SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended February 29, 2000
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 January 30,
2000, 6,364,640.
Transitional Small Business Disclosure Format: YES NO X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
February 29, August 31,
2000 1999
- --------------------------------------------------------------------------------
ASSETS
- ------
Current Assets:
Cash $ 135,418 $ 88,970
Receivables:
Trade accounts 819,841 875,260
Accounts - related parties -- 309,812
Notes - cattle financing 104,657 150,756
Notes - cattle financing -related party 142,571 90,083
Tax refunds 44,387 --
Inventories 4,302,704 1,657,045
Prepaid expenses 31,926 21,320
- --------------------------------------------------------------------------------
Total Current Assets 5,581,504 3,193,246
- --------------------------------------------------------------------------------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 135,775 100,336
Equipment under capital leases -
related party 30,649 30,649
Leasehold improvements 152,124 138,297
-------------------------
1,816,388 1,767,122
Less: Accumulated depreciation
and amortization 711,102 668,751
- --------------------------------------------------------------------------------
Total Property and Equipment 1,105,286 1,098,371
- --------------------------------------------------------------------------------
Other Assets:
Other investments 284,970 322,286
Notes receivable - related parties 452,000 300,000
Deferred income taxes 165,051 165,051
Deposits and other 5,397 5,397
- --------------------------------------------------------------------------------
Total Other Assets 907,418 792,734
- --------------------------------------------------------------------------------
TOTAL ASSETS $7,594,208 $5,084,351
================================================================================
Continued on next page
2
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
- --------------------------------------------------------------------------------
February 29, August 31,
2000 1999
- --------------------------------------------------------------------------------
LIABILITIES
- -----------
Current Liabilities:
Bank overdraft $ 36,186 $ 34,501
Notes payable 3,746,402 1,394,760
Trade accounts payable 343,444 522,468
Accounts payable - related party 206,498 --
Accrued expenses 63,013 32,247
Customer advance feed contracts 49,564 93,433
Current portion of note payable-related party 44,436 --
Current portion of capital lease obligations -
related party 24,729 28,496
- --------------------------------------------------------------------------------
Total Current Liabilities 4,514,272 2,105,905
Note payable - related party 231,830 --
Capital Lease Obligations - related party 945,002 955,936
- --------------------------------------------------------------------------------
Total Liabilities 5,691,104 3,061,841
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
Retained Earnings 550,775 670,181
- --------------------------------------------------------------------------------
Total Stockholders' Equity 1,903,104 2,022,510
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,594,208 $5,084,351
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
February 29 February 28
Six Months Ended 2000 1999
- --------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 2,036,958 $ 3,409,305
Fed cattle sales 2,063,256 1,300,572
Feedlot services 784,244 634,872
Other 17,627 38,770
Interest income 32,431 20,888
Interest income - related party 9,200 9,000
- --------------------------------------------------------------------------------
Total Revenue 4,943,716 5,413,407
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 1,744,957 2,959,359
Fed cattle sales 2,033,741 1,241,454
Feedlot services 786,408 671,462
Selling, general, and administrative 409,021 365,755
Equity in loss of investee 37,541 --
Interest 29,756 33,086
Interest - related parties 66,084 55,335
- --------------------------------------------------------------------------------
Total Costs and Expenses 5,107,508 5,326,451
- --------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (163,792) 86,956
Income Tax Expense (Benefit) (44,387) 28,671
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ (119,405) $ 58,285
================================================================================
INCOME (LOSS) PER COMMON SHARE $ (.02) $ .01
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
February 29, February 28
Three Months Ended 2000 1999
- --------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 1,028,931 $ 1,706,588
Fed cattle sales 1,050,766 149,334
Feedlot services 473,301 377,818
Other 7,007 20,721
Interest income 19,050 12,394
Interest income - related party 4,500 4,500
- --------------------------------------------------------------------------------
Total Revenue 2,583,555 2,271,355
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 855,840 1,491,746
Fed cattle sales 1,071,630 151,113
Feedlot services 449,971 398,758
Selling, general, and administrative 214,029 194,488
Equity in loss of investee 23,471 --
Interest 8,672 19,415
Interest - related parties 39,078 27,577
- --------------------------------------------------------------------------------
Total Costs and Expenses 2,662,691 2,283,097
- --------------------------------------------------------------------------------
Loss Before Income Taxes (79,136) (11,742)
Income Tax Benefit (23,223) (8,143)
- --------------------------------------------------------------------------------
NET LOSS $ (55,913) $ (3,599)
================================================================================
LOSS 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
- --------------------------------------------------------------------------------
Restated
February 29 February 28
Six Months Ended 2000 1999
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash received from customers $ 4,913,630 $ 5,399,173
Cash paid to suppliers and employees (7,246,818) (5,655,347)
Interest received 41,631 29,889
Interest paid (69,011) (85,035)
- --------------------------------------------------------------------------------
Net Cash Utilized by Operating Activities (2,360,568) (311,320)
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (49,266) (11,581)
Acquisition of other investments (225) (156,106)
Loans to related party (152,000) --
Loans for cattle financing (1,122,090) (284,557)
Collections from cattle financing 1,115,701 --
- --------------------------------------------------------------------------------
Net Cash Utilized by Investing Activities (207,880) (452,244)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from :
Short-term notes payable 7,418,939 3,047,918
Long-term note payable - related party 300,000 --
Principal payments on::
Short-term notes payable (5,067,297) (2,496,181)
Long-term note payable - related party (23,734) --
Capital lease obligations - related party (14,701) (13,177)
Increase in cash overdraft 1,685 182,387
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 2,614,892 720,947
- --------------------------------------------------------------------------------
Net Increase in Cash 46,448
Cash, Beginning of Year 88,970 63,656
- --------------------------------------------------------------------------------
Cash, End of Period $ 135,418 $ 21,039
================================================================================
Continued on next page.
6
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
- --------------------------------------------------------------------------------
Restated
February 29 February 28
Six Months Ended 2000 1999
- --------------------------------------------------------------------------------
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income (Loss) $ (119,405) $ 58,285
Adjustments:
Depreciation and amortization 42,351 42,432
Equity in loss of investee 37,541 --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 55,419 (199,719)
Accounts receivable - related party 309,812 (275,727)
Income taxes receivable (44,387) --
Inventories (2,645,659) (104,720)
Prepaid expenses (10,606) (6,392)
Deposits and other -- 14,385
Increase (decrease) in:
Trade accounts payable and accrued
expenses (148,253) (83,910)
Accounts payable - related party 206,498 --
Accrued income taxes payable -- 28,671
Customer advance feed contracts (43,869) 215,375
- --------------------------------------------------------------------------------
Net Cash Provided (Utilized) by
Operating Activities $(2,360,568) $ (311,320)
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
7
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------
The consolidated balance sheets as of February 29, 2000 and August 31, 1999, the
consolidated statements of earnings for the three months and six months ended
February 29, 2000 and 1999 and the consolidated statements of cash flows for the
six months ended February 29, 2000 and 1999 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 have bee condensed or omitted as allowed by the
rules and regulations of the Securities and Exchange Commission.
The consolidated statements of cash flows the six months ended February 28, 1999
have been restated to provide continuity in the reporting of a changes in
accounts receivable - feeder cattle and the inventory of procurement cattle
(held for resale to customers), which was considered "Short-term cattle
financing" for the period ended February 28, 1999. This qualification is no
longer reported.
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 six month period ended February
29, 2000 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 six months of the quarters
ended February 29, 2000, compared to the same period the year before is as
follows:
February 29 February 28
Six Months Ended 2000 1999 Decrease
---------------------------------------------------------------------
First Quarter $ (63,492) $ 61,884 $(125,376)
Second Quarter $ (55,913) $ (3,599) $ (52,314)
---------------------------------------------------------------------
Total Six Months $(119,405) $ 58,285 $(177,690)
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 and Company owned cattle.. Sales of feed and feedlot
services account for 57% and 75% of the Company's total revenues for the
six month periods ended February 29, 2000 and February 28, 1999,
respectively.
As noted below, fed cattle sales, which accounted for 42% and 24% of
the total revenues for the periods ended February 29, 2000 and February 28,
1999, respectively are continuing 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 (Includes customer and Company cattle)
February 29 February 28
Six Months Ended 2000 1999 Decrease
----------------------------------------------------------------------
First Quarter 12,016 14,114 (2,098)
Second Quarter 14,183 14,746 (563)
Average Six Months 12,955 14,742 (1,787)
The 1,787 or 12.1% decrease in average head days for the six months ended
February 29, 2000 compared to the previous year, impacted several areas as
described below.
Total Head of Slaughter Sold for Company's Account
February 29, February 28, Increase
2000 1999 (Decrease)
-----------------------------------------------------------------------
First Quarter 1,136 1,530 (394)
Second Quarter 1,240 184 1,056
-----------------------------------------------------------------------
Total Six Months 2,376 1,714 662
9
<PAGE>
Total Head in Inventory - Cattle Fed to Slaughter for Company's Account
For the Year Ending August 31, 2000 1999 Increase
-----------------------------------------------------------------------
First Quarter 4,036 553 3,483
Second Quarter 5,183 1,938 3,245
The 3,245 or 167.4% increase in total head being fed to slaughter for the
Company's account for the period ended February 29, 2000 compared to the
previous year, also impacted several areas as described below.
Another factor that affected earnings for the six months ended February 29,
2000 and February 28, 1999, 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 revenues are recorded as sales of feedlot services
and the costs as the cost of feedlot services. Therefore, a high volume in the
fall calf program can reduce the gross profit percentage on sales of feedlot
services. For the period ended February 29, 2000 1999, the Company had an
average 1,862 head in its fall calf program as compared to 2,576 head the
previous year. Although this is a decrease of only 714 head, or 27%, there was
an increase in the sales and costs of the fall calf program for the six months
ended February 29, 2000 over the same period the previous year of approximately
$73,200 as a result of the timing of the actual placement of the calves, which
was approximately 30 days earlier for the quarter ended February 29, 2000. This
had a impact on the decrease in the gross profit percentage from sales of
feedlot services as noted below. The actual increase 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:
10
<PAGE>
February 29 February 28 Increase
Six Months Ended 2000 1999 (Decrease)
------------------------------------------------------------------------
Feed and related sales $ 2,036,958 $ 3,409,305 $(1,372,347)
Cost of feed and
related sales $ 1,744,957 $ 2,959,359 $(1,214,402)
------------------------------------------------------------------------
Gross profit $ 292,001 $ 449,946 $ (157,945)
Gross profit percentage 14.3% 13.2% 1.1%
A variety of feed ingredients, which are separately marked up, are combined
in varying percentages and sold as various rations. 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.
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 $157,945 decrease in gross profit from feed and related sales for the
period ended February 29, 2000 from the same period the previous year is a
result of changes in the four variables described above. Not included in the
feed and related sales and costs of sales for feed and related sales to cattle
owned by the Company which are feeding to slaughter. The following tables detail
the effects of the feed consumed by the Company owned cattle being fed to
slaughter. The table is based on the assumption that the feed consumed by the
Company owned cattle is the same as comparable sales to custom feeding
customers.
Proforma "Sales" and "Costs" February
for feed and services rendered 29, 2000 28, 1999 Increase
to Company owned cattle (Decrease)
--------------------------------------------------------------------
Feed and other sales $ 945,208 $ 249,479 $ 695,729
Cost of feed and other sales $ 891,576 234,441 657,135
--------------------------------------------------------------------
Gross profit $ 53,632 $ 15,038 $ 38,594
Gross profit percentage 5.7% 6.0% (0.3%)
11
<PAGE>
The total of all feed and related sales, without regard to ownership and the
different accounting standards applied, would be as follows (Combined Feed and
Other Sales and above proforma figures):
Total Sales and Costs of sales February
for feed and services rendered 29, 2000 28, 1999 Increase
without regard to ownership (Decrease)
---------------------------------------------------------------------
Feed and other sales $2,982,166 $3,658,784 $ (676,618)
Cost of feed and other sales 2,636,533 3,193,800 (557,267)
---------------------------------------------------------------------
Gross profit $ 345,633 $ 464,984 $ (119,351)
Gross profit percentage 11.6% 12.7% (1.1%)
The above table is presented only for the purpose of allowing the reader to
better compare previous years operations to the current operations which have
under gone required changes and reclassifications.
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.
February 29 February 28 Increase
Six Months Ended 2000 1999 (Decrease)
---------------------------------------------------------------------
Fed cattle sales $2,063,256 $1,300,572 $ (762,684)
Cost of feed and
related sales $2,033,741 $1,241,454 $ (792,287)
---------------------------------------------------------------------
Gross profit (loss) $ 29,515 $ 59,118 $ (29,603)
Gross profit percentage 1.4% 4.5% (3.1%)
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 owned cattle was warranted for the six month period
ended February 29, 2000 nor for the same period the previous year.
12
<PAGE>
The following is a brief summary of the gross profit and gross profit
percentages on sales of feedlot services:
February 29 February 28
Six Months Ended 2000 1999 Increase
---------------------------------------------------------------------
Sales of feedlot services $ 784,244 $ 634,872 $ 149,372
Cost of feedlot services $ 786,408 $ 671,462 $ 114,946
---------------------------------------------------------------------
Gross profit (Loss) $ (2,164) $ (36,590) $ 34,426
Gross profit percentage (0.3%) (5.8%) 5.5%
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 six month period ended February 29, 2000 decreased
$24,353 or 9.2% from the same period the prior year due to the a decline in
average head numbers Grain processing charges increased $100,508 or 62.0% for
the period ended February 29, 2000 due to the mix of ingredients as described
above.
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 February 29, 2000 is -0.4% compared to -8.6% 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 $114,946 for the period
ended February 29, 2000 compared to the same period the prior year. If the fall
calf program costs are excluded, the feedlot operating expenses increased
$41,730 for the period ended February 29, 2000 compared to the same period the
prior year. This increase is due to the increases in variable costs, such as
labor and equipment related costs, that were incurred due to management's
decision to take advantage of unseasonably fair weather and more empty pens to
perform a variety of preventive maintenance programs.
Other revenues decreased $21,143 for the period ended February 29, 2000 as
compared to the same period the prior year. Approximately $16,000 of the
decrease is the result of a change in the accounting for funds received from the
Company's working interest investment in some oil and gas wells for the period
ended February 28, 1999. The $16,000 received was reported as other income with
an offsetting amortization expense for the same amount recorded under general
and administrative expenses, thus it had no effect on net income The change was
made effective with the year ended August 31, 1999. The investment is carried
under the cost basis method, in which all funds received are recorded as a
reduction of the investment asset until funds received exceed the investment, at
which time it will be recorded as other income. The balance of the decrease is
13
<PAGE>
the result of decreased commissions earned from the purchase of feeder cattle
and sale of slaughter cattle by the Company's subsidiary, Miller Feeders, Inc.
This decline in commission revenues will continue as the Company feeds more
cattle for its own account, but will not have a major impact on the Company's
overall financial position.
Interest income increased $11,453 or 55.3% for the period ended February
29, 2000 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.
Selling, general, and administrative expenses increased $43,266 for the six
month period ended February 29, 2000 over the same period the prior year. The
most significant increase was for managerial salaries, which increased
approximately $36,000 for the period ended February 29, 2000 for additional
managerial staff to co-ordinate and monitor the program of feeding cattle to
slaughter for the Company's account.
Interest expense on a note payable to finance company controlled by a
related party was incurred for the first time in the period ended February 29,
2000 in the amount of $12,273. The loan was made for the purpose of increasing
the amount of cattle the Company could feed to slaughter for its account.
For the period ended February 29, 2000, the Company recorded an expense for
the reduction of equity in an investment in a water dispensing company of
$37,541. The Company expects the investment to continue to operate at a loss for
2 more years then improve its position. This reduction represents 50% of the
loss the water company; the investment is accounted for using the equity method.
Income taxes are directly related to the net earnings before income taxes
and certain assumptions that are made with the estimations. For the six month
period ended February 29, 2000, income taxes decreased $73,058 from the same
period the prior year while pretax income decreased $250,748.
Liquidity and Capital Resources
- -------------------------------
For the six months ended February 29, 2000 operating activities utilized
$2,360,568 compared to $311,320 for the same period the previous year, an
increase in funds utilized of $2,049,248. Cash received from customers for the
period decreased $485,543 as a result of lower head numbers and sales to
customers. Cash paid to suppliers and employees increased $1,591,471 primarily
due to the increase in the Company owned cattle inventory, which includes cattle
costs and feed and related costs. Interest received for the period increased
$11,742, while interest paid decreased $16,024. The interest expense of $72,946
for the six months ended February 29, 2000, that is directly related to the
Company owned cattle fed to slaughter has been capitalized (added to the cost of
the cattle fed to slaughter inventory value).
14
<PAGE>
For the six months ended February 29, 2000 the net cash that was utilized
by investing operations was $207,880 compared to the previous year of $452,244,
resulting in a decrease in expenditures of $244,364. For the six month period
ended February 29, 2000, the Company acquired other investments for $255
compared to $156,106, a decrease in funds used of $155,881. Equipment with a
cost of $49,266 was purchased during the period ended February 29, 2000,
compared to $11,581 during the same period the previous year an increase of
$37,685. The Company made loans to customers for their cattle on feed in the
Company's feedlot in the amount of $1,122,090 and made collections on loans in
the amount of $1,115,701, a net utilization of $6,389, compared to loans made
the prior year of $284,557, a decrease in the utilization of funds of $278,168.
For the period ended February 29, 2000, the Company made a loan to a related
party for operations in the amount of $152,000. No similar loans were made
during the period ended February 28, 1999, nor were any collections made.
The cash flows provided by financing activities was $2,614,892 for the six
months ended February 29, 2000, an increase in funds provided of $1,893,945
compared to the cash utilized of $720,947 for the same period the prior year.
The change in net short-term borrowings over short-term payments resulted in a
$1,799,905 increase in funds provided for the six months ended February 29, 2000
compared to the same period the previous year.
The Company's working capital (current assets minus current liabilities)
decreased by $20,109 for the six months ended February 29, 2000 from $1,087,341
at August 31, 1999 to $1,067,232 at February 29, 2000.
Total current assets increased $2,388,258 from $3,193,246 at August 31,
1999 to $5,581,504 at February 29, 2000. Total current liabilities increased
$2,408,367 from $2,105,905 at August 31, 1999 to $4,514,272 at February 29,
2000. 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 payable, as described below.
Inventories increased $2,645,659 primarily due to an increase in the
inventory of cattle owned by the Company and fed for slaughter. At February 29,
2000, this inventory totaled $3,863,700 compared to $1,202,059 at August 31,
1999, an increase of $2,661,641.
Other investments decreased $37,316 from $322,286 at August 31, 1999 to
$284,970 at February 29, 2000. The changes for the period ended February 29,
2000, are:
1. Increase in the investment of the Company's working interest in an
unrelated company which owns several natural gas wells of $19,422 and
a reduction of $19,197 for funds generated by this investment, which
is accounted for on the cost basis.
2. Decrease of $37,540 in the Company's investment in a related company
that provides water filtering and dispensing equipment for offices in
the Denver metro area as a result of recording, under the equity
method, of 50% of the net loss of the water dispensing company.
15
<PAGE>
The Company has several revolving lines of credit from a local branch of a
credit services company. All of the lines of credit mature January 1, 2001 and
bear interest at approximately 1.0% over the prime rate (actual rate of 9.25% at
February 29, 2000). The Company's operating line in the amount of $300,000 had
an outstanding balance of $300,000 at February 29, 2000 which meant that the
Company could not generate any additional cash 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 in the amount of $4,000,000 had an outstanding
balance at February 29, 2000 of $2,901,542 which meant that the Company could
generate an additional $1,098,458 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.
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 $244,860 at February 29, 2000. This meant that the
Company could generate an additional $755,140 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
also matures on January 1, 2001 and bears interest at approximately 1.0% over
the prime rate (actual rate of 9.25% at February 29, 2000). There was an
outstanding balance at February 29, 2000 of $300,000 which meant that MFI could
not generate any additional funds 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
February 29, 2000. 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 February 29, 2000 of
$256,041. 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.
16
<PAGE>
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. After evaluating the
impact SFAS No. 131 on Disclosures about Segments of an Enterprise for the
August 31, 1999 financial statements no changes were made nor were further
disclosures made since it was determined that, under the guidelines of the
Standard, the Company had only one reportable segment, cattle feeding. No
accounting changes were required by 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.
17
<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.
18
<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: February 19, 2000 /s/ JAMES E MILLER
----------------------- ------------------
James E. Miller
President, Chief Executive Officer,
Chief Financial Officer
Date: February 19, 2000 /s/ STEPHEN R. STORY
----------------------- --------------------
Stephen R. Story
Secretary-Treasurer
19
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 135,418
<SECURITIES> 0
<RECEIVABLES> 1,067,069
<ALLOWANCES> 0
<INVENTORY> 4,302,704
<CURRENT-ASSETS> 5,581,504
<PP&E> 1,816,388
<DEPRECIATION> 711,102
<TOTAL-ASSETS> 7,594,208
<CURRENT-LIABILITIES> 4,514,272
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0
0
<COMMON> 636
<OTHER-SE> 1,902,468
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<SALES> 4,100,214
<TOTAL-REVENUES> 4,943,716
<CGS> 3,778,698
<TOTAL-COSTS> 786,408
<OTHER-EXPENSES> 409,021
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<INTEREST-EXPENSE> 95,840
<INCOME-PRETAX> (163,792)
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<INCOME-CONTINUING> (119,405)
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