SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended August 31, 1997
Commission File No. 01-19001
MILLER DIVERSIFIED CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1070932
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(State or other jurisdic- (I.R.S. Employer Iden-
tion of incorporation or tification 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
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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 $11,377,569.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $478,414.64 based on the closing bid and ask prices as reported
on the NASD Over-the-Counter Bulletin Board on November 21, 1997.
There were 6,364,640 shares of common stock $.0001 par value outstanding as of
August 31, 1997.
Documents incorporated by reference: None.
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PART I
ITEM 1.DESCRIPTION OF BUSINESS
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General Development of Business.
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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 still commercial cattle feeding that is
operated on a feedlot facility and with equipment leased or rented from MFL. The
Company has a wholly-owned subsidiary, Miller Feeders, Inc., which was acquired
in 1987. 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. During fiscal 1996
the Company sold two of its subsidiaries, La Salle Commodity and Cattle Services
Co., a commercial commodity brokerage firm which had been acquired in 1990 and
Miller Trading Co., a retail commodity brokerage firm which had been formed by
the Company in January 1995. Also during fiscal 1996, the Company merged its
subsidiary Genetic Engineering, Inc. (GEI), which was acquired in 1992, into the
Company. The Company sold the assets of GEI as described below.
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.
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
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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 experienced cattle feeders.
Cattle feeding customers are charged for feed consumed by their cattle and a
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flat amount per head per day, referred to as "yardage" for use of the feedlot
facilities. Feed sales usually account for 80% to 90% of the Company's revenues.
The Company and its subsidiary provide complete feedlot services which include
assisting customers with outside financing, purchasing feeder cattle, making
trucking arrangements, selling finished cattle, and assisting with hedging
transactions. The Company, through its subsidiary, derives commissions and fees
from buying and selling customers' cattle and, prior to the sale of LCCS and
MTC, derived commissions and fees from 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. 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.
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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 Mountains 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
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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. Because most 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
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During the fiscal year ended August 31, 1997, the Company had two customers
that accounted for more than 10% of the Company's consolidated revenues. Sales
to those customers totalled $7,946,381 or 70% of total revenues.
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 these customers totalled $8,021,853 or 66% of total revenues.
Competition
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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
site of the Company's feedlot for over 20 years and is known for stable, quality
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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
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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
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The Company employs between 20 and 30 persons at any given time. As of
November 15, 1997, the Company had 26 employees.
ITEM 2. PROPERTIES
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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
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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
same monthly rent of 2 1/3 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 was
operated as a division of the Company. This division included 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 (the Thornton property). On
the land were 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. The barns, stables, and corrals were
being rented for boarding of horses and other livestock, and a home was being
rented as a residence. As described below, the property and water rights were
sold in May 1997.
The property taxes on the leased feedlot Facilities amounted to $3,325 for
the year ended August 31, 1997, based on the mill levy of .073769. The Company
also paid property taxes on the GEI property held for sale of $8,273, based on
the mill levy of .112135 for the period until its sale in May 1997.
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
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The Company was not involved in any litigations during the year ended
August 31, 1997, and had no pending or known unasserted claims as of August 31,
1997.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the stockholders in the fourth
quarter of the fiscal year covered by this Annual Report.
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PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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The number of record holders of the Company's common stock as of August 31,
1997, was 1,473 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
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1997
November 30, 1996 $ .18 $ .09
February 29, 1997 $ .20 $ .13
May 31, 1997 $ .15 $ .12
August 31, 1997 $ .12 $ .11
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 party
preclude or limit in any manner the payment of any dividend.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Results of Operations for the Fiscal Year Ended August 31, 1997 as Compared to
the Fiscal Year Ended August 31, 1996
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The Company had a net income of $179,241 for the fiscal year ended August
31, 1997 as compared to a net income of $387,501 for the prior fiscal year. For
the period ended August 31, 1997, the Company recorded a non-recurring loss on
the sale of the Thornton property (formerly Genetic Engineering, Inc.), as
described below, of $178,452. During the prior fiscal year, the Company had two
non-recurring incomes totaling $115,289:(1) $95,289 profit realized from the
settlement of an obligation payable and (2) $20,000 profit realized from the
sale of the Company's subsidiaries, LaSalle Commodity and Cattle Services Co.
and Miller Trading Co.
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, 1997 were 15,540 as
compared to 15,205 for the previous fiscal year, an increase of 335, or 2.2%.
The following is a comparison of the gross profit and percentages on feed
and other sales between the year ended August 31, 1997 and the previous year:
Years Ended August 31
1997 1996 Decrease
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Feed and other sales $9,215,851 $10,266,044 $(1,050,193)
Cost of feed and other sales 8,483,551 9,370,924 (887,373)
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Gross profit $ 732,300 $ 895,120 $ (162,820)
Gross profit percentage 8.0% 8.7% ( .7%)
Feed sales volume decreased and the gross profit percentage decreased for
the year ended August 31, 1997. The 10.2% sales volume decrease is the result of
several factors.
1. The price of the ingredients was higher for the year ended August 31,
1996 due to adverse weather conditions that had existed in Texas and the Corn
Belt region during the period.
2. The types of the rations fed during the current year contained less of
the higher priced ingredients due to the Company's increasing use of lower
priced by-products in its rations to maintain and enhance its competitiveness.
3. The Company has undertaken certain pricing policies that have in effect
transferred income for the feed sales catagory to feedlot services catagory, as
noted below.
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The gross margin percentage decreased due to management's decision to lower
the gross profit on certain ingredients and increase revenues in other areas
with the intent of stabilizing gross revenues based on a per head per day basis,
rather than relying totally on the gross margin of feed sales. The gross margin
percentage was also affected by the continued use of advance feed contracts. The
advance feed contracts are used, in part, by the customers to stabilize their
ingredient cost which has the effect of lowering the Company's profit margin on
the contracted ingredient. The effect of these advanced feed contracts is one
that management is attempting to overcome or control by its decision to lower
the gross margin on certain ingredients and increase revenues in other areas.
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
1997 1996 (Decrease)
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Feedlot sevices sales $ 2,040,105 $1,449,107 $ 590,998
Cost of feedlot services 1,844,037 1,183,245 660,792
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Gross profit $ 196,068 $ 265,862 $ (69,794)
Gross profit percentage 9.6% 18.4% (8.8%)
Although the feedlot services revenues and costs increased for the year
ended August 31, 1997 as compared to the prior year, the gross margin decreased.
The primary cause of the decrease in the gross margin percentage is the increase
in the fall calf program sales and cost of sales, as discussed below, of
$487,369. Even though average head days increased only 2.2%, the associated
yardage charges increased $110,629 or 18.7%, due to a pricing policy with
certain customers that reallocates revenues from feed sales to feedlot services,
as noted above. Revenue from the processing of grain decreased $6,999 due to the
changes in the types of ingredients sold as described above. The increase in the
fall calf program, is the result of the increase of 1,100 head in the fall calf
program to 3,200 head for the year ended August 31, 1997 compared to about 2,100
the prior fiscal year. Although the cost of feedlot services increased $660,792
for the year ended August 31, 1997 as compared to the prior year, the cost of
the fall calf program increased $488,411 as described above. The remaining
$172,381 increase in costs of feedlot services can be attributed to additional
costs associated with the increased head numbers, especially payroll and payroll
taxes and equipment maintenance. For the year ended August 31, 1997, the Company
also incurred charges for the rental of additional feeding pens from third party
farmer-feeders. This rental became necessary due to the increase in the
anticipated demand from several major customers and several smaller long-time
customers. In response to the competitive nature of the feeding industry and the
desire to maintain a diversified customer base, management concluded that the
additional expense was necessary for the future profitability of the Company.
These additional costs totaled approximately $31,500. The duration of the need
for the additional feeding capacity is totally dependant on the demand; all
rentals are on a month to month basis.
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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 decreased $355,806 for the year ended August 31, 1997 as
compared to the prior fiscal year. A majority of the decrease in other revenues
is the result of a non-recurring event during the period ended August 31, 1996,
and the discontinuation of operations of two subsidiaries which were sold during
the same period. For the year ended August 31, 1996, the Company settled
litigations which resulted in debt relief income of $95,288. During that same
time period the Company sold two subsidiaries, LaSalle Commodity and Cattle
Services Co. (LCCS) and Miller Trading Co. (MTC) for a profit of $20,000. The
discontinued operation of these subsidiaries reduced other income by a total of
$230,731; the reduction of revenues by discontinued operations is offset by
reductions in general and administrative expenses as described below. As a
result of the sale of the Thornton property, other income decreased $9,000.
Interest income decreased $4,755 for the year ended August 31, 1997, as compared
to the prior fiscal year primarily as a result of a decrease in customer
accounts receivable financing, in which the Company "carries" certain customers'
feedlot charges until the cattle are marketed. Interest expense decreased
$18,115 for the year ended August 31, 1997, as compared to the prior fiscal year
primarily as a result of the cash generated by the sale of the "Thornton"
property as described above. Interest revenue from a related party increased
$3,000 as a result of an additional loan to the related part, as described
below. Interest expense for capital leases party decreased $7,742 for the year
ended August 31, 19976 as compared to the prior fiscal year as the result of
decreasing balances on the equipment and facilities capital leases from the
related party.
Sales, general, and administrative expenses decreased $425,777 for the
fiscal year ended August 31, 1997 as compared to the prior fiscal year. This
decrease is primarily the result of the discontinuation of operations of LCCS
and MTC as noted above. These reductions total approximately $254,000. The
balance of the decrease is the result of increases and decreases in numerous
expenses. The following are the most significant increases and decreases for the
fiscal year ended August 31, 1997 as compared to the prior fiscal year:
Increase
Description (Decrease)
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1. Customer death loss adjustments $(25,800)
2. Legal and account fees (59,400)
3. Expenses associated with Thornton property (16,000)
In May 1997, the Company sold the Thornton property and water rights to an
unrelated third party for $735,000, which resulted in a loss of $178,452. The
land had been held for resale since it was acquired with the merger of Genetic
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Engineering, Inc. in 1992. Subsequent to the acquisition, the Company has had
several contracts and tender offers, none of which were fulfilled due to various
zoning and administrative constraints placed on the possible sales by the City
of Thornton. The Company had taken an interim write down on the value of the
land in 1994. With considerations to previous purchase offers, negative cash
flow of the operations, deteriorating condition of the property, and the
uncertainties dealing with the City of Thornton, management chose to accept the
offer in the best interests of the Company. The Company will receive substantial
income tax benefits from the current loss as well as the previous write down of
the value by the Company and a devaluation made by Genetic Engineering, Inc.
prior to the merger. The benefits are evidenced by the increase in income tax
refunds receivable of $94,761 and the increase in deferred income taxes of
$52,944 from the same period the previous year. Deferred income taxes of
$104,903, as of August 31, 1997, is related to the losses and write downs of the
Thornton property.
The Company incurred a net income tax benefit of $141,284 on pretax income
of $37,957 for the year ended August 31, 1997 due to recording of additional
deferred income tax benefit of $52,944 and the carry back of the operating loss
associated with the sale of the Thornton property as described above. This
compares to an income tax benefit of $32,551 on pre-tax earnings of $354,950 for
the year ended August 31, 1996.
Income taxes are a function of prevailing corporate rates, the changes in
the deferred tax asset valuation allowance and other factors as described in
Note 8 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, 1997. There were
no lawsuits pending for the year ended August 31, 1996.
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 major customer 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
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For the year ended August 31, 1997, cash generated internally by operating
activities was $333,946 as compared to funds generated of $435,267 the prior
year, a decrease of $101,321. This decrease is due to a decrease in the cash
received from customers of $696,411 which is offset by a decrease in the cash
paid to suppliers and employees of $638,466, a decrease of $27,553 in interest
paid, a decrease in income taxes refunded of $11,082 and an increase in income
taxes paid of $57,912.
For the year ended August 31, 1997, there was cash provided by investing
activities of $310,095 compared to cash provided the prior fiscal year of
$104,600, an increase of $205,495. Most of this change is due to the proceeds
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from the sale of the Thornton property in the amount of $645,893 and a loan to a
related party of $300,000 during the year ended August 31, 1997. During the year
ended August 31, 1996, proceeds from the sale of two subsidiaries totaled
$44,929 and collections on loans to a related party totaled $112,781. During the
year ended August 31, 1997, the Company invested $30,000 in marketable
securities and received proceeds of $13,675 for the partial sale of the same
securities. The Company also decreased the funds used to acquire equipment by
$33,637 for the year ended August 31, 1997.
For the fiscal year ended August 31, 1997, cash used by financing
activities was $371,314 as compared to cash used the prior year of $525,588 a
decrease of $154,274. This change is the result of three main factors:
1) there was a reduction in borrowings net of repayments of $356,000 for
the year ended August 31, 1997 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 current year;
3) cash was provided by the cash overdraft of $16,710 for the year ended
August 31, 1996 compared to cash used to reduce the cash overdraft of $16,710 to
the current year, an increase in cash used for the period ended August 31, 1997
of $33,420.
Working capital (current assets minus current liabilities) was $1,218,112
at August 31, 1997 as compared to $281,511 a year earlier, an increase of
$936,601. This change is due to the offsets of a number of increases and
decreases in current assets and liabilities.
The $251,921 decrease in trade accounts receivable from August 31, 1996 to
August 31, 1997 is primarily the result of decreases in feed accounts receivable
and other miscellaneous accounts receivable. Feed accounts receivable were
$301,199 less at August 31, 1997 than a year earlier as a result of reductions
in accounts the Company "carried" or financed and decreased feed sales. There
were no feeder cattle accounts receivable at August 31, 1996 which was $15,450
less than at August 31, 1997. The decrease in trade accounts receivable from
related parties from August 31, 1996 to August 31, 1997 is the result of
decreased sales to the related parties for the current year. Accounts
receivable-related parties (from MFL and its wholly owned subsidiaries) was
$10,986 greater at August 31, 1997 than at August 31, 1996. 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.
For the year ended August 31, 1997, the Company had total income tax refund
receivables of $94,761, where as the Company had income taxes payable of $86,579
for the period ended August 31, 1996. The primary reason for the change is the
carry-back of the loss associated with the sale of the Thornton land as
previously discussed.
Deposits on feeder cattle decreased $14,520 from August 31, 1996 to the
period ended August 31, 1997, due to the fact that the cattle for which the
deposits made were delivered to the feedlot and the deposits were applied to the
purchase price.
-12-
<PAGE>
Inventories were $183,170 greater August 31, 1997 than at August 31, 1996
due to two main changes: (1) The inventory of feeder cattle temporarily held for
resale at August 31, 1997 was $215,546 compared to $86,251 at August 31, 1996,
an increase of $129,295 (2) Feed ingredient inventories were about $53,875
higher at August 31, 1997 that at August 31, 1996. Specific ingredient levels
will vary on a daily basis depending on availability, 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,
1997. Trade accounts payable decreased $116,153 from $534,839 at August 31, 1996
to $418,686 at August 31, 1997. 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
year then ended, compared to no taxes payable but refunds receivable for the
period ended August 31, 1997, as described above, for the year ended August 31,
1997. Customer advance feed contracts-related party decreased $134,371 from
August 31, 1996 to August 31, 1997. 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, 1997 for which there was no outstanding balance at August 31, 1997.
Therefore, the Company had $200,000 in unused credit available under its line of
credit that could be used to generate cash if necessary. The foregoing loan
bears interest at 1.5% over the prime rate (actual rate at August 31, 1997 was
10.00%). The loan is secured by feed inventories, feed accounts receivable,
general intangibles, and equipment. On June 26, 1996, the Company obtained a
special bank line of credit of up to $300,000 to finance certain accounts
receivable that matured December 31, 1996, for which the outstanding balance on
August 31, 1996 was $160,000. This line of credit was deemed not necessary at
the time it matured, and was not renewed. 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, 1997 for which there was no outstanding
balance at August 31, 1997. Therefore, MFI could borrow up to $300,000 to
purchase feeder cattle for resale to customers. MFI's line of credit bears
interest at 1.5% over the prime rate (actual rate at August 31, 1997 was
10.00%). The line is secured by feeder cattle inventories and accounts
receivable.
The Company had no material commitments for capital expenditures at August
31, 1997.
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.
-13-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
-14-
<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, 1997, 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 77 Chairman of the Board of
Directors and Director
Alan D. Gorden 54 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, 1997, 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 77 Chairman of the Board of
Directors and Director
Stephen R. Story 46 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.
-15-
<PAGE>
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.
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.
He is currently President and a director of Murdock Capital Corporation of
Greeley, Colorado, Chairman and President of Foothills Financial Corporation,
Greeley, Colorado, and is a member of the board of directors of Alaris Medical
Systems, Inc., San Francisco, California, and 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. Mr. Miller also serves as
President of Central Weld County Water District, Greeley, Colorado. 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 world wide.
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.
-16-
<PAGE>
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.
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
Norman M. Dean and James E. Miller are delinquent with the reports required
under Section 16(a) requirements during the fiscal year ended August 31, 1997.
The Company believes that all other 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 bonuses for the year ended August 31,
1997 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($) sation($) Award($ SARs (#) Payout($) sation($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Miller, 1997 $72,000 $ - $ - $ - (300,000) $ - $ -
Chief Executive Officer 1996 72,000 10,000 - - 300,000 - -
1995 72,000 - - - - - -
-17-
</TABLE>
<PAGE>
In January 1997, the Board of Directors rescinded the following options,
which had been granted in the year ended August 31, 1996:
James E. Miller 300,000 shares of common stock at .0605/share
Norman M. Dean 300,000 shares of common stock at .0605/share
Alan D. Gorden 100,000 shares of common stock at .0605/share
The Board rescinded the options when it was discovered that the stock
option plan under which they had been granted had expired.
------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN YEAR ENDED AUGUST 31, 1997
------------------------------------------------------------------------------
(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 ($/Share) Date
-------------------------------------------------------------------------
James E. Miller 0 .0% .0000
President
Norman M. Dean 0 .0% .0000
Chairman of the Board
Alan D. Gorden 0 .0% .0000
------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED AUGUST 31, 1997
AND OPTION/SAR VALUE AS OF AUGUST 31, 1997
------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Val ue of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
------------------------------------------------------------------------------
James E. Miller 0 $ 0 0/0 $ 0/$ 0
Norman M. Dean 0 $ 0 0/0 $ 0/$ 0
Alan D. Gorden 0 $ 0 0/0 $ 0/$ 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, 1997, each Director received a total of $1,500 in
-18-
<PAGE>
director fees. 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.
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, 1997, is known to the
Company to be the beneficial owner of 5% or more of such Common Stock (except
Directors and Officers whose ownership 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 Stock None
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, 1997.
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership of Class
- ----------------------------------------------------------------------
James E. Miller 994,706 (1) 15.6%
23402 Weld County Road 35
La Salle, CO 80645
Norman M. Dean 1,018,900 (2) 16.1%
P.O. Box 1406
Greeley, CO 80631
Alan D. Gorden 0 0.0%
4570 Old Ranch Road
Colorado Springs, CO 80908
-19-
<PAGE>
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 2,015,416 31.7 %
Executive Officers
as a Group (4 Persons)
--------------------
(1) Includes 45,906 shares owned by Mr. Miller's wife. Also includes 225,002 of
450,004 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 45,905 shares owned by Mr. Dean's wife. Also includes 225,002 of
450,004 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.
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 32% 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 10 of Notes to Consolidated Financial Statements attached
for a summary of the transactions with MFL for the years ended August 31, 1997
and 1996.
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
-20-
<PAGE>
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 1/3 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 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.
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 note is subordinated to MFL's mortgagor. On
May 31, 1997 the Company loaned an additional $300,000 to MFL pursuant to a note
that matures May 31, 2002. The note is unsecured and bears interest at 6% per
annum, payable monthly. MFL used the proceeds from the loan to acquire
additional feeder cattle to place in the Company's feedlot. The note is
subordinated to MFL's mortgagor.
-21-
<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.
-22-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
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 above
present fairly, in all material respects, the financial position of Miller
Diversified Corporation and subsidiaries as of August 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Anderson & Whitney, P.C.
November 6, 1997
F-1
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
August 31 1997 1996
- -----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 359,278 $ 86,551
Trade accounts receivable 483,888 735,809
Trade accounts receivable - related parties 55,685 116,692
Accounts receivable - related parties 8,897 81,102
Income taxes receivable 94,761 --
Inventories 466,449 283,279
Prepaid expenses 19,337 21,725
Deposits on feeder cattle -- 14,520
Current portion of notes receivable -
related party 250,000 --
- -----------------------------------------------------------------------------
Total Current Assets 1,738,295 1,339,378
- -----------------------------------------------------------------------------
Property and Equipment:
Land held for sale -- 700,000
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 77,453 81,007
Equipment under capital leases -
related party 64,092 149,453
Leasehold improvements 90,403 72,173
-----------------------------
1,729,788 2,500,473
Less: Accumulated depreciation
and amortization 525,320 506,964
- -----------------------------------------------------------------------------
Total Property and Equipment 1,204,468 1,993,509
- -----------------------------------------------------------------------------
Other Assets:
Securities available for sale 29,313 --
Notes receivable - related party 300,000 250,000
Water rights -- 120,000
Deferred income taxes 176,962 124,018
Deposits and other 1,500 1,500
- -----------------------------------------------------------------------------
Total Other Assets 507,775 495,518
- -----------------------------------------------------------------------------
TOTAL ASSETS $ 3,450,538 $3,828,705
Continued on next page.
F-2
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
- -----------------------------------------------------------------------------
August 31 1997 1996
- -----------------------------------------------------------------------------
LIABILITIES
Current Liabilities:
Cash overdraft $ -- $ 16,710
Notes payable -- 160,000
Trade accounts payable 418,686 534,839
Accrued expenses 17,061 21,989
Accrued income taxes payable -- 86,579
Customer advance feed contracts 14,907 14,907
Customer advance feed contracts -
related parties 40,892 175,263
Current portion of capital lease obligations -
related party 28,637 47,880
- -----------------------------------------------------------------------------
Total Current Liabilities 520,183 1,058,167
Capital Lease Obligations - related party 1,015,914 1,044,551
- -----------------------------------------------------------------------------
Total Liabilities 1,536,097 2,102,718
Commitments
- -----------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- --
Common Stock, par value $.0001 per share;
25,000,000 shares authorized; 6,364,640
shares issued and outstanding 636 636
Additional Paid-in Capital 1,351,693 1,351,693
Unrealized Gain on Securities Available
for Sale 9,213 --
Retained Earnings 552,899 373,658
- -----------------------------------------------------------------------------
Total Stockholders' Equity 1,914,441 1,725,987
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,450,538 $ 3,828,705
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Unrealized Retained Treasury
Years Ended August 31, Common Stock Paid-In Gain on Earnings Stock
1996 and 1997 Shares Amount Capital Securities (Deficit) Amount Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1995 6,554,799 $ 655 $ 1,654,649 $ -- $(13,843) $ (333,095) $ 1,150,231
Issuance of common stock 600,000 60 30,060 -- -- 30,120
Cancellation-treasury stock (790,159) (79) (333,016) -- 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
Unrealized gain on securities
available for sale 9,213 9,213
Net income for the year ended
August 31, 1997 -- -- -- 179,241 -- 179,241
- --------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 6,364,640 $ 636 $ 1,351,693 $ 9,213 $552,899 $ -- $ 1,914,441
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------
Years Ended August 31 1997 1996
- ----------------------------------------------------------------------------
Revenue:
Feed and other sales $ 9,215,851 $10,266,044
Feedlot services 2,040,105 1,449,107
Other 80,052 435,858
Interest 23,561 28,316
Interest on notes receivable - related party 18,000 15,000
- ----------------------------------------------------------------------------
Total Revenue 11,377,569 12,194,325
- ----------------------------------------------------------------------------
Costs and Expenses:
Cost of feed and other sales 8,483,551 9,370,924
Cost of feedlot services 1,844,037 1,183,245
Selling, general, and administrative 704,296 1,130,073
Loss on sale of land and water rights 178,452 --
Interest 12,146 30,261
Interest on capital leases - related party 117,130 124,872
- ----------------------------------------------------------------------------
Total Costs and Expenses 11,339,612 11,839,375
- ----------------------------------------------------------------------------
Income Before Income Taxes 37,957 354,950
Income Tax Benefit (141,284) (32,551)
- ----------------------------------------------------------------------------
NET INCOME $ 179,241 $ 387,501
- ----------------------------------------------------------------------------
INCOME PER COMMON SHARE $ .03 $ . 07
- ----------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 6,364,640 5,910,542
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------
Years Ended August 31 1997 1996
- ----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash received from customers $11,526,420 $12,222,831
Cash paid to suppliers and employees (11,009,945) (11,648,411)
Interest received 41,381 43,316
Interest paid (130,910) (158,463)
Income taxes refunded -- 11,082
Income taxes paid (93,000) (35,088)
- ----------------------------------------------------------------------------
Net Cash Provided by Operating Activities 333,946 435,267
- ----------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (19,473) (53,110)
Loan to related party (300,000) --
Collections on loans to related party -- 112,781
Purchase of security (30,000) --
Proceeds from:
Sale of land and water rights 645,893 --
Sale security 13,675 --
Sale of investment in subsidiaries -- 44,929
- ----------------------------------------------------------------------------
Net Cash Provided by Investing Activities 310,095 104,600
- ----------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from notes payable 1,213,000 1,875,000
Principal payments on notes payable (1,373,000) (2,391,000)
Principal payments on capital lease obligations
- related party (47,880) (105,581)
Proceeds from issuance of common stock -- 30,120
Net increase (decrease) in short-term feeder
cattle financing (146,724) 49,163
(Increase) decrease in cash overdraft (16,710) 16,710
- ----------------------------------------------------------------------------
Net Cash Used by Financing Activities (371,314) (525,588)
- ----------------------------------------------------------------------------
Net Increase in Cash 272,727 14,279
Cash, Beginning of Year 86,551 72,272
- ----------------------------------------------------------------------------
Cash, End of Year $ 359,278 $ 86,551
- ----------------------------------------------------------------------------
Continued on next page.
F-6
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
- -----------------------------------------------------------------------------
Years Ended August 31 1997 1996
- -----------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net income $ 179,241 $ 387,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of land and water rights 178,452 --
Gain on sale of security (3,775) --
Gain on sale of investment in subsidiaries -- (20,000)
Depreciation and amortization 104,170 160,846
Recognition of deferred gain -- (18,617)
Increase in deferred income taxes (52,944) (124,018)
Changes in assets and liabilities net of
short-term feeder cattle financing:
(Increase) decrease in:
Trade accounts receivable 243,561 277,303
Trade accounts receivable - related party (84,817) (78,045)
Accounts receivable - related party 72,205 99,778
Income taxes receivable (94,761) 11,082
Inventories (53,875) (65,885)
Prepaid expenses 2,387 (7,990)
Increase (decrease) in:
Trade accounts payable and accrued
expenses (104,582) (9,249)
Accrued income taxes payable (86,579) 56,379
Customer advance feed contracts 40,892 (19,397)
Customer advance feed contracts
- related parties (175,263) 25,868
Obligation payable -- (240,289)
- ----------------------------------------------------------------------------
Net Cash Provided by
Operating Activities $ 333,946 $ 435,267
See Accompanying Notes to Consolidated Financial Statements.
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
Corporation (the Company) and its subsidiaries conform to generally
accepted accounting principles. 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 near La
Salle, Colorado in which cattle owned by customers are fed and cared
for by the Company. Most cstomers 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 subsidiary, Miller Feeders, Inc.
(commission agent buying feeder cattle and elling fed cattle for the
Company's feeding customers and others). During the year ended August
31, 1996, LaSalle Commodity and Cattle Services Co., (commission agent
for the execution of commercial commodities contracts) and Miller
Trading Co., (commission agent for the execution of retail commodities
contracts) were sold to an affiliate. Another subsidiary, Genetic
Engineering, Inc., (owned land held for sale), was merged into Miller
Diversified Corporation during the year ended August 31, 1996
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, 1997 and 1996, the Company had trade accounts receivable
from two unrelated customers , totaling $366,373 and $620,370,
respectively. Each of these customer's balances at year end exceeded
10% of the Company's total trade accounts receivable.
- --------------------------------------------------------------------------------
F-8
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: - Continued
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.
- --------------------------------------------------------------------------------
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. Interest expense relating to
the lease liability is recorded to effect a constant rate of interest
over the term of the lease.
- --------------------------------------------------------------------------------
Securities Available for Sale:
Available for sale securities consist of equity securities not
classified as trading securities nor as held for maturity securities.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a seperate
component of stockholders' equity until realized. Gains ans losses on
the sale of securities available for sale are determined using the
specific-identification method.
- --------------------------------------------------------------------------------
Water Rights:
The Company owned 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. The water rights were sold in May 1997.
- --------------------------------------------------------------------------------
Feed Sales:
Revenue is recognized on feed sales when the feed is delivered to pens
of customers' cattle for consumption.
- --------------------------------------------------------------------------------
F-9
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: - Continued
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 reccognized 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 asset 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 subsidiary file
consolidated corporate income tax returns.
- --------------------------------------------------------------------------------
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 1997 and 1996
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 purchased
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 estimate
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-10
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 2 - Securities Available for Sale:
-----------------------------------------------------------------------
Amortized Estimated Gross Unrealized
August 31, 1997 Cost Market Value Gains Losses
-----------------------------------------------------------------------
Equity
Securities $ 20,100 $ 29,313 $ 9,213 $ --
-----------------------------------------------------------------------
The equity securities are restricted from sale until April 1998
- --------------------------------------------------------------------------------
Note 3 - Inventories:
-----------------------------------------------------------------------
Years Ended August 31 1997 1996
-----------------------------------------------------------------------
Feed and grain $ 220,107 $ 167,466
Cattle 215,546 86,251
Veterinary supplies and other 30,796 29,562
------------------------
$ 446,449 $ 283,279
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 4 - 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 1/3) per head per day for cattle actually in the
feedlot, subject to a minimum of $10,750 and maximum of $13,300. 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:
----------------------------------------------------------------------
Years Ended August 31 1997 1996
----------------------------------------------------------------------
Feedlot facilities under capital lease $ 1,497,840 $ 1,497,840
Less: Accumulated amortization 394,431 334,527
----------------------------------------------------------------------
Net feedlot facilities under
capital lease $ 1,103,409 $ 1,163,323
Equipment under capital leases 64,092 149,453
Less: Accumulated amortization 39,891 95,602
----------------------------------------------------------------------
Net equipment under capital leases 24,201 53,851
$ 1,127,610 $ 1,217,174
----------------------------------------------------------------------
F-11
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 4 - Capital Leases: - Continued
Future minimum lease payments under the capital leases at August 31,
1997 for each of the next five years and in the aggregate are as
follows:
-----------------------------------------------------------------
Year Ending August 31 Total
-----------------------------------------------------------------
1998 $ 142,020
1999 141,646
2000 135,305
2001 129,000
2002 129,000
Later years 1,730,750
-----------------------------------------------------------------
Total minimum lease payments 2,407,721
Less: Amount representing interest 1,363,170
-----------------------------------------------------------------
Present value of net minimum lease payments 1,044,551
Less: Current portion 28,637
-----------------------------------------------------------------
$ 1,015,914
-----------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5 - Notes Receivable - Related Party:
-----------------------------------------------------------------
Years Ended August 31 1997 1996
-----------------------------------------------------------------
Note receivable from Miller Feed Lots, Inc., interest
payable monthly at 6%, $250,000 principal due in May,
1998, $300,000 of principle due May 2002, without
collateral,and subordinated to
MFL mortgagor $ 550,000 $ 250,000
Less: Current portion 250,000 --
----------------------------------------------------------------
$ 300,000 $ 250,000
----------------------------------------------------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 6 - Notes Payable:
------------------------------------------------------------------
Years Ended August 31 1997 1996
------------------------------------------------------------------
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 $200,000 line of credit with a
bank maturing in December, 1997,
interest payable quarterly at 1.5%
over the Wall Street Journal prime
rate (actual rate of 10.00% and 10.25%
at August 31, 1997 and 1996,
respectively), collateralized by
inventories, accounts receivable, and
equipment -- --
Revolving $300,000 line of credit with a
bank maturing in December, 1997,
interest payable quarterly at 1.5%
over the Wall Street Journal prime
rate (actual rate of 10.00% and 10.25%
at August 31, 1997 and 1996,
respectively), collateralized by
Miller Feeders, Inc. feeder cattle and
accounts receivable, proceeds used to
facilitate the cattle brokerage
operations of Miller Feeders, Inc. -- --
------------------------------------------------------------------
$ -- $ 160,000
------------------------------------------------------------------
At August 31, 1997 and 1996, the Company had an outstanding letter of
credit amounting to $125,000 for a bond with an insurance company.
F-13
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 7 - Obligation Payable:
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 8 - Income Taxes:
----------------------------------------------------------------------
Years Ended August 31 1997 1996
----------------------------------------------------------------------
Current income taxes $ (88,340) $ 91,467
Deferred income taxes (52,944) (124,018)
----------------------------------------------------------------------
Income Tax Benefit $ (141,284) $ (32,551)
Significant components and the related tax effect of
temporary differences and carryforwards are as follows:
-----------------------------------------------------------------
Years Ended August 31 1997 1996
Current Long-Term Current Long-Term
-----------------------------------------------------------------
Deferred Tax Liabilities:
Depreciation $ -- $ 5,570 $ -- $ 4,254
-----------------------------------------------------------------
Deferred Tax Assets:
Capital leases -- 75,805 -- 67,088
Contributions
carryforward -- 1,824 -- --
Reduction in carrying
value of Land held
for sale -- 179,406 -- 316,200
NOL carryover -- 104,903 -- 61,184
-----------------------------------------------------------------
-- 361,938 -- 444,472
-----------------------------------------------------------------
Deferred Tax Assets
Valuation Allowance -- (179,406) -- (316,200)
-----------------------------------------------------------------
Net Deferred
Tax Asset $ -- $ 176,962 $ -- $ 124,018
-----------------------------------------------------------------
The differences between income tax expense (benefit) and the amount
computed by applying the federal statutory rates are as follows:
F-14
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 8 - Income Taxes: - Continued
-----------------------------------------------------------------
Years Ended August 31 1997 1996
-----------------------------------------------------------------
Computed at expected federal
statutory rate $ 5,6948 $ 120,683
Change in deferred tax asset
valuation allowance (136,794) (149,100)
Other (10,184) (4,134)
-----------------------------------------------------------------
Income Tax Benefit $ (141,284) $ (32,551)
As of August 31, 1996, the Company had unused operating
loss carryforwards from Genetic Engineering, Inc. (GEI) of
$2,127,000, consolidated operating loss carryforwards of
$308,000, and tax credit carryforwards of approximately
$67,000 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
carryforwards expire as follows:
----------------------------------------------------------------
Years Ending August 31 GEI Consolidated
----------------------------------------------------------------
2000 $ -- $ 168,000
2002 994,000 65,000
2003 321,000 --
2004 159,000 --
2005 57,000 --
2007 69,000 --
2012 527,000 75,000
----------------------------------------------------------------
$2,127,000 $ 308,000
- --------------------------------------------------------------------------------
Note 9 - Operating Leases:
The Company leases office space, certain equipment, and other items
under various month-to-month operating lease agreements.
Total rental expense was $107,078 and $66,104 for the years ended
August 31, 1997 and 1996, respectively, of which $84,844 and $33,000,
respectively, was paid to related parties.
- --------------------------------------------------------------------------------
Note 10 - 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.
F-15
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- -------------------------------------------------------------------------------
Note 10 - Related Party Transactions: - Continued
-----------------------------------------------------------------
Years Ended August 31 1997 1996
-----------------------------------------------------------------
Freight paid to MFL $ 274,302 $ 163,080
Payments to MFL under capital lease
of feedlot facility (Note 4) 129,000 129,000
Payments to MFL under capital lease
of equipment (Note 4) 36,010 101,454
Payments to MFL under operating lease
of equipment (Note 9) 75,844 24,000
Company housing rent paid to MFL 9,000 9,000
Interest income from MFL (Note 5) 18,000 15,000
-----------------------------------------------------------------
In August 1992, the Company sold substantially all of its operating
equipment to MFL and then leased back only a portion ofthe equipment
necessary to operate the feedlot facility. The Company realized a gain
on this transaction of $74,467 which was deferred and was recognized
over the term of the lease, which terminated during the year ended
August 31, 1997.
Employees and officers of the Company feed cattle personally and in
conjunction with companies they control. Sales to those related
parties were approximately $1,004,000 and $643,000 net of discounts of
approximately $9,700 and $9,800, or 9% and 5% of total revenue for the
years ended August 31, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
Note 11 - 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 1997 1996
-----------------------------------------------------------------
Company A $ 1,297,249 $ 1,452,934
Company B 6,649,132 6,568,919
-----------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 12 - Commitments:
The Company is committed to purchase various crop commodities with
anticipated delivery dates in the subsequent fiscal year. At August
31, 1997 and 1996, these purchase commitments aggregated approximately
$575,750 and $550,000, respectively.
In addition, the Company is committed to purchase cattle with
anticipated delivery dates in the subsequent fiscal year. At
F-16
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 12 - Commitments: - Continued
August 31, 1997 and 1996, these purchase commitments totalled
approximately $-0- and $273,000, respectively. At August 31, 1997 and
1996, the Company also had cattle sales commitments totalling $-0- and
$273,000, 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.
- --------------------------------------------------------------------------------
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 grant.
These options expire in March 2001. These options were rescinded in
January 1997.
- --------------------------------------------------------------------------------
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, 1997
and 1996.
- --------------------------------------------------------------------------------
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, 1997 does not differ materially
from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet.
F-17
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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. The equity securities available-for-sale are reported at
estimated market value determined by quote prices on the balance sheet
date.
- --------------------------------------------------------------------------------
Note 16 - Supplemental Schedule of Noncash Investing and Financing
Activities:
----------------------------------------------------------------
Years Ended August 31 1997 1996
----------------------------------------------------------------
Noncash Financing and Investing Activities:
Unrealized gain of securities
available for sale $ 9,213 $ --
Reduction of long-term obligations to
a related party resulting from
removal of certain equipment from
equipment lease -- 3,445
------------------------------------------------------------------
F-18
<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 3, 1997 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 3, 1997
- ------------------------ Executive Officer,
James E. Miller Principal Financial
Off icer, and Director
\s\ STEPHEN R. STORY Secretary-Treasurer, December 3, 1997
- ------------------------- Principal Accounting
Stephen R. Story Officer
\s\ NORMAN M. DEAN Chairman of the December 3, 1997
- ------------------------- Board and Director
Norman M. Dean
- ------------------------- Director
Alan D. Gorden
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM FORM 10-KSB FOR THE
TWELVE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 359,278
<SECURITIES> 29,313
<RECEIVABLES> 789,573
<ALLOWANCES> 0
<INVENTORY> 466,449
<CURRENT-ASSETS> 1,738,295
<PP&E> 1,729,788
<DEPRECIATION> 525,320
<TOTAL-ASSETS> 3,450,538
<CURRENT-LIABILITIES> 520,183
<BONDS> 0
0
0
<COMMON> 636
<OTHER-SE> 1,913,805
<TOTAL-LIABILITY-AND-EQUITY> 3,450,538
<SALES> 9,215,851
<TOTAL-REVENUES> 11,377,569
<CGS> 8,483,551
<TOTAL-COSTS> 1,844,037
<OTHER-EXPENSES> 882,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,276
<INCOME-PRETAX> 37,957
<INCOME-TAX> (141,284)
<INCOME-CONTINUING> 179,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,241
<EPS-PRIMARY> .028
<EPS-DILUTED> .028
</TABLE>
