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, 2002
Commission File Number 01-19001
MILLER DIVERSIFIED CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1070932
- -------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
Mailing Address:
P. O. Box 237
La Salle, Colorado 80645
23360 Weld County Road 35
La Salle, Colorado 80645
------------------------------
(Address of Principal Executive Office)
(970) 284-5556
-------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock, par value $.0001, outstanding on May 31, 2002,
6,364,640.
Transitional Small Business Disclosure Format: YES NO X
--- ---
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Report on Review by Independent Accountants
To the Board of Directors
Miller Diversified Corporation
We have reviewed the accompanying consolidated balance sheet of Miller
Diversified Corporation and its subsidiary as of May 31, 2002, and the related
consolidated statements of operations for each of the three-month and nine-month
periods ended May 31, 2002 and 2001, and the consolidated statement of cash
flows for the nine-month periods ended May 31, 2002 and 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, 2001, 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 October
9, 2001 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, 2001 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 12, 2002
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
May 31 Aug. 31
2002 2001
- --------------------------------------------------------------------------------
ASSETS
- --------------
Current Assets:
Cash $ 272,915
Receivables:
Trade accounts 671,373 882,123
Trade accounts - related parties 342,781 144,770
Accounts receivable - related parties 705,739 452,169
Notes - cattle financing 654,715 31,723
Notes - cattle financing - related parties -- --
Inventories 2,319,063 4,073,397
Prepaid expenses and other 39,137 25,704
- --------------------------------------------------------------------------------
Total Current Assets 4,732,808 5,882,801
- --------------------------------------------------------------------------------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 211,482 205,582
Leasehold improvements 174,050 174,050
-----------------------
1,883,372 1,877,472
Less: Accumulated depreciation
and amortization 933,615 862,792
- --------------------------------------------------------------------------------
Total Property and Equipment 949,757 1,014,680
- --------------------------------------------------------------------------------
Other Assets:
Other investments 2,000 --
Notes receivable - related parties 300,000 300,000
Deferred income taxes 326,808 228,481
Deposits and other 11,495 11,495
- --------------------------------------------------------------------------------
Total Other Assets 640,303 539,976
- --------------------------------------------------------------------------------
TOTAL ASSETS $6,322,868 $7,437,457
================================================================================
Continued on next page.
3
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
- --------------------------------------------------------------------------------
May 31 Aug. 31
2002 2001
- --------------------------------------------------------------------------------
LIABILITIES
- -----------
Current Liabilities:
Cash overdraft $ 55,001 $ 48,358
Notes payable 3,169,455 3,781,264
Trade accounts payable 518,870 642,876
Accounts payable - related party -- --
Accrued expenses 57,489 82,825
Customer advance feed contracts -- --
Current portion of:
Capital lease obligations - related party 27,990 27,990
Long-term debt 4,958 7,173
Long-term debt - related party 58,918 58,918
- --------------------------------------------------------------------------------
Total Current Liabilities 3,892,681 4,649,404
Capital Lease Obligation - Related Party 882,158 902,861
Long-Term Debt -- 3,225
Long-Term Debt - Related Party 94,626 143,312
- --------------------------------------------------------------------------------
Total Liabilities 4,869,465 5,698,802
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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 171,366 495,567
Accumulated Other Comprehensive Income (Loss) (70,292) (109,241)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 1,453,403 1,738,655
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,322,868 $7,437,457
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
4
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------
Nine Months Ended May 31 2002 2001
- ---------------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 2,852,844 $ 3,816,514
Fed cattle sales 5,089,422 7,105,286
Feedlot services 673,595 907,716
Interest income 32,222 41,479
Interest income - related parties 13,500 22,118
Other income 48,682 89,005
- ---------------------------------------------------------------------------------------
Total Revenue 8,710,265 11,982,118
- ---------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 2,290,041 3,062,715
Fed cattle sold 5,925,876 7,342,214
Participation Company cattle sold - related parties (418,227) --
Feedlot services 674,768 808,670
Selling, general, and administrative 534,738 691,825
Equity in (earnings) loss of investee -- (9,194)
Interest 34,494 42,380
Interest on note payable - related party 91,102 96,065
- ---------------------------------------------------------------------------------------
Total Costs and Expenses 9,132,792 12,034,675
- ---------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (422,527) (52,557)
Income Tax Expense (Benefit) (98,327) (10,000)
- ---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (324,200) $ (42,557)
=======================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.05) $ (0.01)
=======================================================================================
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
- -------------------------------------------------------------------------------------
Three Months Ended May 31 2002 2001
- -------------------------------------------------------------------------------------
Revenue:
Feed and related sales $ 1,166,384 $ 1,470,878
Fed cattle sales 1,793,943 2,159,164
Feedlot services 226,408 264,626
Interest income 11,733 14,540
Interest income - related parties 4,500 4,500
Other 10,039 45,702
- -------------------------------------------------------------------------------------
Total Revenue 3,213,007 3,959,410
- -------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 964,251 1,157,001
Fed cattle sold 2,087,451 2,340,543
Participation Company cattle sold - related parties (146,754) --
Feedlot services 193,200 238,108
Selling, general, and administrative 148,365 207,284
Equity in loss of investee -- --
Interest 12,413 14,319
Interest on note payable - related party 30,696 31,522
- -------------------------------------------------------------------------------------
Total Costs and Expenses 3,289,622 3,988,777
- -------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (76,615) (29,367)
Income Tax Expense (Benefit) (19,154) --
- -------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (57,461) $ (29,367)
=====================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.01) $ (0.00)
=====================================================================================
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
- ------------------------------------------------------------------------------------
Nine Months Ended May 31 2002 2001
- ------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash received from customers $ 8,423,712 $ 11,885,129
Cash paid to suppliers and employees (7,301,365) (11,657,348)
Interest received 45,722 111,123
Interest paid (132,097) (161,471)
Income taxes paid -- --
- ------------------------------------------------------------------------------------
Net Cash Provided (Utilized) by Operating Activities 1,035,972 177,433
- ------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (5,900) --
Loans to related party -- 249,000
Collections from cattle financing -- 90,937
Loans for cattle financing (622,992) --
Proceeds from sale of other investments -- 175,000
Distributions received from other investments -- 52,781
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Net Cash Provided (Used) by Investing Activities (628,892) 567,718
- ------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from:
Notes payable 8,559,883 8,839,183
Long-term debt - related party -- --
Long-term debt -- --
Principal payments on:
Notes payable (9,171,692) (9,705,220)
Capital lease obligations - related party (20,703) (18,554)
Long-term debt - related party (48,686) (39,498)
Long-term debt (5,440) (4,751)
Change in cash overdraft 6,643 --
- ------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities (679,995) (928,840)
- ------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (272,915) (183,689)
Cash, Beginning of Period 272,915 388,545
- ------------------------------------------------------------------------------------
Cash, End of Period $ 0 $ 204,856
====================================================================================
Continued on next page.
7
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
- --------------------------------------------------------------------------------
Nine Months Ended May 31 2002 2001
- --------------------------------------------------------------------------------
Reconciliation of Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Net income (Loss) $ (324,200) $ (42,557)
Adjustments:
Depreciation and amortization 70,823 63,404
Equity in (earnings) loss of investee -- (9,194)
Gain on sale of other investments -- (26,042)
Deferred income taxes (98,327) (10,000)
Unrealized hedging losses 38,949 --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 210,750 (11,706)
Trade accounts receivable - related party (198,011) 66,789
Accounts receivable - related party (253,570) --
Inventories 1,754,334 993,726
Prepaid expenses (13,433) (12,075)
Deposits and other -- (1,879)
Increase (decrease) in:
Trade accounts payable and accrued expenses (151,343) (204,147)
Trade accounts payable - related parties -- (613,979)
Customer advance feed contracts -- (14,907)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities $ 1,035,972 $ 177,433
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
8
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------
The consolidated balance sheets as of May 31, 2002 and August 31, 2001, the
consolidated statements of earnings for the three months and nine months ended
May 31, 2002 and 2001 and the consolidated statements of cash flows for the nine
months ended May 31, 2002 and 2001 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
- ---------------------
Quarter Ended May 31, 2002:
Total revenue for the quarter ended May 31, 2002 decreased $746,403 or 19% less,
compared to the quarter ended May 31, 2001. This decrease is due to the
reduction of cattle sales, which decreased $365,221 and represented 56% of
revenue. Feed sales were also down $304,494 and represented 36% of the market
for the quarter ended May 31, 2002. The principle factor in the decline is the
cattle market being down for an extended period of time and causing customers to
not want to feed cattle in such a depressed market.
Miller Feedlots Inc. (MFL) is a related-party entity due to partial common
ownership. The Company's president and the chairman of the board of directors
own all of the outstanding stock of MFL and together beneficially own 36% of the
Company's stock. Toward the end of the 2002-second quarter, the Company reached
an agreement with MFL whereby MFL will participate in 50% of the profits or
losses from the fed cattle sales. The participation is retroactive to September
1, 2001. For the third quarter, MFL's share of the fed cattle losses was
$146,754 that is reported as a reduction of cost of sales for the third quarter.
Gross profit was $88,587 for the quarter ended May 31, 2002, a decrease of
$70,429 from the $159,016 gross profit for the corresponding quarter in 2001.
The gross profit percentages were 2.7% and 4%, respectively, for the quarters
ended May 31, 2002 and 2001. The decrease in gross profit percentages is due to
the reduction in fat cattle prices, with this uncertainty; fewer customers were
willing to place their cattle in the feedlot, which resulted in lower cattle
numbers. The gross profit percentages for fed cattle sales were (16.4%) and
(8%), respectively, for the quarters ended May 31, 2002 and 2001, the decrease
stemming from poor market conditions. This loss was offset somewhat by the
participation of Miller Feedlots for 50% of the cattle loss. Feed and related
sales gross profit percentage decreased (4%) even with management's cost cutting
efforts, while generating $111,744 less in gross profit due to lower volume.
Feedlot services generated $33,208 in gross profit for the third quarter
compared to $26,518 the quarter ended May 31, 2001.
Selling, general, and administrative expenses decreased $58,919 to $148,365 for
the quarter ended May 31, 2002 compared to the corresponding quarter of 2001.
The decreases in costs were due to the decrease in accounting personnel that
were used a year ago to finish with the installation of the new accounting
software, which has now been completed. Management also cut some other costs to
make it through this difficult time.
Total interest expense decreased $2,732 for the quarter ended May 31, 2002 over
the corresponding quarter a year earlier as a result of lower principle balances
on long-term debt, improved cash flow management due to the new software system,
and lower interest rates.
10
The net loss of $57,461 for the quarter ended May 31, 2002 is greater than the
$29,367 loss for the quarter ended May 31, 2001 and is generally a result of
lower beef prices and smaller numbers of cattle in the feedlot.
Nine months ended May 31, 2002
- ------------------------------
Total revenues for the nine months ended May 31, 2002 decreased 3,271,853 or
(27%) less than May 31, 2001. Fed cattle sales decreased $2,015,864 while
representing 58% of the total revenues for the nine months ended May 31, 2002
compared to 59% of total revenues during the same period in 2001. Feed and
related sales also decreased due to fewer numbers in the feedlot. The decrease
of $963,670 represents a 25% decrease in feed and related sales and is
indicative of the drop in cattle numbers in the feedlot. Feedlot services
decreased $234,121 or (25%), for the period ended May 31, 2002 compared to May
31, 2001.
Gross profit was $143,403 for the nine months ended May 31, 2002 a decrease of
$472,514 from the corresponding period in the year 2001. The gross profit
percentage were 1.6% and 5% respectively for the nine months ended May 31, 2002
and 2001 respectively. The decrease in gross profit percentage is due to the
lack of cattle in the feedlot. The gross profit percentage for fed cattle sales
were (16%) and (3%), respectively, for the nine months ended May 31, 2002 and
2001. The (16%) loss was reduced to (8%) by the participation from MFL. The
decreased profit percentage being a result of lower fat cattle prices for an
extended period of time compared to a year ago. Feed and related sales gross
profit percentage stayed at 20% even though sales generated $190,996 less for
the year 2002 compared to the same period the previous year.
Selling, general and administrative expenses decreased $157,087 this was due to
management's cost cutting effort and the new computer software package that
enabled management to cut certain jobs for the nine months ended May 31, 2002
compared to May 31, 2001.
Total interest expenses decreased $12,849 for the nine months ended May 31,
2002, compared to the corresponding period in 2001. The interest incurred on
company owned cattle was $204,932 for the year ended May 31, 2002, which was
just $197 less than the previous year.
The net loss of $324,200 for the nine months ended May 31, 2002 is greater than
the net loss of $42,557 for nine months ended May 31, 2001 and is mainly due to
the cattle losses incurred by company owned cattle and the lower cattle numbers
in the feed yard.
11
Liquidity and Capital Resources
- -------------------------------
For the nine months ended May 31, 2002, operating activities provided
$1,035,972. Much of this is from a $210,750 reduction of accounts receivable and
a $1,256,638 decrease in Company-owned cattle inventory. Portions of these
proceeds were used to reduce accounts payable by $124,006. Working capital at
May 31, 2002 was $840,127.
Investing activities used $628,892, primarily for loans on cattle for outside
investors. Cash flow used by financing activities amounted to $679,995 for the
period ended May 31, 2002. Of this amount, $790,577 was used to reduce
short-term notes, which finance the inventory of Company-owned cattle on feed,
$298,000 was applied to the operating line from Miller Feeders, $100,140 was
applied to the operating line for MDC, and $576,908 was provided by the investor
line for MDC.
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 ($140)
at May 31, 2002 and the $4 million revolving line of credit for purchase and
feed cattle to slaughter had an outstanding balance at May 31,2002 of
$2,561,183. At May 31 2002, there was also $1,392,588 available on the line of
credit for financing qualified customer's cattle feeding programs.
The Company had no material commitments for capital expenditures at May 31,2002.
New Accounting Pronouncements
Management does not believe there are new accounting standards the
implementation of which will significantly impact the Company's financial
statements.
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
------------------------------
(Registrant)
Signature Title Date
--------- ----- -------------
/s/ James E. Miller President, Principal July 12, 2002
- -------------------- Executive Officer
James E. Miller Principal Financial
Officer, and Director
/s/ Clark A. Miller Secretary-Treasurer July 12, 2002
- -------------------- Principal Marketing
Clark A. Miller Officer
/s/ Norman M. Dean Chairman of the July 12,2002
- -------------------- Board and Director
Norman M. Dean
14