SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended February 28, 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 April 16,
1999, 6,364,640.
Transitional Small Business Disclosure Format: YES NO X
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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February 28, August 31,
1999 1998
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ASSETS
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Current Assets:
Cash $ 21,039 $ 63,656
Trade accounts receivable 1,023,296 823,576
Accounts receivable - related parties 478,864 203,137
Notes receivable - customer financing 284,557 --
Inventories 1,426,186 1,321,467
Prepaid expenses 19,933 13,542
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Total Current Assets 3,253,875 2,425,378
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Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 89,034 77,453
Equipment under capital leases -
related party 30,649 30,649
Leasehold improvements 131,043 131,043
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1,748,566 1,736,985
Less: Accumulated depreciation
and amortization 623,763 581,331
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Total Property and Equipment 1,124,803 1,155,654
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Other Assets:
Securities available for sale 10,347 10,347
Other investments 342,472 186,366
Notes receivable - related party 300,000 300,000
Deferred income taxes 233,142 233,142
Deposits and other 16,500 30,885
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Total Other Assets 902,461 760,740
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TOTAL ASSETS $5,281,139 $4,341,772
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Continued on next page
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - Continued
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February 28, August 31,
1999 1998
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LIABILITIES
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Current Liabilities:
Bank overdraft $ 182,387 $ --
Notes payable 1,553,064 1,001,327
Trade accounts payable 349,474 440,848
Income taxes payable 28,671 --
Accrued expenses 39,509 32,046
Customer advance feed contracts 230,282 14,907
Current portion of capital lease obligations -
related party 27,094 27,094
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Total Current Liabilities 2,410,481 1,516,222
Capital Lease Obligations - related party 971,255 984,432
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Total Liabilities 3,381,736 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
Unrealized Gain (Loss) on Securities
available for sale (9,753) (9,753)
Retained Earnings 556,827 498,542
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Total Stockholders' Equity 1,899,403 1,841,118
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,281,139 $ 4,341,772
=========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Six Months Ended February 28
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Restated
1999 1998
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Revenue:
Feed and related sales $ 3,409,305 $ 4,192,389
Fed cattle sales 1,300,572 265,574
Feedlot services 634,872 777,970
Other 38,770 18,880
Interest income 20,888 8,981
Interest income - related party 9,000 15,250
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Total Revenue 5,413,407 5,279,044
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Costs and Expenses:
Cost of:
Feed and related sales 2,959,359 3,808,089
Fed cattle sales 1,241,454 303,071
Feedlot services 671,462 652,173
Selling, general, and administrative 365,755 479,126
Interest 33,086 1,684
Interest on capital leases - related party 55,335 56,960
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Total Costs and Expenses 5,326,451 5,301,103
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Income (Loss) Before Income Taxes 86,956 (22,059)
Income Tax Expense (Benefit) 28,671 (5,329)
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NET INCOME (LOSS) $ 58,285 $ (16,730)
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INCOME PER COMMON SHARE $ .01 $ Nil
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Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
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See Accompanying Notes to Unaudited Consolidated Financial Statements.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended February 28
------------------------------
Restated
1999 1998
---- ----
Revenue:
Feed and related sales $ 1,706,588 $ 2,095,010
Fed cattle sales 149,334 265,574
Feedlot services 377,818 422,522
Other 20,721 11,444
Interest income 12,394 6,712
Interest income - related party 4,500 11,444
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Total Revenue 2,271,355 2,808,262
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Costs and Expenses:
Cost of:
Feed and related sales 1,491,746 1,902,975
Fed cattle sales 151,113 303,071
Feedlot services 398,758 369,566
Selling, general, and administrative 194,488 292,122
Interest 19,415 1,519
Interest on capital leases - related party 27,577 28,329
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Total Costs and Expenses 2,283,097 2,897,582
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Loss Before Income Taxes (11,742) (89,320)
Income Tax (Benefit) (8,143) (29,425)
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NET LOSS $ (3,599) $ (59,895)
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INCOME PER COMMON SHARE $ Nil $ Nil
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Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
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See Accompanying Notes to Unaudited Consolidated Financial Statements.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended February 28,
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1999 1998
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Cash Flows from Operating Activities:
Cash received from customers $ 5,497,086 $ 5,270,850
Cash paid to suppliers and employees (5,437,140) (6,570,716)
Interest received 29,889 24,231
Interest paid (85,035) (57,340)
Taxes received -- 94,761
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Net Cash Provided (Utilized) by
Operating Activities 4,800 (1,238,214)
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Cash Flows from Investing Activities:
Acquisition of property and equipment (11,581) (1,933)
Acquisition of other investments (156,106) --
Collections on loans to related parties -- 250,000
Loans to unrelated customers (284,557) --
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Net Cash Provided (Utilized) by
Investing Activities (452,244) 248,067
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Cash Flows from Financing Activities:
Proceeds from notes payable 3,047,918 903,083
Principal payments on::
Short-term notes payable (2,496,181) (380,000)
Capital lease obligations - related party (13,177) (14,748)
Net increase (decrease) in short-term feeder
cattle financing (316,120) 29,950
Increase in cash overdraft 182,387 124,307
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Net Cash Provided by
Financing Activities 404,827 662,592
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Net Increase (Decrease) in Cash (42,617) (327,555)
Cash, Beginning of Year 63,656 359,278
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Cash, End of Year $ 21,039 $ 31,723
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Continued on next page.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -Continued
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Six Months Ended February 28,
-----------------------------
1999 1998
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Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net income (loss) $ 58,285 $ (16,730)
Adjustments:
Depreciation and amortization 42,432 42,364
Changes in assets and liabilities net of
short-term feeder cattle financing:
(Increase) decrease in:
Trade accounts receivable (101,807) (215,975)
Trade accounts receivable - related party -- 28,401
Accounts receivable - related party (275,727) (5,145)
Income taxes receivable -- 89,432
Inventories 113,488 (1,278,901)
Prepaid expenses (6,392) (11,748)
Deposits and other 14,385 --
Increase (decrease) in:
Trade accounts payable and accrued
expenses (83,910) (73,524)
Accrued income taxes payable 28,671 --
Customer advance feed contracts 215,375 244,504
Customer advance feed contracts
-related parties -- (40,892)
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Net Cash Provided (Utilized) by
Operating Activities $ 4,800 $(1,238,214)
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See Accompanying Notes to Unaudited Consolidated Financial Statements.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Securities Available for Sale
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Amortized Estimated Gross - Unrealized
Cost Market Value Gains Losses
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August 31, 1998
Equity Securities $20,100 $10,347 $ -- $ 9,753
February 28, 1998
Equity Securities $20,100 $10,347 $ -- $ 9,743
In the Consolidated Statements of Cash Flow, the phrase "Short-term cattle
financing" includes changes in feeder cattle inventory held for sale to
customers, accounts receivable for feeder cattle sold to customers, accounts
payable for feeder cattle held for sale to customers, and accounts payable to
customers for slaughter cattle sold. The transactions from which these amounts
are derived do not have a material reflection of the operations of the Company,
and are thus only summarized.
The consolidated balance sheets as of February 28, 1999 and August 31, 1998, the
consolidated statements of earnings for the three months and six months ended
February 28, 1999 and 1998 and consolidated statements of cash flows for the six
months ended February 28, 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 prepared in accordance with generally accepted
accounting principles have been condensed or omitted as allowed by the rules and
regulations of the Securities and Exchange Commission.
The consolidated statements of earnings for the three months and six months
ended February 28, 1998 have been restated to provide continuity in the
reporting of Feed and related sales and cost of sales and Fed cattle sales and
cost of sales which were not segregated on Form 10-QSB for the period ended
February 28, 1998. The restatement had no effect on the results of operations,
financial position nor liquidity.
In preparation of the above-described financial statements, all adjustments of a
normal and recurring nature have been made. The Company believes that the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the results of operations and cash flows for the periods
presented. Further, management believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the annual financial statements
and the notes thereto. The operations for the six month period ended February
28, 1999 are not necessarily indicative of the results to be expected for the
year.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Results of Operations
- ---------------------
A summary of the net earnings (loss) for the three months of the fiscal
year ended February 28, 1999, compared to the same period the year before is as
follows:
Six Months Ended February 28, 1999 1998 Increase
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First Quarter $ 61,884 $ 43,165 $ 18,719
Second Quarter $ (3,599) $(59,895) $ 56,296
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Six month total $ 58,285 $(16,730) $ 75,015
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 77% and 94% of the Company's total
revenues for the periods ended February 28, 1999 and 1998, respectively. As
noted below, fed cattle sales, which accounted for 24% and 5% of the total
revenues for the periods ended February 28, 1999 and 1998, respectively are
sporadic and have not been a major factor in prior period sales.
Average Head Days Summary
Six Months Ended February 28, 1999 1998 Decrease
- --------------------------------------------------------------------------------
First Quarter 14,114 15,721 1,607
Second Quarter 14,746 16,131 1,385
Six months combined 14,742 15,751 1,009
The 1,009 or 6.4% decrease in average head days for the six months ended
February 28, 1999 compared to the previous year, impacted several areas as
described below.
Another factor that affected earnings for the six months ended February 28,
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 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. For the period ended February 28, 1999, the Company had an average of
2,576 head in its fall calf program as compared to an average of 2,093 head the
previous year. This resulted in a increase in the sales and costs of the fall
calf program for the six months ended February 28, 1999 over the same period the
previous year of about $73,400 and had a significant impact of the increase 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:
Restated Increase
Six Months Ended February 28, 1999 1998 (Decrease)
- --------------------------------------------------------------------------------
Feed and related sales $3,409,305 $4,192,389 $ (783,084)
Cost of feed and
related sales $2,959,359 $3,808,089 $ (848,730)
---------- ---------- ----------
Gross profit $ 449,946 $ 384,300 $ 65,646
Gross profit percentage 13.2% 9.2% 4.0%
A variety of feed ingredients are combined in varying percentages and sold
as various rations. The ingredients are separately marked up so the gross profit
percentage on feed sales is affected by three variables:
(1) the type and quantity of individual rations sold
(2) management's discretionary pricing decisions
(3) feed ingredients sold under customer advance feed contracts which are
not subject to management's discretionary pricing decisions
The $65,646 increase in gross profit from feed and related sales for the
period ended February 28, 1999 from the same period the previous year is a
result of changes in the three variables described above numbers and partially
due to classification changes which resulted in approximately $92,000 sales for
the period ended February 28, 1998 being classified as feedlot services as
compared to the current classification of feed and related sales.. For the
period ended February 28, 1999, more rations were sold which contained a higher
percentage of ingredients that contribute higher gross margins to the gross
profit due to their lower cost and/or markup. Not included in the feed and
related sales and costs of sales amounts for the period ended February 28, 1999
are sales of approximately $249,500 and cost of sale of approximately $234,400
for feed and related sales to cattle the Company is retaining ownership of and
feeding to slaughter. This compares to similar sales of approximately $176,000
and cost of sales of approximately $164,500 for the period ended February 28,
1998. Sales for cattle fed to slaughter are recorded when the cattle are sold
and are recorded as Fed cattle sales as described below.
Fed cattle sales for the period ended February 28, 1999 were $1,300,572
while the cost of sales for the same period was $1,241,454 which resulted in a
gross profit of $59,118 or 4.5% For the same period the previous year, fed
cattle sales totaled $265,574 with a cost of sales of $303,071 which resulted in
a gross loss of $37,497 or -14.1%. The Company, in an effort to maintain high
numbers in the feedlot, lessen the effect of major customers and 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, 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 form 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 all or most
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 are no assurances that this 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 was warranted for the
period ended February 28, 1999 nor 1998.
The following is a brief summary of the gross profit and gross profit
percentages on sales of feedlot services:
Increase
Six Months Ended February 28, 1999 1998 (Decrease)
- --------------------------------------------------------------------------------
Sales of feedlot services $ 634,872 $ 777,970 $(143,098)
Cost of feedlot services $ 671,462 $ 652,173 $ 19,289
--------- --------- ---------
Gross profit (Loss) $ (36,590) $ 125,797 $(162,387)
Gross profit percentage (5.8%) 7.8% (13.6%)
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 period ended February 28, 1999 decreased $120,154 or
31.2% from the same period the prior year partially due to the decrease in
average head numbers and partially due to classification changes which resulted
in approximately $92,000 sales for the period ended February 28, 1998 being
classified as feedlot services as compared to the current classification of feed
and related sales.. Grain processing charges decreased $96,300 or 37.3% for the
period ended February 28, 1999 due to the mix of ingredients as described above
and the decrease in average head numbers.
As previously noted, the sales and cost of sales for the fall calf program
are also included in the sales and cost of sales of feedlot services. If the
fall calf program sales and costs are excluded, the gross profit percentage for
the period ended February 28, 1999 is -8.6% compared to 19.6% for the same
period the previous year.
The cost of feedlot services consists largely of feedlot operating
expenses. The total cost of feedlot services increased $19,289 for the period
ended February 28, 1999 compared to the same period the prior year. If the fall
calf program costs are excluded, the feedlot operating expenses decreased
$90,339 for the period ended February 28, 1999 compared to the same period the
prior year. This decrease is due to the decreases in variable costs, such as
labor and equipment related costs, that are at least partially affected by the
reduction in average head numbers described above.
Other revenues increased $19,890 for the period ended February 28, 1999 as
compared to the same period the prior year. This increase is the result of
increases and decreases in various secondary revenue producing activities. The
most significant of these in as increase of approximately $16,400 in income from
other investments.
Interest income increased $11,997 or 134.9% for the period ended February
28, 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 decreased $113,371 for the
period ended February 28, 1999 over the same period the prior year. The most
significant decrease was for participation losses, which totaled $110,000 for
the period ended February 28, 1998 and no participation loss were incurred
during the current period.
Interest expense increased $31,402 for the period ended February 28, 1999
over the same period the prior year. This is the result of increased borrowings
that were necessary to fund the increase in the Company's "carrying" or
financing greater amounts of customer feeding charges and financing customer's
cattle and feed as described above and for the increase in the Company's
retained ownership and feeding cattle to slaughter.
Income taxes are directly related to the net earnings before income taxes
and certain assumptions that are made with the estimations. For the period ended
February 28, 1999, income taxes increased $34,000 from the same period the prior
year while pretax income increased $109,015.
Liquidity and Capital Resources
- -------------------------------
For the six months ended February 28, 1999 operating activities provided
$4,800 more than were internally-required compared to a requirement of
$1,238,214 for the same period the previous year, an increase of $1,243,014.
Cash received from customers for the period increased $226,236 and cash paid to
suppliers and employees decreased $1,133,576, for a total cash increase of
$1,454,518. Interest received for the period increased $5,658, while interest
paid increased $27,695 for a total cash decrease of $22,037. For the period
ended February 28, 1998, the Company received tax refunds of $94,761; there were
no comparable refunds in the current year.
For the six months ended February 28, 1999 the net cash that was utilized
by investing operations was $452,244 compared the cash provided the previous
year of $248,067, resulting in a net cash decrease of $700,311. For the period
ended February 28, 1999, the Company acquired other investments for $156,106 and
equipment for $11,581; during the same period the previous year the Company
acquired property and equipment for $1,933. During the period ended February 28,
1999, the Company initiated its customer financing program with loans to
customers for their cattle on feed in the Company's feedlot in the amount of
$284,557. For the period ended February 28, 1998, the Company collected $250,000
in loans to related parties.
The net cash provided by financing activities was $404,827 for the six
months ended February 28, 1999, a decrease in cash of $257,765 compared to the
cash provided of $662,592 for the same period the prior year. The change in net
short-term payments over short-term borrowings resulted in a $28,654 increase in
funds provided for the six months ended February 28, 1999 compared to the of the
same period the previous year. Net short-term cattle financing for the three
months ended February 28, 1998 utilized $316,120 compared to providing $29,950
the same period the prior year, an increase in funds utilized of $346,070.
The Company's working capital (current assets minus current liabilities)
decreased by $65,762 for the six months ended February 28, 1999 from $909,156 at
August 31, 1998 to $843,394 at February 28, 1998.
Total Current Assets increased $828,497 from $2,425,378 at August 31, 1998
to $3,253,875 at February 28, 1999. Total Current Liabilities increased $894,258
from $1,516,222 at August 31, 1998 to $2,410,480 at February 28, 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 receivable for customer financing, as described below.
During the period ended February 28, 1998, the Company initiated the first
loans to customers under its customer financing program in the amount of
$284,557. This revenue generating program is offered to customers as an
alternative to seeking funding from a financial institution and to out of state
customers who raise their own cattle and have operating loans at financial
institutions who are not comfortable with having their collateral in a feedlot
which is out of state. This program differs from the normal trade accounts
receivable in that the cost of the cattle is also financed, payments are made
for feeding costs to satisfy tax deduction requirements, and the Company has
formal notes signed and security agreements filed with the state. The Company
requires set initial equity and set maintenance equity levels to minimize any
potential loss to the Company. The Company has a separate revolving line of
credit for this program as described below.
Inventories increased $104,719 primarily due to a increase in the inventory
of procurement cattle for sale to customers. At February 28, 1999, this
inventory totaled $218,208 compared to a no inventory at August 31, 1998.
Other investments increased $87,023 from $186,366 at August 31, 1998 to
$342,472 at February 28, 1999. The most notable changes are for the period ended
February 28, 1999, are:
1. Increase of $68,616 in the Company's working investment in an
unrelated company which owns several natural gas wells.
2. Initial investment in an unrelated company that provides water and
dispensing equipment for offices in the Denver metro area of $100,000.
The Company has several revolving lines of credit from a local branch of a
credit services company. All of the lines of credit mature December 1, 1999 and
bear interest at approximately 1.0% over the prime rate (actual rate of 8.25% at
February 28, 1999). The Company's operating line of $300,000 had an outstanding
balance of $290,000 at February 28, 1999 which meant that the Company could
generate an additional $10,000 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. of $850,000 had an outstanding balance at February
28, 1999 of $682,491 which meant that the Company could generate an additional
$167,509 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. of $2,000,000, with a current qualification that the total outstanding
cannot exceed $1,000,000, had an outstanding balance of $284,558 at February 28,
1999. This meant that the Company could generate an additional $715,442 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 matures on December 1, 1999 and bears interest at
approximately 1.0% over the prime rate (actual rate of 8.25% at February 28,
1999). There was an outstanding balance at February 28, 1999 of $296,000 which
meant that MFI could borrow up to $4,000 to purchase feeder cattle for resale to
customers. The line is secured by feeder cattle inventories and feeder cattle
accounts receivable and is cross collateralized with the Company's lines of
credit noted above.
The Company had no material commitments for capital expenditures at
February 28, 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 February 28, 1999 of
$294,084. 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.
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.
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.
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 Company and MFL have also agreed to extend the date by which the
closing of the transaction shall occurred to April 30, 1999. The proposed
transaction with MFL is subject to shareholder approval.
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: April 19, 1999 /s/ JAMES E. MILLER
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James E. Miller
President, Chief Executive Officer,
Chief Financial Officer
Date: April 19, 1999 /s/ STEPHEN R. STORY
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Stephen R. Story
Secretary-Treasurer