SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended May 31, 1999
Commission File Number 01-19001
MILLER DIVERSIFIED CORPORATION
------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1070932
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization Number)
Mailing Address:
P. O. Box 937
La Salle, Colorado 80645
23360 Weld County Road 35
La Salle, Colorado 80645
------------------------
(Address of Principal Executive Office)
(970) 284-5556
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be 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
Number of shares of Common Stock, par value $.0001, outstanding on July 16,
1999, 6,364,640.
Transitional Small Business Disclosure Format: YES NO X
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
The SECURITIES EXCHANGE ACT OF 1934
MILLER DIVERSIFIED CORPORATION
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Quarterly Report on Form 10-QSB
for the quarter ended May 31, 1999, as set forth in the pages attached hereto.
Entire Revised Form 10-QSB attached with changes to the following:
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Cash Flows - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereto duly authorized.
MILLER DIVERSIFIED CORPORATION
(Registrant)
Date: December 13, 1999 By: /s/ Stephen R. Story
-------------------------
Stephen R. Story
Secretary/Treasurer
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, August 31,
1999 1998
---- ----
ASSETS
- ------
Current Assets:
Cash $ 57,175 $ 63,656
Trade accounts receivable 1,080,979 823,576
Accounts receivable - related parties 370,143 203,137
Notes receivable - customer financing 440,461 --
Inventories 1,383,927 1,321,467
Prepaid expenses 17,771 13,542
---------- ----------
Total Current Assets 3,350,456 2,425,378
---------- ----------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 100,336 77,453
Equipment under capital leases -
related party 30,649 30,649
Leasehold improvements 131,043 131,043
---------- ----------
1,759,868 1,736,985
Less: Accumulated depreciation
and amortization 645,505 581,331
---------- ----------
Total Property and Equipment 1,114,363 1,155,654
---------- ----------
Other Assets:
Securities available for sale 10,775 10,347
Other investments 376,435 186,366
Notes receivable - related party 300,000 300,000
Deferred income taxes 233,142 233,142
Deposits and other 16,500 30,885
---------- ----------
Total Other Assets 936,852 760,740
---------- ----------
TOTAL ASSETS $5,401,671 $4,341,772
========== ==========
Continued on next page
2
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
May 31, August 31,
1999 1998
---- ----
LIABILITIES
- -----------
Current Liabilities:
Bank overdraft $ 40,089 $ --
Notes payable 1,725,476 1,001,327
Trade accounts payable 391,720 440,848
Income taxes payable 75,356 --
Accrued expenses 54,935 32,046
Customer advance feed contracts 148,482 14,907
Current portion of capital lease obligations -
related party 27,075 27,094
----------- -----------
Total Current Liabilities 2,463,133 1,516,222
Capital Lease Obligations - related party 964,411 984,432
----------- -----------
Total Liabilities 3,427,544 2,500,654
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 (Loss) on Securities
available for sale (9,325) (9,753)
Retained Earnings 631,123 498,542
----------- -----------
Total Stockholders' Equity 1,974,127 1,841,118
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,401,671 $ 4,341,772
=========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Restated
Nine Months Ended May 31 1999 1998
- ------------------------ ---- ----
Revenue:
Feed and related sales $5,070,556 $6,297,559
Fed cattle sales 1,577,505 1,120,281
Feedlot services 1,111,521 1,235,426
Other 53,316 19,158
Interest income 38,902 21,077
Interest income - related party 13,500 19,750
Gain on sale of assets -- 6,282
---------- ----------
Total Revenue 7,865,300 8,719,533
---------- ----------
Costs and Expenses:
Cost of:
Feed and related sales 4,366,623 5,638,147
Fed cattle sales 1,498,874 1,206,817
Feedlot services 1,097,403 1,091,950
Selling, general, and administrative 574,548 649,746
Interest 37,188 17,687
Interest on capital leases - related party 82,727 85,065
---------- ----------
Total Costs and Expenses 7,657,363 8,689,412
---------- ----------
Income Before Income Taxes 207,937 30,121
Income Tax Expense 75,356 6,195
---------- ----------
NET INCOME $ 132,581 $ 23,926
========== ==========
INCOME PER COMMON SHARE $ .02 $ Nil
---------- ----------
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Restated
Three Months Ended May 31, 1999 1998
- -------------------------- ---- ----
Revenue:
Feed and related sales $1,661,251 $2,105,169
Fed cattle sales 276,934 854,708
Feedlot services 476,649 457,456
Other 14,544 6,561
Interest income 18,015 12,095
Interest income - related party 4,500 4,500
---------- ----------
Total Revenue 2,451,893 3,440,489
---------- ----------
Costs and Expenses:
Cost of:
Feed and related sales 1,407,264 1,824,591
Fed cattle sales 257,420 909,213
Feedlot services 425,941 439,777
Selling, general, and administrative 208,793 170,619
Interest 4,102. 16,004
Interest on capital leases - related party 27,392 28,105
---------- ----------
Total Costs and Expenses 2,330,912 3,388,309
---------- ----------
Income before Income Taxes 120,981 52,180
Income Tax 46,685 11,524
---------- ----------
NET INCOME $ 74,296 $ 40,656
========== ==========
INCOME PER COMMON SHARE $ .01 $ Nil
---------- ----------
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended May 31, 1999 1998
- ------------------------- ---- ----
Cash Flows from Operating Activities:
Cash received from customers $ 7,689,070 $ 8,327,748
Cash paid to suppliers and employees (7,734,351) (9,179,161)
Interest received 52,402 41,525
Interest paid (104,387) (96,672)
Taxes received -- 94,761
----------- -----------
Net Cash Provided (Utilized) by
Operating Activities (97,266) (811,799)
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment (22,882) (1,933)
Acquisition of other investments (190,069) (118,418)
Collections on loans to related parties -- 250,000
Loans to unrelated customers -financing (440,461) --
Loans to unrelated customer -- (65,000)
----------- -----------
Net Cash Provided (Utilized) by
Investing Activities (653,413) 64,649
----------- -----------
Cash Flows from Financing Activities:
Proceeds from notes payable 4,292,206 2,130,458
Principal payments on::
Short-term notes payable (3,568,057) (1,656,434)
Capital lease obligations - related party (20,040) (20,899)
Increase in cash overdraft 40,089 2,757
----------- -----------
Net Cash Provided by
Financing Activities 744,198 455,882
----------- -----------
Net Decrease in Cash (6,481) (291,268)
Cash, Beginning of Year 63,656 359,278
----------- -----------
Cash, End of Year $ 57,175 $ 68,010
=========== ===========
Continued on next page.
6
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
Nine Months Ended May 31, 1999 1998
- ------------------------- ---- ----
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income $ 132,581 $ 23,926
Adjustments:
Depreciation and amortization 64,174 61,567
Changes in assets and liabilities net of
short-term feeder cattle financing:
(Increase) decrease in:
Trade accounts receivable (257,403) (379,241)
Trade accounts receivable - related party -- 31,874
Accounts receivable - related party (167,006) (71,573)
Income taxes receivable -- 94,761
Inventories (62,460) (764,280)
Prepaid expenses (4,229) 5,013
Deposits and other 14,385 (14,385)
Increase (decrease) in:
Trade accounts payable and accrued
expenses (26,239) 197,237
Accrued income taxes payable 75,356 6,195
Customer advance feed contracts 133,575 (2,893)
--------- ---------
Net Cash Utilized by
Operating Activities $ (97,266) $(811,799)
========= =========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
7
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Securities Available for Sale
Amortized Estimated Gross - Unrealized
Cost Market Value Gains Losses
---- ------------ ----- ------
August 31, 1998
Equity Securities $20,100 $10,347 $ -- $ 9,753
May 31, 1999
Equity Securities $20,100 $10,775 $ -- $ 9,325
The consolidated balance sheets as of May 31, 1999 and August 31, 1998, the
consolidated statements of earnings for the three months and nine months ended
May 31, 1999 and 1998 and consolidated statements of cash flows for the nine
months ended May 31, 1999 and 1998 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by the rules and
regulations of the Securities and Exchange Commission.
The consolidated statements of earnings for the three months and nine months
ended May 31, 1998 have been restated to provide continuity in the reporting of
Feed and related sales and cost of sales and Fed cattle sales and cost of sales
which were not segregated on Form 10-QSB for the period ended May 31, 1998. The
restatement had no effect on the results of operations, financial position nor
liquidity,
In preparation of the above-described financial statements, all adjustments of a
normal and recurring nature have been made. The Company believes that the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the results of operations and cash flows for the periods
presented. Further, management believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the annual financial statements
and the notes thereto. The operations for the nine month period ended May 31,
1999 are not necessarily indicative of the results to be expected for the year.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
A summary of the net earnings (loss) for the nine months of the fiscal year
ended May 31, 1999, compared to the same period the year before is as follows:
Nine Months Ended May 31, 1999 1998 Increase
- ------------------------- ---- ---- --------
First Quarter $ 61,884 $ 43,165 $ 18,719
Second Quarter $ (3,599) $ (59,895) $ 56,296
Third Quarter $ 74,296 $ 40,656 $ 33,640
--------- --------- ---------
Nine month total $ 132,581 $ 23,926 $ 108,655
The most significant factor that affects operating results is the average
head numbers of cattle per day ("average head days") in the Company's
feedlot because feed is sold and feedlot services are rendered to the
cattle owners. Sales of feed and feedlot services account for 79% and 86%
of the Company's total revenues for the nine month periods ended May 31,
1999 and 1998, respectively. As noted below, fed cattle sales, which
accounted for 20% and 13% of the total revenues for the periods ended May
31, 1999 and 1998, respectively are beginning to have a greater influence
on the COmpany's total revenues. The increase is the result of management's
policy change to feeding more cattle to slaughter for the Company's
account.
Average Head Days Summary Increase
Nine Months Ended May 31, 1999 1998 (Decrease)
- ------------------------- ---- ---- ----------
First Quarter 14,114 15,721 (1,607)
Second Quarter 14,746 16,131 (1,385)
Third Quarter 16,907 16,798 109
Nine months combined 15,088 16,038 (950)
The 950 or 5.9% decrease in average head days for the nine months ended May
31, 1999 compared to the previous year, impacted several areas as described
below.
Another factor that affected earnings for the nine months ended May 31,
1999 and 1998, is the Company's "fall calf program". As a service to customers,
the Company purchases for them calves weaned in the fall and places them with
local farmer-feeders who feed and care for the calves until the following
February through April when the cattle 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. Although originally undertaken as a method to improve
placements in February through April when cattle placements were usually low,
changes in the industry coupled with the Company's commitment to retain
ownership on more cattle and feed them to slaughter has lessened the impact of
the program . The Company will continue to take advantage of any benefits that
the program can produce. The revenues are recorded as sales of feedlot services
and the costs as the cost of feedlot services. Therefore, a high volume in the
9
<PAGE>
fall calf program can reduce the gross profit percentage on sales of feedlot
services. For the period ended May 31, 1999, the Company had an average of 925
head in its fall calf program as compared to an average of 1,727 head the
previous year. This decline in average head in the result of the cattle being
transferred into the Company's feedlot earlier for the period ended May 31, 1999
than the previous year due to earlier placement, better conditions and space
availability in the Company feedlot. This resulted in an increase in the sales
and costs of the fall calf program for the nine months ended May 31, 1999 over
the same period the previous year of approximately $45,400 and had a impact on
the increase in the gross profit percentage from sales of feedlot services as
noted below. The actual decrease in the fall calf program should not have any
effect on the Company's overall placements, financial position, results of
operations or liquidity. With the change in the Company's policy to increasing
the number of cattle the Company maintains ownership of and feeds to slaughter,
along with changing patterns in the industry, the Company is expecting placement
levels for the balance of the current year to be at or above the placement
levels of prior years. Even with continued placements of cattle not in the fall
calf program, the Company anticipates taking advantage of any benefits that may
arise from feeding cattle with outside farmers/feeders.
Other key factors that affect earnings are the gross profit percentages on
feed and related sales, and on feedlot services. The following is a brief
summary of gross profit and gross profit percentages on feed and related sales:
Restated Increase
Nine Months Ended May 31, 1999 1998 (Decrease)
- ------------------------- ---- ---- ----------
Feed and related sales $ 5,070,556 $ 6,297,559 $(1,227,003)
Cost of feed and
related sales $ 4,366,623 $ 5,638,147 $(1,271,524)
----------- ----------- -----------
Gross profit $ 703,933 $ 659,412 $ 44,521
Gross profit percentage 13.9% 10.5% 3.4%
A variety of feed ingredients, which are separately marked up, are combined
in varying percentages and sold as various rations. The the gross profit
percentage on feed sales is affected by four variables:
(1) the type and quantity of individual rations sold
(2) the "recipe" or formulation of the individual rations
(3) feed ingredients sold under customer advance feed contracts which are
not subject to management's discretionary pricing decisions
(4) feed and the cost of feed, less any markup, fed to cattle owned by the
Company is excluded from feed sales and cost of sales. The cost of
feed, less any markup, is included with the inventory value of cattle
owned by the Company and fed to slaughter.
10
<PAGE>
Due to the interrelationship of all of the factors, it is impractical to attempt
quantify the effects of each factor on the change in feed and related sales and
cost of sales. Generally speaking, though, the greatest effect is caused by the
type and quantity of individual rations sold and the formulation of each ration.
These are affected by the size of the cattle being fed, market availability and
price of individual ingredients and special program requirements of individual
customers.
The $44,521 increase in gross profit from feed and related sales for the
period ended May 31, 1999 from the same period the previous year is a result of
changes in the four variables described above. For the period ended May 31,
1999, more rations were sold which contained a higher percentage of ingredients
that contribute higher gross margins to the gross profit due to their lower cost
and/or markup. Not included in the feed and related sales and costs of sales
amounts for the period ended May 31, 1999 are sales of approximately $590,000
and cost of sale of approximately $541,400 for feed and related sales to cattle
owned by the Company which are feeding to slaughter. This compares to similar
sales of approximately $371,200 and cost of sales of approximately $350,600 for
the period ended May 31, 1998. Sales for cattle fed to slaughter are recorded
when the cattle are sold and are recorded as Fed cattle sales as described
below.
Following is a brief summary of Fed cattle sales and cost of sales.
Restated Increase
Nine Months Ended May 31, 1999 1998 (Decrease)
- ------------------------- ---- ---- ----------
Fed cattle sales $ 1,577,505 $ 1,120,281 $ 457,224
Cost of feed and
related sales $ 1,498,874 $ 1,206,817 $ (292,057)
----------- ----------- -----------
Gross profit (loss) $ 78,631 $ (86,536) $ 165,167
Gross profit percentage 5.0% (7.7%) 12.7%
The Company, in an effort to maintain high numbers in the feedlot, to lessen the
effect of major customers and to benefit from what is currently perceived as a
good future for the cattle market, has implemented a policy of retaining
ownership in and feeding to slaughter, cattle in the Company's feedlot. This is
a major change from previous years when cattle were fed to slaughter on an
inconsistent basis. The Company recognizes the fact that unforeseen events
ranging from severe weather to government policies can have an adverse effect on
the value of its inventory in cattle fed to slaughter, which would have a
corresponding adverse effect on the Company's results of operations, financial
position and liquidity. It is anticipated that most, if not all, of the
Company's inventory in cattle fed to slaughter will be price protected or hedged
at break-even or better to protect the Company on the down side of any market
fluctuations, but there can be no assurances that this hedging can always be
accomplished. The Company regularly calculates the market value of its cattle
fed to slaughter and adjusts its value downward if the market price is lower
than the accumulated cost of the cattle. No adjustment in the value of the
Company ownee cattle was warranted for the nine month period ended May 31, 1999
nor for the same period the previous year.
11
<PAGE>
The following is a brief summary of the gross profit and gross profit
percentages on sales of feedlot services:
Increase
Nine Months Ended May 31, 1999 1998 (Decrease)
- ------------------------- ---- ---- ----------
Sales of feedlot services $1,111,521 $1,235,426 $ (123,905)
Cost of feedlot services $1,097,403 $1,091,950 $ 5,453
---------- ---------- ----------
Gross profit (Loss) $ 14,118 $ 143,476 $ (129,358)
Gross profit percentage 1.3% 11.6% (10.3%)
Sales of feedlot services consist primarily of yardage (pen rent) charged
to the owners of the cattle on feed and grain processing charged for the
processing of certain feed ingredients before they can be fed to the cattle.
Yardage charges for the nine month period ended May 31, 1999 decreased $118,152
or 22% from the same period the prior year partially due to the a decline in
average head numbers and partially due to classification changes which resulted
in approximately $86,500 sales for the period ended May 31, 1998 being
classified as feedlot services as compared to the current classification of feed
and related sales.. Grain processing charges decreased $51,123 or 14.8% for the
period ended May 31, 1999 due to the mix of ingredients as described above and
the decrease in average head numbers.
As previously noted, the sales and cost of sales for the fall calf program
are also included in the sales and cost of sales of feedlot services. If the
fall calf program sales and costs are excluded, the gross profit percentage for
the period ended May 31, 1999 is 2.0% compared to 16.2% for the same period the
previous year.
The cost of feedlot services consists largely of feedlot operating
expenses. The total cost of feedlot services increased $5,453 for the period
ended May 31, 1999 compared to the same period the prior year. If the fall calf
program costs are excluded, the feedlot operating expenses decreased $39,578 for
the period ended May 31, 1999 compared to the same period the prior year. This
decrease is due to the decreases in variable costs, such as labor and equipment
related costs, that are at least partially affected by the reduction in average
head numbers described above, gains in efficiencies of operations and benefits
derived from previous expenditures in maintenance.
Other revenues increased $34,158 for the period ended May 31, 1999 as
compared to the same period the prior year. This increase is the result of
increases and decreases in various secondary revenue producing activities. The
most significant of these is an increase of approximately $27,444 in revenue
from other investments.
Interest income increased $19,501 or 92.5% for the period ended May 31,
1999 over the same period the prior year due to the Company's "carrying" or
financing greater amounts of customer feeding charges and from the Company's
expansion into the area of financing customer's cattle and feed.
12
<PAGE>
Selling, general, and administrative expenses decreased $75,198 for the
nine month period ended May 31, 1999 over the same period the prior year. The
most significant decrease was for participation losses, which totaled $97,900
for the period ended May 31, 1998 and no participation loss were incurred during
the current period.
Interest expense increased $19,500 for the period ended May 31, 1999 over
the same period the prior year. This is the result of increased borrowings that
were necessary to fund the increase in the Company's "carrying" or financing
greater amounts of customer feeding charges and financing customer's cattle and
feed as described above.
Income taxes are directly related to the net earnings before income taxes
and certain assumptions that are made with the estimations. For the nine month
period ended May 31, 1999, income taxes increased $69,161 from the same period
the prior year while pretax income increased $108,655.
13
<PAGE>
Liquidity and Capital Resources
- -------------------------------
For the nine months ended May 31, 1999 operating activities utilized
$97,266 compared to $811,799 for the same period the previous year, a decrease
of $714,533. Cash received from customers for the period decreased $638,678 and
cash paid to suppliers and employees decreased $1,444,810. Interest received for
the period increased $10,877, while interest paid increased $7,715 for a total
cash increase of $3,162. For the period ended May 31, 1998, the Company received
tax refunds of $94,761; there were no comparable refunds in the current year.
For the nine months ended May 31, 1999 the net cash that was utilized by
investing operations was $653,413 compared to the cash provided the previous
year of $64,649, resulting in a net increase in expenditures of $718,062. For
the nine month period ended May 31, 1999, the Company acquired other investments
for $190,069 compared to $118,418, an increase in funds used of $71,651
Equipment for $22,883 was purchased during the period ended May 31, 1999,
compared to $1,933 during the same period the previous year the , an increase in
expenditures of $20,950. During the period ended May 31, 1999, the Company
initiated its customer financing program with loans to customers for their
cattle on feed in the Company's feedlot in the amount of $440,461. Total cattle
related loans (not part of the new customer financing program) outstanding for
the period ended May 31, 1998 was $65,000, an increase in funds used of
$375,460. For the period ended May 31, 1998, the Company collected $250,000 in
loans to related parties. No similar payments were received during the period
ended May 31, 1999, nor were any additional loans made to related parties.
The cash flows provided by financing activities was $744,198 for the nine
months ended May 31, 1999, an increase in funds provided of $288,316 compared to
the cash provided of $455,882 for the same period the prior year. The change in
net short-term payments over short-term borrowings resulted in a $250,123
increase in funds provided for the nine months ended May 31, 1999 compared to
the same period the previous year.
The Company's working capital (current assets minus current liabilities)
decreased by $21,833 for the nine months ended May 31, 1999 from $909,156 at
August 31, 1998 to $887,323 at May 31, 1999.
Total current assets increased $925,078 from $2,425,378 at August 31, 1998
to $3,350,456 at May 31, 1999. Total current liabilities increased $946,911 from
$1,516,222 at August 31, 1998 to $2,463,133 at May 31, 1999. Although there are
increases and decreases in all components, the two major change that are not
attributable to being a point in time variance are the increases in inventories
and notes receivable for customer financing, as described below.
14
<PAGE>
During the period ended May 31, 1999, the Company initiated the first loans
to customers under its customer financing program in the amount of $440,461.
This revenue generating program is offered to customers as an alternative to
seeking funding from a financial institution and to out of state customers who
raise their own cattle and have operating loans at financial institutions who
are not comfortable with having their collateral in a feedlot which is out of
state. This program differs from the normal trade accounts receivable in that
the cost of the cattle is also financed, payments are made for feeding costs to
satisfy tax deduction requirements, and the Company has formal notes signed and
security agreements filed with the state. The Company requires set initial
equity and set maintenance equity levels to minimize any potential loss to the
Company. The Company has a separate revolving line of credit for this program as
described below.
Inventories increased $62,460 primarily due to an increase in the inventory
of cattle owned by the Company and fed for slaughter.. At May 31, 1999, this
inventory totaled $1,336,736 compared to $1,100,874 at August 31, 1998, an
increase of $235,862. Feed inventories decreased $173,401.
Other investments increased $190,069 from $186,366 at August 31, 1998 to
$376,435 at May 31, 1999. The most notable changes are for the period ended May
31, 1999, are:
1. Increase of $68,616 in the Company's working investment in an
unrelated company which owns several natural gas wells.
2. Initial investment in an unrelated company that provides water
filtering and dispensing equipment for offices in the Denver metro
area of $145,000.
The Company has several revolving lines of credit from a local branch of a
credit services company. All of the lines of credit mature December 1, 1999 and
bear interest at approximately 1.0% over the prime rate (actual rate of 8.25% at
May 31, 1999). The Company's operating line of in the amount of $300,000 had an
outstanding balance of $290,000 at May 31, 1999 which meant that the Company
could generate an additional $10,000 cash if needed under this line of credit.
This line of credit is secured by feed accounts receivable, feed inventories,
and equipment. The Company's revolving line of credit for the purpose of owning
and feeding cattle to slaughter.line of in the amount of $850,000 had an
outstanding balance at May 31, 1999 of $850,000 which meant that the Company
could not generate any additional cash if needed and qualified for cattle being
fed to slaughter under this line of credit. The note is secured by specific
cattle and cross collateralized with the revolving line of credit note above.
15
<PAGE>
The Company's line of credit for the purpose of financing qualified customers'
cattle feeding programs line of in the amount of $2,000,000, with a current
qualification that the total outstanding cannot exceed $1,000,000, had an
outstanding balance of $440,477 at May 31, 1999. This meant that the Company
could generate an additional $559,523 cash if needed and qualified for cattle
being financed for customers under this line of credit. The note is secured by
specific customers' cattle and cross collateralized with the revolving lines of
credit noted above. Miller Feeders, Inc. (MFI) has a $300,000 revolving line of
credit at the same local branch of a credit services company for the procurement
of feeder cattle for resale to customers. The line of credit matures on December
1, 1999 and bears interest at approximately 1.0% over the prime rate (actual
rate of 8.25% at May 31, 1999). There was an outstanding balance at May 31, 1999
of $145,000 which meant that MFI could borrow up to $155,000 to purchase feeder
cattle for resale to customers. The line is secured by feeder cattle inventories
and feeder cattle accounts receivable and is cross collateralized with the
Company's lines of credit noted above.
The Company had no material commitments for capital expenditures at May 31,
1999. The Company is a co-signer with Miller Feed Lots, Inc. (MFL) (a related
party) for a loan held by a third party insurance company. The loan in
collateralized by the feedlot facilities that the Company leases from MFL and
has an option to buy.. The loan had a principal balance at May 31, 1999 of
$284,763. The Company does not believe it would suffer any adverse effects to
its financial position or liquidity in the event MFL defaulted on the loan. Any
liability for the loan would reduce the liability to MFL for the lease and any
payments the Company would make on the loan would reduce the amount of the lease
payments paid to MFL for the facilities.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated levels.
Statement of Financial Accounting Standard (SFAS) No. 130 on Comprehensive
Income was implemented for the 1998-1999 fiscal year. The impact was not
significant as the Company had only one additional component of comprehensive
income that had not previously been included in net income. Management is
evaluating the impact of other recently issued accounting standards.
Implementing SFAS No. 131 on Disclosures about Segments of an Enterprise for the
August 31, 1999 financial statements will provide additional disclosures about
the Company's business segments. No accounting changes are required SFAS No.
131. The effective date of SFAS No. 133 on Accounting for Derivative Instruments
and Hedging Activities has been deferred by SFAS No. 137, and will now be
implemented for the first quarter of fiscal year 2001. Management is still
evaluating the impact SFAS No. 133 will have on the Company's financial
statements and related disclosures.
Year 2000 Compliance
- --------------------
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex as virtually
every company's computer operations will be affected in some way. The Company's
computer programs which process it's operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century. Nevertheless, as a result of the company's on going analysis
of it's computer programs and operations, it has reached the conclusion that
"Year 2000" programs will not seriously impact or have a material adverse effect
on the Company's expenses, business or its operations.
It is possible, however, that "Year 2000" problems incurred by the
customers or suppliers of the Company could have a negative impact on future
operations and financial performance of the Company, although the Company has
not been able to specifically identify any such problems among its suppliers.
The Company believes that it will not be dependent upon any single supplier for
its equipment, or cattle and feed inventories in the Year 2000, and therefore
has made the determination not to contact its primary suppliers to determine if
they are developing plans to address processing transactions which may impact
the Company in the year 2000. However, there can be no assurance that Year 2000
problems will not occur with respect to the Company's computer systems.
Furthermore, the Year 2000 problem may impact other entities with which the
Company transacts business and the Company cannot predict the effect on the
Company. The Company is developing a contingency plan to operate in the event
that any non- compliant customer or supplier systems that materially impact the
Company are not remedied by January 1, 2000. Due to the specialized nature of
some of the Company's computer programs and equipment, all potential problems
and their contingencies, may not be identified in a manner timely enough to take
preventative and/or corrective actions. Therefore, the Company concedes that the
Year 2000 issue could have a material adverse effect on the Company's business,
financial condition and results of operation.
16
<PAGE>
PART II OTHER INFORMATION
Items 1 through 5 None.
Item 6 (b)- Exhibits and Reports on Form 8-K
On February 3, 1999, the Company filed an amended Form 8-K which discloses that
the Company has entered into an amended exchange agreement with Miller Feed
Lots, Inc. (MFL) pursuant to which the Company will issue 7,000,000 shares of
its common stock to acquire all of the issued and outstanding common shares of
MFL. The proposed transaction with MFL is subject to shareholder approval.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLER DIVERSIFIED CORPORATION
------------------------------
(Registrant)
Date: December 13, 1999 /s/ JAMES E MILLER
-----------------------------------
James E. Miller
President, Chief Executive Officer,
Chief Financial Officer
Date: December 13, 1999 /s/ STEPHEN R. STORY
-----------------------------------
Stephen R. Story
Secretary-Treasurer
18
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 57,175
<SECURITIES> 10,775
<RECEIVABLES> 1,521,440
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<INVENTORY> 1,383,927
<CURRENT-ASSETS> 3,350,456
<PP&E> 1,759,868
<DEPRECIATION> 645,505
<TOTAL-ASSETS> 5,401,671
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<COMMON> 636
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