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 December 31, 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, 1998, 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>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
BALANCE SHEET
DECEMBER 31, 1999 AND JUNE 30, 1999
<CAPTION>
ASSETS
DEC. 31, 1999 JUNE 30, 1999
CURRENT ASSETS:
(UNAUDITED) ( AUDITED )
<S> <C> <C>
Cash and equivalents $ 260,704 $ 430,619
Accounts receivable, net of allowance for doubtful
accounts of $4,000 and $25,000
Trade 84,405 181,895
Related parties 6,097
Other 4,398 4,737
Inventories 1,233,819 1,065,245
Prepaid expenses 53,293 93,078
Note receivable - supplier 36,156 36,156
Deferred income tax asset 203,301 203,301
Total current assets 1,876,076 2,021,128
PROPERTY AND EQUIPMENT, net 1,370,273 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 $ 3,271,665 $3,442,763
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
BALANCE SHEET
DECEMBER 31, 1999 AND JUNE 30, 1999
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DEC. 31, 1999 JUNE 30, 1999
CURRENT LIABILITIES:
(UNAUDITED) ( AUDITED )
<S> <C> <C>
Accounts payable $ 822,715 $ 699,751
Current portion of long 89,296 91,743
term debt and capital leases
Accrued expenses 120,741 160,565
Total current liabilities 1,032,752 952,059
NON-CURRENT LIABILITIES:
Deferred income taxes 202,670 202,670
Long-term debt and
capital leases,
less current portion 1,319,646 1,357,018
Total non-current 1,522,316 1,559,688
liabilities
Total liabilities 2,555,068 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 372,197 586,616
Less: 134 shares
of treasury stock (3,350) (3,350)
Total shareholder's equity 716,597 931,016
Total liabilities
and shareholder's equity $3,271,665 $ 3,442,763
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DEC. 31, 1999 DEC. 31, 1998
<S> <C> <C>
NET SALES AND GROSS REVENUE $6,919,226 $ 6,835,514
COST OF SALES 5,524,842 5,374,629
Gross profit 1,394,384 1,460,885
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 1,630,503 1,620,420
OPERATING LOSS (236,119) (159,535)
OTHER INCOME (EXPENSE)
Other income, net 96,769 137,682
Interest expense (75,069) (75,720)
Loss before
income tax benefit (214,419) (97,573)
INCOME TAX BENEFIT
Net Loss (214,419) (97,573)
RETAINED EARNINGS
Beginning of period 586,616 1,043,052
End of period $ 372,197 $ 945,479
Net loss per common share (15.56) $ (7.08)
</TABLE>
<PAGE>
<TABLE>
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
D.B.A. FARMERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DEC. 31, 1999 DEC. 31, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (214,419) $ (97,573)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 136,231 139,265
Provision for
uncollectible accounts
receivable (4,000)
Changes in assets and liabilities:
Accounts receivable, net 107,926 37,427
Inventories (168,574) 158,399
Prepaid expenses 39,785 52,851
Accounts payable 122,964 39,499
Accrued expenses (39,824) (1,632)
NET CASH PROVIDED BY
OPEARTING ACTIVITIES (19,911) 328,236
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property
and equipment (110,185) (22,749)
net increase (decrease)
in investment in supplier (800)
NET CASH USED BY INVESTING(110,185) (23,549)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term
debt and capital leases (39,819) (48,334)
NET CASH USED BY FINANCING (39,819) (48,334)
ACTIVITIES
INCREASE (DECREASE) IN CASH (169,915) 256,353
CASH at beginning of year 430,619 392,092
CASH at end of year $ 260,704 $ 648,445
</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 December 31, 1999 and
June 30, 1999 and the results of operations and cash flows for the
six-month periods ending December 31, 1999 and December 31, 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 December 31, 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 six months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
Segment data Hardware Grocery Mini-Mart Feed Other Total
<S> <C> <C> <C> <C> <C> <C>
Net Sales 147,200 5,381,738 948,292 292,516 149,480 6,919,226
Income (loss)
From Operations(85,459) (273,192) 169,676 (33,643) 8,199 (214,419)
Depreciation 36,328 75,024 18,356 5,175 1,348 136,231
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
Segment data Hardware Grocery Mini-Mart Feed Other Total
<S> <C> <C> <C> <C> <C> <C>
Net Sales 192,435 5,627,273 657,543 224,534 133,729 6,835,514
Income (loss)
from Operations(228,756) 152,757 11,419 (75,434) 42,441 (97,573)
Depreciation 53,839 64,743 14,067 5,017 1,599 139,265
</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 financial condition of the Company continues to weaken.
The Company experienced an operating loss of approximately $215,000
during the first two quarters of the 2000 fiscal year ("Fiscal
2000"), compared to an operating loss of approximately $98,000
during the same six month period of the 1999 fiscal year ("Fiscal
1999"). Stockholder equity decreased approximately $214,000 during
the first two quarters of Fiscal 2000 to approximately $717,000 at
December 31, 1999, from approximately $931,000 at June 30, 1999.
Total assets decreased by approximately $171,000 during the first
two quarters of Fiscal 2000, primarily because of decreases in cash
($170,000), prepaid expenses ($40,000) and trade accounts receivable
($98,000) which was partially offset by the approximately $169,000
increase in inventories. Total liabilities increased approximately
$43,000 during the first two quarters of Fiscal 2000 primarily
because of an increase in accounts payable of approximately $123,000
which was partially offset by decreases in accrued expenses of
$40,000 and long term debt of $37,000. Although loan payments have
been made timely during the first two quarters of Fiscal 2000,
working capital ratios decreased to 1.82 at December 31, 1999 from
2.12 at June 30, 1999. The decreases in the Company's working
capital ratio and cash reserves are significant, and to address the
issue, Management is considering the sale of a 5.0 acre tract of
real property located in southern New Mexico to generate additional
cash of approximately $150,000. 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 the first two quarters of the Fiscal 2000
were approximately $84,000 more than the same period in the Fiscal
1999. The sales for each of these two six-month periods include
the Company's traditionally strong sales for the second quarter of
the Company's fiscal year, which includes the Thanksgiving and
December holidays.
The Company incurred a net operating loss of approximately
$214,000 in the first two quarters of Fiscal 2000, which loss was
approximately $117,000 greater than the Company incurred during the
first two quarters of Fiscal 1999. Management believes the
principal reasons for the increased loss in spite of the sales
increase are high losses due to shrink and low gross profit margins
because cost of sales increased from 78.6 percent of sales to 79.85
percent of sales during the first two quarters of Fiscal 1999. To
address the shrinking gross profit margins, Management has ordered a
five percent across the board retail price increase. If
Management's belief that sales volume will not be adversely affected
by the price increase is correct, the price increase should generate
approximately $57,000 per month in additional revenue to the Company
beginning in March 2000.
Management believes losses due to shrink are way above
industry standards so Management has placed one employee in charge
of shrink control. All vendors and employees will be monitored for
possible delivery discrepancies and theft. Management has ordered a
physical inventory count to be taken in April 2000.
Management has set goals for each department of the Company
to increase sales and decrease expenses in an effort to eliminate
losses by year-end. Management anticipates its goals can be
accomplished by improving shrink control, increased prices and
better margin controls, improved sales and cost controls. Due to
high losses in the Deli area, Management has initiated a change in
menu and a reduction in staff from eight employees to four by the
end of February 2000.
The Company's marketplace continues to become more
competitive. During the last three months ended December 31, 1999,
K-Mart's Deming store has expanded into grocery sales, particularly
in the frozen foods area. Management believes the Company's sales
were impacted, but not materially, by K-Mart's entry into the
grocery market. A survey conducted by Fleming Foods on August 30,
1999 showed that while 47 percent of Deming residents shop Farmers
as their first choice, the Company's shoppers' average household
income is considered low-income. Management continues to seek 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. Local economic conditions in the Deming area
have also contributed to the Company's losses. The Company's market
area has experienced 30 to 35 percent unemployment during the last
six months. This has severely impacted household disposable income
and the Company's sales.
Management has made an offer to K-Mart to settle the
Company's lawsuit with K-Mart. While Management has attempted to
elicit a response to its settlement offer, K-Mart has not responded
to date. On December 31, 1999, Management stopped its monthly
expense accrual of $9,166.67 relating to the K-Mart lease because
the Company's Management and legal counsel for this lawsuite believe
K-Mart's damages for unpaid rentals have been capped at that time as
a result of K-Mart's consummation of the sale of the building to
Luna County on such date. See "Legal Proceedings" below.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 Terminology ("Y2K") describes the possible
effect of the millennium date rollover on computer processor
systems and their software. Management conducted a review of all
Company computer systems prior to December 31, 1999 to identify any
possible Year 2000 related problems. Based upon the findings of the
review, Management took necessary action to correct any problems.
In the last quarter of 1999, Management completed all remedial
measures by replacing the Company's final noncompliant operating
system. Based on the corrective and remedial measures taken by the
Company prior to December 31, 1999, Management believes that the
Year 2000 issue did not, and in the future will not, pose any
significant operational problems for its information or data
processing systems.
The total cost of the Company's Year 2000 updates and
installations, including labor and equipment, was $15,250, and the
Company incurred $12,625 of such costs on labor and equipment in
the second quarter of Fiscal 2000.
The Company did not experience any delivery delays or
shortages from its principle suppliers. Management believes that
the losses it incurred in the first six months of Fiscal 2000 were
not attributable to any Year 2000 related issues.
PART II
ITEM 1. LEGAL PROCEEDINGS.
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 and Management of the Company is
actively seeking a prompt settlement. On October 18, 1999, the
Company made an offer to settle the case, but K-Mart has not
responded to the Company's settlement offer to date.
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 the 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. On December 31, 1999, the
building was sold to Luna County. At that time, Management stopped
its monthly expense accrual of $9,166.67 relating to the K-Mart
lease, because the Company's Management and legal counsel for this
lawsuit believe K-Mart's damages for unpaid rent on the Lease were
capped on such date because of the consummation of the sale of the
building. See "Results of Operations."
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: February 28, 2000.
MIMBRES VALLEY FARMERS
ASSOCIATION, INC.
By /s/ Dean Stovall
Dean Stovall
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 DECEMBER
31, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 260,704
<SECURITIES> 0
<RECEIVABLES> 92,803
<ALLOWANCES> 4,000
<INVENTORY> 1,233,819
<CURRENT-ASSETS> 1,876,076
<PP&E> 1,370,273
<DEPRECIATION> 136,231
<TOTAL-ASSETS> 3,271,665
<CURRENT-LIABILITIES> 1,032,752
<BONDS> 1,319,646
0
0
<COMMON> 347,750
<OTHER-SE> 372,197
<TOTAL-LIABILITY-AND-EQUITY> 3,271,665
<SALES> 6,919,226
<TOTAL-REVENUES> 7,015,995
<CGS> 5,524,842
<TOTAL-COSTS> 7,155,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,069
<INCOME-PRETAX> (214,419)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,419)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,419)
<EPS-BASIC> 15.56
<EPS-DILUTED> 15.56
</TABLE>
