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 MAY 31, 2001
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
Mailing Address:
P. O. Box 237
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
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The Number of shares of Common Stock, with a par value of $.0001, outstanding on
May 31, 2001, was 6,364,640.
Transitional Small Business Disclosure Format: YES NO X
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Report on Review by Independent Accountants
-------------------------------------------
To the Stockholders and Directors
Miller Diversified Corporation
We have reviewed the accompanying consolidated balance sheet of Miller
Diversified Corporation and its subsidiary as of May 31, 2001, and the related
consolidated statements of operations for each of the three-month and nine-month
periods ended May 31, 2001 and 2000, and the consolidated statement of cash
flows for the nine-month period ended May 31, 2001. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements for
them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 2000, and the related
consolidated statements of operations, of shareowners' equity, and of cash flows
for the year then ended (not presented herein), and in our report dated December
5, 2000 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet information as of August 31, 2000, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
July 8, 2001
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------
May 31, August 31,
2001 2000
- ------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 204,856 $ 388,545
Receivables:
Trade accounts 673,336 661,630
Trade accounts - related parties 94,927 161,716
Accounts receivable - related parties 355,903 --
Notes - cattle financing 14,659 --
Notes - cattle financing - related parties -- 105,596
Inventories 3,493,868 4,487,594
Prepaid expenses and other 31,072 18,997
- ----------------------------------------------------------------------------------------------------
Total Current Assets 4,868,621 5,824,078
- ----------------------------------------------------------------------------------------------------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 206,974 206,974
Equipment under capital leases - related party -- --
Leasehold improvements 172,114 172,114
----------------------------------
1,876,928 1,876,928
Less: Accumulated depreciation
and amortization 829,094 765,690
- ----------------------------------------------------------------------------------------------------
Total Property and Equipment 1,047,834 1,111,238
- ----------------------------------------------------------------------------------------------------
Other Assets:
Other investments -- 192,545
Notes receivable - related parties 300,000 549,000
Deferred income taxes 234,236 224,236
Deposits and other 11,495 9,616
- ----------------------------------------------------------------------------------------------------
Total Other Assets 545,731 975,397
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $6,462,186 $7,910,713
====================================================================================================
Continued on next page.
3
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
- -----------------------------------------------------------------------------------------------------
May 31, August 31,
2001 2000
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Current Liabilities:
Cash overdraft $ -- $ --
Notes payable 2,947,760 3,813,797
Trade accounts payable 419,546 607,291
Accounts payable - related party -- 258,076
Accrued expenses 66,829 83,231
Customer advance feed contracts -- 14,907
Current portion of:
Capital lease obligations - related party 23,043 25,085
Long-term debt 6,392 6,392
Long-term debt - related party 53,333 53,333
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 3,516,903 4,862,112
Capital Lease Obligations - Related Party 914,339 930,851
Long-Term Debt 5,139 9,890
Long-Term Debt - Related Party 162,733 202,231
- -----------------------------------------------------------------------------------------------------
Total Liabilities 4,599,114 6,005,084
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Commitments
- -----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock, par value $.0001 per share
25,000,000 shares authorized; 6,364,640
shares issued and outstanding 636 636
Additional Paid-In Capital 1,351,693 1,351,693
Retained Earnings 510,743 553,300
Accumulated Other Comprehensive Income (Loss) -- --
- -----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,863,072 1,905,629
- -----------------------------------------------------------------------------------------------------
TOTAL LIABLITIES AND
STOCKHOLDERS' EQUITY $ 6,462,186 $ 7,910,713
=====================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
4
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
Nine Months Ended May 31 2001 2000
- -----------------------------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 3,816,514 $ 3,047,729
Fed cattle sales 7,105,286 4,401,929
Feedlot services 907,716 1,218,334
Interest income 41,479 40,711
Interest income - related parties 22,118 21,275
Other income 89,005 20,942
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Total Revenue 11,982,118 8,750,920
- -----------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 3,062,715 2,615,305
Fed cattle sold 7,342,214 4,364,663
Feedlot services 808,670 1,144,229
Selling, general, and administrative 691,825 636,226
Equity in (earnings) loss of investee (9,194) 74,962
Interest 42,380 43,481
Interest on note payable - related party 17,869 19,699
Interest on capital leases - related party 78,196 80,120
- -----------------------------------------------------------------------------------------------------
Total Costs and Expenses 12,034,675 8,978,685
Income (Loss) Before Income Taxes (52,557) (227,765)
Income Tax Expense (Benefit) (10,000) (66,974)
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NET INCOME (LOSS) $ (42,557) $ (160,791)
=====================================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.01) $ (0.03)
=====================================================================================================
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
=====================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
5
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended May 31 2001 2000
- -----------------------------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 1,470,878 $ 1,010,772
Fed cattle sales 2,159,164 2,338,673
Feedlot services 264,626 434,091
Interest income 14,540 11,699
Interest income - related parties 4,500 8,655
Other 45,702 3,315
- -----------------------------------------------------------------------------------------------------
Total Revenue 3,959,410 3,807,205
- -----------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 1,157,001 870,349
Fed cattle sold 2,340,543 2,330,922
Feedlot services 238,108 357,820
Selling, general, and administrative 207,284 227,205
Equity in loss of investee -- 37,422
Interest 14,319 13,724
Interest on note payable - related party 5,627 7,181
Interest on capital leases - related party 25,895 26,554
- -----------------------------------------------------------------------------------------------------
Total Costs and Expenses 3,988,777 3,871,177
- -----------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (29,367) (63,972)
Income Tax Expense (Benefit) -- (22,587)
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (29,367) $ (41,385)
=====================================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.00) $ (0.01)
=====================================================================================================
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
=====================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
6
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended May 31 2001 2000
- -----------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash received from customers $ 11,885,129 $8,737,302
Cash paid to suppliers and employees (11,657,348) (10,763,160)
Interest received 111,123 61,986
Interest paid (161,471) (239,745)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided (Utilized) by
Operating Activities 177,433 (2,203,617)
- -----------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment - (73,113)
Loans to related party 249,000 (235,000)
Collections from cattle financing 90,937 588,287
Loans for cattle financing - (610,606)
Proceeds from sale of other investments 175,000 -
Distributions received from other investments 52,781 6,980
Securities available-for-sale - -
- -----------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 567,718 (323,452)
- -----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from:
Notes payable 8,839,183 11,433,574
Long-term debt - related party - 300,000
Long-term debt -
Principal payments on:
Notes payable (9,705,220) (9,249,037)
Capital lease obligations - related party (18,554) (21,971)
Long-term debt - related party (39,498) (31,878)
Long-term debt (4,751)
Change in cash overdraft - 172,569
- -----------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities (928,840) 2,603,257
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (183,689) 76,188
Cash, Beginning of Period 388,545 88,970
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Cash, End of Period $ 204,856 $ 165,158
=====================================================================================================
Continued on next page.
7
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
- -----------------------------------------------------------------------------------------------------
Nine Months Ended May 31 2001 2000
- -----------------------------------------------------------------------------------------------------
Reconciliation of Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Net income (Loss) $ (42,557) $ (160,791)
Adjustments:
Loss on sale of securities available for sale -
Depreciation and amortization 63,404 63,486
Equity in (earnings) loss of investee (9,194) 74,962
Gain on sale of other investments (26,042) -
Deferred income taxes (10,000) (68,690)
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (11,706) 124,530
Trade accounts receivable - related party 66,789 309,812
Income taxes receivable - 1,716
Inventories 993,726 (2,688,218)
Prepaid expenses (12,075) 3,919
Deposits and other (1,879)
Increase (decrease) in:
Trade accounts payable and accrued expenses (204,147) (55,739)
Trade accounts payable - related parties (613,979) 267,559
Customer advance feed contracts (14,907) (76,163)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by
Operating Activities $ 177,433 $(2,203,617)
=====================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
8
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The consolidated balance sheets as of May 31, 2001 and August 31, 2000, the
consolidated statements of earnings for the three months and nine months ended
May 31, 2001 and 2000 and the consolidated statements of cash flows for the nine
months ended May 31, 2001 and 2000 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 been condensed or omitted as allowed by the rules and
regulations of the Securities and Exchange Commission.
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 financial statements contain all adjustments necessary to present
fairly the results of operations and cash flows for the periods presented.
Further, management believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the annual financial statements and the
notes thereto. The operations for the nine-month period ended May 31, 2001 are
not necessarily indicative of the results to be expected for the year.
- --------------------------------------------------------------------------------
9
Item 2 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
- ---------------------
During the fall of 1999, the Company implemented a policy of retaining ownership
of a majority of the cattle in the Company's feedlot. This is a change from the
primary focus being on custom feeding of customers' cattle and feeding
company-owned cattle to slaughter on an as-needed basis. The change is an effort
to (1) maintain high numbers in the feedlot, (2) lessen the effect of major
customers, and (3) benefit from what is currently perceived as a good future for
the cattle market. It is anticipated that most, if not all of the Company's
inventory of cattle fed to slaughter will be price protected or hedged to
protect the Company on the down side of market fluctuations. The other major
change in company operations was the installation of a new accounting system to
keep better records of the company owned cattle and the day-to-day operations of
the feedlot.
Quarter Ended May 31, 2001:
Total revenue for the quarter ended May 31, 2001 increased $152,205 or 4% over
the quarter ended May 31, 2000, this increase is due to the feedlot being fuller
than the previous year. Fed cattle sales decreased $179,509 and represented 55%
of the revenue for the quarter ended May 31, 2001 compared to 61% for the
quarter ended May 31, 2000. The decrease is partially offset by a net increase
between feed and related sales and feedlot services. Feed and related sales went
up $460,106 and feedlot services went down $169,465 with a net increase of
$290,641. The reasoning for the increase in one and the other decreasing is that
the new accounting system charges out sales and categorizes them better then the
old system making for better management decisions. The net increase between the
two is due to the feedlot staying full due to company owned cattle and a good
customer base.
Gross profit was $159,016 for the quarter ended May 31, 2001, a decrease of
$65,429 from the corresponding quarter in 2000. The gross profit percentages
were 4% and 6%, respectively, for the quarters ended May 31, 2001 and 2000. The
decrease in gross profit percentages is due to the change in composition of
gross sales and the relative gross profit percentages for the sources of
revenue. The gross profit percentages for fed cattle sales were -8% and .3%,
respectively, for the quarters ended May 31, 2001 and 2000, the decrease being a
result of the higher cost of feeder cattle and a harsh winter making the cost of
gain higher. Feed and related sales increased to 21% gross profit percentage,
and generated $173,454 more in gross profits due to the higher volume.
Selling, general, and administrative expenses decreased $19,921 to $207,284 for
the quarter ended May 31, 2001 compared to the corresponding quarter of 2000.
The decrease is attributed to the reduction in personnel needed to get the new
general ledger software in place since it is now up and running.
The increase in other revenue is due to the sale of the oil and gas well with
the company named Enprop, for $175,000, this resulted in a gain of $26,042. The
loss of $37,422 for the quarter ended May 31, 2000 with Highland Water did not
occur this quarter due to the sale of Highland Water on January 1, 2001.
10
Interest expense decreased $1,618 for the quarter ended May 31, 2001 over the
corresponding quarter a year earlier as a result of decreased borrowing.
The net loss of $29,367 for the quarter ended May 31, 2001 contrasts the net
loss of $41,385 for the quarter ended May 31, 2000 and is a result of the items
mentioned above.
Nine Months Ended May 31, 2001:
Total revenue for the nine months ended May 31, 2001 increased $3,231,198 or 37%
over the nine months ended May 31, 2000. Fed cattle sales increased $2,703,357
and represented 59% of total revenue for the nine months ended May 31, 2001
compared to 50% of total revenue for the nine months ended May 31, 2000. The
increase of $768,785 in feed and related sales was slightly offset by the
decrease in feedlot services for $310,618 making a net increase of $458,167 this
is due to higher volume. The one increase and the other decrease is due to the
new accounting software and how it categorizes the sale of feed and related
sales and feedlot services, while providing better information for management
decisions. These changes reflect the shift from custom feeding to feeding
company-owned cattle to slaughter and a good customer base making for a higher
volume in the feedlot.
Gross profit was $615,917 for the nine months ended May 31, 2001, an increase of
$72,122 from the corresponding quarter in 2000. The gross profit percentages
were 5% and 6%, respectively, for the nine-month periods ended May 31, 2001 and
2000. The decrease in gross profit percentages is due to the change in
composition of gross sales and the relative gross profit percentages for the
sources of revenue. The gross profit percentages for fed cattle sales were -3%
and .8%, respectively, for the nine months ended May 31, 2001 and 2000, the
decrease being a result of the higher cost of feeder cattle and the harsh winter
driving up the cost of gain. Feed and related sales increased to 20% gross
profit percentage, and generated $321,375 more in gross profits due to the
higher volume.
Selling, general, and administrative expenses increased $55,599 to $691,825 for
the nine months ended May 31, 2001 compared to the corresponding period of 2000.
The increase is primarily attributed to an increase for the accounting staff to
co-ordinate and install, the computer software for the Turnkey general ledger,
which is now completed.
The sale of Highland Water as of January 1, 2001 kept the company from incurring
any losses like it did in the year 2000 where its share for the three quarters
ended May 31, 2000 was $74,962.
Interest expense decreased $4,855 for the nine months ended May 31, 2001 over
the corresponding period a year earlier as a result of decreased borrowing.
Interest of $205,129 incurred on borrowings to finance Company-owned cattle has
been included as a cost of cattle inventory during the nine months ended May 31,
2001.
11
The net loss of $48,557 for the nine months ended May 31, 2001 is less than the
net loss of $160,791 for the quarter ended May 31, 2000 and is a result of the
items mentioned above.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended May 31, 2001 operating activities provided
$177,433. Much of this is from a $3,173,869 increase in Cash received from
customers. Working capital at May 31, 2001 was $1,351,722 compared to $961,966
in 2000.
Investing activities provided $567,718 primarily from the sale of the water
company and the interest in an oil & gas well.
Cash flow used by financing activities amounted to $928,840 for the nine months
ended May 31, 2001. Of this amount, $966,037 was repaid to short-term notes in
the sale of Company-owned cattle on feed. The decrease in cattle financing notes
receivable is due to the sale of a large volume of cattle during the third
quarter and not replacing them immediately due to customers who have outside
financing keeping the feedlot full.
The Company believes that internally generated funds and the available borrowing
under its existing credit facilities will provide sufficient liquidity and
enable it to meet its current and foreseeable working capital requirements. The
Company's $300,000 operating line of credit had an outstanding balance of
$101,309 at May 31, 2001 and the $4 million revolving line of credit for
purchase and feed cattle to slaughter had an outstanding balance at May 31, 2001
of $2,633,520. At May 31, 2001, there was also $2,000,000 available on the line
of credit for financing qualified customers' cattle feeding programs.
The Company had no material commitments for capital expenditures at May 31,
2001.
New Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was
implemented for the first quarter of fiscal year 2001.
12
PART II OTHER INFORMATION
Items 1 through 6: None.
13
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
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(Registrant)
Date: July 10, 2001 /s/ JAMES E MILLER
------------------------------
James E. Miller
President, Chief Executive
Officer, Chief Financial
Officer
Date: July 10, 2001 /s/ CLARK A. MILLER
------------------------------
Clark A. Miller
Secretary-Treasurer
14