivable supplier 36,156
36,156
Deferred income tax asset 203,301
203,301
Total current assets 2,138,415
2,021,128
PROPERTY AND EQUIPMENT, net 1,339,402
1,396,319
OTHER NON-CURRENT ASSETS:
Investments in supplier 10,500
10,500
Other assets 14,816 14,816
Other non-current assets, net 25,316
25,316
Total assets $ 3,503,133
$
3,442,763
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: SEPT.
30, 1999 JUNE 30, 1999
(unaudited)
(audited)
<S> <C>
<C>
Accounts payable $ 912,535
$699,751
Current portion of long-term debt and capital leases 91,743
91,743
Accrued expenses payable 173,888
160,565
Total current liabilities 1,178,166
952,059
NON-CURRENT LIABILITIES:
Deferred income taxes 202,670
202,670
Long-term debt and capital leases, less current portion 1,333,838
1,357,018
Total non-current liabilities 1,536,508
1,559,688
Total liabilities 2,714,674
2,511,747
SHAREHOLDERS' EQUITY:
Common stock, $25 par value: 500,000 authorized;
13,910 issued and 13,776 outstanding 347,750
347,750
Retained earnings 444,059
586,616
Less: 134 shares of treasury stock (3,350)
(3,350)
Total shareholders' equity 788,459
931,016
Total liabilities and shareholders' equity $ 3,503,133
$
3,442,763
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
UNAUDITED
<CAPTION>
1999 1998
<S> <C>
<C>
NET SALES AND GROSS REVENUE $ 3,374,994
$
3,463,358
COST OF SALES 2,683,118
2,882,822
Gross profit
691,876
580,536
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 858,855 818,419
OPERATING LOSS (166,979)
(237,883)
OTHER INCOME (EXPENSE):
Other income, net 58,734
59,128
Interest expense (34,312)
(34,350)
Loss before income tax benefit (142,557)
(213,105)
INCOME TAX BENEFIT
Net loss
(142,557)
(213,105)
RETAINED EARNINGS
Beginning of period 586,616
1,043,052
End of period $ 444,059
$
829,947
Net (loss) earnings per common share $ (10.35)
$
(15.47)
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<CAPTION>
1999 1998
<S> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (142,557)
$(213,105)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 68,169
67,894
Provision for uncollectible accounts receivable (4,000)
-----
Changes in assets and liabilities:
Accounts receivable, net
67,022 49,881
Inventories (122,832)
106,147
Prepaid expenses 27,038
26,557
Accounts payable 212,783
(22,775)
Accrued expenses 13,324
(13,768)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 118,947
831
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (11,252)
(19,427)
NET CASH USED BY INVESTING ACTIVITIES (11,252)
(19,427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and capital leases (23,180)
(32,235)
NET CASH USED BY FINANCING ACTIVITIES (23,180)
(32,235)
INCREASE (DECREASE) IN CASH 84,515
(50,831)
CASH at beginning of year 430,619
392,092
CASH at end of year $ 515,134
$
341,261
</TABLE>
<PAGE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION.
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the financial position of Farmers as of September 30, 1999
and June 30, 1998 and the results of operations and cash flows for
the three-month periods ending September 30, 1999 and September 30,
1998.
The accounting policies followed by Farmers are set forth in
Note 1 to the financial statements in the 1998 Farmers Annual Report
filed on Form 10-KSB, except for the following:
COMPREHENSIVE INCOME In the fiscal year 1999, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income," which
requires companies to report all changes in equity during a period,
except those resulting from investment by owners and distributed to
owners, in a financial statement for the period in which they are
recognized. Comprehensive income is the total of net income and all
other nonowner changes in equity (or other comprehensive income)
such as unrealized gains/losses on securities available-for-sale,
foreign currency translation adjustments and minimum pension
liability adjustments. Comprehensive and other comprehensive income
must be reported on the face of the annual financial statements, or
in the case of interim reporting, in the footnotes to the financial
statements. For 1999 and for the quarters ended September 30, 1999
and 1998, the Company's operations did not give rise to items
includable in comprehensive income which were not already included
in net income (loss). Therefore, the Company's comprehensive income
(loss) is the same as its net income (loss) for all periods presented.
SEGMENT INFORMATION - Effective December 31, 1998, the
Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Reportable operating segments
are determined based on the Company's management approach. As
defined by SFAS No. 131, the management approach is based on the way
that management organizes the segments of a company for making
operating decisions and assessing performance. While the Company's
results of operations are primarily reviewed on a consolidated
basis, management has organized the Company into four segments,
Grocery, MiniMart, Hardware and Feed. The following represents
selected consolidated financial information for the Company's
segments for the three months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
Segment data Hardware Grocery MiniMart Feed Other
Total
<S> <C> <C> <C> <C> <C>
<C>
Net Sales 57,513 2,679,052 461,790 105,935
70,704 3,374,994
Income (loss) (92,721) (125,799) 74,679 (11,052) (12,336)
(142,557)
from operations
Depreciation 25,473 29,560 7,655 2,333 3,148
68,169
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
Segment data Hardware Grocery MiniMart Feed Other
Total
<S> <C> <C> <C> <C> <C>
<C>
Net Sales 92,535 2,881,653 328,548 107,056 53,566
3,463,358
Income (loss) (129,192) (96,056) 34,043 (33,374) 11,474
(213,105)
from operations
Depreciation 25,841 32,008 6,957 2,449 639
67,894
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-QSB contains certain forward-looking
statements. For this purpose any statements contained in this Form
10-QSB 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.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
The Company's marketplace continues to expand and become
more competitive with a stronger presence of K-Mart in the grocery
market by offering grocery sales. Within the last 30 days, K-Mart
has announced their intention to expand into grocery items for sale
to its customers, particularly in the frozen foods area. While
Management believes the Company's sales may be impacted by K-Mart's
grocery expansion, it also believes the effect on the Company's
business will be temporary, not to exceed 30-60 days, due to K-Mart
customers' dissatisfaction with the congestion of the K-Mart store
and K-Mart's lack of complete product lines. The survey conducted
by Fleming Foods on August 30, 1999 showed that 47 percent of Deming
residents shop Farmers as their first choice. This same survey
shows that the Company's shoppers' average household income is
considered low-income. Management is seeking to attract more middle
and high-income customers by improving parking, lighting, and
overall service to these shoppers. In response to the increased
competition from K-Mart, the Company's goal is not only to increase
the number of shoppers, but also to increase total dollars spent per
shopper.
The financial condition of the Company continues to weaken
because of operating losses which continued through the first
quarter of Fiscal 2000, but at a slower pace than it did during the
same period in Fiscal 1999. Total assets grew $60,370 during the
first quarter of the fiscal year ending June 30, 2000 ("Fiscal
2000"), primarily because of cash and inventory. Total liabilities
grew $202,927 from increase in payables. Payables are current.
Working capital ratios were 1.82 on September 30, 1999 and 2.12 on
June 30, 1999. The decrease in the Company's working capital ratio
is significant, and to address the issue, Management is considering
the sale of non-income producing assets and/or bank refinancing of
long-term debt to lower monthly debt service. The Company does not
expect changes in its overall debt and is striving to meet
short-term cash requirements from daily revenues. Margin pricing
and inventory shrink are being monitored to improve cash flow.
RESULTS OF OPERATIONS
Total sales for first quarter of Fiscal 2000 were $88,364
less than the same period in Fiscal 1999. This drop is principally
a result of the relocation of the "True Value" hardware store to a
much smaller location. The hardware store was moved from its
previous 40,000 square-foot location to its current 7,000
square-foot location. This decrease is also partly attributed to a
drop in feed store sales. The cattle industry in the Southern New
Mexico area experienced a drought in 1998 which caused ranchers to
purchase supplemental feed. No such drought occurred during the
same period in 1999.
While the Company incurred a net operating loss of
approximately $142,557 in the first quarter of Fiscal 2000, the loss
was $70,548 less than the Company incurred during the first quarter
of the previous year. Management has set goals for each department
of the Company to increase revenue and decrease expenses in an
effort to eliminate this loss by year-end. Management anticipates
its goals can be accomplished by improving shrink control, better
margin controls, improved sales and cost controls.
The Company is continuing to monitor its hardware store,
clothing store and feed operations which have historically been its biggest
drains on revenue. Management is striving to settle its K-Mart
lawsuit out of court which, upon settlement, will save the Company
potentially $110,000 per year.
Future results from operations may differ from opinions
expressed by management in the above Management Discussion and
Analysis.
YEAR 2000 DISCLOSURE
The Year 2000 Terminology describes the possible effect of
the millennium date rollover on computer processor systems and
their software. A review of all company computer systems has been
conducted to identify any possible Year 2000 related problems.
Based upon the findings of this review, necessary steps to
correct any problems have been implemented. The majority of these
steps are complete at this time, and all steps will be completed no
later than November 30, 1999. The following is a summary of the
steps instituted by the company to assure it's own compliance with
the Year 2000 problem and their current status: (1) Completed the
updating of existing management information systems using software
and operating system fixes; (2) Replaced data systems that cannot be
updated with software with Year 2000 compatible systems, consisting
of replacing a total of eight (8) operating systems of which seven
(7) have been replaced to date (the last system will be replaced by
November 30, 1999). Based on the corrective and remedial measures
the Company has taken to date, it is Management's opinion that the
Year 2000 issue should pose no significant operational problems for
its information or data processing systems
The total cost of these updates and installations, including
labor and equipment, is estimated at $8,500. All costs have been
incurred as of this date with the exception of approximately $1400
in labor costs which will be incurred by November 30, 1999.
The Company has also taken steps to insure that its
suppliers and other third parties with which it regularly deals are
also Year 2000 compliant. The Company has completed a file
containing statements from all of the Company's major suppliers,
explaining what each supplier has accomplished to ensure that their
respective companies are Year 2000 compliant. Based upon its review
of this information, Management of the Company is confident that its
suppliers have sufficiently addressed all Year 2000 issues.
Despite the Company's belief that the Year 2000 will pose no
significant operational problems, the Company has formulated a plan
of action to address a "worst case scenario." This plan will allow
the Company to continue to operate despite any unforseen problems.
The Company has made arrangements to use alternate sources of power
to run its equipment in the event of a power outage. The Company
has also arranged for alternate suppliers to supply any needed
product in the event one of its own suppliers is not able to supply
adequately its needs during the Year 2000 time period. The
appropriate personnel will also be available to troubleshoot any
unforseen problems that may arise during this period. The Company
does not feel that any increase in stock level will be necessary as
a safety measure.
The Company does not anticipate it will experience any lost
revenue as a result of any problems with the Year 2000 problem.
PART II
ITEM 1. LEGAL PROCEEDINGS.
UNDERGROUND STORAGE TANK
The Company has sold gasoline to the public at its
convenience store for many years. Prior to fiscal year 1996, the
Company leased tanks from the Kipp Family of Lordsburg, New Mexico.
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. The Company believed that the amount of leakage and
corresponding contamination may have been minimal because the hole
was at the top of the tank and leakage would only have occurred when
the tank was full. The New Mexico Environment Department (the
"Department") instituted a remedial action against the owner of the
tank. The Company has taken all necessary efforts to contact the
Department to determine the status of their investigation but have
not been given any new information. It remains unclear what the
results of the investigation may reveal as far as the significance
of the damage. Furthermore, it is unclear how extensive or costly
the remedial measures imposed by the Department may be.
While the Department has not required 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. If it chooses to assess any 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 all
but $10,000 of the Company's remediation expenses. At this time,
the Company has not sought or received a determination that it
qualifies for reimbursement from the fund. The State has no
obligation to reimburse parties if claims exceed the amount
available in the fund. The Department has represented to the Company
that the amount of the fund at the time of this filing was approximately
five million dollars.
K-MART LEASE
On August 30, 1999, K-Mart Corporation ("K-Mart") filed suit
in the 6th Judicial District Court of New Mexico in Luna County
against Farmer's claiming an unspecified amount of damages for the
Company's default on a lease of a 40,000 square foot building,
parking areas, and associated grounds totaling 13.76 acres. K-Mart
is seeking damages in an unspecified amount which shall be composed
of rents due, incidental and consequential damages, pre- and
post-judgement interest and such other relief as the court deems
just and proper. At this time, Farmer's has filed its answer to the
suit claiming that K-Mart has failed to mitigate its damages and
denying certain allegations. The Company is actively seeking a
prompt settlement.
On May 3, 1995, the Company entered into an Assignment of
Lease with K-Mart (the "Lease") for the above described building and
surrounding areas to be used to house Farmer's True Value Hardware.
The term of this lease was from December 31, 1995 to November 30,
2002 and the rental rate was $9,166.67 per month. Farmer's took
possession of this building January 1996.
The Company occupied the premises and paid the rent on the
Lease through September 1998. In part due to cash flow problems and
in part due to Management's desire to control expenses, Farmer's
chose to vacate the premises and suspend rental payments on the
Lease in October 1998. The elimination of this rental expense would
save the Company an estimated $110,000 per year, but there can be no
assurance of the Company's ability to settle this lawsuit for less
than the Lease requires to be paid.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS.
Only one item has been submitted to a vote of the
shareholders of the Company during the first Quarter. On October
27, 1999, at the Annual Meeting of the Shareholders of the Company,
the Shareholders voted to approve Jones & Company, Certified Public
Accountants in El Paso, Texas, as the Company's accountant
representative and auditor for the Company's current fiscal year. A
total of 4,313.07 shares were voted for the approval the
Accountants. There were no votes against or withheld and no
abstentions or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
See the Index to Exhibits which is incorporated herein by
reference.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 14, 1999.
MIMBRES VALLEY FARMERS
ASSOCIATION, INC.
By_/s/ Dean Stovall________
Dean Stoval
Chief Executive Officer and
General Manager
(Authorized Representative)
By_/s/ Kim Harrington______
Kim Harrington
Chief Financial Officer and
Controller
(Principal Financial Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
3(i) Articles of Incorporation (aa)
3(ii) Bylaws (aa)
27 Financial Data Schedule *
(aa) Incorporated by reference to the Company's Registration
Statement on Form S-1.
* Filed Herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 UNAUDITED FINANCIAL STATEMENTS INCLUDED AS ITEM 1 TO FORM
10-QSB TO WHICH THIS SCHEDULE IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 515,134
<SECURITIES> 0
<RECEIVABLES> 133,707
<ALLOWANCES> 4,000
<INVENTORY> 1,188,077
<CURRENT-ASSETS> 2138415
<PP&E> 1,339,402
<DEPRECIATION> 68,169
<TOTAL-ASSETS> 3,503,133
<CURRENT-LIABILITIES> 1,178,166
<BONDS> 1,333,838
0
0
<COMMON> 347,750
<OTHER-SE> 444,059
<TOTAL-LIABILITY-AND-EQUITY> 3,503,133
<SALES> 3,374,994
<TOTAL-REVENUES> 3,433,728
<CGS> 2,683,118
<TOTAL-COSTS> 3,541,973
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,312
<INCOME-PRETAX> (142,557)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,557)
<EPS-BASIC> (10.35)
<EPS-DILUTED> (10.35)
</TABLE>
