SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended November 30, 1999
Commission File Number 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 jurisdiction (I.R.S. Employer Identification
of incorporation or organization Number)
Mailing Address:
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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)
(970) 284-5556
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
Number of shares of Common Stock, par value $.0001, outstanding on January 30,
2000, 6,364,640.
Transitional Small Business Disclosure Format: YES ___ NO X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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November 30, August 31,
1999 1999
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ASSETS
- ------
Current Assets:
Cash $ 264,709 $ 88,970
Receivables:
Trade accounts 650,388 875,260
Accounts - related parties -- 309,812
Notes - cattle financing 201,671 150,756
Notes - cattle financing -related party 102,201 90,083
Tax refunds 21,164 --
Inventories 3,100,430 1,657,045
Prepaid expenses 16,613 21,320
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Total Current Assets 4,357,176 3,193,246
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Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 115,074 100,336
Equipment under capital leases -
related party 30,649 30,649
Leasehold improvements 152,124 138,297
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1,795,687 1,767,122
Less: Accumulated depreciation
and amortization 689,967 668,751
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Total Property and Equipment 1,105,720 1,098,371
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Other Assets:
Other investments 323,621 322,286
Notes receivable - related parties 376,000 300,000
Deferred income taxes 165,051 165,051
Deposits and other 5,397 5,397
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Total Other Assets 870,069 792,734
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TOTAL ASSETS $6,332,965 $5,084,351
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Continued on next page
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MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
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November 30, August 31,
1999 1999
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LIABILITIES
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Current Liabilities:
Bank overdraft $ 84,007 $ 34,501
Notes payable 2,419,213 1,394,760
Trade accounts payable 461,145 522,468
Accounts payable - related party 71,920 --
Accrued expenses 37,260 32,247
Customer advance feed contracts 34,907 93,433
Current portion of note payable-related party 44,436 --
Current portion of capital lease obligations -
related party 26,638 28,496
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Total Current Liabilities 3,179,526 2,105,905
Note payable - related party 243,877 --
Capital Lease Obligations - related party 950,544 955,936
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Total Liabilities 4,373,947 3,061,841
Commitments
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STOCKHOLDERS' EQUITY
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Preferred Stock -- --
Common Stock, par value $.0001 per share;
25,000,000 shares authorized; 6,364,640
shares issued and outstanding 636 636
Additional Paid-in Capital 1,351,693 1,351,693
Retained Earnings 606,689 670,181
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Total Stockholders' Equity 1,959,018 2,022,510
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,332,965 $5,084,351
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended November 30 1999 1998
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Revenue:
Feed and related sales $ 1,008,027 $ 1,702,717
Fed cattle sales 1,012,490 1,151,238
Feedlot services 310,943 257,055
Other 10,620 18,051
Interest income 13,381 8,491
Interest income - related party 4,700 4,500
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Total Revenue 2,360,161 3,142,052
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Costs and Expenses:
Cost of:
Feed and related sales 889,117 1,467,614
Fed cattle sales 962,111 1,090,341
Feedlot services 336,437 272,704
Selling, general, and administrative 194,992 171,265
Equity in loss of investee 14,070 --
Interest 13,649 13,672
Interest on note payable - related party 7,435 --
Interest on capital leases - related party 27,006 27,758
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Total Costs and Expenses 2,444,817 3,043,354
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Income (Loss) Before Income Taxes (84,656) 98,698
Income Tax Expense (Benefit) (21,164) 36,814
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NET INCOME (LOSS) $ (63,492) $ 61,884
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INCOME (LOSS) PER COMMON SHARE $ (.01) $ .01
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Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
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MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Restated
Three Months Ended November 30, 1999 1998
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Cash Flows from Operating Activities:
Cash received from customers $ 2,508,426 $ 3,108,590
Cash paid to suppliers and employees (3,479,764) (2,280,730)
Interest received 18,081 8,491
Interest paid (43,023) (45,981)
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Net Cash Provided (Utilized) by
Operating Activities (996,280) 790,370
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Cash Flows from Investing Activities:
Acquisition of property and equipment (28,565) --
Acquisition of other investments (15,405) (87,023)
Loans to related party (76,000) --
Loans for cattle financing (251,250) (176,174)
Collections from cattle financing 188,216 --
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Net Cash Utilized by Investing Activities (183,004) (263,197)
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Cash Flows from Financing Activities:
Proceeds from :
Short-term notes payable 4,136,075 1,405,633
Long-term note payable - related party 300,000 --
Principal payments on::
Short-term notes payable (3,111,622) (1,946,542)
Long-term note payable - related party (11,687) --
Capital lease obligations - related party (7,249) (6,498)
Increase in cash overdraft 49,506 22,877
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Net Cash Provided (Utilized)
by Financing Activities 1,355,023 (524,530)
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Net Increase in Cash 175,739 2,643
Cash, Beginning of Year 88,970 63,656
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Cash, End of Period $ 264,709 $ 66,299
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Continued on next page
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MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
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Restated
Three Months Ended November 30 1999 1998
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Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income (Loss) $ (63,492) $ 61,884
Adjustments:
Depreciation and amortization 21,216 21,135
Equity in loss of investee 14,070 --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 224,872 (24,971)
Accounts receivable - related party 309,812 (88,728)
Income taxes receivable (21,164) --
Inventories (1,443,385) 606,935
Prepaid expenses 4,707 (4,463)
Deposits and other -- 14,385
Increase (decrease) in:
Trade accounts payable and accrued
expenses (56,310) 167,379
Accrued income taxes payable -- 36,814
Accounts payable - related party 71,920 --
Customer advance feed contracts (58,526) --
- --------------------------------------------------------------------------------
Net Cash Provided (Utilized) by
Operating Activities $ (996,280) $ 790,370
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
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MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------
The consolidated balance sheets as of November 30, 1999 and August 31, 1999, the
consolidated statements of earnings for the three months ended November 30, 1999
and 1998 and the consolidated statements of cash flows for the three months
ended November 30, 1999 and 1998 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements have bee condensed or omitted as allowed by the rules and
regulations of the Securities and Exchange Commission.
The consolidated statements of cash flows the three months ended November 30,
1998 have been restated to provide continuity in the reporting of a change in
the inventory of procurement cattle (held for resale to customers), which was
considered "Short-term cattle financing" for the period ended November 30, 1998.
This qualification is no longer reported.
In preparation of the above-described financial statements, all adjustments of a
normal and recurring nature have been made. The Company believes that the
accompanying Unaudited financial statements contain all adjustments necessary to
present fairly the results of operations and cash flows for the periods
presented. Further, management believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the annual financial statements
and the notes thereto. The operations for the three month period ended November
30, 1999 are not necessarily indicative of the results to be expected for the
year.
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Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Results of Operations
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A summary of the net earnings (loss) for the three months of the quarter
ended November 30, 1999, compared to the same period the year before is as
follows:
Three Months Ended November 30, 1999 1998 Decrease
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First Quarter $ (63,492) $ 61,884 $ (125,376)
The most significant factor that affects operating results is the
average head numbers of cattle per day ("average head days") in the
Company's feedlot because feed is sold and feedlot services are rendered to
the cattle owners. Sales of feed and feedlot services account for 56% and
63% of the Company's total revenues for the three month periods ended
November 30, 1999 and 1998, respectively.
As noted below, fed cattle sales, which accounted for 43% and 37% of
the total revenues for the periods ended November 30, 1999 and 1998,
respectively are continuing to have a greater influence on the Company's
total revenues. The increase is the result of management's policy change to
feeding more cattle to slaughter for the Company's account.
Average Head Days Summary (Includes customer and Company cattle)
Three Months Ended November 30, 1999 1998 Decrease
------------------------------------------------------------------------
First Quarter 12,016 14,114 (2,098)
The 2,098 or 14.9% decrease in average head days for the three months ended
November 30, 1999 compared to the previous year, impacted several areas as
described below.
Total Head of Slaughter Sold for Company's Account
November 30, 1999 1998 Decrease
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First Quarter 1,136 1,530 (394)
Total Head in Inventory - Cattle Fed to Slaughter for Company's Account
November 30, 1999 1998 Increase
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First Quarter 4,036 553 3,483
The 3,483 or 629.9% increase in total head being fed to slaughter for the
Company's account for the three months ended November 30, 1999 compared to the
previous year, also impacted several areas as described below.
Another factor that affected earnings for the three months ended November
30, 1999 and 1998, is the Company's "fall calf program". As a service to
customers, the Company purchases for them calves weaned in the fall and places
them with local farmer-feeders who feed and care for the calves until the
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following February through April when the cattle are transferred to the
Company's feedlot. These fall calf programs are undertaken on essentially a
break-even basis; that is, the amounts paid to the farmer-feeders are about the
same as the amounts charged to the customers. Although originally undertaken as
a method to improve placements in February through April when cattle placements
were usually low, changes in the industry coupled with the Company's commitment
to retain ownership on more cattle and feed them to slaughter has lessened the
impact of the program . The Company will continue to take advantage of any
benefits that the program can produce. The revenues are recorded as sales of
feedlot services and the costs as the cost of feedlot services. Therefore, a
high volume in the fall calf program can reduce the gross profit percentage on
sales of feedlot services. On November 30, 1999, the Company had 2,454 head in
its fall calf program as compared to 2,085 head the previous year. Although this
is an increase of only 369 head, or 18%, there was an increase in the sales and
costs of the fall calf program for the three months ended November 30, 1999 over
the same period the previous year of approximately $35,900 as a result of the
timing of the actual placement of the calves, which was approximately 30 days
earlier for the quarter ended November 30, 1999. This had a impact on the
decrease in the gross profit percentage from sales of feedlot services as noted
below. The actual increase in the fall calf program should not have any effect
on the Company's overall placements, financial position, results of operations
or liquidity. With the change in the Company's policy to increasing the number
of cattle the Company maintains ownership of and feeds to slaughter, along with
changing patterns in the industry, the Company is expecting placement levels for
the balance of the current year to be at or above the placement levels of prior
years. Even with continued placements of cattle not in the fall calf program,
the Company anticipates taking advantage of any benefits that may arise from
feeding cattle with outside farmers/feeders.
Other key factors that affect earnings are the gross profit percentages on
feed and related sales, and on feedlot services. The following is a brief
summary of gross profit and gross profit percentages on feed and related sales:
Increase
Three Months Ended November 30, 1999 1998 (Decrease)
----------------------------------------------------------------------
Feed and related sales $1,008,027 $1,702,717 $ (694,690)
Cost of feed and
related sales $ 889,117 $1,467,614 $ (578,497)
----------------------------------------------------------------------
Gross profit $ 118,910 $ 235,103 $ (116,193)
Gross profit percentage 11.8% 13.8% (2.0%)
A variety of feed ingredients, which are separately marked up, are combined
in varying percentages and sold as various rations. The gross profit percentage
on feed sales is affected by four variables:
(1) the type and quantity of individual rations sold
(2) the "recipe" or formulation of the individual rations
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(3) feed ingredients sold under customer advance feed contracts which are
not subject to management's discretionary pricing decisions
(4) feed and the cost of feed, less any markup, fed to cattle owned by the
Company is excluded from feed sales and cost of sales. The cost of
feed, less any markup, is included with the inventory value of cattle
owned by the Company and fed to slaughter. Due to the
interrelationship of all of the factors, it is impractical to attempt
quantify the effects of each factor on the change in feed and related
sales and cost of sales. Generally speaking, though, the greatest
effect is caused by the type and quantity of individual rations sold
and the formulation of each ration. These are affected by the size of
the cattle being fed, market availability and price of individual
ingredients and special program requirements of individual customers.
The $116,193 decrease in gross profit from feed and related sales for the
period ended November 30, 1999 from the same period the previous year is a
result of changes in the four variables described above. Not included in the
feed and related sales and costs of sales for feed and related sales to cattle
owned by the Company which are feeding to slaughter. The following tables detail
the effects of the feed consumed by the Company owned cattle being fed to
slaughter. The chart is based on the assumption that the feed consumed by the
Company owned cattle is the same as comparable sales to custom feeding
customers.
Proforma "Sales" and "Costs" November 30
for feed and services rendered 1999 1998
to Company owned cattle Increase
----------------------------------------------------------------------
Feed and other sales $345,908 $113,745 $232,163
Cost of feed and other sales 301,632 104,715 196,917
----------------------------------------------------------------------
Gross profit $ 44,276 $ 9,030 $ 35,246
Gross profit percentage 12.8% 7.9% 4.9%
The total of all feed and related sales, without regard to ownership and the
different accounting standards applied, would be as follows (Combined Feed and
Other Sales and above proforma figures):
Total Sales and Costs of sales November 30
for feed and services rendered 1999 1998 Increase
without regard to ownership (Decrease)
----------------------------------------------------------------------
Feed and other sales $1,353,935 $1,816,492 $ (462,557)
Cost of feed and other sales 1,190,749 1,572,329 (381,580)
Gross profit $ 163,186 $ 244,163 $ (80,977)
Gross profit percentage 12.1% 13.4% (1.3)%
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.
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Sales for cattle fed to slaughter are recorded when the cattle are sold and
are recorded as fed cattle sales as described below.
Following is a brief summary of Fed cattle sales and cost of sales.
Three Months Ended November 30, 1999 1998 Decrease
-----------------------------------------------------------------------
Fed cattle sales $1,012,490 $1,151,238 $ (138,748)
Cost of feed and
related sales $ 962,111 $1,090,341 $ (128,230)
-----------------------------------------------------------------------
Gross profit (loss) $ 50,379 $ 60,897 $ (10,518)
Gross profit percentage 5.0% 5.2% (.2%)
The Company, in an effort to maintain high numbers in the feedlot, to
lessen the effect of major customers and to benefit from what is currently
perceived as a good future for the cattle market, has implemented a policy of
retaining ownership in and feeding to slaughter, cattle in the Company's
feedlot. This is a major change from previous years when cattle were fed to
slaughter on an inconsistent basis. The Company recognizes the fact that
unforeseen events ranging from severe weather to government policies can have an
adverse effect on the value of its inventory in cattle fed to slaughter, which
would have a corresponding adverse effect on the Company's results of
operations, financial position and liquidity. It is anticipated that most, if
not all, of the Company's inventory in cattle fed to slaughter will be price
protected or hedged at break-even or better to protect the Company on the down
side of any market fluctuations, but there can be no assurances that this
hedging can always be accomplished. The Company regularly calculates the market
value of its cattle fed to slaughter and adjusts its value downward if the
market price is lower than the accumulated cost of the cattle. No adjustment in
the value of the Company owned cattle was warranted for the three month period
ended November 30, 1999 nor for the same period the previous year.
The following is a brief summary of the gross profit and gross profit
percentages on sales of feedlot services:
Increase
Three Months Ended November 30, 1999 1998 (Decrease)
---------------------------------------------------------------------
Sales of feedlot services $ 310,943 $ 257,055 $ 53,888
Cost of feedlot services $ 336,437 $ 272,704 $ 63,733
---------------------------------------------------------------------
Gross profit (Loss) $ (25,494) $ (15,649) $ (9,845)
Gross profit percentage (8.2%) (6.1%) (2.1%)
Sales of feedlot services consist primarily of yardage (pen rent) charged
to the owners of the cattle on feed and grain processing charged for the
processing of certain feed ingredients before they can be fed to the cattle.
Yardage charges for the three month period ended November 30, 1999 decreased
$19,263 or 15% from the same period the prior year partially due to the a
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decline in average head numbers Grain processing charges increased $37,290 or
43.3% for the period ended November 30, 1999 due to the mix of ingredients as
described above.
As previously noted, the sales and cost of sales for the fall calf program
are also included in the sales and cost of sales of feedlot services. If the
fall calf program sales and costs are excluded, the gross profit percentage for
the period ended November 30, 1999 is (10.9% ) compared to (7.3%) for the same
period the previous year.
The cost of feedlot services consists largely of feedlot operating
expenses. The total cost of feedlot services increased $63,733 for the period
ended November 30, 1999 compared to the same period the prior year. If the fall
calf program costs are excluded, the feedlot operating expenses increased
$27,872 for the period ended November 30, 1999 compared to the same period the
prior year. This increase is due to the increases in variable costs, such as
labor and equipment related costs, that were incurred due to management's
decision to take advantage of unseasonably fair weather and more empty pens to
perform a variety of preventive maintenance programs.
Other revenues decreased $7,431 for the period ended November 30, 1999 as
compared to the same period the prior year. This decrease is the result of
decreases in commissions received by Miller Feeders, Inc., the Company's
subsidiary that buys and sells cattle for a commission. This decrease will
continue as the Company feeds more cattle for its own account, but will not have
a major impact on the Company's overall financial position.
Interest income increased $4,890 or 57.6% for the period ended November 30,
1999 over the same period the prior year due to the Company's "carrying" or
financing greater amounts of customer feeding charges and from the Company's
expansion into the area of financing customer's cattle and feed.
Selling, general, and administrative expenses increased $23,726 for the
three month period ended November 30, 1999 over the same period the prior year.
The most significant increase was for managerial salaries, which increased
approximately $15,000 for the period ended November 30, 1999 for additional
managerial staff to co-ordinate and monitor the program of feeding cattle to
slaughter for the Company's account.
Interest expense on a note payable to finance company controlled by a
related party was incurred for the first time in the quarter ended November 30,
1999 in the amount of $7,435. The loan was made for the purpose of increasing
the amount of cattle the Company could feed to slaughter for its account.
For the quarter ended November 30, 1999, the Company recorded an expense
for the reduction of equity in an investment in a water dispensing company of
$14,070. The Company expects the investment to continue to operate at a loss for
2 more years then improve its position. This reduction represents 50% of the
loss the water company; the investment is accounted for using the equity method.
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Income taxes are directly related to the net earnings before income taxes
and certain assumptions that are made with the estimations. For the three month
period ended November 30, 1999, income taxes decreased $57,978 from the same
period the prior year while pretax income decreased $183,354.
Liquidity and Capital Resources
- -------------------------------
For the three months ended November 30, 1999 operating activities utilized
$996,280 compared to providing $790,370 for the same period the previous year, a
decrease in funds provided of $1,786,650. Cash received from customers for the
period decreased $600,164 as a result of lower head numbers and sales to
customers. Cash paid to suppliers and employees increased $1,199,034 primarily
due to the increase in the Company owned cattle inventory, which includes cattle
costs and feed and related costs. Interest received for the period increased
$9,590, while interest paid decreased $2,958 for a total cash increase of
$12,548. The interest expense directly related to the Company owned cattle fed
to slaughter is capitalized (added to the cost of the cattle fed to slaughter
inventory value).
For the three months ended November 30, 1999 the net cash that was utilized
by investing operations was $183,004 compared to the previous year of $263,197,
resulting in a decrease in expenditures of $80,193. For the three month period
ended November 30, 1999, the Company acquired other investments for $15,405
compared to $87,023, a decrease in funds used of $71,618. Equipment with a cost
of $28,565 was purchased during the period ended November 30, 1999, compared to
no purchases during the same period the previous year. The Company made loans to
customers for their cattle on feed in the Company's feedlot in the amount of
$251,250 and made collections on loans in the amount of $188,216, a net
utilization of $63,034, compared to loans made the prior year of $176,174, a
decrease in the utilization of funds of $113,140. For the period ended November
30, 1999, the Company made a loan to a related party for operations in the
amount of $76,000. No similar loans were made during the period ended November
30, 1998, nor were any collections made.
The cash flows provided by financing activities was $1,355,023 for the
three months ended November 30, 1999, an increase in funds provided of
$2,060,383 compared to the cash utilized of $705,360 for the same period the
prior year. The change in net short-term payments over short-term borrowings
resulted in a $1,565,362 increase in funds provided for the three months ended
November 30, 1999 compared to the same period the previous year.
The Company's working capital (current assets minus current liabilities)
increased by $90,309 for the three months ended November 30, 1999 from
$1,087,341 at August 31, 1999 to $1,177,650 at November 30, 1999.
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Total current assets increased $1,163,930 from $3,193,246 at August 31,
1999 to $4,357,176 at November 30, 1999. Total current liabilities increased
$1,073,621 from $2,105,905 at August 31, 1998 to $3,179,526 at November 30,
1999. Although there are increases and decreases in all components, the two
major change that are not attributable to being a point in time variance are the
increases in inventories and notes payable, as described below.
Inventories increased $1,443,385 primarily due to an increase in the
inventory of cattle owned by the Company and fed for slaughter. At November 30,
1999, this inventory totaled $2,855,861 compared to $1,202,059 at August 31,
1999, an increase of $1,653,802. Procurement cattle inventory (held for resale
to customers) decreased $172,076 from $315,903 at August 31, 1999 to $143,826 as
of November 30, 1999.
Other investments increased $1,335 from $322,286 at August 31, 1999 to
$323,621 at November 30, 1999. The changes for the period ended November 30,
1999, are:
1. Increase of $15,405 in the Company's working interest investment in an
unrelated company which owns several natural gas wells. This
investment is accounted for on the cost basis.
2. Decrease of $14,070 in the Company's investment in a related company
that provides water filtering and dispensing equipment for offices in
the Denver metro area as a result of recording, under the equity
method, of 50% of the net loss of the water dispensing company.
The Company has several revolving lines of credit from a local branch of a
credit services company. All of the lines of credit matured December 1, 1999 and
bore interest at approximately 1.0% over the prime rate (actual rate of 8.75% at
November 30, 1999). The Company's operating line in the amount of $300,000 had
an outstanding balance of $105,000 at November 30, 1999 which meant that the
Company could generate an additional $195,000 cash if needed under this line of
credit. This line of credit is secured by feed accounts receivable, feed
inventories, and equipment. The Company's revolving line of credit for the
purpose of owning and feeding cattle to slaughter line of in the amount of
$4,000,000 had an outstanding balance at November 30, 1999 of $1,866,295 which
meant that the Company could generate an additional $2,133,705 cash if needed
and qualified for cattle being fed to slaughter under this line of credit. The
note is secured by specific cattle and cross collateralized with the revolving
line of credit note above. The Company's line of credit for the purpose of
financing qualified customers' cattle feeding programs line of in the amount of
$2,000,000, with a current qualification that the total outstanding cannot
exceed $1,000,000, had an outstanding balance of $307,817 at November 30, 1999.
This meant that the Company could generate an additional $692,183 cash if needed
and qualified for cattle being financed for customers under this line of credit.
The note is secured by specific customers' cattle and cross collateralized with
the revolving lines of credit noted above. Miller Feeders, Inc. (MFI) has a
$300,000 revolving line of credit at the same local branch of a credit services
company for the procurement of feeder cattle for resale to customers. The line
of credit matured on December 1, 1999 and bore interest at approximately 1.0%
over the prime rate (actual rate of 8.75% at November 30, 1999). There was an
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outstanding balance at November 30, 1999 of $140,100 which meant that MFI could
borrow up to $159,900 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 renewed all of the above lines of credit with identical terms
and conditions in January 2000.
The Company had no material commitments for capital expenditures at
November 30, 1999. The Company is a co-signer with Miller Feed Lots, Inc. (MFL)
(a related party) for a loan held by a third party insurance company. The loan
in collateralized by the feedlot facilities that the Company leases from MFL and
has an option to buy.. The loan had a principal balance at November 30, 1999 of
$265,605. The Company does not believe it would suffer any adverse effects to
its financial position or liquidity in the event MFL defaulted on the loan. Any
liability for the loan would reduce the liability to MFL for the lease and any
payments the Company would make on the loan would reduce the amount of the lease
payments paid to MFL for the facilities.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated levels.
Statement of Financial Accounting Standard (SFAS) No. 130 on Comprehensive
Income was implemented for the 1998-1999 fiscal year. The impact was not
significant as the Company had only one additional component of comprehensive
income that had not previously been included in net income. After evaluating the
impact SFAS No. 131 on Disclosures about Segments of an Enterprise for the
August 31, 1999 financial statements no changes were made nor were further
disclosures made since it was determined that, under the guidelines of the
Standard, the Company had only one reportable segment, cattle feeding. No
accounting changes were required SFAS No. 131. The effective date of SFAS No.
133 on Accounting for Derivative Instruments and Hedging Activities has been
deferred by SFAS No. 137, and will now be implemented for the first quarter of
fiscal year 2001. Management is still evaluating the impact SFAS No. 133 will
have on the Company's financial statements and related disclosures.
Year 2000 Compliance
- --------------------
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex as virtually
every company's computer operations will be affected in some way. The Company's
computer programs which process it's operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century. Nevertheless, as a result of the company's on going analysis
of it's computer programs and operations, it has reached the conclusion that
"Year 2000" programs will not seriously impact or have a material adverse effect
on the Company's expenses, business or its operations.
The Company did not experience any notable problems with supplies,
customers nor computer software related to the "Year 2000" issue.
-15-
<PAGE>
PART II OTHER INFORMATION
Items 1 through 5 None.
Item 6 (b)- Exhibits and Reports on Form 8-K
On February 3, 1999, the Company filed an amended Form 8-K which discloses that
the Company has entered into an amended exchange agreement with Miller Feed
Lots, Inc. (MFL) pursuant to which the Company will issue 7,000,000 shares of
its common stock to acquire all of the issued and outstanding common shares of
MFL. The proposed transaction with MFL is subject to shareholder approval. .
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLER DIVERSIFIED CORPORATION
------------------------------
(Registrant)
Date: January 31, 2000 /s/ JAMES E MILLER
------------------
James E. Miller
President, Chief Executive Officer,
Chief Financial Officer
Date: January 31, 2000 /s/ STEPHEN R. STORY
--------------------
Stephen R. Story
Secretary-Treasurer
-17-
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