SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999
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
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(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
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Title of Class
Indicate by checkmark whether the registrant (1) has filed all reports required
to have been filed by Section 13 or 15(d)of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B if not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. X
Registrant's revenues for its most recent fiscal year were $10,917,364.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $424,834 based on the closing bid and ask prices as reported on
the NASD Over-the-Counter Bulletin Board on December 23, 1999.
There were 6,364,640 shares of common stock $.0001 par value outstanding as of
August 31, 1999.
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. (MFI) 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 the prior GEI in July 1997.
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.
In June 1998 the Company signed an Agreement and Plan of Exchange with
Miller Feed Lots, Inc. ("MFL"). The Amended Agreement calls for the Company to
issue up to 7,000,000 shares of its common stock to the shareholders of MFL and
MFL would become a wholly owned subsidiary of the Company. Upon consummation of
the Exchange, 7,000,000 shares of the Company's common stock would be issued in
exchange for each share of the MFL common stock currently outstanding. In the
aggregate, 7,000,000 shares of the Company's common stock would be issued in
exchange for 1,016 shares of MFL common stock issued and outstanding. The
exchange ratio of the common stock was based upon several factors, including the
net asset value of MFL, its value as a going concern, the fair market value of
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MFL assets as determined by appraisal and the market price of the Company's
common stock. The Board of Directors of the Company and MFL mutually determined
the exchange ratio, although both boards, for the most part, are made up of the
same individuals. The transaction is subject to stockholder approval.
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. The Company also feeds 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 flat amount per head per
day, referred to as "yardage", for the 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 in smaller farmer/feeder operations until they
reach the size that entry into the feedlot is deemed most beneficial. These
local farmer/feeders typically have small sheltered facilities and feed a
growing ration until the cattle reach the desired size to place them in the
finishing 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 and specialized 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
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of the feedlot is 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.
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 and, in conjunction with its increased feeding cattle for its own
account, is taking measures, including buying heavier yearling cattle, to lessen
the seasonal impact.
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. wheat, protein supplement, and a variety of by-products that
are seasonally available in the area.. 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.
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Major Customers
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During the fiscal year ended August 31, 1999, the Company had two customers
whose individual purchases accounted for more than 10% of the Company's
consolidated revenues. Sales to those customers totaled $5,416,224 or 49% of
total revenues.
During the fiscal year ended August 31, 1998, the Company had two customers
that accounted for more than 10% of the Company's consolidated revenues. Sales
to these customers totaled $7,463,286 or 67% 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 30 years and is known for stable, quality
operations. The Company offers a full range of feedlot services, as described
above, and seeks to be attentive to the inquiries and wishes of its 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 US Food and Drug
Administration is responsible for regulating the use of animal growth promotents
and veterinary drugs, medicines, and vaccines. The US 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.
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Employees
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The Company employs between 20 and 30 persons at any given time. As of
November 15, 1999 the Company had 28 full and part-time employees.
ITEM 2 PROPERTIES
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On February 1, 1991, the Company executed a 25-year lease with a related
company, Miller Feed Lots, Inc. (MFL) to lease its feedlot facilities (the
Facilities). All of the common stock of MFL is owned by Norman M. Dean and James
E. Miller, who are officers and directors of the Company. Initially, the
Facilities consisted of two feedlots with a total capacity of 35,000 head.
However, effective August 1, 1992, the Company amended its lease with MFL to
lease only one of the two feedlots that has a capacity of approximately 20,000
head of cattle. As a result of the amendment, the Company reduced its capital
lease asset, net of accumulated amortization, and reduced its long-term capital
lease obligation, to reflect the elimination of one of the feedlots. The Company
will continue to lease one feedlot for the remainder of the 25-year term at the
same monthly rent of 2 1/3 cents per head per day, 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 (The Thornton
property) This division also owned shares in an irrigation and reservoir company
(the water shares) that provided water rights for the property. 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, 1999, based on the mill levy of .079228.
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
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ITEM 3 LEGAL PROCEEDINGS
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The Company is currently involved in a lawsuit in which the Company is
attempting to stop or minimize residential development on property adjacent to
the Company's feedlot operations. The Company is fortifying its right to
continue to operate the feedlot facilities in the same location it has been for
over 30 years, without undue complaints about dust and odor which are inherent
to the operation of any feedlot. The probability of any ruling is unknown, but
any ruling should not have an adverse affect on earnings in the foreseeable
future.
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,
1998 was 1,462 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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1999
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November 30, 1998 $ .12 $ .07
February 29, 1999 $ .09 $ .07
May 31, 1999 $ .09 $ .07
August 31, 1999 $ .09 $ .09
1998
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November 30, 1997 $ .12 $ .09
February 29, 1998 $ .10 $ .10
May 31, 1998 $ .11 $ .10
August 31, 1998 $ .15 $ .11
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, 1999 as Compared to
the Fiscal Year Ended August 31, 1998
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The Company had a net income of $171,639 for the fiscal year ended August
31, 1999 as compared to a net loss of $54,357 for the prior fiscal year.
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, 1999 were 15,395 as
compared to 15,720 for the previous fiscal year, a decrease of 325, or 2.1%.
The following is a comparison of the gross profit and percentages on feed
and other sales between the year ended August 31, 1999 and the previous year:
Years Ended August 31
1999 1998 Increase
(Decrease)
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Feed and other sales $ 6,772,709 $ 8,211,839 $(1,439,130)
Cost of feed and other sales 5,837,425 7,372,392 (1,534,967)
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Gross profit $ 835,284 $ 839,447 $ 95,837
Gross profit percentage 12.3% 10.2% 2.1%
Feed sales volume decreased and the gross profit percentage increased for
the year ended August 31, 1999. The 17.5% sales volume decrease is the result of
several factors.
1. The prices of the ingredients dropped during the year ended August 31,
1999 compared to price levels the prior year. This reduction is the
result in several market factor, including low cattle prices and
higher yields during harvest.
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 increased its program of feeding cattle to slaughter
for its own account during the year ended August 31, 1999. The
following table illustrates the volume of feed sales and feed cost of
sales that are not reported as such for the Company owned cattle, but
are included with "Fed cattle" sales and cost of sales when the are
sold, in comparison to being reported as sales when the feed and
services are rendered and costs incurred, which is the case in non
Company owned cattle (custom fed cattle)
4. The gross margin increased primarily due a procedural change during
the year ended August 31, 1999, that resulted in approximately $91,000
in revenue being recorded as feed and related sales that had
previously been reported as feedlot services.
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Actual "Sales" and "Costs" Years Ended August 31
for feed and services rendered 1999 1998 Increase
to Company owned cattle (Decrease)
----------------------- -------- -------- --------
Feed and other sales $869,121 $623,510 $245,611
Cost of feed and other sales 796,863 577,583 219,280
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Gross profit $ 72,258 $ 45,927 $ 29,331
Gross profit percentage 8.3% 7.4% .9%
The total of all feed and related sales, without regard to ownership and the
different accounting standards applied, would be as follows:
Total Sales and Costs of sales Years Ended August 31
for feed and services rendered 1999 1998 Increase
without regard to ownership (Decrease)
--------------------------- ----------- ----------- ----------
Feed and other sales $ 7,641,830 $ 8,835,349 $(1,193,519)
Cost of feed and other sales 6,634,288 7,949,975 (1,315,687)
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Gross profit $ 1,007,542 $ 885,374 $ 122,168
Gross profit percentage 13.2% 10.0% 3.2%
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.
The differences in the gross margin percentage in the above three tables is
the result of differences in the feed and services related to the different
categories (Company owned and no Company). The same prices are charged to both
categories. The "Gross profit" associated with the Company fed cattle is not
reflected in the results of operations. The cost of feed and related sales
becomes part of the cost of the Company fed cattle cost of sales when the cattle
are sold and affects the gross profit of the fed cattle segment of the Company's
operations.
The following is a comparison of the gross profit and percentages on fed
cattle sales between the year ended August 31, 1999 and the previous year:
Years Ended August 31
1999 1998 Increase
----------- ----------- -----------
Fed cattle sales $ 2,630,158 $ 1,373,688 $ 1,256,470
Cost of fed cattle sales 2,478,860 1,477,479 1,001,381
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Gross profit (loss) $ 151,298 $ (103,791) $ 255,089
Gross profit percentage 5.8% -7.6% 13.4%
Additionally, the Company recorded a market price adjustment on the value of its
cattle inventory, reducing the value by $140,416 from $1,241,290 to $1,100,874
as of the year ended August 31, 1998.
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The market value of the Company owned cattle exceed the cost of the cattle for
the year ended August 31, 1999, so no adjustment was made.
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
1999 1998 Decrease
---------- ---------- ----------
Feedlot services sales $1,413,624 $1,524,310 $ (110,686)
Cost of feedlot services 1,353,004 1,386,796 (33,792)
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Gross profit $ 60,620 $ 137,514 $ (76,894)
Gross profit percentage 4.3% 9.0% (4.7%)
Feedlot services revenues and costs both decreased for the year ended
August 31, 1999 as compared to the prior year, as did the gross margin. The
primary causes of the decreases is the decline in average headdays as noted
above and the reclass of approximately $91,000 in revenues that, during previous
years had been reported as feedlot services, to feed and related sales.
Other revenues increased $6,260 for the year ended August 31, 1999 as
compared to the prior fiscal year. Commissions earned by the Company's
subsidiary, Miller Feeders, Inc. increased approximately $11,300 from $15,587
for the year ended August 31, 1998 to $26.230 during the current year. The major
cause this increase is the increase of cattle buying activities for customers in
the feedlot. Interest income increased $26,489 for the year ended August 31,
1999, as compared to the prior fiscal year a result of a increase in customer
accounts receivable financing, in which the Company "carries" certain customers'
feedlot charges until the cattle are marketed and a new program that the Company
initiated during the current year. The new program involves the financing of
customers cattle and feeding costs. Under this program the Company has received
promissory notes, financing agreements and equity funds from the customer. A
separate line of credit has been established for this program as noted below.
Interest expense increased $22,553 for the year ended August 31, 1999, as
compared to the prior fiscal year as a result of the additional funds borrowed
for the customer financing program as note above. Interest revenue from a
related party decreased $6,200 as a result the a $250,000 payment made on a note
receivable from the related part during the year ended August 31, 1998. Interest
expense for capital leases related party decreased $3,068 for the year ended
August 31, 19998 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 increased $2,420 for the fiscal
year ended August 31, 1999 as compared to the prior fiscal year. A summary of
major changes follows (increase or decrease compared to the previous year)
Increase
Description (Decrease)
----------- ----------
1. Customer death loss adjustments $ (7,500)
2. Payroll taxes and other employee benefits (25,000)
3. Customer feeding incentives 5,000
4. Participation losses (56,800)
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For the year ended August 31, 1999, the Company recorded an expense of
$68,825 for the reduction in the equity of a limited partnership in which the
Company has invested; this was the first year in which the Company was required
to recognize any effects of the water filtering and dispensing company in which
the Company now owns a 50% share. The losses by the limited partnership were
anticipated and are expected to last, at a reduced level, for approximately two
years. The current level of sales and revenues are exceeding projections.
Management does not believe there are any potential lawsuits that will have
a negative effect upon earnings. The Company is currently involved in a lawsuit
in which the Company is attempting to stop or minimize residential development
on property adjacent to the Company's feedlot operations. The Company is
fortifying its right to continue to operate the feedlot facilities in the same
location it has been for over 30 years, without undue complaints about dust and
odor which are inherent to the operation of any feedlot. The probability of any
ruling is unknown, but any ruling should not have an adverse affect on earnings
in the foreseeable future.
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, new customers and Company owned cattle. The Company is continuing
its efforts to solicit new customers to reduce the effect of major customer and
Company-owned cattle
Liquidity and Capital Resources
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For the year ended August 31, 1999, cash provided by operating activities
was $89,962 as compared to funds utilized of $1,292,724 the prior year, an
increase in funds provided or a decrease in funds utilized of $1,382,686. This
change is due to a decrease in the cash received from customers of $38,437 and a
decrease in the cash paid to suppliers and employees of $1,516,769, an increase
of $21,174 in interest paid, an increase of $20,289 in interest received, and a
decrease in income taxes refunded of $94,761.
For the year ended August 31, 1999, cash utilized by investing activities
totaled $465,488 compared to cash provided the prior fiscal year of $22,994, a
decrease in funds provided or an increase in funds used of $488,482. For the
year ended August 31, 1999, the Company purchased property and equipment for
$30,137 compared to $40,640, a decrease of $10,503. During the year ended August
31, 1998, the Company made collections of $250,000 on loans to a related party;
no collections were received nor additional loans made to a related party during
the current year. During the year ended August 31, 1999, under its new customer
financing program, the Company utilized $240,839. During the year ended August
31, 1999, the Company utilized funds totaling $248,616 to acquired investments;
compared to $186,366 during the previous year, an increase of $62,250. The
Company generated a total of $54,104 in proceeds from other investments and
securities held for sale; no comparable amounts were received the prior year.
For the fiscal year ended August 31, 1999, cash provided by financing
activities was $400,840 compared to $974,108 the prior year, a decrease of
$573,268. There was a decrease in borrowings net of repayments of $607,894 for
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the year ended August 31, 1999 compared to the prior year. The Company reduced
its principal payments on the capital lease obligations to a related party
during the year ended August 31, 199. Cash was generated by the increase in the
cash overdraft of $34,501 for the year ended August 31, 1999 compared to cash
neither utilized nor generated through cash overdrafts for the year ended August
31, 1997.
Working capital (current assets minus current liabilities) was $1,087,341
at August 31, 1999 compared to $909,156 a year earlier, an increase of $178,185.
This change is due to the offsets of a number of increases and decreases in
current assets and liabilities.
The $51,684 increase in trade accounts receivable from August 31, 1998 to
August 31, 1999 is primarily the result of decreases in feed accounts receivable
and other miscellaneous accounts receivable. Feed accounts receivable were
$49,186 greater at August 31, 1999 than a year earlier as a result of increases
in accounts the Company "carried" or financed. Accrued interest receivable
increased $5,200 for the year ended August 31, 1999 as a result of the increases
in the accounts the Company "carries" or finances and the newly instated
customer financing program. Accounts receivable-related parties (from MFL and
its wholly owned subsidiaries) was $106,675 greater at August 31, 1999 than at
August 31, 1998. This increase is mainly due to there being more funds advanced
to MFL than its charges to MDC for rents and freight, net of interest charges
and loan payments by MDC. Due to the periodic charges and settlements between
the companies, this balance varies from time to time.
Inventories were $335,578 greater August 31, 1999 than at August 31, 1998.
The inventory of feeder cattle temporarily held for resale at August 31, 1999
was $315,903 compared to no feeder cattle inventory at August 31, 1998. The
Company owned cattle on feed was valued at $1,202,159 for the year ended August
31, 1998, compared to $1,100,874 as of August 31, 1998, an increase of $101,285.
Feed ingredients decreased $80,460 from August 31, 1998 to August 31, 1999.
Specific ingredient levels will vary on a daily basis depending on availability,
season and deliveries.
Notes payable increased $393,433 from a $1,001,327 at August 31, 1998 to
$1,394,760 at August 31, 1999. This was the result of the increase in the owned
cattle on feed inventory and the increase in accounts receivable, as detailed
above. Trade accounts payable increased $81,620 from $440,848 at August 31, 1998
to $522,468 at August 31, 1999. This increase is the result of timing
differences in delivery and payments for various expense items.
The Company has a revolving line of credit of $300,000 from a local branch
of a credit services company that matured December 1, 1999 and bore interest at
approximately 1.0% over the prime rate (actual rate of 8.50% at August 31,
1999). There was an outstanding balance at August 31, 1999 of $200,000, which
meant that the Company could generate an additional $100,000 cash if needed
under this line of credit. The note is secured by feed accounts receivable, feed
inventories, and equipment. The Company also has a revolving line of credit of
$850,000 from the same local branch of a credit services company for the purpose
of owning and feeding cattle to slaughter This line of credit also matured
December 1, 1999 and bore interest at approximately 1.0% over the prime rate
(actual rate of 8.50% at August 31, 1999). There was an outstanding balance at
-13-
<PAGE>
August 31, 1999 of $655,719 which meant that the Company could generate an
additional $194,281 cash if needed under this line of credit. The note is
secured by specific cattle and cross collateralized with the revolving line of
credit note above. In October 1999, this line of credit was increased to
$4,000,000. The Company has another revolving line of credit of $2,000,000 from
the same local branch of a credit services company for the purpose of financing
qualified customers' cattle programs. This line of credit also matured December
1, 1999 and bore interest at approximately 1.0% over the prime rate (actual rate
of 8.50% at August 31, 1999) and is restricted to a maximum outstanding balance
of $1,000.00. The outstanding balance at August 31, 1999 was $239,041 which
meant that the Company could generate an additional $760,959 in additional funds
to cover financed customers requirements and generate additional loans. 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
matured on December 1, 1999 and bore interest at approximately 1.0% over the
prime rate (actual rate of 8.50% at August 31, 1999). There was an outstanding
balance at August 31, 1999 of $300,000 which meant that MFI could not borrow 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 is confident that the above notes will be renewed under similiar terms.
The Company had no material commitments for capital expenditures at August
31, 1999.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated future levels.
Management in evaluating the impact of various recently issued accounting
standards. Statement of Financial Accounting Standard (SFAS) No. 130 on
Comprehensive Income, although implemented during the year ended August 31,
1999, did not result in any change in the Company's reporting or accounting
procedures since there were no unreported comprehensive income or losses
applicable. The impact is not expected to be significant as the Company
presently has only one additional component. Implementing SFAS No. 131 on
Disclosures about Segments of an Enterprise for the August 31, 1999 financial
statements did not provide additional disclosures about the Company's business
segments since, after an analysis of the SFAS and the Company's operations
identified only on reportable segment, which is cattle feeding. No accounting
changes were required to comply with 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
-14-
<PAGE>
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. As of the date signature date of
the this Form 10KQS, no "Year 2000" have been encountered.
ITEM 7 FINANCIAL STATEMENTS
- ---------------------------
The Audited Consolidated Financial Statements follow on pages F-1 through
F-17. Item 8 follows the Audited Consolidated Financial Statements on Page 16.
-15-
<PAGE>
ANDERSON & WHITNEY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
1001 Ninth Avenue
Greeley, Colorado 80631-4046
(970) 352-7990 - FAX (970) 352-1855
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 subsidiary as of August 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 subsidiary as of August 31, 1999 and 1998, 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 17, 1999
F-1
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
August 31 1999 1998
- --------------------------------------------------------------------------------
ASSETS
- ------
Current Assets:
Cash $ 88,970 $ 63,656
Receivables:
Trade accounts receivable 823,576 823,576
Accounts - related parties 309,812 203,137
Notes - cattle financing 150,756 --
Notes - cattle financing - related party 90,083 --
Inventories 1,657,045 1,321,467
Prepaid expenses and other 21,320 13,542
- --------------------------------------------------------------------------------
Total Current Assets 3,193,246 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 138,297 131,043
---------- ----------
1,767,122 1,736,985
Less: Accumulated depreciation
and amortization 668,751 581,331
- --------------------------------------------------------------------------------
Total Property and Equipment 1,098,371 1,155,654
- --------------------------------------------------------------------------------
Other Assets:
Securities available for sale -- 10,347
Other investments 322,286 186,366
Notes receivable - related party 300,000 300,000
Deferred income taxes 165,051 233,142
Deposits and other 5,397 30,885
- --------------------------------------------------------------------------------
Total Other Assets 792,734 760,740
- --------------------------------------------------------------------------------
TOTAL ASSETS $5,084,351 $4,341,772
================================================================================
Continued on next page
F-2
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
- --------------------------------------------------------------------------------
August 31 1999 1998
- --------------------------------------------------------------------------------
LIABILITIES
- -----------
Current Liabilities:
Cash overdraft $ 34,501 $ --
Notes payable 1,394,760 1,001,327
Trade accounts payable 522,468 440,848
Accrued expenses 32,247 32,046
Customer advance feed contracts 93,433 14,907
Current portion of capital lease obligations -
related party 28,496 27,094
- --------------------------------------------------------------------------------
Total Current Liabilities 2,105,905 1,516,222
Capital Lease Obligations - related party 955,936 984,432
- --------------------------------------------------------------------------------
Total Liabilities 3,061,841 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
Accumulated Other Comprehensive Income (Loss) -- (9,753)
Retained Earnings 670,181 498,542
- --------------------------------------------------------------------------------
Total Stockholders' Equity 2,022,510 1,841,118
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,084,351 $ 4,341,772
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended August 31 1999 1998
- --------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 6,772,709 $ 8,211,839
Fed cattle sales 2,630,158 1,373,688
Feedlot services 1,413,624 1,524,310
Other 29,265 23,005
Interest income 53,808 27,319
Interest income - related party 17,800 24,000
- --------------------------------------------------------------------------------
Total Revenue 10,917,364 11,184,161
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 5,837,425 7,372,392
Fed cattle sales 2,478,860 1,477,479
Cost of feedlot services 1,353,004 1,386,796
Selling, general, and administrative 775,475 773,055
Equity in loss of investee 68,825 --
Write-down of cattle inventory -- 140,416
Interest 54,116 31,563
Interest on capital leases - related party 109,929 112,997
- --------------------------------------------------------------------------------
Total Costs and Expenses 10,677,634 11,294,698
- --------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 239,730 (110,537)
Income Tax Expense (Benefit) 68,091 (56,180)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 171,639 $ (54,357)
================================================================================
INCOME (LOSS) PER COMMON SHARE $ .03 $ (.01)
- --------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Accumulated
Other
Years Ended August 31 Common Paid-In Retained Comprehensive
1998 and 1999 Stock Capital Earning Income (Loss) Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1997 $ 636 $ 1,351,693 $ 552,899 $ 9,213 $ 1,914,441
-----------
Comprehensive Income:
Net loss for the year ended
August 31, 1998 -- -- (54,357) -- (54,357)
Net change in unrealized
appreciation on securities
available-for-sale -- -- -- (18,966) (18,966)
-----------
Comprehensive income -- -- -- -- (73,323)
- ------------------------------------------------------------------------------------------- -----------
Balance, August 31, 1998 $ 636 $ 1,351,693 $ 498,542 $ (9,753) $ 1,841,118
-----------
Comprehensive Income:
Net income for the year ended
August 31, 1999 -- -- 171,639 -- 171,639
Net change in unrealized
appreciation on securities
available-for-sale -- -- -- 9,753 9,753
-----------
Comprehensive income -- -- -- -- 181,392
- ------------------------------------------------------------------------------------------- -----------
Balance, August 31, 1999 $ 636 $ 1,351,693 $ 670,181 $ -- $ 2,022,510
===========================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------
Years Ended August 31 1999 1998
- ---------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Cash received from customers $ 10,775,790 $ 10,814,227
Cash paid to suppliers and employees (10,607,488) (12,124,257)
Interest received 71,608 51,319
Interest paid (149,948) (128,774)
Income taxes refunded -- 94,761
- ---------------------------------------------------------------------------------------
Net Cash Provided (Utilized) by Operating Activities 89,962 (1,292,724)
- ---------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (30,137) (40,640)
Collections on loans to related party -- 250,000
Loans for cattle financing (240,839) --
Acquisition of other investments (248,616) (186,366)
Proceeds from:
Other investments 43,871 --
Securities available-for-sale 10,233 --
- ---------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (465,488) 22,994
- ---------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from notes payable 6,128,732 3,050,699
Principal payments on notes payable (5,735,299) (2,049,372)
Principal payments on capital lease obligations
- related party (27,094) (27,219)
Increase in cash overdraft 34,501 --
- ---------------------------------------------------------------------------------------
Net Cash Provided (Utilized) by
Financing Activities 400,840 974,108
- ---------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 25,314 (295,622)
Cash, Beginning of Year 63,656 359,278
- ---------------------------------------------------------------------------------------
Cash, End of Year $ 88,970 $ 63,656
- ---------------------------------------------------------------------------------------
Continued on next page.
F-6
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
- -----------------------------------------------------------------------------------------
Years Ended August 31 1999 1998
- -----------------------------------------------------------------------------------------
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income (loss) $ 171,639 $ (54,357)
Adjustments:
Loss on sale of securities available-for-sale 9,867 --
Depreciation and amortization 87,420 83,648
Equity in loss of investee 68,825 --
(Increase) Decrease in deferred income taxes 68,091 (56,180)
Reduction of inventory to market value -- 140,416
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (51,684) (339,688)
Trade accounts receivable - related party -- 55,685
Accounts receivable - related party (106,675) (194,240)
Income taxes receivable -- 94,761
Inventories (335,578) (995,434)
Prepaid expenses (7,778) 5,795
Deposits and other 25,488 (29,385)
Increase (decrease) in:
Trade accounts payable and accrued expenses 81,821 37,147
Customer advance feed contracts 78,526 --
Customer advance feed contracts
- related parties -- (40,892)
- -----------------------------------------------------------------------------------------
Net Cash Provided (Utilized) by Operating Activities $ 89,962 $(1,292,724)
=========================================================================================
See Accompanying Notes to Consolidated Financial Statements.
F-7
</TABLE>
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
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 customers to which the Company has granted
credit either operate in the cattle industry or feed cattle as an
investment.
---------------------------------------------------------------------------
Principles of Consolidation:
The consolidated financial statements include Miller Diversified
Corporation and its wholly-owned subsidiary, Miller Feeders, Inc.
(commission agent buying feeder cattle and selling fed cattle for the
Company's feeding customers and others.
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, 1999 and 1998, the Company had trade accounts receivable
from three unrelated customers and two unrelated customers, totaling
$601,764 and $670,866, respectively. Each of these customer's balances
at year end exceeded 10% of the Company's total trade accounts
receivable.
---------------------------------------------------------------------------
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined using the weighted average cost method for feed and grain
inventories while the first in, first out (FIFO) and specific
identification methods are used for all other inventories.
---------------------------------------------------------------------------
F-8
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: - Continued
Property and Equipment:
Property and equipment are recorded at acquisition 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 separate
component of stockholders' equity until realized. Gains and losses on
the sale of securities available for sale are determined using the
specific-identification method.
---------------------------------------------------------------------------
Other Investments
The Company's other investments consist of a working interest in two
oil and gas wells in Northern Colorado, which is accounted for on a
cost basis. A 50% interest in a limited liability corporation that
operates a water cooler business located in Colorado is accounted for
using the equity method.
---------------------------------------------------------------------------
Feed Sales:
Revenue is recognized on feed sales when the feed is delivered to pens
of customers' cattle for consumption.
---------------------------------------------------------------------------
Cattle Brokerage:
Miller Feeders, Inc. accumulates cattle which meet the specifications
of the Company's cattle feeding customers until a complete lot is
formed and ready for a feeding program. Feeder cattle temporarily
retained for brokerage are stated at specifically identified cost.
The Company recognizes commissions earned at the time a lot of feeder
cattle is transferred to a customer. In addition, commissions are
earned as customers' fed cattle are marketed.
---------------------------------------------------------------------------
F-9
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies: - Continued
Income Taxes:
Deferred tax liabilities or assets, net of any applicable valuation
allowance for deferred tax assets, are recognized for the estimated
future tax effects attributable to temporary differences and
carryforwards. Deferred tax liabilities and assets are classified as
current or noncurrent based on the classification of the asset and
liability to which they related 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 1999 or 1998
as no stock options, warrants, or preferred stock were outstanding.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
Reclassifications
Certain reclassifications of 1998 financial statement information have
been made to conform with 1999 presentation.
---------------------------------------------------------------------------
F-10
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 2 - Securities Available for Sale:
---------------------------------------------------------------
Unrealized Holding
Amortized Estimated ------------------
August 31, 1999 Cost Market Value Gains Losses
---------------------------------------------------------------
Equity Securities $20,100 $10,347 $ -- $ 9,753
---------------------------------------------------------------
The equity securities were sold in August 1999 at a loss of $ 9,867.
- --------------------------------------------------------------------------------
Note 3 - Inventories:
----------------------------------------------------------------
Years Ending August 31 1999 1998
----------------------------------------------------------------
Feed and grain $ 124,428 $ 204,889
Feeder cattle for resale (Procurement) 315,903 --
Veterinary supplies and other 14,655 15,704
Cattle on feed to finish (Fed Cattle) 1,202,059 1,100,874
---------- ----------
$1,657,045 $1,321,467
- --------------------------------------------------------------------------------
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 cents) 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 Ending August 31 1999 1998
--------------------------------------------------------------------
Feedlot facilities under capital lease $1,497,840 $1,497,840
Less: Accumulated amortization 514,260 454,345
--------------------------------------------------------------------
Net feedlot facilities under capital lease $ 983,580 $1,043,495
Equipment under capital leases 30,649 30,649
Less: Accumulated amortization 26,052 19,922
--------------------------------------------------------------------
Net equipment under capital leases 4,597 10,727
--------------------------------------------------------------------
$ 988,177 $1,054,222
--------------------------------------------------------------------
Future minimum lease payments under the capital leases at August 31,
1999 for each of the next five years and in the aggregate are as
follows:
F-11
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 4 - Capital Leases - Continued:
---------------------------------------------------------
Year Ending August 31 Total
---------------------------------------------------------
2000 $ 135,305
2001 129,000
2002 129,000
2003 129,000
Later years 1,472,1750
--------------------------------------------------------
Total minimum lease payments 2,124,055
Less: Amount representing interest 1,139,623
---------------------------------------------------
Present value of net minimum lease payments 984,432
Less: Current portion 28,496
---------------------------------------------------
$ 955,936
--------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5 - Other Investments:
--------------------------------------------------------------------
Years Ending August 31 1999 1998
--------------------------------------------------------------------
Working interst in two oil and gas wells
in Northern Colorado $ 211,111 $ 186,366
50% interest in Colorado limited liability
(LLC) operating a water cooler business 111,175 --
-----------------------------------------------------------------
$ 322,286 $ 186,366
---------------------------------------------------------------------------
In October 1999, the Company agreed to advance the LLC up to $200,000
on a 10% promissory note due August 2004. Funding for the advances on
this note is provided by a financing agreement with a related party
financing company and is collateralized by the Company's interest in
the LLC.
- --------------------------------------------------------------------------------
Note 6 - Notes Receivable - Related Party:
----------------------------------------------------------------------
Years Ending August 31 1999 1998
----------------------------------------------------------------------
Note receivable from Miller Feed Lots, Inc.,
interest payable monthly at 6%, due May 2002,
without collateral, and subordinated to MFL
mortgagor $300,000 $300,000
- --------------------------------------------------------------------------------
F-12
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 7 - Notes Payable:
----------------------------------------------------------------------
Years Ending August 31 1999 1998
----------------------------------------------------------------------
Revolving lines of credit (summarized below) with
Farm Credit Services matured in December 1999,
interest payable quarterly at a variable interest
rate (8.5% and 9% at August 31, 1999 and 1998,
respectively), collateralized by inventories, and
accounts receivable, guaranteed by two
officers/directors and Miller Feed Lots, Inc., a
related party.
----------------------------------------------------------------------
Years Ending August 31 1999 1998
----------------------------------------------------------------------
$ 300,000 Operating $ 200,000 $ 295,045
$ 850,000 Cattle feeding 655,719 706,258
$2,000,000 Customer financing ($1,000,000
maximum outstanding) 239,041 --
$ 300,000 Cattle procurement 300,000 24
----------------------------------------------------------------------
$ 1,394,760 $ 1,001,327
On November 13, 1999, the cattle feeding line of credit was increased
to $4,000,000
- --------------------------------------------------------------------------------
Note 8 - Operating Leases:
The Company leases office space, certain equipment, and other items
under various month-to-month operating lease agreements.
Total rental expense was $161,102 and $147,709 for the years ended
August 31, 1999 and 1998, respectively, of which $134,823 and
$123,619, respectively, was paid to related parties.
- --------------------------------------------------------------------------------
Note 9 - Income Taxes:
-----------------------------------------------------------
Years Ending August 31 1999 1998
-----------------------------------------------------------
Current income taxes $ -- $ --
Deferred income taxes 68,091 (56,180)
-----------------------------------------------------------
Income Tax Expense (Benefit) $ 68,091 $(56,180)
Significant components and the related tax effect of temporary
differences and carryforwards are as follows:
F-13
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 9 - Income Taxes - Continued:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
August 31 1999 1998
--------------------- ---------------------
Current Long-Term Current Long-Term
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred Tax Liabilities:
Depreciation $ -- $ 9,232 $ -- $ 7,561
------------------------------------------------------------------------------
Deferred Tax Assets:
Capital leases -- 92,299 -- 84,510
Contributions carryforward -- -- -- 3,497
Built-in loss on land -- 179,406 -- 179,406
NOL carryover -- 81,984 -- 152,696
------------------------------------------------------------------------------
-- 353,689 -- 420,109
------------------------------------------------------------------------------
Deferred Tax Assets Valuation
Allowance -- (179,406) -- (179,406)
------------------------------------------------------------------------------
Net Deferred
Tax Asset $ -- $ 165,051 $ -- $ 233,142
------------------------------------------------------------------------------
</TABLE>
The differences between income tax expense (benefit) and the amount
computed by applying the federal statutory rates are as follows:
--------------------------------------------------------------------
Years Ending August 31 1999 1998
--------------------------------------------------------------------
Computed at expected federal statutory rate $ 76,745 $(25,833)
Other (8,654) (30,347)
--------------------------------------------------------------------
Income Tax Expense (Benefit) $ 68,091 $(56,180)
As of August 31, 1998, the Company had unused consolidated operating
carryforwards of $241,132 and tax credit carryforwards of $67,000 available
to reduce future taxable income and income tax liabilities. The Internal
Revenue Code restricts the utilization of an additional $2,020,000 in
operating loss carryfowards to a maximum of $53,710 per year. These net
operating loss carryforwards expire as follows:
F-14
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 9 - Income Taxes - Continued:
---------------------------------------------------------------------
Years Ending August 31 Restricted Consolidated
---------------------------------------------------------------------
2002 887,000 79,396
2003 321,000 --
2004 159,000 --
2005 57,000 --
2007 69,000 --
2012 527,000 74,873
2016 -- 86,863
--------------------------------------------------------------
$2,020,000 $ 241,132
- --------------------------------------------------------------------------------
Note 10 - Related Party Transactions:
The Company is related to Miller Feed Lots, Inc. (MFL) through partial
common ownership and management.
The following schedule summarizes transactions between the Company and
MFL.
------------------------------------------------------------------
Years Ending August 31 1999 1998
------------------------------------------------------------------
Payments to MFL for:
Freight $174,505 $177,931
Capital lease of feedlot facility (Note 5) 129,000 129,000
Capital lease of equipment (Note 5) 8,023 17,020
Operating lease of equipment (Note 8) 125,823 114,618
Company housing rent (Note 8) 9,000 9,000
Interest income from MFL (Note 6) 17,800 24,000
------------------------------------------------------------------
In August 1992, the Company sold substantially all of its operating
equipment to MFL and then leased back only a portion of the equipment
necessary to operate the feedlot facility. The Company realized a gain
on this transaction of $74,467 which was deferred and 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 $829,594 and $838,600 for the years ended
August 31, 1999 and 1998, respectively.
F-15
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
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 Ending August 31 1999 1998
------------------------------------------------------------------
Charles Micale, dba My Way Land & Cattle $2,176,301 $2,173,131
Ulrich Farms, Inc 239,923 5,290,155
------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 12 - Commitments:
The Company is committed to purchase various crop commodities with
anticipated delivery dates in the subsequent fiscal year. At August
31, 1999 and 1998, these purchase commitments aggregated approximately
$1,617,610 and $612,505, respectively.
The Company is a cosigner of a loan from an outside source to Miller
Feed Lots, Inc. (MFL), a related party, 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.
On June 22, 1998, the Company signed an Agreement and Plan of Exchange
with MFL, which would make MFL a wholly-owned subsidiary of the
Company. The agreement calls for the Company to issue 7,000,000 shares
of its common stock to MFL shareholders in exchange for all of MFL's
issued and outstanding common shares. The transaction is subject to
the approval of the Company's stockholders.
At August 31, 1999 and 1998, the Company had an outstanding letter of
credit amounting to $125,000 for a bond with and insurance company.
- --------------------------------------------------------------------------------
Note 13 - 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, 1999
and 1998.
F-16
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
- --------------------------------------------------------------------------------
Note 14 - 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, 1999 does not differ materially
from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. 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
maturaties. The equity securities available-for-sale are reported at
estimated market value determined by quote prices on the balance sheet
date. The carrying value of other investments approximates the fair
value as determined by the present value of estimated future cash
flows or the equity in underlying assets.
- --------------------------------------------------------------------------------
F-17
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
- ----------------------------------------------------------------------------
None.
-16-
<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 Decebmer 31, 1999, indicating all positions and offices with the Company held
by each such person.
All Positions and Offices
Age Held With the Company
-------------------------------------------------------------------------
James E. Miller 61 President, Chief Executive
Officer, Chief Financial
Officer, and Director
Norman M. Dean 79 Chairman of the Board of
Directors and Director
Alan D. Gorden 55 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 December 31, 1999, indicating all positions and offices
with the Company held by each such person.
All Positions and Offices
Age Held With the Company
------------------------------------------------------------------------
James E. Miller 61 President, Chief Executive
Officer, Chief Financial
Officer, and Director
Norman M. Dean 79 Chairman of the Board of
Directors and Director
Stephen R. Story 48 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.
-17-
<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 Foothills Financial Corporation,
Greeley, Colorado, and is a member of the board of directors of Alaris Medical
Systems, Inc., San Diego, 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.
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.
-18-
<PAGE>
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Exchange Act and the related regulations, require the
Company's executive officers, directors, and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of their
beneficial ownership of the Company's common stock and other equity securities
of the Company with the Securities and Exchange Commission (SEC). In addition,
such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms filed by such persons.
To the Company's knowledge, based solely on the Company's review of such
copies of reports furnished to the Company and written representations the
Company believes that all Section 16(a) filing requirements applicable to its
directors, executive officers, and ten percent owners were complied with.
ITEM 10 EXECUTIVE COMPENSATION
- ------------------------------
Summary Compensation Table
- --------------------------
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company. There were no other executive
officers of the Company whose salary and bonuses for the year ended August 31,
1999 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, 1999 $72,000 $ - $ - $ - - $ - $ -
Chief Executive Officer 1998 72,000 - - - - - -
1997 72,000 - - - (300,000) - -
1996 72,000 10,000 - - 300,000 - -
</TABLE>
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.
-19-
<PAGE>
- --------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN YEAR ENDED AUGUST 31, 1999
- --------------------------------------------------------------------------------
(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 ($/Share) Date
---------------------------------------------------------------------------
James E. Miller 0 .0% .0000
President
Norman M. Dean 0 .0% .0000
Chairman of the Board
Alan D. Gorden 0 .0% .0000
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED AUGUST 31, 1999
AND OPTION/SAR VALUE AS OF AUGUST 31, 1997
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
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, 1998, each Director received a total of $1,500 in
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.
-20-
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth the number and percentage of shares of the
Company's $.0001 par value Common Stock (its only class of voting securities)
owned beneficially by any person who, as of August 31, 1999, 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, 1998.
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 1,069,786 (2) 16.8%
5754 W 11th Street #201
Greeley, CO 80634
Alan D. Gorden 50,000 (3) .8%
4570 Old Ranch Road
Colorado Springs, CO 80908
Stephen R. Story 1,810 -%
2322 45th Avenue
Greeley, CO 80634
-21-
<PAGE>
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership of Class
----------------------------------------------------------------------
All Directors and 2,116,302 33.3%
Executive Officers
as a Group (4 Persons)
---------------------
(1) Includes 45,906 shares owned by Mr. Miller's wife.
(2) Includes 45,905 shares owned by Mr. Dean's wife.
(3) Includes 100,000 shares owned by Gorden Properties LLC . Mr. Gorden is
the general partner and owns 50% of the shares of Gorden Properties
LLC. Mr. Gorden may be deemed to have indirect voting and investment
power of 50% of the shares
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 related 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 33% 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, 1999
and 1998.
On February 1, 1991, the Company executed a 25-year capital lease of its
facilities (see Part I, Item 2, Properties) from MFL. As they negotiated for a
long-term lease, the Company's Board of Directors undertook considerable
analyses and comparisons to insure the lease was consistent with the Company's
objectives and that the terms were fair and reasonable. The lease was
unanimously approved by the Board of Directors, including all disinterested
directors. From February 1, 1987 through January 31, 1991, the Company leased
the Facilities from MFL under a short-term operating lease, and amendments and
extensions thereof. The monthly rent under the short-term operating leases was
the same as it was under the long-term lease, and the Company was responsible
-22-
<PAGE>
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 approximately 20,000 head of cattle. The Company has continued to
lease one feedlot under the 25-year lease at the same rent of 2 1/3 cents per
head per day, 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, 1997 the Company loaned $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.
In June 1998 the Company signed an Agreement and Plan of Exchange with
Miller Feed Lots, Inc. ("MFL"). The Agreement calls for the Company to issue up
to 7,000,000 shares of its common stock to the shareholders of MFL and MFL would
become a wholly owned subsidiary of the Company. Upon consummation of the
Exchange, 14,763.78 shares of the Company's common stock would be issued in
exchange for each share of the MFL common stock currently outstanding. In the
aggregate, 15,000,000 shares of the Company's common stock would be issued in
exchange for 1,016 shares of MFL common stock issued and outstanding. The
exchange ratio of the common stock was based upon several factors, including the
net asset value of MFL, its value as a going concern, the fair market value of
MFL assets as determined by appraisal and the market price of the Company's
common stock. The Board of Directors of the Company and MFL mutually determined
the exchange ratio, although both boards, for the most part, are made up of the
same individuals. The transaction is subject to approval of the Company's
stockholders.
-23-
<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
- -------------------
Item 6 (b)- Exhibits and Reports on Form 8-K
On July 2, 1998 the Company filed a Form 8-K concerning the Agreement and
Plan of Exchange (the "Agreement") with Miller Feed Lots, Inc.("MFL") dated June
22, 1998. The Agreement calls for the Company to issue up to 15,000,000 shares
of its common stock to the shareholders of MFL and MFL would become a wholly
owned subsidiary of the Company. The transaction is subject to stockholder
approval. A copy of the Agreement was filed with the Form 8-K.
-24-
<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: January 4, 2000 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 January 4, 2000
- ------------------- Executive Officer,
James E. Miller Principal Financial
Officer, and Director
\s\ STEPHEN R. STORY Secretary-Treasurer, January 4, 2000
- -------------------- Principal Accounting
Stephen R. Story Officer
\s\ NORMAN M. DEAN Chairman of the January 4, 2000
- ------------------ Board and Director
Norman M. Dean
Director
- -------------------
Alan D. Gorden
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 88,970
<SECURITIES> 0
<RECEIVABLES> 1,116,099
<ALLOWANCES> 0
<INVENTORY> 1,657,045
<CURRENT-ASSETS> 3,193,246
<PP&E> 1,767,122
<DEPRECIATION> 668,751
<TOTAL-ASSETS> 5,084,351
<CURRENT-LIABILITIES> 2,105,905
<BONDS> 0
0
0
<COMMON> 636
<OTHER-SE> 2,021,874
<TOTAL-LIABILITY-AND-EQUITY> 5,084,351
<SALES> 9,402,867
<TOTAL-REVENUES> 10,917,364
<CGS> 8,316,285
<TOTAL-COSTS> 1,353,004
<OTHER-EXPENSES> 844,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,045
<INCOME-PRETAX> 239,730
<INCOME-TAX> 68,091
<INCOME-CONTINUING> 171,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,639
<EPS-BASIC> 0.027
<EPS-DILUTED> 0.027
</TABLE>
