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 December 31, 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
Yes[X] No [ ]
As of December 31, 2003, 13,525.47 shares of Common Stock Mimbres
Valley Farmers Association, Inc. (Farmers or the Company) were outstanding.
Traditional small business disclosure format: Yes [ ] No [X]
MIMBRES VALLEY FARMERS ASSOCIATION, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of
December 31, 2003 and June 30, 2003 1
Statements of Operations and Retained Deficit
for the three months and six months ended
December 31, 2003 and 2002 3
Statements of Cash Flows for the six months
ended December 31, 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
December 31, 2003 and June 30, 2003
ASSETS
UNAUDITED AUDITED
At At
December 31, 2003 June 30, 2003
----------------- -------------
Current Assets
Cash and cash equivalents $ 40,968 $ 110,855
Accounts receivable, net of
allowance for doubtful accounts,
December 31, 2003, $14,076 and
June 30, 2003, $9,263
Trade 19,584 18,673
Related parties 3,758 4,341
Other 5,599 3,886
Inventories 555,225 617,995
Prepaid expenses 64,487 72,967
----------------- -------------
Total current assets 689,621 828,717
----------------- -------------
Property and Equipment, net 1,051,410 1,129,837
----------------- -------------
Other Non-Current Assets
Intangible assets 319,686 319,686
Other assets 212 427
Deferred income tax asset 631 631
----------------- -------------
Other non-current assets, net 320,529 320,744
----------------- -------------
Total assets $ 2,061,560 $ 2,279,298
================= =============
See accompanying notes to financial statements.
1
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Balance Sheets
December 31, 2003 and June 30, 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
UNAUDITED AUDITED
At At
December 31, 2003 June 30, 2003
----------------- -------------
Current Liabilities
Current portion of notes payable $ 1,136,981 $ 1,189,815
Note payable - related party 288,749 294,070
Current portion of capital leases payable 9,794 11,168
Bank overdraft 90,446 -
Accounts payable 677,107 504,691
Accrued expenses payable 119,089 140,904
----------------- -------------
Total current liabilities 2,322,166 2,140,648
----------------- -------------
Non-current Liabilities
Capital leases payable,
less current portion above 2,081 6,535
----------------- -------------
Total non-current liabilities 2,081 6,535
----------------- -------------
Total Liabilities 2,324,247 2,147,183
----------------- -------------
Shareholders' Equity
Common stock, $25 par value;
20,000 authorized: 13,915 issued
and 13,525 outstanding 347,875 347,875
Retained deficit (604,652) (210,330)
Less: 390 shares treasury stock (5,910) (5,430)
----------------- -------------
Total shareholders' equity (262,687) 132,115
----------------- -------------
Total liabilities and shareholders' equity $ 2,061,560 $ 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 and six months ended December 31, 2003 and 2002
UNAUDITED
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
-------------------- -------------- ------------------ --------------
Net sales and gross revenue $ 1,895,462 $ 2,667,842 $ 4,133,335 $ 5,397,209
Cost of sales 1,582,987 2,132,960 3,472,784 4,291,951
-------------------- -------------- ------------------ --------------
Gross profit 312,475 534,882 660,551 1,105,258
Selling, general and
administrative expenses 508,815 607,293 1,089,413 1,188,594
-------------------- -------------- ------------------ --------------
Operating loss (196,340) (72,411) (428,862) (83,336)
Other income (expense)
Rental income 33,860 34,238 69,090 66,703
Fees and commissions 15,773 16,709 34,296 35,562
Other income (expense) 1,007 3,936 3,247 5,315
Interest expense (36,337) (33,600) (72,093) (65,224)
-------------------- -------------- ------------------ --------------
Loss from continuing operations, net
of income tax benefit of -0- (182,037) (51,128) (394,322) (40,980)
Discontinued Operations
Loss from operations of discontinued
feed segment, net of
income tax benefit of -0- - (37,504) - (51,975)
-------------------- -------------- ------------------ --------------
Net loss (182,037) (88,632) (394,322) (92,955)
Retained deficit
Beginning of the period (422,615) (93,893) (210,330) (89,570)
-------------------- -------------- ------------------ --------------
End of the period $ (604,652) $ (182,525) $ (604,652) $ (182,525)
==================== ============== ================== ==============
Basic and diluted loss per common share:
Income (loss) from:
Continuing operations $ (13.46) $ (3.71) $ (29.06) $ (2.97)
Discontinued operations - (2.72) - (3.77)
-------------------- -------------- ------------------ --------------
$ (13.46) $ (6.43) $ (29.06) $ (6.74)
==================== ============== ================== ==============
See accompanying notes to financial statements.
3
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Statements of Cash Flows
For the six months ended December 31, 2003 and 2002
UNAUDITED
Six Months Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Cash flows from operating activities
Net loss $ (394,322) $ (92,955)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 79,370 87,924
Gain on sale of fixed assets (1,313) (4,406)
Property and equipment additions in
accounts payable - (2,138)
Changes in assets and liabilities:
Accounts receivable (2,041) (10,207)
Inventories 62,770 (10,404)
Prepaid expenses 8,480 38,542
Other assets 215 -
Accounts payable 172,416 (91,211)
Accrued expenses (21,815) 8,124
----------------- -----------------
Net cash used by operating activities (96,240) (76,731)
----------------- -----------------
Cash flows from investing activities
Additions to property and equipment, net (4,493) (105,971)
Purchase of Liquor License - (319,686)
Sale of fixed assets 4,383 7,058
----------------- -----------------
Net cash used by investing activities (110) (418,599)
----------------- -----------------
Cash flows from financing activities
Proceeds from long-term financing - 99,825
Repayment of related party note payable (5,321) 300,000
Repayment of notes payable and capital leases (58,662) (53,880)
----------------- -----------------
Net cash provided (used) by financing activities (63,983) 345,945
----------------- -----------------
Decrease in cash (160,333) (149,385)
Cash at beginning of period 110,855 257,956
----------------- -----------------
Cash at end of period $ (49,478) $ 108,571
================= =================
Reconcilation to Balance Sheet:
Cash and cash equivalents $ 40,968 $ 108,571
Bank overdraft (90,446) -
----------------- -----------------
$ (49,478) $ 108,571
================= =================
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 December 31, 2003 (unaudited) and June 30, 2003 (audited), the
results of operations for the three month and six month periods
ending December 31, 2003 and 2002 (unaudited) and the statements of
cash flows for the six month periods ending December 31, 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
six months ended December 31, 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 December 31,
2002 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 products and 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 and six
months ended December 31, 2003 and 2002. Administrative overhead
that is not attributable to any particular segment has been
allocated based on the net revenues of the segments.
Continuing Discontinued
IGA Grocery Mini-Mart Other Operations Operations Total
------------- ----------- ------- ------------ -------------- -----------
Segment data
Six months ended:
DECEMBER 31, 2003
Revenues $ 3,456,366 $ 676,969 $ - $ 4,133,335 $ - $4,133,335
Other Income, net 25,891 10,207 70,535 106,633 106,633
Net revenues 3,482,257 687,176 70,535 4,239,968 - 4,239,968
Income (loss)
from segment (394,723) (20,268) 20,669 (394,322) - (394,322)
Depreciation 33,829 5,016 40,525 79,370 - 79,370
Interest expense 59,210 11,686 1,197 72,093 - 72,093
DECEMBER 31, 2002
Revenues $ 4,502,340 894,869 $ - $ 5,397,209 $ 185,607 $5,582,816
Other income, net 25,472 9,668 72,440 107,580 - 107,580
Net revenues 4,527,812 904,537 72,440 5,504,789 185,607 5,690,396
Income (loss)
from segment (53,073) (9,745) 21,838 (40,980) (51,975) (92,955)
Depreciation 37,376 4,977 41,652 84,005 3,919 87,924
Interest expense 51,899 10,371 2,954 65,224 - 65,224
Continuing Discontinued
IGA Grocery Mini-Mart Other Operations Operations Total
------------- ----------- ------- ------------ -------------- -----------
Segment data
Three months ended:
DECEMBER 31, 2003
Revenues $ 1,574,228 $ 321,234 $ - $ 1,895,462 $ - $1,895,462
Other Income 11,887 4,397 34,356 50,640 - 50,640
Net revenues 1,586,115 325,631 34,356 1,946,102 - 1,946,102
Income (loss)
from segment (171,094) (20,559) 9,616 (182,037) - (182,037)
Depreciation 16,901 2,508 20,276 39,685 - 39,685
Interest expense 29,655 6,051 631 36,337 - 36,337
DECEMBER 31, 2002
Revenues $ 2,236,435 $ 431,407 $ - $ 2,667,842 $ 92,862 $2,760,704
Other income, net 11,927 4,589 38,367 54,883 - 54,883
Net revenues 2,248,362 435,996 38,367 2,722,725 92,862 2,815,587
Income (loss)
from segment (44,122) (19,782) 12,776 (51,128) (37,504) (88,632)
Depreciation 17,728 2,532 24,545 44,805 1,959 46,764
Interest expense 26,827 5,216 1,557 33,600 - 33,600
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:
Six Months Ended
December 31,
2003 2002
--------- ---------
Cash payments for interest $ 72,093 $ 65,224
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.
7
Mimbres Valley Farmers Association, Inc.
dba Farmers, Inc.
Notes to Unaudited Financial Statements
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
December 31, 2002 financial statements as a loss from discontinued
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.
During the quarter ended December 31, 2003, the Company, with the
approval of its board of directors, repurchased 48 shares of its
own stock at an aggregate cost of $480.
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 $217,738, or 9.55%, to $2,061,560 at December 31, 2003, from
$2,279,298 at June 30, 2003. Cash decreased by $69,887, or 63.04%
to $40,968 from $110,855 at June 30, 2003. The decrease in cash was
the result of the large net operating loss experienced during the
first two quarters of the fiscal year. Accounts receivable trade
increased by $911, or 4.88% to $19,584 from $18,673. Other
receivables increased $1,713, or 44.08% to $5,599 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 decreased $583, or 13.43% to $3,758 from $4,341
at June 30, 2003. All related party receivables are current as of
December 31, 2003. Inventory decreased by $62,770, or 10.16%, to
$555,225 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 decreased by $8,480, or 11.62%
to $64,487 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 $79,370 in depreciation expense
and related accumulated depreciation during the six months ended
December 31, 2003.
9
Total liabilities increased by $177,064, or 8.25%, to $2,324,247 at
December 31, 2003 from $2,147,183 at June 30, 2003. The increase
resulted primarily from the increase in accounts payable. Accounts
payable increased by $172,416, or 34.16% to $677,107 from $504,691
at June 30, 2003, due to the tightening cash position. In addition,
the Company recorded a $90,446 bank overdraft as of December 31,
2003 compared to no bank overdraft recorded at June 30, 2003. The
increase in the bank overdraft is due to the tightening cash
position and recorded operating losses for the first two quarters
of the fiscal year. Loans, notes and capital leases payable
decreased $63,983, or 4.26% to a total of $1,437,605 from
$1,501,588 at June 30, 2003. The Company continued to pay all debt
payments in accordance with the original agreements during the
first two quarters of the fiscal year. Accrued expenses decreased
by $21,815, or 15.48% to $119,089 from $140,904 at June 30, 2003.
Total shareholders' equity decreased $394,802, more than 298% to
$(262,687) from $132,115 at June 30, 2003. The decrease was the
result of operating losses for the first six months of fiscal year
2004.
Comparison of Operating Results for the Three Months Ended
----------------------------------------------------------------
December 31, 2003 and 2002
------------------------------
General - Revenues from continuing operations decreased for the
three months ended December 31, 2003 by $772,380, or 28.95% to
$1,895,462 from $2,667,842 for the three months ended December 31,
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 six months ended December 31, 2003. Net
loss from continuing operations increased by $130,909, to net loss
of $182,037 for the three months ended December 31, 2003 from net
loss of $51,128 for the three months ended December 31, 2002.
IGA Grocery - Revenues decreased for the three months ended
December 31, 2003 by $662,207, or 29.61% to $1,574,228 from
$2,236,435 for the three months ended December 31, 2002. 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 six months ended December
31, 2003. Net loss from the segment increased $126,972 to a net
loss of $171,094 from net loss of $44,122 for the three months
ended December 31, 2002. This increase in net loss resulted
primarily from the changing of a major supplier and the related
sale of old vendor merchandise at cost or below.
Mini-Mart - Revenues decreased for the three months ended December
31, 2003 by $110,173, or 25.54% to $321,234 from $431,407, caused
in part by fluctuations in fuel prices, and further affected by the
opening of the Super WalMart.
Net loss increased by $777 to a net loss of $20,559 from a net loss
of $19,782 for the three months ended December 31, 2002.
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.
Comparison of Operating Results for the Six Months Ended
----------------------------------------------------------------
December 31, 2003 and 2002
------------------------------
General - Revenues from continuing operations decreased for the six
months ended December 31, 2003 by $1,263,874, or 23.42% to
$4,133,335 from $5,397,209 for the six months ended December 31,
2002. Management believes the overall decrease in revenues to
10
be attributable to the continuing depressed economic conditions in
Deming and Luna County generally, compounded by the opening of
Super WalMart during the six months ended December 31, 2003. Net
loss from continuing operations increased by $353,342, to net loss
of $394,322 for the six months ended December 31, 2003 from net
loss of $40,980 for the six months ended December 31, 2002.
IGA Grocery - Revenues decreased for the six months ended December
31, 2003 by $1,045,974, or 23.23% to $3,456,366 from $4,502,340 for
the six months ended December 31, 2002. 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 six months ended December 31, 2003. Net
loss from the segment increased $341,650 to a net loss of $394,723
from net loss of $53,073 for the six months ended December 31,
2002. This increase in net loss resulted primarily from the
changing of a major supplier and the related sale of old vendor
merchandise at cost or below.
Mini-Mart - Revenues decreased for the six months ended December
31, 2003 by $217,900, or 24.35% to $676,969 from $894,869, caused
in part by fluctuations in fuel prices, and further affected by the
opening of the Super WalMart.
Net loss increased by $10,523 to a net loss of $20,268 from a net
loss of $9,745 for the six months ended December 31, 2002.
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
----------------------------------
The Company is in the process of selling the liquor license
currently owned by the Company and leasing a different type of
license. Although the proposed lease is for a different type of
license, the IGA Grocery Store's liquor department will not be
affected. The new license allows both package sales (off premises)
and open drink sales (on premises). Management is currently
studying the feasibility of opening a lounge in the unused space in
the back of the grocery store to utilize the dual capability of
the leased license.
11
Recent and Current Developments (continued)
----------------------------------
As previously reported, the Company continues to lose money from
operations and its current financial condition is critical, with
cash and inventories down and payables up. Its principal monetary
obligation, a mortgage note with a principal balance over
$1,000,000, has been in default for some time. The last stated
maturity was 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.,
accepted a few post maturity installment payments while the
registrant sought other financing.
Several times in the fall of 2003 and the winter of 2003-2004, the
holder threatened to avail itself of "aggressive alternatives that
are allowed to us under the current modification and the mortgage".
Presumably this had reference to a legal action to foreclose the
mortgage. However, as of the date of this report, the registrant
has not been notified of the commencement of any foreclosure
proceedings against it. Instead, representatives of the holder have
visited the registrant's stores as recently as January 21, 2004,
and offered advice and assistance in attempting to keep the
operations open, without waiving any of the holder's rights under
the note and mortgage.
One of the loan brokers the registrant has been working with in
California has forwarded a financing proposal which seems to be
acceptable. There are a few more items that need to be resolved but
at this time the prospects look good for refinancing. The
registrant's sales and profits continue to be adversely impacted by
the entrance of a Super WalMart into the Deming market. The
transition to a lower volume has been difficult to adjust to,
especially the cash flow. About 20 months ago the Company hired a
person to establish a perpetual inventory and keep its margins
adequate. When the cash flow crunch hit, the Company looked at the
margins and realized they had eroded to the point where the Company
was losing money. That person has since left the Company. To combat
the crisis, the Company let 11 employees go and reduced purchases.
The chief executive officer of the Company has taken a voluntary
twenty-five percent (25%) pay cut for an indefinite period of time.
The Company's accounts payable are aging but most of its vendors
have been very understanding and have continued to work with it
through the crisis. Another space in the mall has been leased and
at this time there is only one vacancy. The company has been
approached by a concern that wants to put in a call center in the
old hardware area. The new liquor license allows both package and
open drinks to be consumed on premises. Since the Company will now
have that capability we are studying the feasibility of putting in
a lounge in part of the unused space in the back of the store.
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.
12
Recent and Current Developments (continued)
----------------------------------
The Board of Directors received a letter of resignation from Leone
Anderson, a director of the Company since 1997, effective January
29, 2004. The resignation, which also included the termination of
her service as Secretary-Treasurer of the Company, was not the
result of disagreement with Company policy or any other matters.
Management and the other directors are grateful to Ms. Anderson for
her years of faithful, diligent and loyal service to the Company.
At this time, no replacement has yet been named.
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 December 31, 2003 was $288,749.
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,
which is due on demand, but if no demand is made has 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. Due to the demand feature of the loan, the entire balance
is reported as a current liability.
Prior to December 31, 2003, the Company had committed to four
capital leases. Future maturities of capital leases as of December
31, 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 $ 11,875 $ 9,794 $ 2,081 $ - $ -
13
Work Force
-----------
As of December 31, 2003, Farmers had 77 employees, 51 full time and
26 part time. Subsequent to December 31, 2003, the Company further
reduced the workforce to a current level of 67 total employees, 59
full time and 8 part time as a result of further cost cutting
efforts.
Rental Properties
------------------
The Company maintains rental properties as part of its operations.
Currently, only one available property is unoccupied.
Economic Conditions
--------------------
The operations and financial condition of the Company 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 the Company 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
As previously reported, the Company continues to lose money from
operations and its current financial condition is critical, with
cash and inventories down and payables up. Its principal monetary
obligation, a mortgage note with a principal balance over
$1,000,000, has been in default for some time. The last stated
maturity was 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.,
accepted a few post maturity installment payments while the
registrant sought other financing.
Several times in the fall of 2003 and the winter of 2003-2004, the
holder threatened to avail itself of "aggressive alternatives that
are allowed to us under the current modification and the mortgage."
Presumably this had reference to a legal action to foreclose the
mortgage. However, as of the date of this report, the registrant
has not been notified of the commencement of any foreclosure
proceedings against it. Instead, representatives of the holder have
visited the registrant's stores as recently as January 21, 2004,
and offered advice and assistance in attempting to keep the
operations open, without waiving any of the holder's rights under
the note and mortgage.
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. None
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: February 13, 2004 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 Chief Financial Officer
18