SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------------
For the fiscal year ended August 31, 1996
Commission File No. 01-19001
MILLER DIVERSIFIED CORPORATION
--------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1070932
------------------------ -------------------
(State or other jurisdic- (I.R.S. Employer
tion of incorporation or Identification No.)
organization)
Mailing Address:
P. O. BOX 937
La Salle, Colorado 80645
23360 Weld County Road 35
La Salle, Colorado 80645
------------------------------------
(Address of Principal Executive Office)
Registrant's telephone number including area code: (970) 284-5556
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
---------------
Title of Class
Indicate by checkmark whether the registrant (1) has filed all reports required
to have been filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B if not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. X
Registrant's revenues for its most recent fiscal year were $12,194,325.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $811,023.08 based on the closing bid and ask prices as reported
on the NASD Over-the-Counter Bulletin Board on November 22, 1996.
There were 6,364,640 shares of common stock $.0001 par value outstanding as of
August 31, 1996.
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1.DESCRIPTION OF BUSINESS
- ------------------------------
General Development of Business.
- --------------------------------
Miller Diversified Corporation (the Company) is a publicly-held Nevada
corporation that was formed in 1987 as the result of several transactions and
mergers of predecessor companies. In 1987, the Company acquired the commercial
cattle feeding business and some farms of Miller Feed Lots, Inc. (MFL), a
related entity as described later herein. The farms were subsequently sold, but
the Company's principal business is sti ll commercial cattle feeding that is
operated on a feedlot facility and wi th equipment leased from MFL. The Company
formally had four wholly-owned subsidiaries: Miller Feeders, Inc. (MFI),
acquired in 1987; La Salle C ommodity and Cattle Services Co. (LCCS), acquired
in 1990; Genetic Engin eering, Inc. (GEI), acquired in 1992; and Miller Trading
Co. (MTC) for med by the Company in January 1995. A brief description of the
operations or status of each of the subsidiaries is as follows:
1. MFI is a cattle brokerage company that earns commissions from the
purchasing of feeder cattle and selling finished cattle for the
Company's cattle feeding customers, and for brokering certain
"outside" cattle purchases and sales. MFI has the required bond to
enable it to receive and distribute the sales proceeds from the sale
of feeding customers' cattle.
2. LCCS earns fees for the execution of commodities futures and option
contract trades for the Company's cattle feeding customers and others.
As described herein, LCCS was sold to Miller Feed Lots, Inc. in May
1996.
3. GEI was engaged in livestock research and development projects and the
sale of semen and embryos until 1986, when it ceased such operations
due to insufficient revenues and capital. GEI owns approximately 50
acres of land with some buildings and improvements (see Item 2 below)
where its operations were conducted. The Company intends to sell GEI's
real estate (which has been written down). As described herein, GEI
was merged into the Company in July 1996.
4. MTC earns fees for the execution of retail commodities futures and
option contract trades for customers nation wide. MTC was not in
direct competition with LCCS because LCCS is considered, because of
its clientele, to be commercial. As described herein, MTC was sold to
Miller Feed Lots, Inc. in May 1996.
The Company is actively seeking additional acquisition and merger
candidates. Mergers or acquisitions probably would be accomplished by issuing or
exchanging securities of the Company for assets or securities of the company to
be acquired or merged, or by selling its securities to the public and using the
proceeds for an acquisition or merger. Such transactions may be accomplished by
an action of the Board of Directors, with or without a vote of the stockholders,
but, of course, in compliance with the Company's Articles of Incorporation and
Bylaws and applicable laws. The Company does not contemplate any "hostile
takeovers" and intends to acquire other businesses only on a mutually agreeable
basis.
-2-
<PAGE>
The Company is headquartered near La Salle, Colorado at the site of its
cattle feeding operations. La Salle is about 40 miles northeast of Denver,
Colorado in the South Platte River Valley of Weld County.
Products and Services
- ---------------------
The Company's principal business is custom cattle feeding, which is the
selling of feed and services to customers who place their cattle in the
Company's feedlot. Occasionally the Company feeds some cattle for its own
account. Typically, customers are ranchers and exerienced cattle feeders. Cattle
feeding customers are charged for feed consumed by their cattle and a flat
amount per head per day, referred to as "yardage" for use of the feedlot
facilities. Feed sales usually account for 75% to 85% of the Company's revenues.
The Company and its subsidiaries provide complete feedlot services, which
include assisting customers with outside financing, purchasing feeder cattle,
making trucking arrangements, selling finished cattle, and assistance with
hedging transactions. The Company, prior to the sale of LCCS and MTC derived
commissions and fees from buying and selling customers' cattle and executing
hedging transactions.
Most customers have their cattle delivered to the feedlot or authorize the
Company to purchase feeder cattle for them. Feeder cattle are usually delivered
at weights between 500 and 900 pounds. Lighter weight feeder cattle may be
"backgrounded," that is, placed on pasture grazing until they reach the size
that entry into the feedlot is deemed most profitable. Newly-weaned calves are
often placed with local farmers who have sheltered facilities, where they are
fed a growing ration until they reach the desired size to place them in the
feedlot.
Once cattle enter the feedlot to be finished, they are usually fed from
three to six months, depending upon a variety of factors. The customer and
Company's management, often with the assistance of a nutritionist, plan custom
rations for the cattle considering such variables as size, sex, breed, and age
of the feeder cattle. Feed ingredients are purchased by the Company, stored on
the premises, mixed into rations and sold to the customer. The Company marks up
its cost of the feed for sale to customers. The customer is invoiced at least
twice per month for feed and yardage, and payment is due upon receipt of the
invoice except for ingredients the customer may have prepaid. The Company
follows certain procedures in managing its operations which include among
others: (a) physically identifying cattle as they are delivered by brand or ear
tags so that all customers' cattle are distinguishable; (b) all cattle, feed,
and funds of customers are strictly accounted for with specifiC identification
utilizing sophisticated computerized methods; (c) billing procedures are fully
automated and current so that customers are sent an itemized billing with a
complete breakdown of costs for each lot of cattle they own; (d) weighing of all
feed and cattle to be sold is done on sealed scales,certified by the Colorado
Department of Agriculture; (e) environmental standards of the feedlots are
maintained to exceed all government regulation; and (f) adhering to all laws and
regulations pertaining to the cattle feeding industry. Cattle fed at the
Company's feedlot are given growth promotents unless otherwise requested by the
customer.
Once cattle reach finished weights, it is not economically feasible to hold
and feed those animals any longer, as further weight gains do not justify
additional feed and feedlot costs. As a result, cattle feeders are subject to
prevailing market prices of cattle at the time of finishing.
-3-
<PAGE>
When the cattle are finished, the Company often delivers them to a
purchaser (usually a meat packer) designated by the customer or assists the
customer in selling the cattle. Finished cattle are sold to any of several
packers, most of whom have buyers who visit the Company's feedlot on a regular
basis. One major meat packing plant is about 15 miles from the Company's
feedlot.
Feeder cattle, finished cattle, and feed are moved by truck, and excellent
trucking services are available because Weld County is a major feed crop and
cattle feeding area. The Company's cattle feeding business is somewhat seasonal
because most calves from the Rocky Mountain and northern plains areas are weaned
and ready to go to a feedlot in the fall. The cows are bred to calve in the
spring and wean their calves in the fall. However, the Company can and does
purchase feeder cattle from southern and west coast ranches at nearly any time
of the year.
The Company has no backlog of orders for its products or services and does
not anticipate any significant backlog of orders in the foreseeable future. The
Company did no research relating to the development of new products or services
during the last fiscal year. No new products will be introduced in the coming
year, and no employees will be engaged in research or new product development
during the next year.
Raw Materials
- -------------
The Company's main raw materials are cattle feed consisting primarily of
silage, hay, corn (or wheat), protein supplement, Bio-maize (a by-product of
corn sweetner production) and other minor ingredients. The Company purchases
most of its feed from local farmers or brokers. Northern Colorado, which
includes Weld County, is a major crop production area with a reputation for
quality crops and consistent yields. Becausemost of the land is irrigated, local
farmers do not have to depend exclusively on rainfall, and drought is not often
a factor. Shortages of feed crops are rare in the United States, and especially
in Weld County.
While there have been significant price fluctuations for certain feed
ingredients, especially corn, shortages have not developed. Although most feed
comes from local sources, excellent truck and rail systems give the Company
access to feed produced in Nebraska and Iowa.
Major Customers
- ---------------
During the fiscal year ended August 31, 1996, the Company had two customers
that accounted for more than 10% of the Company's consolidated revenues. Sales
to those customers totalled $8,021,853 or 66% of total revenues.
During the fiscal year ended August 31, 1995, the Company had two customers
that accounted for more than 10% of the Company's consolidated revenues. Sales
to these customers totalled $4,037,501 or 43% of total revenues.
Competition
- -----------
Custom cattle feeding is a highly competitive business in which stability
and quality services and facilities are more important than size. The Company's
feedlot is well laid out and in good repair, and, therefore, "shows well" to
customers. The Company's management has been engaged in cattle feeding at the
-4-
<PAGE>
site of the Company's feedlot for over 20 years and is known for stable, quality
operations. The Company offers a full range of feedlot services, as described
above, and seeks to be attentive to the inquiries and wishes of customers. The
Company has an active marketing program of calls, visits, mailings, and seminars
directed at attracting and developing new customers. Some customers have been
with the Company for many years because they have received good service.
However, other custom feeders, some with greater resources, are also engaged in
marketing programs which often are directed at the same customers the Company is
seeking. The Company's strategy is to provide complete quality service, conduct
feeding operations to optimize the customers' cattle weight gains at the lowest
cost possible, and continuously seek new customers to maintain and increase its
competitive position.
Government Regulations
- ----------------------
The Company is subject, directly and indirectly, to various Federal and
State governmental regulations in its operations. The U.S. Food and Drug
Administration is responsible for regulating the use of animal growth promotents
and veterinary drugs, medicines, and vaccines.
The U.S. Department of Agriculture is responsible for regulating certain
other aspects of the agriculture business in which the Company may be engaged.
Specifically, the activities of Miller Feeders, Inc. are subject to the Packers
and Stockyards Act of 1921, as amended, and regulated by the Packers and
Stockyards Administration. The Environmental Protection Agency is responsible
for minimizing the environmental impact of animal pollutants. The Company does
not believe it incurs any expenses in addition to its normal operating costs to
specifically meet the requirements of environmental laws. Since some of the
Company's customers participate in commodity futures transactions, certain
activities may come under the jurisdiction of the Chicago Mercantile Exchange on
livestock transactions, the Chicago Board of Trade on grain transactions, and
the Commodity Futures Trading Commission and National Futures Association which
oversees compliance on futures transactions. In addition, the Company is or may
be subject to other regulations such as changes in freight rates, increases or
decreases in exports or imports, and animal health inspection and brand
inspection.
Employees
- ---------
The Company employs between 25 and 35 persons at any given time. As of
November 15, 1996, the Company had 32 employees.
ITEM 2. PROPERTIES
- ------------------
On February 1, 1991, the Company executed a 25-year lease with an
affiliated company, Miller Feed Lots, Inc. (MFL) to lease its feedlot facilities
(the Facilities). All of the common stock of MFL is owned by Norman M. Dean and
James E. Miller, who are officers and directors of the Company. Initially, the
Facilities consisted of two feedlots with a total capacity of 35,000 head.
However, effective August 1, 1992, the Company amended its lease with MFL to
lease only one of the two feedlots that has a capacity of approximately 20,000
head of cattle. As a result of the amendment, the Company reduced its capital
lease asset, net of accumulated amortization, and reduced its long-term capital
lease obligation, to reflect the elimination of one of the feedlots. The Company
will continue to lease one feedlot for the remainder of the 25-year term at the
-5-
<PAGE>
same monthly rent of 2 1/3 Cents per head per day, but with a minimum of $10,750
and maximum of $13,300 per month. The Company has an option to purchase the
feedlot it leases for $1,300,000. The lease requires that the Company pay for
all property taxes, insurance, and maintenance on the Facilities being leased.
In the opinion of management, the leased facilities are adequately covered by
insurance.
As mentioned above, GEI which became a wholly-owned subsidiary of the
Company in August 1992, was merged into the Company in July 1996 and is now
operated as a division of the Company. This division includes approximately 50
acres of land in Thornton, Colorado, just north of Denver along the east side of
Interstate 25 at the intersection of 136th Street. On the land are barns,
stables, sheds, corrals, modular homes, and a laboratory/office building that
were used in GEI's operations. This division also owns shares in an irrigation
and reservoir company (the "water shares") that provide water rights for the
property. Presently, the barns, stables, and corrals are being rented for
boarding of horses and other livestock, and a home is being rented as a
residence. At August 31, 1993 the property had a book value of $1,080,913 and
was listed for sale for $1,200,000 including water rights. At the request of a
prospective purchaser, the Company had an independent appraisal on the property
prepared. The appraiser's report dated March 4, 1994 indicated the value of the
property was $700,000, excluding the separately classified water shares that
have a value of about $120,000. Therefore, in 1994, the book value of the
property was written down by $380,913. The property, including the water shares,
is now listed for sale for $820,000. The rental income derived from the property
is not a major revenue source and does not meet the expenses of maintaining the
property. The rental operations are just a part of a caretaking function to
offset some of the expenses of holding the property until it can be sold.
The property taxes on the leased feedlot Facilities amounted to $3,812 for
the year ended August 31, 1996, based on the mill levy of .073769. The Company
also paid property taxes on the GEI property held for sale of $11,935, based on
the mill levy of .108432 for the same period.
The Company does not have any specific restrictions on the types of real
estate it may own or the percentages of assets that may be invested in any one
investment, nor on the incurrence of debt or lease obligations to acquire
properties. However, management does not intend to invest in any commercial,
residential, or other properties that would be rented to tenants to derive
income from the property investment. Further, management does not intend to
invest in any real estate mortgages or securities of entities primarily engaged
in real estate activities. The Company has no plans for the major renovation,
improvement, or development of its leased feedlot Facilities or other
properties.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
In August of 1994, Charles Srebnik, formerly a principal stockholder of
GEI, brought suit against the Company in the United States District Court for
the Southern District of New York (case number 94CF5839) for $238,237 for
amounts allegedly loaned to GEI as summarized in a letter of agreement between
the parties dated February 4, 1992. Another lawsuit was also filed in the
District Court for Adams County, Colorado (case number 94CV1001) in August 1994,
in which Mr. Srebnik sought no monetary damages, but did seek a Deed of Trust
against GEI's property as security for amounts allegedly owed pursuant to the
New York lawsuit. The Company settled both of the lawsuits in April 1996 for
cash, inventories and patents valued at $226,117.
-6-
<PAGE>
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ----------------------------------------------------------
No matters were submitted to a vote of the stockholders in the fourth
quarter of the fiscal year covered by this Annual Report.
-7-
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------------------------
The number of record holders of the Company's common stock as of August 31,
1996, was 1,477 according to information furnished by the Company's transfer
agent.
The following table sets forth the high and low bid quotations for the
Company's common stock, as reported by the National Quotation Bureau, Inc.
Accordingly, the stock quotations listed below are not necessarily indicative of
future trading activity or price trends.
Quarter Ended High Bid Low Bid
------------- -------- -------
1995
----
November 30, 1994 $ .05 $ .03
February 28, 1995 $ .03 $ .03
May 31, 1995 $ .06 $ .03
August 31, 1995 $ .05 $ .04
1996
----
November 30, 1995 $ .04 $ .02
February 29, 1996 $ .04 $ .02
May 31, 1996 $ .10 $ .02
August 31, 1996 $ .10 $ .05
The above prices are believed to be representative interdealer quotations,
without retail markup, markdown, or commissions, and may not represent actual
transactions. The Company's stock is traded on the NASD Over-the-Counter
Bulletin Board.
The Company has not paid any dividends on its common stock and the Board of
Directors presently intends to continue a policy of retaining earnings for use
in the Company's operations and to finance expansion of its business. The
declaration and payment of dividends in the future, of which there can be no
assurance, will be determined by the Board of Directors in light of conditions
then existing, including earnings, financial condition, capital requirements,
and other factors. The terms of the Company's preferred stock give it a
preference on the payment of dividends in any given year, but such dividends are
noncumulative. There are currently no Preferred Shares issued and outstanding.
No leasing, financing, or similar arrangements to which the Company is a p arty
preclude or limit in any manner the payment of any dividend.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations for the Fiscal Year Ended August 31, 1995 as Compared to
the Fiscal Year Ended August 31, 1995
- --------------------------------------------------------------------------------
The Company had a net income of $387,501 for the fiscal year ended August
31, 1996 as compared to a net income of $158,135 for the prior fiscal year.
During the current fiscal year, the Company had two non-recurring incomes
totaling $115,289. These non-recurring incomes were (1) $95,289 profit realized
from the settlement of the obligation payable and associated lawsuites of Mr.
Srebnik as noted previously and further detailed below and (2) $20,000 profit
realized from the sale of the Company's subsidiaries LaSalle Commodity and
Cattle Services Co. and Miller Trading Co. as previously noted.
-8-
<PAGE>
Key factors that affect revenues and profits from cattle feeding operations
are average numbers of head per day in the feedlot (average head days) and gross
profit percentages on feed and feedlot service sales. Average head days are
important because the "cattle days " are the basis for feed sales and yardage
charges. The average head days for the year ended August 31, 1996 were 15,205 as
compared to 14, 404 for the previous fiscal year, an increase of 801, or 5.6%.
The following is a comparison of the gross profit and percentages on feed
and other sales between the year ended August 31, 1996 and the previous year:
Years Ended August 31
------------------------- Increase
1996 1995 (Decrease)
---------------------------------------
Feed and other sales $10,266,044 $7,042,252 $3,223,792
Cost of feed and other sales 9,370,924 6,327,246 3,043,678
Gross profit $ 895,120 $ 715,006 $ 180,114
Gross profit percentage 8.7% 10.2% (1.5%)
Feed sales volume increased while the gross profit percentage decreased for the
year ended August 31, 1996. The 45.8% sales volumn increase is the result of
several factors.
1. The 5.6% increase in average head days meant more cattle were fed.
2. The price of the ingredients were higher for the year ended August 31,
1996 due to adverse weather conditions in Texas and the Corn Belt
region.
3. The types of the rations fed during the current ye ar contained more
of the higher priced ingredients due to the heavier weight of the
cattle fed.
The gross margin percentage decreased due to management's decision to lower
the gross profit on certain ingredients during the time that ingredient prices
were high to keep the cost to the customers down to maintain the Company's
competitive edge and due to increased levels of customer advance feed contracts.
The advance feed contracts are used, in part, by the customers to stabilize
their ingredient cost which as the effect of lowering the Company's profit
margin on the contracted ingredient.
A comparison of the gross profit and percentages on sales of feedlot
services between the two fiscal years is as follows:
Years Ended August 31
------------------------ Increase
1996 1995 (Decrease)
--------------------------------------
Feedlot sevices sales $ 1,449,107 $1,944,043 $ (494,936)
Cost of feedlot services 1,183,245 1,609,325 (426,080)
Gross profit $ 265,862 $ 334,718 $ (68,856)
Gross profit percentage 18.4% 17.2% 1.2%
The feedlot services revenues and costs decreased for the year ended August
31, 1996 as compared to the prior year due to a reduction in the fall calf
program sales and cost of sales, as discussed below, of $495,787.
-9-
<PAGE>
Although the average head days increased 5.6%, the associated yardage
charges decreased $10,156 due to a pricing policy with certain customers that
transfers revenues from feedlot services to feed sales. Revenue from the
processing of grain increased $11,007 due to the changes in the types of
ingredients sold as described above. This decrease is the re sult of the
decrease of 1,300 head in the fall calf program to 2,100 head for the year ended
August 31, 1996 compared to about 4,200 the prior fiscal year. Although the cost
of feedlot services decreased $426,080 for th e year ended August 31, 1996 as
compared to the prior year, the cost of t he fall calf program decreased
$495,787 as described above. The remaining $69,707 increase in costs of feedlot
services can be attributed to additional costs associated with the increased
head numbers, such as payroll and equipment rents, which are more fixed in
nature and not affected by the changes in ingredients.
As a service to customers, the Company purchases calves for them as they
are weaned in the fall and places them with local farmer-feeders who feed and
care for them until the following February or March when they are transferred to
the Company's feedlot. These fall calf programs are undertaken on essentially a
break-even basis; that is, the amounts paid to the farmer-feeders are about the
same as the amounts charged to the customers.
Other revenues increased $130,028 for the year ended August 31, 1996 as
compared to the prior fiscal year. Of this increase in other revenues, $95,289
is the result of the settlement of the lawsuits brought by Mr. Srebnik as
described in Item 3. - Legal Proceedings above. This increase is the result of
$20,000 profit earned in the sale of LCCS and MTC as well as increases and
decreases in various commissions earned by MFI, LCCS, and MTC.
Interest income increased $5,954 for the year ended August 31, 1996, as
compared to the prior fiscal year primarily as a result of increased customer
accounts receivable financing, in which the Company "carries" certain customers'
feedlot charges until the cattle are market ed. Interest expense decreased
$18,578 for the year ended August 31, 1996, as compared to the prior fiscal year
primarily because of faster collections on feeder cattle sales accounts
receivable. Interest revenue from a related party decreased $1,389 for the year
ended August 31, 1996 as co mpared to the prior fiscal year as the result of
decreasing balances in the interest-bearing notes receivable from the related
party. Interest expense on capital leases from a related party decreased $8,048
for the year ended August 31, 1996 as compared to the prior year as the result
of the decreasing balances on the equipment and facilities capital leases from
the related party.
Sales, general, and administrative expenses increased $99,114 for the
fiscal year ended August 31, 1996 as compared to the prior fiscal year.
This increase is the net result of increases and decreases in a number of
expenses. The following are the most significant increases and decreases for the
fiscal year ended August 31, 1996 as compared to the prior fiscal year:
Increase
(Decrease)
1. Commissions expense $ 43,783
2. Death loss adjustments 39,289
3. Employee medical, dental and life insurance 16,412
-10-
<PAGE>
The Company incurred a net income tax benifit of $32,551 on pretax income
of $354,950 for the year ended August 31, 1996 due to recording of a deferred
income tax benifit of $124,018. The deferred income tax benifit is the result of
the merger of the Company and GEI. The merger necessiated the recording of
future benifits the Company will receive as the result of net operating loss
carry forwards. With out this non-recurring event, the Company would have
recorded an income tax expense of $91,467 (or 25.7%). This compares to an income
tax expense of $23,452 (or 12.9%) on pre-tax earnings of $181,587 for the year
ended August 31, 1995.
Income taxes as a percentage of pretax income was less than the prevailing
corporate rates for the years ended August 31, 1996 and August 31, 1995 as a
result of the changes in the deferred tax asset valuation allowance and other
factors as described in Note 7 of Notes to Consolidated Financial Statements.
Management does not believe there are any potential lawsuits that will have
a negative effect upon earnings for the year ending August 31, 1996. The
lawsuits pending for the year ended August 31, 1995 with Mr. Srebnik, as
previously noted, were settled during the current year and did not have a
negative effect upon earnings.
Management expects the level of average head day numbers to remain fairly
stable in the foreseeable future, with additional placements by related parties
and existing and new customers. The Company is continuing its efforts to solicit
new customers to reduce the effect of related party and Company-owned cattle.
Although fed cattle prices are still relatively low compared to prior periods,
the cost of feeder cattle has declined to a level more in line with projected
fed cattle prices.
Liquidity and Capital Resources
- -------------------------------
For the year ended August 31, 1996, cash generated internally by operating
activities was $435,267 as compared to funds generated of $157,341 the prior
year, an increase of $277,926. This increase is due to an increase in the cash
received from customers of $3,135,439 which is offset by an increase in the cash
paid to suppliers and employees of $2,793,452, a decrease of $24,577 in interest
paid, a decrease in income taxes refunded of $53,647 and an increase in income
taxes paid of $35,088.
For the year ended August 31, 1996, there was cash provided by investing
activities of $104,600 compared to cash used the prior fiscal year of $107,185,
an increase of $211,785. Most of this change is due to a loan to a related party
of $185,000 during the year ended August 31, 1995 while no additional loans were
made in the current year. Proceeds from the sales of investments, LCCS and MTC,
totaling $44,929 were provided in the year ended August 31, 1996, while there
were no sales of investments during the previous year. The Company also
increased the funds used to acquire equipment $16,288 for the year ended August
31, 1996.
For the fiscal year ended August 31, 1996, cash used by financing
activities was $525,588 as compared to cash used the prior year of $27,230, an
increase of $498,358. This change is the result of three main factors: 1) there
was a reduction in borrowings net of repayments of $574,000 for the year ended
August 31, 1996 as compared to the prior year; 2) proceeds in the amount of
$30,120 from the common stock issued from the exercise of warrants were received
during the year ended August 31, 1996 but none were received the prior year; 3)
cash was provided by the cash overdraft of $16,710 for the year ended August 31,
1996 compared cash used to reduce the cash overdraft of $28,495 to the prior
year, an increase of $45,205 provided.
-11-
<PAGE>
Working capital (current assets minus current liabilities) was $281,511 at
August 31, 1996 as compared to $181,933 a year earlier, an increase of $99,578.
This change is due to the offsets of a number of increases and decreases in
current assets and liabilities.
The $404,760 decrease in trade accounts receivable from August 31, 1995 to
August 31, 1996 is the net result of decreases in feed accounts receivable,
feeder cattle accounts receivable and other miscellaneous accounts receivable.
Feed accounts receivable were $247,188 less at August 31, 1996 than a year
earlier as a result of reductions in accounts the Company "carried" or financed.
This reduced level of financed accounts is related in part to the $516,000
decrease in notes payable. There were no feeder cattle accounts receivable at
August 31, 1996 which was $133,434 less than at August 31, 1995. The increase in
trade accounts receivable from related parties from August 31, 1995 to August
31, 1996 is the result of increased sales to the related parties for the year as
compared to August 31, 1995. Accounts receivable-related parties (from MFL and
its wholly owned subsidiaries) was $74,913 less at August 31, 1996 than at
August 31, 1995. This increase is mainly due to there being less funds advanced
to MFL than its charges to MDC for rents and freight, net of interest charges
and loan payments by MDC. Due to the periodic charges and settlements between
the companies, this balance varies from time to time.
Inventories were $152,137 greater August 31, 1996 than at August 31, 1995
due to two main changes: (1) The inventory of feeder cattle temporarily held for
resale at August 31, 1996 of $86,251 compared to none at August 31, 1995. (2)
Feed ingredient inventories were about $66,000 higher at August 31, 1996 that at
August 31, 1995. Specific ingredient levels will vary on a daily basis depending
on availabily, season and deliveries.
There was a cash overdraft at August 31, 1996 of $16,710 which was
eliminated the next business day. There were no cash overdrafts at August 31,
1995. Trade accounts payable decreased $81,159 from $615,998 at August 31, 1995
to $534,839 at August 31, 1996. This decrease is the result of timing
differences in delivery and payments for various expense items. Accrued income
taxes payable was $86,579 at August 31, 1996 due to the income generated in the
current year, compared to income taxes payable of $30,200 at August 31, 1995, a
increase of $56,379. This increase is due to the increase in the pre-tax
earnings of $173,363. Customer advance feed contracts decreased $19,397 and
customer advance feed contracts-related party increased $25,868 from August 31,
1995 to August 31, 1996. Customers make advance purchases of feed ingredients
for tax purposes and to stabilize their feeding costs.
The Company has a revolving line of credit from a local bank that matures
December 31, 1996 for which there was no outstanding balance at August 31, 1996.
Therefore, the Company had $200,000 in unused credit available under its line of
credit that could be used to gene rate cash if necessary. On June 26, 1996, the
Company obtained a special bank line of credit of up to $300,000 to finance
certain accounts receivable that matures December 31, 1996, for which the
outstanding balance on August 31, 1996 was $160,000. Therefore, at August 31,
1996, the Company had unused credit available under this loan of $140,000. The
Company expects to collect the receivables financed under this loan and to repay
-12-
<PAGE>
such loan by its maturity date. Both of the foregoing loans bear interest at
2.0% over the prime rate (actual rate at August 31, 1996 was 10.25%). The loans
are secured by feed inventories, feed accounts receivable, general intangibles,
and equipment. MFI has a $300,000 revolving line of credit with the same local
bank for the procurement of feeder cattle for resale to customers that matures
December 31, 1996 for which there was no outstanding balance at August 31, 1996.
Therefore, MFI could borrow up to $300,000 to purchase feeder cattle for resale
to customers. MFI's line of credit be ars interest at 2.0% over the prime rate
(actual rate at August 31, 1996 was 10.25%). The line is secured by feeder
cattle inventories and accounts receivable.
The Company had no material commitments for capital expenditures at August
31, 1996.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated future levels.
ITEM 7.FINANCIAL STATEMENTS
- ---------------------------
The Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCONTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
-13-
<PAGE>
PART III
ITEM 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ------------------------------------------------------
Directors
- ---------
The following table sets forth the names of all Directors of the Company as
of November 22, 1996, indicating all positions and offices with the Company held
by each such person.
All Positions and Offices
Name Age Held With the Company
---- --- ---------------------
James E. Miller 58 President, Chief Executive
Officer, Chief Financial
Officer, and Director
Norman M. Dean 76 Chairman of the Board of
Directors and Director
Alan D. Gorden 52 Director
The Company's Directors hold office until the next annual meeting of the
Company's shareholders. There is no arrangement or understanding between any
Director of the Company and any other person or persons pursuant to which such
Director was or is to be selected as a Director or a nominee for Director.
Executive Officers
- ------------------
The following table sets forth the name and ages of all Executive Officers
of the Company as of November 22, 1996, in dicating all positions and offices
with the Company held by each such person
All Positions and Offices
Name Age Held With the Company
---- --- ---------------------
James E. Miller 58 President, Chief Executive
Officer, Chief Financial
Officer, and Director
Norman M. Dean 76 Chairman of the Board of
Directors and Director
Stephen R. Story 45 Secretary-Treasurer
The Company's Executive Officers hold office at the pleasure of the
Directors of the Company. There is no arrangement or understanding between any
Executive Officer and any other person pursuant to which such Executive Officer
was selected as an Officer of the Company.
Significant Employees
- ---------------------
The Company does not employ persons, other than the above named officers of
the Company, who make or are expected to make significant contributions to the
business of the Company.
-14-
<PAGE>
Family Relationships
- --------------------
There is no family relationship between any Director or Executive Officer
of the Company, and there currently are no undisclosed persons chosen to become
Directors or Executive Officers.
Business Experience
- -------------------
Following is a brief account of the business experience during the past
five years of each Director and Executive Officer of the Company indicating his
principal occupation and employment during that period, and, the name and
principal business of any organization in which such occupations and employment
were carried on.
Norman M. Dean. Mr. Dean has been a director of the Company and its
predecessor since January, 1987, Treasurer of the Company from December, 1988
until October, 1989, and Chairman of the Board of Directors since October, 1989.
Mr. Dean received his BA degree from the University of Utah in 1941 and
undertook graduate studies at Cornell University and Harvard University. Mr.
Dean has primarily been involved in the bank ing industry. For various periods
of time from 1964 until his retirement from the banking industry in 1985, Mr.
Dean served as President and Chairman of the Board of Directors of three
different United Banks in Colorado and as a member of the board of directors of
United Banks of Colorado, Inc. During th is time span, Mr. Dean also served in
various positions with the Greeley, Col orado Bankers Association, Colorado
School of Banking and the Ameri can Banking Association. He is currently
President and a director of Mur dock Capital Corporation of Greeley, Colorado,
and is a member of the board of directors of Advanced Medical Technologies, San
Francisco, California, an d Miller Feed Lots, Inc., La Salle, Colorado. Mr. Dean
is employed part- time by the Company.
James E. Miller. Mr. Miller was the President and a Director of the Company
and its predecessor from January, 1987 until November, 1989. He is presently
President, Chief Executive Officer, Chief Financial Officer, and Director of the
Company. He has also been a major shareholder, President and Chief Operating
Officer of Miller Feed Lots, Inc. since 1960. He has been a director of the
United Bank of Greeley (Colorado) and President of Central Weld County Water
District. Mr. Miller earned a Bachelor's degree in Education at Western Montana
College. He works full-time for the Company.
Alan D. Gorden. Mr. Gorden has been a Director since February 1991. He has
been President of Tour Ice National, Inc. in Colorado Springs, Colorado for the
last twenty years. Tour Ice National, Inc. designs, engineers, and builds ice
manufacturing facilities all over the world.
Stephen R. Story. Mr. Story has been Secretary-Treasurer of the Company
since October, 1992. He has been employed by the Company and its predecessor
since 1987 in various accounting and administrative capacities and has served as
Controller since 1990. Mr. Story earned a Bachelor of Science Degree in Business
Administration from the University of Northern Colorado in 1975.
Other Directorships
- -------------------
Except as described above, the Company has no Director who is also a
director of any other company with a class of securities registered pursuant to
Section 15(d) of that Act or any company registered as an investment company
under the Investment Company Act of 1940.
-15-
<PAGE>
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Exchange Act and the related regulations, require the
Company's executive officers, directors, and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of their
beneficial ownership of the Company's common stock and other equity securities
of the Company with the Securities and Exchange Commission (SEC). In addition,
such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms filed by such persons.
To the Company's knowledge based solely on the Company's review of such
copies of reports furnished to the Company, and written representations that no
other reports were required during the fiscal year ended August 31, 1996, the
Company believes that all Section 16(a) filing requirements applicable to its
directors, executive officers, and ten percent owners were complied with.
ITEM 10.EXECUTIVE COMPENSATION
- ------------------------------
Summary Compensation Table
- --------------------------
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company. There were no other executive
officers of the Company whose salary and bonus for the year ended August 31,
1996 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Name and Year Ended Compen- Stock Options/ LTIP Compen-
Principal Position August 31 Salary($) Bonus($) satio n($) Award($) SARs(#) Payout($) sation($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Miller, 1996 $72,000 $ - $ - $ - 300,000 $ - $ -
Chief Executive Officer 1995 72,000 10,000 - - - - -
1994 72,000 - - - - - -
</TABLE>
-16-
<PAGE>
- --------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN YEAR ENDED AUGUST 31, 1996
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options/SARs
Name and Granted to Exercise or
Principal Options/SARs Employees in Base Price Expiration
Position Granted (#) Fiscal Year ($/Share) Date
- --------------------------------------------------------------------------------
James E. Miller 300,000 42.8% .0605 03/15/01
President
Norman M. Dean 300,000 42.8% .0605 03/15/01
Chairman of the Board
Alan D. Gorden 100,000 14.3% .0605 03/15/01
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED AUGUST 31, 1996
AND OPTION/SAR VALUE AS OF AUGUST 31, 1996
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
James E. Miller 300,000 0 300,000/00/0 $9,970/0
Norman M. Dean 300,000 0 300,000/00/0 9,975/0
Alan D. Gorden 0 0 100,000/00/0 3,325/0
- --------------------------------------------------------------------------------
Compensation of Directors
- -------------------------
The Directors of the Company are entitled to receive fees of $500 per
quarter for meetings attended, and reimbursement for travel expenses. During the
fiscal year ended August 31, 1996, each the Directors received a total of $3,000
in director fees. This represented $1,000 in fees for the prior years and $2,000
for the current fiscal year. The Directors had waived fees since the second
quarter of the year ended August 31, 1990. These fees may be increased or
decreased from time-to-time by a majority vote of the Board of Directors. Norman
M. Dean is a part-time employee of the Company at a salary of $3,000 per month.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
The Company has no compensation plan or arrangement with any of its current
or former Officers or Directors which results or will result from the
resignation, retirement, or any other termination by such individual of
employment with the Company.
-17-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth the number and percentage of shares of the
Company's $.0001 par value Common Stock (its only class of voting securities)
owned beneficially by any person who, as of August 31, 1996, is known to the
Company to be the beneficial owner of 5% or more of such Common Stock (except
Directors and Officers whose owner ship is set forth in the next paragraph).
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- --------------------------------------------------------------------------------
$.0001 Common None
Stock
Security Ownership of Management
- --------------------------------
The following table sets forth the number and percentage of shares of
Company's $.0001 par value Common Stock (its only class of equity securities
outstanding) owned beneficially by each Director of the Company, and by all
Directors and Officers of the Company as a group, as of August 31,1996.
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership of Class
- --------------------------------------------------------------------------------
James E. Miller 1,048,208 (1) 16.5%
23402 Weld County Road 35
La Salle, CO 80645
Norman M. Dean 1,115,148 (2) 17.5%
P.O. Box 1406
Greeley, CO 80631
Alan D. Gorden 100,000 (3) 1.6%
1330 Ford Street
Colorado Springs, CO 80915
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership of Class
- --------------------------------------------------------------------------------
Stephen R. Story 1,810 - %
4231 22nd Street Road
Greeley, CO 80634
All Directors and 2,265,166 (4) 35.6 %
Executive Officers
as a Group (4 Persons)
- --------------------
-18-
<PAGE>
(1) Includes options to acquire 300,000 shares and 45,906 shares owned by
Mr. Miller's wife. Also includes 28,750 of 57,500 owned by MFL. Mr.
Miller owns 50% of the stock of MFL and may be deemed to have indirect
voting and investment power over 50% of the shares owned by MFL.
(2) Includes options to acquire 300,000 shares and 45,905 shares owned by
Mr. Dean's wife. Also includes 28,750 of 57,500 owned by MFL. Mr. Dean
owns 50% of the stock of MFL and may be deemed to have indirect voting
and investment power over 50% of the shares owned by MFL.
(3) Includes options to acquire 100,000 shares.
(4) Includes options to acquire 700,000 shares held by management.
Changes in Control
- ------------------
There are no arrangements, known to the Company, including any pledge by
any person of securities of the Company or any of its parents, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------------------------------------------------------
Transactions With Miller Feed Lots, Inc.
- ----------------------------------------
The Company is affiliated through partial common ownership with Miller Feed
Lots, Inc. ("MFL"). James E. Miller, a Director and President of the Company,
and Norman M. Dean, a Director and Chairman of the Board of Directors of the
Company, together beneficially own 25% of the Company's stock. Together, Mr.
Dean and Mr. Miller own all of the outstanding stock of MFL. The Company leases
its feedlot facilities and most of its equipment, rents some equipment on a
month to month basis and purchases some of its transportation services from MFL.
Mr. Miller manages the operations of MFL as well as the feedlot operations of
the Company. See Note 9 of Notes to Consolidated Financial Statements attached
for a summary of the transactions with MFL for the years ended August 31, 1996
and 1 995.
On February 1, 1991, the Company executed a 25-year capital lease of its
facilities (see Part I, Item 2, Properties) from MFL. As they negotiated for a
long-term lease, the Company's Board of Directors undertook considerable
analyses and comparisons to insure the lease was consistent with the Company's
objectives and that the terms were fair and reasonable. The lease was
unanimously approved by the Board of Directors, including all disinterested
directors. From February 1, 1987 through January 31, 1991, the Company leased
the Facilities from MFL under a short-term operating lease, and amendments and
extensions thereof. The monthly rent under the short-term operating leases was
the same as it was under the long-term lease, and the Company was responsible
for the same property expenses as under the new long-term lease. Effective
August 1, 1992, the Company amended its lease with MFL to lease only one of the
two feedlots initially leased. The feedlot being leased after the amendment has
a capacity of 20,000 head of cattle. As a result of the amendment, the Company
reduced its capital lease asset, net of accumulated amortization, and its
long-term capital lease obligation by $629,421. The Company has continued to
lease one feedlot for the remainder of the 25-year lease term at the same rent
of 2 1/39B per head per day, but with a minimum of $10,750 and maximum of
$13,300 per month. The Company has an option to purchase the feedlot it leases
for $1,300,000.
-19-
<PAGE>
On May 31, 1993 the Company loaned $250,000 to MFL pursuant to a note that
matures May 31, 1998. The note is unsecured and bears interest at 6% per annum,
payable monthly. MFL used the proceeds from the loan to acquire feeder cattle to
place in the Company's feedlot.
The above-described transactions were entered into on terms the Company
believes were at least as favorable as would have been available from
unaffiliated third parties.
-20-
<PAGE>
PART IV
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
Exhibits
- --------
3.1 Articles of Incorporation and Bylaws and Amendments (except the Amendment
described in 3.2 below) thereto (incorporated by reference to Exhibit 3.1
to Registrant's Registration Statement No. 33-26285)
3.2 Amendment to Articles of Incorporation dated January 22, 1990, providing
for 1:250 reverse stock split and reduction in number of authorized shares
(incorporated by reference to Exhibit 3.2 to Registrant's Registration
Statement No. 33-40461)
10.1 Long-Term Lease of Feedlot Facilities dated August 1, 1992 which
constitutes an amendment to the original lease dated February 1, 1991
(incorporated by reference to Exhibit 10.1 to Registrant's Form 10-K for
the year ended August 31, 1992)
10.2 Equipment Sale and Purchase Agreement dated August 13, 1992 (incorporated
by reference to Exhibit 10.2 to Registrant's Form 10-K for the year ended
August 31, 1992)
10.3 Equipment Lease dated August 15, 1992 (incorporated by reference to
Registrant's Form 10-K for the year ended August 31, 1992)
Reports on Form 8-K
- -------------------
No reports were filed on Form 8-K during the last quarter of the fiscal
year covered by this Annual Report on Form 10-KSB.
-21-
<PAGE>
Board of Directors
Miller Diversified Corporation
La Salle, Colorado
We have audited the accompanying consolidated balance sheets of Miller
Diversified Corporation and subsidiaries as of August 31, 1996 and 1995, and the
rela ted consolidated statements of operations, stockholders' equity, and cash
flows for the years then en ded. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit include s examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statemen ts. An audit also includes
assessing the accounting principles used and significant estimates made b y
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to abov e
present fairly, in all material respects, the financial position of Miller
Diversified Corporati on and subsidiaries as of August 31, 1996 and 1995, and
the results of their operations and their c ash flows for the years then ended,
in conformity with generally accepted accounting principles.
Anderson & Whitney, P.C.
November 13, 1996
F-1
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
August 31 1996 1995
- ---------------------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash $ 86,551 $ 72,272
Trade accounts receivable 735,809 1,218,614
Trade accounts receivable - related parties 116,692 38,647
Accounts receivable - related parties 81,102 156,015
Income taxes receivable -- 11,082
Inventories 283,279 131,142
Prepaid expenses 21,725 13,735
Deposits on feeder cattle 14,520 57,800
Current portion of notes receivable - related party -- 112,781
- ---------------------------------------------------------------------------------
Total Current Assets 1,339,678 1,812,088
- ---------------------------------------------------------------------------------
Property and Equipment:
Land held for sale 700,000 700,000
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 81,007 71,486
Equipment under capital leases - related party 149,453 351,957
Leasehold improvements 72,173 34,311
- ---------------------------------------------------------------------------------
2,500,473 2,655,594
Less: Accumulated depreciation and amortization 506,964 546,620
- ---------------------------------------------------------------------------------
Total Property and Equipment 1,993,509 2,108,974
Other Assets:
Notes receivable - related party 250,000 250,000
Water rights 120,000 120,000
Deferred income taxes 124,018 --
Deposits and other 1,500 1,500
- ---------------------------------------------------------------------------------
Total Other Assets 495,518 371,500
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 3,828,705 $ 4,292,562
=================================================================================
Continued on next page.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
August 31 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current Liabilities:
Cash overdraft $ 16,710 $ --
Notes payable 160,000 676,000
Trade accounts payable 534,839 615,998
Accrued expenses 21,989 17,936
Accrued income taxes payable 86,579 30,200
Customer advance feed contracts 14,907 34,304
Customer advance feed contracts - related parties 175,263 149,395
Current portion of capital lease obligations -
related party 47,880 106,322
- ---------------------------------------------------------------------------------------
Total Current Liabilities 1,058,167 1,630,155
Capital Lease Obligations - related party 1,044,551 1,095,135
Obligation Payable -- 240,289
Deferred Gain -- 18,617
- ---------------------------------------------------------------------------------------
Total Liabilities 2,102,718 2,984,196
- ---------------------------------------------------------------------------------------
Commitments
- ---------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock, par value $.0001 per share; 25,000,000
shares authorized; 6,364,640 and 6,554,799 shares issued;
6,364,640 and 5,764,640 shares outstanding 636 655
Additional Paid-in Capital 1,351,693 1,654,649
Retained Earnings (Deficit) 373,658 (13,843)
- ---------------------------------------------------------------------------------------
1,725,987 1,641,461
Less:Treasury stock, at cost -- 333,095
- ---------------------------------------------------------------------------------------
Total Stockholders' Equity 1,725,987 1,308,366
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,828,705 $ 4,292,562
=======================================================================================
See Accompanying Notes to Consolidated Financial Statements
F-3
</TABLE>
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
Years Ended August 31, --------------- Paid-In Earnings --------------------
1995 and 1996 Shares Amount Capital (Deficit) Shares Amount Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1994 6,554,799 $ 655 $ 1,654,649 $ (171,978) (790,159) $ (333,095) $ 1,150,231
Net income for the year
ended August 31, 1995 -- -- 158,135 -- -- 158,135
- ------------------------------------------------------------------------------------------------------------
Balance, August 31, 1995 6,554,799 655 1,654,649 (13,843) (790,159) (333,095) 1,308,366
Issuance of common stock 600,000 60 30,060 -- -- -- 30,120
Cancellation-treasury stock (790,159) (79) (333,016) -- 790,159 333,095 --
Net income for the year ended
August 31, 1996 -- -- -- 387,501 -- -- 387,501
- ------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996 6,364,640 $ 636 $ 1,351,693$ 373,658 -- $ -- $ 1,725,987
============================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
F-4
</TABLE>
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Feed and other sales $10,266,044 $ 7,042,252
Feedlot services 1,449,107 1,944,043
Other 435,858 305,830
Interest 28,316 22,362
Interest on notes receivable - related party 15,000 16,389
- ---------------------------------------------------------------------------------
Total Revenue 12,194,325 9,330,876
- ---------------------------------------------------------------------------------
Costs and Expenses:
Cost of feed and other sales 9,370,924 6,327,246
Cost of feedlot services 1,183,245 1,609,325
Selling, general, and administrative 1,130,073 1,030,959
Interest 30,261 48,839
Interest on capital leases - related party 124,872 132,920
- ---------------------------------------------------------------------------------
Total Costs and Expenses 11,839,375 9,149,289
- ---------------------------------------------------------------------------------
Income Before Income Taxes 354,950 181,587
Income Tax Expense (Benefit) (32,551) 23,452
- ---------------------------------------------------------------------------------
NET INCOME $ 387,501 $ 158,135
=================================================================================
INCOME PER COMMON SHARE $ .07 $ .03
=================================================================================
Weighted Average Number of Common
Shares Outstanding 5,910,542 5,764,640
=================================================================================
See Accompanying Notes to Consolidated Financial Statements.
F-5
</TABLE>
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 12,222,831 $ 9,087,570
Cash paid to suppliers and employees (11,648,411) (8,854,959)
Interest received 43,316 43,041
Interest paid (158,463) (183,040)
Income taxes refunded 11,082 64,729
Income taxes paid (35,088) --
- --------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 435,267 157,341
- --------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (53,110) (36,822)
Loan to related party -- (185,000)
Collections on loans to related party 112,781 114,637
Proceeds from sale of investment in subsidiaries 44,929 --
- --------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 104,600 (107,185)
- --------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from notes payable 1,875,000 4,393,432
Principal payments on notes payable (2,391,000) (4,335,432)
Principal payments on capital lease obligations
- related party (105,581) (110,341)
Proceeds from issuance of common stock 30,120 --
Net decrease in short-term feeder cattle financing 49,163 53,606
(Increase) decrease in cash overdraft 16,710 (28,495)
- --------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (525,588) (27,230)
- --------------------------------------------------------------------------------------------
Net Increase in Cash 14,279 22,926
Cash, Beginning of Year 72,272 49,346
- --------------------------------------------------------------------------------------------
Cash, End of Year $ 86,551 $ 72,272
============================================================================================
Continued on next page
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net income $ 387,501 $158,135
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investment in subsidiaries (20,000) --
Depreciation and amortization 160,846 173,988
Recognition of deferred gain (18,617) (18,617)
Deferred income taxes (124,018) --
Changes in assets and liabilities net
of short-term feeder cattle financing:
(Increase) decrease in:
Trade accounts receivable 277,303 (361,255)
Trade accounts receivable - related party (78,045) 30,170
Accounts receivable - related party 99,778 (36,192)
Income taxes receivable 11,082 57,981
Inventories (65,885) 99,538
Prepaid expenses (7,990) 2,191
Deposits and other -- 150
Increase (decrease) in:
Trade accounts payable and accrued expenses (9,249) 193,135
Accrued income taxes payable 56,379 30,200
Accrued cattle feeding participation losses
-related parties -- (340,875)
Customer advance feed contracts (19,397) 19,397
Customer advance feed contracts
- related parties 25,868 149,395
Obligation payable (240,289) --
- -------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 435,267 $ 157,341
=====================================================================================
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
F-7
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
The accounting and reporting policies of Miller Diversified Corpor ation
(the Company) and its subsidiaries conform to generally accepted accounting
prin ciples. The following summary of significant accounting policies is
presented to assist the reader in evaluating the Company's financial
statements.
Description of Business:
------------------------
The Company's primary business is operating a feedlot facility ne ar La
Salle, Colorado in which cattle owned by customers are fed and cared for by
the C ompany. Most customers to which the Company has granted credit either
operate in the cattle industry or feed cattle as an investment.
Principles of Consolidation:
----------------------------
The consolidated financial statements include Miller Diversified
Corporation and its wholly-owned subsidiaries, Miller Feeders, Inc.
(commission agent buying feeder cattle and selling fed cattle for the
Company's feeding customers and ot hers), LaSalle Commodity and Cattle
Services Co., sold during the year ended Aug ust 31, 1996 (commission agent
for the execution of commercial commodities contracts), Miller Trading
Co., sold during the year ended August 31, 1996 (commission agent for the
execution of retail commodities contracts), and Genetic Engineeri ng, Inc.,
merged into Miller Diversified Corporation during the year ended August 31,
1996 (owning land presently being marketed for sale).
All material intercompany profits, transactions, and balances have been
eliminated.
Trade Accounts Receivable:
--------------------------
No allowance for doubtful accounts receivable has been recorded based on
the history of the Company and its ability to place an Agister's Lien on
customers' cattle in the feedlot. An Agister's Lien is a lien that a party
can place on cattle in its possession that enables it to collect for feed
and care provided to the cattle, ahead of other claimants, from the
proceeds of selling the cattle. The lien also enables the party in
possession to sell the cattle to the highest bidder in order to be paid for
its feed and services.
Concentration of Credit Risk:
-----------------------------
At August 31, 1996 and 1995, the Company had trade accounts receivable from
two and three customers, totaling $620,370 and $808,821, respectively. Each
of these customer's balances at year end exceeded 10% of the Company's
total trade accounts receivable.
Inventories:
------------
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method for feed and grain inventories while
the first in, first out (FIFO) and specific identification methods are used
for all other inventories.
F-8
<PAGE>
Note 1 - Summary of Significant Accounting Policies - Continued:
Property and Equipment:
-----------------------
Property and equipment are recorded at acquisition cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the assets.
The Company leases certain property under agreements which are accounted
for as capital leases. Accordingly, the assets and liabilities are recorded
at the amount equal to the lesser of the present value of the minimum lease
payments or the fair value of the leased property at the beginning of the
lease term. Such assets are amortized on a straight-line basis over the
lesser of the related lease term or their economic lives. This amortization
is included in depreciation and amortization expense 2E Interest expense
relating to the lease liability is recorded to effect a constant rate of
interest over the term of the lease.
Water Rights:
-------------
The Company owns 3.2 shares of The Farmers Reservoir and Irrigation Company
(FRICO) entitling it to a pro rata share of the water provided by FRICO's
irrigation system.
Feed Sales:
-----------
Revenue is recognized on feed sales when the feed is delivered to pens of
customers' cattle for consumption.
Cattle Brokerage:
-----------------
Miller Feeders, Inc. accumulates cattle which meet the specifications of
the Company's cattle feeding customers until a complete lot is formed and
ready for a feeding program.
Feeder cattle temporarily retained for brokerage are stated at specifically
identified cost. The Company recognizes commissions earned at the time a
lot of feeder cattle is transferred to a customer. In addition, commissions
are earned as customers' fed cattle are marketed.
Income Taxes:
-------------
Deferred tax liabilities or assets, net of any applicable valuation
allowance for deferred tax assets, are recognized for the estimated future
tax effects attributable to temporary differences and carryforwards.
Deferred tax liabilities and assets are classified as current or noncurrent
based on the classification of the asset and liability to which they
relate. Deferred tax liabilities and assets not related to an as set or
liability for financial reporting, including deferred tax assets related to
carryforwards , are classified as current or noncurrent according to the
expected reversal date of the temporary difference.
The Company and its subsidiaries file consolidated corporate inco me tax
returns.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 1 - Summary of Significant Accounting Policies - Continued:
Income per Common Share:
------------------------
Income per common share is computed by using the weighted average number of
common shares outstanding during the period presented. Fully diluted
earnings per share amounts are not presented for 1996 and 1995 as the
effect of common stock equivalents arising from stock options and warrants
on the computation of earnings per share is antidilutive.
Cash Equivalents:
-----------------
The Company considers all highly-liquid debt instruments purchase d with a
maturity of three months or less to be cash equivalents.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results co uld differ from those estimates.
Note 2 - Inventories:
- --------------------------------------------------------------------------------
August 31 1996 1995
- --------------------------------------------------------------------------------
Feed and grain $ 167,466 $ 101,642
Cattle 86,251 --
Veterinary supplies and other 29,562 29,500
- --------------------------------------------------------------------------------
$ 283,279 $ 31,142
================================================================================
Note 3 - Capital Leases:
The Company leases its feedlot facilities and certain equipment from a
related party under capital leases expiring in various years through 2016.
Monthly lease payments on the feedlot facilities are two and one-third
cents (2 1/3C) per head per day for cattle actually in the feedlot, subject
to a minimum of $10,750 and maximum of $13,30 0. The Company is responsible
for all maintenance, insurance, utilities, and taxes on the property, and
has an option to purchase the feedlot facility for $1,300,000. The
following is an analysis of the leased property:
F-10
<PAGE>
Note 3 - Capital Leases - Continued:
- --------------------------------------------------------------------------------
August 31 1996 1995
- --------------------------------------------------------------------------------
Feedlot facilities under capital lease$ $ 1,497,840 $ 1,497,840
Less: Accumulated amortization 334,517 274,603
- --------------------------------------------------------------------------------
Net feedlot facilities under capital lease 1,163,323 1,223,237
- --------------------------------------------------------------------------------
Equipment under capital leases 149,453 351,957
Less: Accumulated amortization 95,602 212,578
- --------------------------------------------------------------------------------
Net equipment under capital leases 53,851 139,379
- --------------------------------------------------------------------------------
$ 1,217,174 $ 1,362,616
================================================================================
Future minimum lease payments under the capital leases at August 31, 1996
for each of the next five years and in the aggregate are as follows:
- --------------------------------------------------------------------------------
Year Ending August 31 Total
- --------------------------------------------------------------------------------
1997 $ 166,582
1998 143,086
1999 141,646
2000 135,305
2001 129,000
Later years 1,859,750
- --------------------------------------------------------------------------------
Total minimum lease payments 2,575,369
Less: Amount representing interest 1,482,938
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 1,092,431
Less: Current portion 47,880
- --------------------------------------------------------------------------------
$1,044,551
================================================================================
F-11
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 4 - Notes Receivable - Related Party:
- --------------------------------------------------------------------------------
August 31 1996 1995
- --------------------------------------------------------------------------------
Note receivable from Miller Feed Lots, Inc.,
interest payable monthly at 6%, principal due
in May, 1998, without collateral, and
subordinated to MFL mortgagor $ 250,000 $ 250,000
Noninterest bearing note receivable from
Miller Feed Lots, Inc. (for advance feed
contracts deposited with the Company) in
semi-monthly installments, with final payment
receivable in March, 1996, without collateral -- 112,781
- --------------------------------------------------------------------------------
250,000 362,781
Less: Current portion -- 112,781
- --------------------------------------------------------------------------------
$ 250,000 $ 250,000
================================================================================
Note 5 - Notes Payable:
August 31 1996 1995 Nonrevolving $300,000
line of credit with a bank maturing in
December, 1996, interest payable upon
maturity at 2%over the Wall Street Journal
prime rate (actual rate of 10.25% at August
31, 1996), collateralized by inventories,
accounts receivable, and equipment $ 160,000 $ --
Revolving $900,000 line of credit with a bank
which matured in December, 1995, interest
payable upon maturity at 2% over the Wall
Street Journal prime rate (actual rate of
10.75% at August 31, 1995), collateralized by
inventories, accounts receivable, and
equipment, guaranteed by an officer/director -- 546,000
Revolving $200,000 line of credit with a bank
maturing in December, 1996, interest payable
quarterly at 2% over the Wall Street Journal
prime rate (actual rate of 10.25% and 10.75%
at August 31, 1996 and 1995, respectively),
collateralized by inventories, accounts
receivable, and equipment -- 20,000
Revolving $300,000 line of credit with a bank
maturing in December, 1996, interest payable
quarterly at 2% over the Wall Street Journal
prime rate (actual rate of 10.25% and 10.75%
at August 31, 1996 and 1995, respectively),
collateralized by Miller Feeders, Inc. feeder
cattle and accounts receivable, proceeds used
to facilitate the cattle brokerage operations
of of Miller Feeders, Inc. -- 110,000
- --------------------------------------------------------------------------------
$160,000 $ 676,000
================================================================================
F-12
<PAGE>
Note 5 - Notes Payable - Continued:
At August 31, 1996 and 1995, the Company had an outstanding letter of
credit amounting to $125,000 for a bond with an insurance company.
Note 6 - Obligation Payable:
- --------------------------------------------------------------------------------
August 31 1996 1995
- --------------------------------------------------------------------------------
Payable to the former President of Genetic
Engineering, Inc., upon certain successful
equity capital events or the sale of the land
held for sale, without interest, without
collateral $ -- $ 240,289
================================================================================
The former president of Genetic Engineering, Inc. (GEI) filed two lawsuits
against the Company seeking payment of this obligation which resulted from
amounts allegedly loaned to GEI. The obligation was settled during the
year ended August 31, 1996 with payment of $145,000 and transfer of the
semen and embryo inventory obtained upon purchase of GEI.
Note 7 - Income Taxes:
- --------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- --------------------------------------------------------------------------------
Current income taxes $ 91,467 $ 23,452
Deferred income taxes (124,018) --
- --------------------------------------------------------------------------------
Income Tax Expense (Benefit) $ (32,551) $ 23,452
================================================================================
Significant components and the related tax effect of temporary dif ferences
and carryforwards are as follows:
- --------------------------------------------------------------------------------
August 31 1996 1995
- --------------------------------------------------------------------------------
Current Long-Term Current Long-Term
Deferred Tax Liabilities:
Depreciation $ -- $ 4,254 $ -- $ 742
Deferred Tax Assets:
Capital leases -- 67,088 -- 59,897
Deferred gain -- -- 6,330 --
Reduction in carrying value of:
Land held for sale -- 316,200 -- 316,200
Inventory -- -- 27,579 --
NOL carryover -- 61,184 -- 56,036
- --------------------------------------------------------------------------------
-- 444,472 33,909 432,133
- --------------------------------------------------------------------------------
Deferred Tax Assets Valuation
Allowance -- (316,200) (33,909) (431,391)
- --------------------------------------------------------------------------------
Net Deferred Tax Asset $ -- $124,018 $ -- $ --
================================================================================
F-13
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 7 - Income Taxes - Continued:
The differences between income tax expense (benefit) and the amount
computed by applying the federal statutory rates are as follows:
- --------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- --------------------------------------------------------------------------------
Computed at expected federal statutory rate $ 120,683 $ 54,069
Change in deferred tax asset valuation allowance (149,100) (31,014)
Other (4,134) 397
- --------------------------------------------------------------------------------
Income Tax Expense (Benefit) $ (32,551) $ 23,452
================================================================================
As of August 31, 1996, the Company had unused operating loss carry forwards
from Genetic Engineering, Inc. of approximately $1,800,000 and tax credit
carryforwards of approximately $180,000 available to reduce future taxable
income and income tax liabilities. The Internal Revenue Code restricts the
utilization of the operating loss carryfowards to a maximum of $53,710 per
year. These carryforward s expire in various amounts through 2007.
Note 8 - Operating Leases:
The Company leases office space, certain equipment, and other item sunder
various month- to-month operating lease agreements.
Total rental expense was $66,104 and $40,850 for the years ended August 31,
1996 and 1995, respectively, of which $43,000 and $21,200, respectively,
was paid to related parties.
Note 9 - Related Party Transactions:
The Company is affiliated through partial common ownership and management
with Miller Feed Lots, Inc. (MFL).
The following schedule summarizes transactions between the Company and MFL.
- --------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- --------------------------------------------------------------------------------
Freight paid to MF $163,080 $113,619
Payments to MFL under capital lease of feedlot
facility (Note 3) 129,000 129,000
Payments to MFL under capital lease of equipment
(Note 3) 101,454 114,642
Payments to MFL under operating lease of equipment
(Note 8) 24,000 --
Company housing rent paid to MFL 9,000 9,000
Interest income from MFL (Note 4) 15,000 16,389
Fee paid to MFL for use of MFL equipment
as loan collateral -- 4,000
- --------------------------------------------------------------------------------
F-14
<PAGE>
Note 9 - Related Party Transactions - Continued:
In August 1992, the Company sold substantially all of its operating
equipment to MFL and then leased back only a portion of the equipment
necessary to operate the feedlot facility. The Company realized a gain on
this transaction of $74,467 which was deferred and is being recognized over
the term of the lease.
Employees and officers of the Company feed cattle personally and in
conjunction with companies they control. Sales to those related parties
were approximately $643,000 and $1,162,000 net of discounts of
approximately $9,800 and $23,000, or 5% and 12% of total revenue for the
years ended August 31, 1996 and 1995, respectively
Note 10 - Major Customers:
The Company had sales to major customers which exceeded 10% of total
revenue for certain years as shown below. Because of the nature of the
Company's business, the major customers may vary between periods.
- --------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- --------------------------------------------------------------------------------
Company A $ 1,452,934 $ 933,374
Company B 6,568,919 3,104,127
================================================================================
Note 11 - Commitments:
The Company is committed to purchase various crop commodities with
anticipated delivery dates in the subsequent fiscal year. At August 31,
1996 and 1995, these purchase commitments aggregated approximately $550,000
and $377,000, respectively.
In addition, the Company is committed to purchase cattle with anticipated
delivery dates in the subsequent fiscal year. At August 31, 1996 and 1995,
these purchase commitments totalled approximately $273,000 and $855,000,
respectively. At August 31, 1996 and 1995, the Company also had cattle
sales commitments totalling $273,000 and $855,000, respectively.
The Company is a cosigner of a loan from an outside source to Miller Feed
Lots, Inc. (MFL), an affiliate, in the sum of $400,000. The loan is secured
by a first deed of trust on the feedlot facilities that the Company leases
from MFL. MFL has given the Company an hypothecation agreement which allows
the Company to use MFL's equipment leased by the Company as collateral for
the Company's operating loans. The Company has not recorded any obligation
in relation to this commitment.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 12 - Common Stock Warrants:
At August 31, 1996, the Company had the following outstanding warrants
providing for the purchase of one share of common stock for each warrant.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Number of Number of Exercise
Date Warrants Warrants Price Expiration
Type Issued Issued Exercised Per Share Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class B Warrants 7/13/92 2,006,000 -- $ 2.00 1/13/97
Others 8/6/92 400,000 100,000 .001-1.00 8/6/97
- ----------------------------------------------------------------------------------------------------
2,406,000 100,000
====================================================================================================
</TABLE>
Note 13 - Stock Options:
In January 1995, the Company's board of directors granted an option to
purchase up to 300,000 shares of common stock from the Company to each of
two members of the board of directors at $.0502 per share, 110% of the
average of the bid and ask price at the date of the grant. These options
were exercised in June 1996.
In March 1996, the Company's board of directors granted an option to
purchase up to 100,000 shares of common stock of the Company to each of the
three members of the board of directors and up to 200,000 shares of common
stock each to the President and the Chairman of the board of directors. The
shares may be purchased at $0.0605 per share, 110% of the average of the
bid and ask price at the date of the gr ant. These options expire in March
2001. None of these options have been exercised as of August 31, 1996.
Note 14 - Preferred Stock:
In January 1991, the stockholders authorized 1,000,000 shares of 8%
noncumulative preferred stock with a par value of $2 per share. The
preferred stock has a liquidation preference to the extent of par value
only. No shares were issued or outstanding at August 31, 1996 and 1995.
Note 15 - Fair Value of Financial Instruments:
The Company's financial instruments include cash, accounts receivable,
notes receivable, accounts payable, customer advance feed contracts, and
notes payable. The Company estimates that the fair value of all financial
instruments at August 31, 1996 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet.
F-16
<PAGE>
Note 15 - Fair Value of Financial Instruments - Continued:
The estimated fair value amounts have been determined using available
market information and appropriate valuation methologies. The carrying
amount of cash, accounts receivable, accounts payable, and customer advance
feed contracts approximates fair value because of the short maturity of
these instruments. The carrying amount of notes receivable and notes
payable approximates fair value as interest rates approximate current rates
for loans with similar terms and remaining maturities.
Note 16 - Supplemental Schedule of Noncash Investing and Financing Activities:
- --------------------------------------------------------------------------------
Years Ended August 31 1996 1995
- --------------------------------------------------------------------------------
Long-term obligations incurred for the acquisition
of certain equipment and vehicles from a
related party $ -- $ 52,750
Reduction of long-term obligations to a related
party resulting from removal of certain
equipment from equipment lease 3,445 1,375
- --------------------------------------------------------------------------------
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MILLER DIVERSIFIED CORPORATION
Dated: December 10, 1996 By /s/ JAMES E. MILLER
--------------------------------
James E. Miller, President
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
\s\ JAMES E. MILLER President, Principal December 10, 1996
- --------------------------
James E. Miller Executive Officer,
Principal Financial
Officer, and Director
\s\ STEPHEN R. STORY Secretary-Treasurer, December 10, 1996
- --------------------------
Stephen R. Story Principal Accounting
Officer
\s\ NORMAN M. DEAN Chairman of the December 10, 1996
- --------------------------
Norman M. Dean Board and Director
Director
- ----------------------------
Alan D. Gorden
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Form 10-KSB
for the year ended August 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 86,551
<SECURITIES> 0
<RECEIVABLES> 933,603
<ALLOWANCES> 0
<INVENTORY> 283,279
<CURRENT-ASSETS> 1,339,678
<PP&E> 2,500,473
<DEPRECIATION> 506,964
<TOTAL-ASSETS> 3,828,705
<CURRENT-LIABILITIES> 1,058,167
<BONDS> 0
0
0
<COMMON> 636
<OTHER-SE> 1,725,351
<TOTAL-LIABILITY-AND-EQUITY> 3,828,705
<SALES> 10,266,044
<TOTAL-REVENUES> 12,194,325
<CGS> 9,370,924
<TOTAL-COSTS> 10,554,169
<OTHER-EXPENSES> 1,130,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,133
<INCOME-PRETAX> 354,950
<INCOME-TAX> (32,551)
<INCOME-CONTINUING> 387,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387,501
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
