UNITED STATES
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, 2003
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 (IRS Employer Identification No.)
incorporation or organization)
811 South Platinum, Deming NM 88030
(505) 546-2769
Check whether the issuer (1) filed all reports required to be filed by
Section 13 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 March 31, 2003, 13,781.47 shares of Common Stock Mimbres Valley
Farmers Association, Inc. (Farmers or the Company) were outstanding. Exchange
Act of 1934 for the quarterly period ended March 31, 2003
Traditional small business disclosure format: Yes [ ] No [X]
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Balance Sheets as of
September 30, 2003 and June 30, 2003 1
Statements of Operations and Retained (Deficit)
for the three months ended
September 30, 2003 and 2002 3
Statements of Cash Flows for the
three months ended
September 30, 2003 and 2002 4
Notes to Unaudited Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition or Plan of Operation 9
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Balance Sheets
September 30, 2003 and June 30, 2003
ASSETS
UNAUDITED AUDITED
At At
September 30, 2003 June 30, 2003
------------------ ---------------
Current Assets
Cash and cash equivalents $ 25,386 $ 110,855
Accounts receivable, net of
allowance for doubtful accounts,
September 30, 2003, $13,147 and
June 30, 2003 $9,263
Trade 18,986 18,673
Related parties 4,731 4,341
Other 6,020 3,886
Inventories 560,068 617,995
Prepaid expenses 76,823 72,967
------------------ ---------------
Total current assets 692,014 828,717
------------------ ---------------
Property and Equipment, net 1,088,381 1,129,837
------------------ ---------------
Other Non-Current Assets
Intangible assets 319,686 319,686
Other assets 427 427
Deferred income tax asset 631 631
------------------ ---------------
Other non-current assets, net 320,744 320,744
------------------ ---------------
Total assets $ 2,101,139 $ 2,279,298
================== ===============
See accompanying notes to financial statements.
1
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Balance Sheets
September 30, 2003 and June 30, 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
UNAUDITED AUDITED
At At
September 30, 2003 June 30, 2003
------------------- ------------------
Current Liabilities
Current portion of notes payable $ 1,163,790 $ 1,189,815
Note payable - related party 291,438 294,070
Current portion of capital leases payable 9,794 11,168
Bank overdraft 21,464 -
Accounts payable 552,301 504,691
Accrued expenses payable 137,794 140,904
-------------------- -----------------
Total current liabilities 2,176,581 2,140,648
-------------------- -----------------
Non-current Liabilities
Capital leases payable,
less current portion above 4,728 6,535
-------------------- -----------------
Total non-current liabilities 4,728 6,535
-------------------- -----------------
Total Liabilities 2,181,309 2,147,183
-------------------- -----------------
Shareholders' Equity
Common stock, $25 par value;
20,000 authorized: 13,915 issued
and 13,573 outstanding 347,875 347,875
Retained deficit (422,615) (210,330)
Less: 342 shares treasury stock (5,430) (5,430)
-------------------- -----------------
Total shareholders' equity (80,170) 132,115
-------------------- -----------------
Total liabilities and shareholders' equity $ 2,101,139 $ 2,279,298
==================== =================
See accompanying notes to financial statements.
2
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Statements of Operations and Retained (Deficit)
For the three months ended September 30, 2003 and 2002
UNAUDITED
Three Months Ended
September 30,
2003 2002
------------------- -----------------
Net sales and gross revenue $ 2,237,873 $ 2,729,367
Cost of sales 1,889,799 2,158,991
------------------- -----------------
Gross profit 348,074 570,376
Selling, general and
administrative expenses 580,598 581,300
------------------- -----------------
Operating income (loss) (232,524) (10,924)
Other income (expense)
Rental income 35,230 32,465
Fees and commissions 19,393 18,853
Other income 1,371 1,379
Interest expense (35,755) (31,625)
------------------- -----------------
Income (loss) from continuing
operations before income net of
tax benefit (expense) of -0- (212,285) 10,148
Discontinued Operations
Loss from operations of discontinued
Feed Store segment, net of income tax
benefit of -0- for 2003 and 2002 - (14,471)
------------------- -----------------
Net (loss) (212,285) (4,323)
Retained (deficit)
Beginning of the period (210,330) (89,570)
------------------- -----------------
End of period $ (422,615) $ (93,893)
=================== =================
Basic and diluted income (loss)
per common share
(Loss) from:
Continuing operations $ (15.64) $ 0.65
Discontinued operations - (0.92)
------------------- -----------------
$ (15.64) $ (0.27)
=================== =================
See accompanying notes to financial statements.
3
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Statements of Cash Flows
For the three months ended September 30, 2003
UNAUDITED
Three Months Ended
September 30, 2003 September 30, 2002
------------------ -------------------
Cash flows from operating activities
Net (loss) $ (212,285) $ (4,323)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 39,685 41,160
Gain on sale of fixed assets (862) (850)
Changes in assets and liabilities:
Accounts receivable (2,837) 6,761
Inventories 57,927 (39,240)
Prepaid expenses (3,856) 39,276
Other assets - (29,000)
Accounts payable 47,610 (221,499)
Accrued expenses (3,110) 21,600
------------------ -------------------
Net cash provided (used) by
operating activities (77,728) (186,115)
------------------ -------------------
Cash flows from investing activities
Additions to property and equipment, net (1,750) (84,505)
Sale of fixed assets 4,383 850
------------------ -------------------
Net cash provided (used) by
investing activities 2,633 (83,655)
------------------ -------------------
Cash flows from financing activities
Proceeds from long-term financing - 99,825
Repayment of related party note payable (2,632) -
Repayment of notes payable and capital leases (29,206) (26,145)
------------------ -------------------
Net cash provided (used) by
financing activities (31,838) 73,680
------------------ -------------------
(Decrease) in cash (106,933) (196,090)
Cash at beginning of period 110,855 257,956
------------------ -------------------
Cash at end of period $ 3,922 $ 61,866
================== ===================
Reconciliation to balance sheet:
Cash and cash equivalents $ 25,386 $ 61,866
Bank overdraft (21,464) -
------------------ -------------------
$ 3,922 $ 61,866
================== ===================
See accompanying notes to financial statements.
4
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Notes to Unaudited Financial Statements
Note 1. Description of Business
Mimbres Valley Farmers Association, Inc. dba Farmers, Inc. ("Farmers"
or the "Company"), a New Mexico Corporation, currently operates a
retail grocery store, and a convenience store. The Company also leases
certain retail space to unrelated parties. All operations are located
in Deming, New Mexico ("Deming"). The economy of Deming is dependent
mainly on agriculture and related agri-business.
Note 2. Basis of Presentation
In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly the financial
position of Mimbres Valley Farmers Association, Inc. (Farmers) as of
September 30, 2003 (unaudited) and June 30, 2003 (audited), the
results of operations for the three month periods ending September 30,
2003 and 2002 (unaudited) and the statements of cash flows for the
three month periods ending September 30, 2003 and 2002 (unaudited).
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that these financial statements
be read in conjunction with the financial statements and accompanying
notes included in the Company's 2003 Annual Report. The results of
operations for the three months ended September 30, 2003, are not
necessarily indicative of results for a full year.
The accounting policies followed by Farmers are set forth in Note 1 to
the financial statements in the 2003 Farmers Annual Report filed on
Form 10-KSB.
Use of Estimates
------------------
The preparation of the Company's financial statements, in conformity
with accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of 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 these estimates.
Types of Products and Services
----------------------------------
The Company's results of operations are reviewed primarily on a
consolidated basis. Management has organized the Company into three
segments: Other (which includes Administration), IGA Grocery, and
Mini-Mart. The "Feed" segment was discontinued as of January 3, 2003
and is reported as discontinued operations in the September 30, 2003
financial statements. "Other" relates to the rental of various rental
spaces and acts as a support to the other departments. IGA Grocery is
a full service grocery store serving Deming and the surrounding
community. Mini-Mart is a convenience store that caters to the local
community and various other customers who pass through town.
5
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Notes to Unaudited Financial Statements
Note 2. Basis of Presentation (continued)
Management Policy in Identifying Reportable Segments
---------------------------------------------------------
The Company's reportable business segments are strategic business
units that offer distinctive products and services that are marketed
through different channels. They are managed separately because of
their unique target markets.
Segment Profit and Loss
--------------------------
The Company's accounting policies for segments are the same as those
described in the summary of significant accounting policies.
Management evaluates performance based on segment profit and loss
before income taxes and nonrecurring gains and losses. Transfers
between segments are accounted for at market value.
The following represents selected consolidated financial information
for the Company's segments for the three months ended September 30,
2003 and 2002. Administrative overhead that is not attributable to any
particular segment has been allocated based on the net revenues of the
segments.
Total Discontinued
Continuing Operations
Segment data IGA Grocery Mini-Mart Other Operations Feed Total
------------- ------------- -------- ------------ --------- -----------
Three months ended:
SEPTEMBER 30, 2003
Revenues $ 1,882,138 $ 355,735 $ - $ 2,237,873 $ - $2,237,873
Other Income, net 14,005 5,810 36,179 55,994 - 55,994
------------- ------------- -------- ------------ --------- -----------
Net revenues 1,896,143 361,545 36,179 2,293,867 - 2,293,867
Income (loss) from
segment, before tax (220,193) 291 11,053 (208,849) - (208,849)
Total assets 1,439,634 47,056 596,421 2,083,111 - 2,083,111
Property additions 1,750 - - 1,750 - 1,750
Depreciation 16,928 2,508 20,249 39,685 - 39,685
Interest expense 29,555 5,635 565 35,755 - 35,755
SEPTEMBER 30, 2002
Revenues $ 2,265,905 $ 463,462 $ - $ 2,729,367 $ 92,745 $2,822,112
Other Income, net 13,545 5,079 34,073 52,697 - 52,697
------------- ------------- -------- ------------ --------- -----------
Net revenues 2,279,450 468,541 34,073 2,782,064 92,745 2,874,809
Income (loss) from
segment, before tax (8,951) 10,037 9,062 10,148 (14,471) (4,323)
Depreciation 19,648 2,445 17,107 39,200 1,960 41,160
Interest expense 25,073 5,155 376 30,604 1,021 31,625
6
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Notes to Unaudited Financial Statements
Note 2. Basis of Presentation (continued)
Revenue Recognition
--------------------
Revenue is recognized from retail operations at the point of sale.
Vendor allowances and credits that relate to the Company's buying and
merchandising activity are recognized as reductions of cost of sales
when received. Rental Income is recognized when earned according to
the individual lease contracts. The Company is party to one lease
agreement that has a contingent rental provision. The lessee rarely
reaches the contingency limit and, accordingly, the Company records no
accrual for contingent rental income, but recognizes any contingent
rental income when it is received.
Cost of Sales
---------------
Cost of sales includes cost of merchandise, including shipping, and is
reflected net of vendor rebates.
Comparability
-------------
Certain reclassifications have been made in prior year's financial
statements to conform to classifications used in the current year.
Specifically, the operations of the Feed Store segment have been
reclassified to discontinued operations.
Supplemental Cash Flow Information
-------------------------------------
Selected cash payments and non-cash activities were as follows:
Three Months Ended
September 30,
2003 2002
------------ ------------
Cash payments for interest $ 35,755 $ 31,625
Note 3: Related Party Transaction
Farmers entered into an agreement to purchase a liquor license with a
final total cost of $319,686 which was completed during the quarter
ended December 31, 2002. Financing for the purchase of the liquor
license was provided in the form of a $300,000 loan from a member of
the board of directors of Mimbres Valley Farmers Association, Inc. who
also serves as Chief Executive Officer. The loan is secured by a
promissory note with an interest rate that is adjusted annually to a
rate that is 4 percentage points above the Wall Street Journal Prime
Rate, currently 8.5%, and is collateralized by a security interest in
the liquor license. The note is due on demand, but if no demand is
made, it is payable in 179 installments of $2,954 with one final
irregular payment for all principal and interest not yet paid.
Note 4: Discontinued Operations
Effective January 3, 2003, the Company closed the Feed Store. The
results of operations of the Feed Store have been presented in the
September 30, 2003 financial statements as a loss from discontinued
7
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Notes to Unaudited Financial Statements
operations in accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The
Company plans to sell the larger equipment items individually and has
leased the feed store building to an unrelated party.
Note 5: Treasury Stock:
During the year ended June 30, 2003, the Company, with the approval of
its board of directors, repurchased 208 shares of its own stock at an
aggregate cost of $2,080.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition or Plan
of Operation
This discussion and analysis reflects Mimbres Valley Farmers
Association, Inc.'s ("Farmers") financial statements and other
relevant statistical data and is intended to enhance your
understanding of our financial condition and results of operations.
You should read the information in this section in conjunction with
Farmers financial statements and their notes and other statistical
data provided in this Form 10-QSB. 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. Examples of
forward-looking statements include, but are not limited to, estimates
with respect to our financial condition, results of operations and
business that are subject to various factors which could cause actual
results to differ materially from these estimates and most other
statements that are not historical in nature. These factors include,
but are not limited to, general and local economic conditions, demand
and pricing for our products and services, competition, changes in
accounting principles, policies, or guidelines, and other economic,
competitive, governmental, regulatory, and technological factors
affecting our operations, pricing, products and services. 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
------------------------------------------------------
Mimbres Valley Farmers Association, Inc.'s total assets decreased by
$196,187, or 0.86%, to $2,083,111 at September 30, 2003, from
$2,279,298 at June 30, 2003. Cash decreased by $106,933, or 96.46% to
$25,386 from $110,855 at June 30, 2003. The decrease in cash was the
result of the large net operating loss experienced during the quarter.
Accounts receivable trade increased by $313, or .16% to $18,986 from
$18,673. other receivables increased $2,134, or 55% to $6,020 from
$3,886 at June 30, 2003. Related party receivables consist of trade
accounts receivable owed to the Company by directors and employees.
Related party receivables increased $390, or 9% to $4,731 from $4,341
at June 30, 2003. All related party receivables are current as of
September 30, 2003. Inventory decreased by $57,927, or 9.37%, to
$560,068 from $617,995 at June 30, 2003 due to the Company's continued
effort to reduce the inventory levels on hand, and the change in
vendors. Prepaid expenses increased by $3,856, or 5.28% to $76,823
from $72,967 at June 30, 2003. Gross fixed assets decreased by $4,750,
or .11% to $4,325,435 from $4,330,185 at June 30, 2003 and the Company
recorded $39,685 in depreciation expense and related accumulated
depreciation during the three months ended September 30, 2003.
Total liabilities increased by $12,662, or .59%, to $2,159,845 at
September 30, 2003 from $2,147,183 at June 30, 2003. The increase
resulted primarily from the increase in accounts payable. Accounts
payable increased by $47,610, or 9.43% to $552,301 from $504,691 at
June 30, 2003, due to the tightning cash position. Loans, notes and
capital leases payable decreased $31,838, or 2.12% to a total of
$1,469,750 from $1,501,588 at June 30, 2003. The Company has continued
to pay all debt payments in accordance with the original agreements.
Accrued expenses decreased by $3,110, or 2.21% to $137,794 from
$140,904 at June 30, 2003. The decrease in accrued expenses is
attributable to a decrease in gross receipts taxes payable at
September 30, 2003.
9
Financial Condition and Changes in Financial Condition (continued)
------------------------------------------------------------------
Total shareholders' equity decreased $208,849, more than 158% to
$(76,734) from $132,115 at June 30, 2003. The decrease was the result
of operating losses for the first three months of fiscal year 2004.
Comparison of Operating Results for the Three Months Ended
----------------------------------------------------------
September 30, 2003 and 2002
---------------------------
General - Revenues from continuing operations decreased for the three
months ended September 30, 2003 by $491,494, or 18.01% to $2,237,873
from $2,729,367 for the three months ended September 30, 2002.
Management believes the overall decrease in revenues to be
attributable to the continuing depressed economic conditions in Deming
and Luna County generally, compounded by the opening of Super WalMart
during the quarter ended September 30, 2003. Net income from
continuing operations decreased by $218,997, to net loss of $208,849
for the three months ended September 30, 2003 from net income of
$10,148 for the three months ended September 30, 2002.
IGA Grocery - Revenues decreased for the three months ended September
30, 2003 by $383,307, or 16.82% to $1,896,143 from $2,279,450 for the
three months ended September 30, 2003. Management believes the
decreased revenues in this segment are due to the continued depressed
economic conditions in the area compounded by the opening of Super
WalMart during the quarter ended September 30, 2003. Net income from
the segment decreased $211,242 to a net loss of $220,193 from net loss
of $8,951 for the three months ended September 30, 2003. This decrease
in net income resulted primarily from the changing of a major supplier
and the related sale of old vendor merchandise at cost or below. In
addition, the Company suffered the effects of the opening of a Super
WalMart in their community during the quarter ended September 30,
2003.
Mini-Mart - Revenues decreased for the three months ended September
30, 2003 by $106,996, or 22.84% to $361,545 from $468,541, caused in
part by fluctuations in fuel prices, and further affected by the
opening of the Super WalMart.
Net loss decreased by $9,746 to a net profit of $291 from a net profit
of $10,037 for the three months ended September 30, 2003.
Feed - The operations of the feed store were discontinued as of
January 3, 2003 and are presented in the statement of income and the
notes to the financial statements as discontinued operations.
Recent and Current Developments
-------------------------------
Management has continued working to cut costs and simplify operations
to adapt to the subpar economy in the Deming and Luna County area,
however operations were severely impacted by the opening of a local
store of the largest retailer in the world. Initially, our sales
dropped 30 to 40%, affecting cash flow and increasing accounts payable
and lengthening the aging of the accounts payable. We have been in
contact with our vendors, and are currently working to bring the
accounts payable current. Although we were able to secure a new tenant
in the Mall property, Xochitl's tortilleria went out of business,
leaving us with another open space to rent.
10
Recent and Current Developments (continued)
-------------------------------------------
Subsequent to September, 30, 2003, the liquor license currently owned
by the Company is subject to an agreement to be sold for the original
purchase price. The sale of the license will relieve the Company of
approximately $300,000 of debt. In order to continue selling the
products provided in the liquor department, the general manager has
purchased a local license which he will lease to the Company for a
monthly amount less than the current note payments.
An item of continuing urgency is the refinancing of Farmers' long-term
mortgage note, now held by WAMCO XXVIII, LTD. of Waco, Texas. On
October 17, 2003, the registrant received an important letter from the
holder of its principal monetary obligation, the latter being a
mortgage note with a principal balance slightly over $1,000,000. As
reported previously, the note matured July 24, 2003, and the
registrant had been in default under it even prior to that time
because of financial maintenance covenants in the mortgage that the
registrant was unable to meet. After July 24, 2003, the holder of the
note, WAMCO XXVIII, LTD., acting by and through its servicing agent,
First City Servicing Corporation, had informally indicated that it
would continue for the near future to accept post maturity installment
payments while the registrant sought other financing. As a result of
the search for other financing, the registrant had been recently
presented with an opportunity to refinance, but the refinancing would
have required personal guarantees of the indebtedness by one or more
directors or officers of the registrant. At a meeting of the Board of
Directors of the issuer on October 7, 2003, the subject of the
possible refinancing involving personal guarantees was discussed fully
by those present and a decision was made not to accept this financing
alternative. Management of the issuer promptly informed First City
Servicing Corporation that this alternative had been rejected.
On October 9, 2003, First City Servicing Corporation sent the letter
mentioned above, although the registrant did not know it was coming
until it arrived on October 17, 2003. In summary, the letter gave
Mimbres Valley Farmers Association, Inc. until October 31, 2003 to pay
off the mortgage note in full, failing which "[w]e will be considering
aggressive alternatives that are allowed to us under the current
modification and the mortgage." Presumably this has reference to a
legal action to foreclose the mortgage. The registrant does not
presently have the money to pay off the mortgage note and did not pay
it off by October 31, 2003. As of the date of this report, the
registrant has not been notified of the commencement of any
foreclosure proceedings against it.
The registrant is still seeking alternative sources of financing, but
no assurance can be given that any such financing will be available
or, even if available, will be on terms acceptable to its Board of
Directors. If no such financing is obtained, the registrant will have
to consider the possibility of seeking relief under the federal
Bankruptcy Code or some other arrangement or composition with its
creditors, because a foreclosure on the assets securing the mortgage
note would render further operations by the registrant impossible.
11
Recent and Current Developments (continued)
-------------------------------------------
Since October 31, 2003, we have had discussions with the primary
lender and one potential lender, and the primary lender has pushed the
date to begin collection actions ahead to an undetermined date. We are
working with lenders in Albuquerque, California and locally to obtain
alternate financing as soon as possible, but even if a commitment was
made by a lender by November 15, 2003, it would take several weeks for
the appraisal to be finished and the process could last until the end
of the year or later. There can be no assurance that the loan
currently being applied for will in fact be made. In the meantime,
although Farmers has continued to make all debt payments in accordance
with the original or extension agreements. In the loan packages the
Company has applied for, there were included funds to buy some of the
smaller shareholders out and return the Company to private status,
thereby escaping the SEC umbrella. It is estimated that this would
save the Company nearly $ 100,000 per year. As has been reported
previously, if the Company is unable to obtain alternate financing and
achieve profitable operations on a consistent basis, it will soon be
forced to consider bankruptcy or other liquidation alternatives.
The Board of Directors has received a letter of resignation from Jim
T. Hyatt, a director of the Company since 1993. The resignation,
effective April 29, 2003, was not the result of disagreement of
Company policy or any other matters, but instead grew out of the
discussions between the Company and the underwriter for a potential
loan package described above. William R. Johnson, III has also
resigned effective April 8, 2003. Again, his resignation was not the
result of any disagreement with Management or the other directors.
G.G. Gore resigned effective October 28, 2003, not as a result of any
disagreement. Management and the other directors are grateful to Mr.
Hyatt, Mr. Johnson, and Mr. Gore for their years of valiant and loyal
service to the Company. The Board of Directors has also enacted a Code
of Ethics and Standards of Conduct for directors and company officers,
as required by the Sarbanes-Oxley Act of 2002.
Mortgage Note
-------------
On October 17, 2003, the registrant received an important letter from
the holder of its principal monetary obligation, the latter being a
mortgage note with a principal balance slightly over $1,000,000. As
reported previously, the note matured July 24, 2003, and the
registrant had been in default under it even prior to that time
because of financial maintenance covenants in the mortgage that the
registrant was unable to meet. After July 24, 2003, the holder of the
note, WAMCO XXVIII, LTD., acting by and through its servicing agent,
First City Servicing Corporation, had informally indicated that it
would continue for the near future to accept post maturity installment
payments while the registrant sought other financing. As a result of
the search for other financing, the registrant had been recently
presented with an opportunity to refinance, but the refinancing would
have required personal guarantees of the indebtedness by one or more
directors or officers of the registrant. At a meeting of the Board of
Directors of the issuer on October 7, 2003, the subject of the
possible refinancing involving personal guarantees was discussed fully
by those present and a decision was made not to accept this financing
alternative. Management of the issuer promptly informed First City
Servicing Corporation that this alternative had been rejected.
12
Mortgage Note (continued)
-------------------------
On October 9, 2003, First City Servicing Corporation sent the letter
mentioned above, although the registrant did not know it was coming
until it arrived on October 17, 2003. In summary, the letter gave
Mimbres Valley Farmers Association, Inc. until October 31, 2003 to pay
off the mortgage note in full, failing which "[w]e will be considering
aggressive alternatives that are allowed to us under the current
modification and the mortgage." Presumably this has reference to a
legal action to foreclose the mortgage. The registrant does not
presently have the money to pay off the mortgage note and did not pay
it off by October 31, 2003. As of the date of this report, the
registrant has not been notified of the commencement of any
foreclosure proceedings against it. The registrant is still seeking
alternative sources of financing, but no assurance can be given that
any such financing will be available or, even if available, will be on
terms acceptable to its Board of Directors. If no such financing is
obtained, the registrant will have to consider the possibility of
seeking relief under the federal Bankruptcy Code or some other
arrangement or composition with its creditors, because a foreclosure
on the assets securing the mortgage note would render further
operations by the registrant impossible.
Related Party Transaction
-------------------------
During the period ended March 31, 2003, the Company obtained a loan
for $300,000 from the Company's Chief Executive Officer for the
purpose of purchasing a liquor license. The loan is secured by a
promissory note with an interest rate that is adjusted annually to a
rate that is 4 percentage points above the Wall Street Journal Prime
Rate, subject to a minimum of 8.5% per annum which is currently
applicable, and is collateralized by a security interest in the liquor
license. The note is due on demand, but if no demand is made, it is
payable in 179 installments of $2,954 with one final irregular payment
for all principal and interest not yet paid. The balance of the note
payable at September 30, 2003 was $291,438.
Long-term Contractual Obligations
---------------------------------
During the period ended December 31, 2002, the Company obtained a loan
for $99,825, secured by a mortgage on the Mini-Mart location and an
assignment of all rents on the Company's rental properties, with
payment terms of $1,244.54 per month for ten years at an interest rate
that floats 2% above prime, subject to a minimum of 8.5% per annum
which is currently applicable. The purpose of this loan was to fund an
upgrade of the cash register and inventory systems in the IGA grocery.
Prior to September 30, 2003, the Company had committed to four capital
leases.
Future maturities of capital leases as of September 30, 2003 are as
follows (not including the mortgage notes discussed above):
Payments due by Period
------------------------------------------------------
Less than 1-3 4-5 After 5
Total One Year Years Years Years
--------- --------- --------- --------- ----------
Capital leases $ 14,522 $ 9,794 $ 4,728 $ - $ -
13
Work Force
- -----------
As of September 30, 2003, Farmers has 86 employees, 46 full time and 40 part
time and anticipates no material changes in this number in the near future.
Rental Properties
------------------
The Company maintains rental properties as part of its operations. Approximately
30% of the available rental space is unoccupied and the Company is actively
pursuing other possible tenants to fill vacant properties, but to date those
efforts have not been successful.
Economic Conditions
--------------------
The operations and financial condition of Farmers continue to be adversely
affected by economic conditions in Deming and Luna County, New Mexico generally.
In February, 1999, the federal government announced the establishment of the
Deming/Luna County Enterprise Community. Only the most economically depressed
communities in the nation at that time were designated either an Empowerment
Zone or an Enterprise Community. At the time Deming/Luna County was designated
an Enterprise Community, an estimated 41% of the adult population of the area
did not have a high school diploma, an estimated 35% of the adult population
were unable to read and write in English, the poverty rate (as established by
federal guidelines) was 34.9% for Luna County, and the unemployment rate was
34%.
Although the designation of Deming/Luna County as an Enterprise Community means
the area is eligible for federal grants, and some grants have been made, the
management of Farmers does not believe that there has been any substantial
improvement in the overall economic condition of the area in the past four
years. The U. S. Census Bureau, in its State and County Quick Facts database,
estimated the poverty rate for Luna County at 29.8% for the 2000 census. In
2001, according to the Enterprise Community staff, the poverty rate in Luna
County still stood at 31%. To the best of the knowledge of management, these
conditions are likely to continue for the near term.
14
ITEM 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Shelby C. Phillips, and Chief
Accounting Officer, Janet Robinson, have reviewed the Company's disclosure
controls and procedures within 90 days prior to the filing of this report.
Based upon this review, these officers believe that the Company's
disclosure controls and procedures are effective in ensuring that material
information related to the Company that is required to be disclosed is made
known to them.
(b) Changes in Internal Controls.
There was a change in the Company's internal controls that could
significantly affect these controls subsequent to the date the Company
carried out its evaluations. The process for counting and verifying
inventory levels at the end of a period was strengthened by implementing a
policy where employees who are independent of the department being counted
are responsible for counting and verifying available inventories in that
department.
15
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
Not applicable.
ITEM 2. - Changes in Securities
Not applicable.
ITEM 3. - Defaults upon Senior Securities
On October 17, 2003, the registrant received an important letter from
the holder of its principal monetary obligation, the latter being a
mortgage note with a principal balance slightly over $1,000,000. As
reported previously, the note matured July 24, 2003, and the
registrant had been in default under it even prior to that time
because of financial maintenance covenants in the mortgage that the
registrant was unable to meet. After July 24, 2003, the holder of the
note, WAMCO XXVIII, LTD., acting by and through its servicing agent,
First City Servicing Corporation, had informally indicated that it
would continue for the near future to accept post maturity installment
payments while the registrant sought other financing. As a result of
the search for other financing, the registrant had been recently
presented with an opportunity to refinance, but the refinancing would
have required personal guarantees of the indebtedness by one or more
directors or officers of the registrant. At a meeting of the Board of
Directors of the issuer on October 7, 2003, the subject of the
possible refinancing involving personal guarantees was discussed fully
by those present and a decision was made not to accept this financing
alternative. Management of the issuer promptly informed First City
Servicing Corporation that this alternative had been rejected.
On October 9, 2003, First City Servicing Corporation sent the letter
mentioned above, although the registrant did not know it was coming
until it arrived on October 17, 2003. In summary, the letter gave
Mimbres Valley Farmers Association, Inc. until October 31, 2003 to pay
off the mortgage note in full, failing which "[w]e will be considering
aggressive alternatives that are allowed to us under the current
modification and the mortgage." Presumably this has reference to a
legal action to foreclose the mortgage. The registrant does not
presently have the money to pay off the mortgage note and did not pay
it off by October 31, 2003. As of the date of this report, the
registrant has not been notified of the commencement of any
foreclosure proceedings against it. The. registrant is still seeking
alternative sources of financing, but no assurance can be given that
any such financing will be available or, even if available, will be on
terms acceptable to its Board of Directors. If no such financing is
obtained, the registrant will have to consider the possibility of
seeking relief under the federal Bankruptcy Code or some other
arrangement or composition with its creditors, because a foreclosure
on the assets securing the mortgage note would render further
operations by the registrant impossible
16
ITEM 4. - Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. - Other Information.
Not applicable.
ITEM 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index immediately following the signature
page.
(b) Reports on Form 8-K. A copy of the Company's report on Form 8-K,
filed October 28, 2003, is attached.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 2003 MIMBRES VALLEY FARMERS
ASSOCIATION, INC.
/s/ Shelby C. Phillips, President and Chief
Executive Officer (Principal Executive Officer)
/s/ Janet Robinson, Chief Financial Officer
(Principal Accounting Officer)
17
EXHIBIT INDEX
Exhibit Nature of Exhibit Page Number
3.1 Articles of Incorporation Incorporated by reference
3.2 Bylaws Incorporated by reference
4.1 Specimen of Stock Certificate Incorporated by reference
31.1 Certification by Chief Executive Officer
31.2 Certification by Chief Financial Officer
32.1 Certification by Chief Executive Officer
and by Chief Financial Officer
99.1 Form 8-K Filed October 28, 2003
18