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, 2003
Commission File Number 01-19001
MILLER DIVERSIFIED CORPORATION
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1070932
------------------------------ --------------------
(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
-------------------------------------
(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 May 31, 2003
6,404,640.
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, 2003, and the related
consolidated statements of operations for each of the three-month and nine-month
periods ended May 31, 2003 and 2002, and the consolidated statement of cash
flows for the nine-month periods ended May 31, 2003 and 2002. 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, 2002, 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, 2002 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, 2002 is fairly stated in
all material respects in relation to the consolidated balance sheet from which
it has been derived.
/s/ ANDERSON & WHITNEY, P.C.
-----------------------------------
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
July 18, 2003
2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31 Aug. 31
2003 2002
---------- ----------
ASSETS
Current Assets:
Cash $ 196,533 $ 214,345
Receivables:
Trade accounts 446,116 636,125
Trade accounts - related parties 101,552 165,761
Accounts receivable - related parties 907,920 900,609
Notes - cattle financing 1,021,067 611,869
Notes - cattle financing - related parties -- --
Inventories 2,993,041 1,616,291
Deferred income taxes -- 25,411
Prepaid expenses and other 80,308 29,524
---------- ----------
Total Current Assets 5,746,536 4,199,935
---------- ----------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 198,494 198,494
Leasehold improvements 187,767 187,767
---------- ----------
1,884,101 1,884,101
Less: Accumulated depreciation
and amortization 1,022,642 951,819
---------- ----------
Total Property and Equipment 861,459 932,282
---------- ----------
Other Assets:
Other investments -- --
Notes receivable - related parties 300,000 300,000
Deferred income taxes 350,756 350,756
Deposits and other 11,495 11,495
---------- ----------
Total Other Assets 662,251 662,251
---------- ----------
TOTAL ASSETS $7,270,245 $5,794,468
========== ==========
3
Continued on next page.
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS Continued
May 31 Aug. 31
2003 2002
----------- -----------
LIABILITIES
Current Liabilities:
Cash overdraft $ 193,323
Notes payable 4,455,544 2,572,120
Trade accounts payable 460,070 442,806
Accounts payable - related party -- --
Accrued expenses 93,397 75,281
Customer advance feed contracts -- --
Current portion of:
Capital lease obligations - related party 31,227 31,227
Long-term debt -- 3,225
Long-term debt - related party 65,087 65,087
----------- -----------
Total Current Liabilities 5,105,325 3,383,069
----------- -----------
Capital Lease Obligation - Related Party 848,537 871,634
Long-Term Debt --
Long-Term Debt - Related Party 24,441 73,045
----------- -----------
Total Liabilities 5,978,303 4,327,748
----------- -----------
Commitments
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock, par value $.0001 per share
25,000,000 shares authorized; 6,364,640
shares issued and outstanding 640 640
Additional Paid-In Capital 1,351,689 1,351,689
Retained Earnings (35,787) 185,411
Accumulated Other Comprehensive Income (Loss) (24,600) (71,020)
----------- -----------
Total Stockholders' Equity 1,291,942 1,466,720
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,270,245 $ 5,794,468
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
4
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended May 31 2003 2002
----------- -----------
Revenue:
Feed and related sales $ 2,890,480 $ 2,852,844
Fed cattle sales 2,102,826 5,089,422
Feedlot services 454,526 673,595
Interest income 14,996 32,222
Interest income - related parties 13,500 13,500
Other income 40,794 48,682
----------- -----------
Total Revenue 5,517,123 8,710,265
----------- -----------
Costs and Expenses:
Cost of:
Feed and related sales 2,388,028 2,290,041
Fed cattle sold 2,263,339 5,925,876
Participation Company cattle sold - related parties (80,257) (418,227)
Feedlot services 528,160 674,768
Selling, general, and administrative 491,777 534,738
Equity in (earnings) loss of investee -- --
Interest 39,447 34,494
Interest on note payable - related parties 82,415 91,102
----------- -----------
Total Costs and Expenses 5,712,909 9,132,792
----------- -----------
Income (Loss) Before Income Taxes (195,786) (422,527)
Income Tax Expense (Benefit) 25,411 (98,327)
----------- -----------
NET INCOME (LOSS) $ (221,197) $ (324,200)
=========== ===========
INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.05)
=========== ===========
Weighted Average Number of Common
Shares Outstanding 6,404,640 6,404,640
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
5
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended May 31 2003 2002
----------- -----------
Revenue:
Feed and related sales $ 866,221 $ 1,166,384
Fed cattle sales 564,371 1,793,943
Feedlot services 151,239 226,408
Interest income 12,803 11,733
Interest income - related parties 4,500 4,500
Other 6,874 10,039
----------- -----------
Total Revenue 1,606,009 3,213,007
----------- -----------
Costs and Expenses:
Cost of:
Feed and related sales 694,912 964,251
Fed cattle sold 554,079 2,087,451
Participation Company cattle sold - related parties 5,146 (146,754)
Feedlot services 159,278 193,200
Selling, general, and administrative 155,398 148,365
Equity in loss of investee -- --
Interest 19,353 12,413
Interest on note payable related parties 26,855 30,696
----------- -----------
Total Costs and Expenses 1,615,021 3,289,622
----------- -----------
Income (Loss) Before Income Taxes (9,012) (76,615)
Income Tax Expense (Benefit) (0) (19,154)
----------- -----------
NET INCOME (LOSS) $ (9,012) $ (57,461)
=========== ===========
INCOME (LOSS) PER COMMON SHARE $ (0.00) $ (0.01)
=========== ===========
Weighted Average Number of Common
Shares Outstanding 6,404,640 6,404,640
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
6
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended May 31 2003 2002
----------- -----------
Cash Flows from Operating Activities:
Cash received from customers $ 5,735,534 $ 8,423,712
Cash paid to suppliers and employees (6,883,589) (7,301,365)
Interest received 28,496 45,722
Interest paid (104,231) (132,097)
Income taxes paid -- --
----------- -----------
Net Cash Provided (Utilized) by Operating Activities (1,223,790) 1,035,972
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment -- (5,900)
Loans to related party -- --
Collections from cattle financing 1,413,169 --
Loans for cattle financing (1,822,367) (622,992)
Proceeds from sale of other investments -- --
Distributions received from other investments -- --
----------- -----------
Net Cash Provided (Used) by Investing Activities (409,198) (628,892)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from:
Notes payable 8,226,485 8,559,883
Long-term debt - related party -- --
Long-term debt -- --
Principal payments on:
Notes payable (6,343,061) (9,171,692)
Capital lease obligations - related party (23,097) (20,703)
Long-term debt - related party (48,604) (48,686)
Long-term debt (3,225) (5,440)
Change in cash overdraft (193,323) 6,643
----------- -----------
Net Cash Provided (Used) by Financing Activities 1,615,175 (679,995)
----------- -----------
Net Increase (Decrease) in Cash (17,813) (272,915)
Cash, Beginning of Period 214,345 272,915
----------- -----------
Cash, End of Period $ 196,532 $ 0
=========== ===========
Continued on next page.
7
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Nine Months Ended May 31 2003 2002
----------- -----------
Reconciliation of Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Net income (Loss) $ (221,197) $ (324,200)
Adjustments:
Depreciation and amortization 70,823 70,823
Equity in (earnings) loss of investee -- --
Gain on sale of other investments -- --
Deferred income taxes 25,411 (98,327)
Unrealized hedging losses 46,420 38,949
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 190,009 210,750
Trade accounts receivable - related party 64,209 (198,011)
Accounts receivable - related party (7,311) (253,570)
Inventories (1,376,751) 1,754,334
Prepaid expenses (50,784) (13,433)
Deposits and other -- --
Increase (decrease) in:
Trade accounts payable and accrued expenses 35,380 (151,343)
Trade accounts payable - related parties -- --
Customer advance feed contracts -- --
----------- -----------
Net Cash Provided (Used) by Operating Activities $(1,223,790) $ 1,035,972
=========== ===========
0
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, 2003 and August 31, 2002, the
consolidated statements of earnings for the three months and nine months ended
May 31, 2003 and 2002 and the consolidated statements of cash flows for the nine
months ended May 31, 2003 and 2002 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, 2003 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, 2003:
Total revenue for the quarter ended May 31, 2003 decreased $1,606,998 or 50%
less, compared to the quarter ended May 31, 2002. This decrease is due to the
reduction of cattle sales, which decreased $1,229,572 and represented 35% of
revenue compared to 56% from the previous year. Feed sales were also down
$300,163 and represented 54% of the market for the quarter ended May 31, 2003.
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 even though the market has recently improved.
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 40% 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. For the third quarter, MFL's share of the fed
cattle profits was $5,146 that is reported as an increase of cost of sales for
the third quarter.
Gross profit was $168.416 for the quarter ended May 31, 2003, an increase of
$79,829 from the $88,587 gross profit for the corresponding quarter in 2002. The
gross profit percentages were 10.6% and 2.7%, respectively, for the quarters
ended May 31, 2003 and 2002. The increase in gross profit percentages is due to
the increase in fat cattle prices. The gross profit percentages for fed cattle
sales were 1.8% and (16.4%), respectively, for the quarters ended May 31, 2003
and 2002, the increase stemming from good market conditions. This profit was
reduced somewhat by the participation of Miller Feedlots for 50% of the cattle
profit. Feed and related sales gross profit percentage increased 2.5% while
generating $30,824 less in gross profit due to lower volume. Feedlot services
generated $(8,039) in gross profit for the third quarter compared to $33,208 the
quarter ended May 31, 2002, the decrease in profits was directly related to the
lack of numbers of cattle in the feedlot.
Selling, general, and administrative expenses increased $7,033 to $155,398 for
the quarter ended May 31, 2003 compared to the corresponding quarter of 2002.
The increases in costs were due to rising costs such as health care and other
essential items and professional fees related to other SEC filings.
Total interest expense increased $3,099 for the quarter ended May 31, 2003 over
the corresponding quarter a year earlier as a result of higher principle
balances on the investor line of credit debt, and a higher interest rate.
10
The net loss of $9,012 for the quarter ended May 31, 2003 is less than the
$57,461 loss for the quarter ended May 31, 2002 and is generally a result of
higher beef prices and smaller numbers of cattle in the feedlot.
Nine months ended May 31, 2003
- ------------------------------
Total revenues for the nine months ended May 31, 2003 decreased 3,193,142 or
(37%) less than May 31, 2002. Fed cattle sales decreased $2,986,596 while
representing 38% of the total revenues for the nine months ended May 31, 2003
compared to 58% of total revenues during the same period in 2002. Feed and
related sales increased slightly due to higher prices in the feedlot. The
increase of $37,636 represents a 1.3% increase in feed and related sales and is
indicative of the increased feed prices due to the drought. Feedlot services
decreased $219,069 or (33%), for the period ended May 31, 2003 compared to May
31, 2002. This was due to the small number of cattle in the feedlot.
Gross profit was $348,562 for the nine months ended May 31, 2003 an increase of
$205,159 from the corresponding period in the year 2002. The gross profit
percentage were 6.4% and 1.6% respectively for the nine months ended May 31,
2003 and 2002 respectively. The increase in gross profit percentage is due to
the price of cattle increasing and thus reducing the loss for the corresponding
nine months. The gross profit percentage for fed cattle sales were (7.6%) and
(16%), respectively, for the nine months ended May 31, 2003 and 2002. The (7.6%)
loss was reduced to (3.8%) by the participation from MFL. The decreased profit
percentage being a result of lower fat cattle prices for an extended period of
time and then coming up in the last quarter compared to a year ago. Feed and
related sales gross profit percentage dropped to 17% from 20% even though sales
generated $37,636 more for the year 2003 compared to the same period the
previous year, this was due to feed prices being higher overall and fewer cattle
in the feedlot.
Selling, general and administrative expenses decreased $42,961 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, 2003
compared to May 31, 2002.
Total interest expenses decreased $3,734 for the nine months ended May 31, 2003,
compared to the corresponding period in 2002. The interest incurred on company
owned cattle was $87,998 for the year ended May 31, 2003, which was just
$116,934 less than the previous year.
The net loss of $221,197 for the nine months ended May 31, 2003 is less than the
net loss of $324,200 for nine months ended May 31, 2002 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, 2003, operating activities utilized
$(1,223,798). Company owned cattle increased $1,060,779 and a $389,856 change in
cash from overdraft to excess was the two big changes. Working capital at May
31, 2003 was $641,211.
Investing activities used $409,198, primarily for loans on cattle for outside
investors. Cash flow provided by financing activities amounted to $1,615,175 for
the nine months ended May 31, 2003. Of this amount, $747,288 was provided to
increase short-term notes, which finance the inventory of Company-owned cattle
on feed, $300,000 was applied to the operating line from Miller Feeders,
$300,000 was applied to the operating line for MDC, and $536,136 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
$300.000 at May 31, 2003 and the $3 million revolving line of credit for
purchase and feed cattle to slaughter had an outstanding balance at May 31,2003
of $2,960,382. The cattle line is in the process of being phased out according
to lenders wishes and should be done as of October 31, 2003. At May 31 2003,
there was also $1,688,507 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 31,2003.
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
Item 3 - - Controls and Procedures
Under the supervision of the Company's principal executive officer and
principal financial officer, the effectiveness of the design and operation of
our disclosure controls and procedures was evaluated as of the filing date of
this quarterly report. Disclosure controls and procedures are the controls and
other procedures designed to ensure that information that we are required to
disclose in our reports under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") is recorded, processed, summarized and reported within the
time periods required. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information we are
required to disclose in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Based on that evaluation, our principal executive officer and principal
financial officer concluded that the disclosure controls and procedures are
effective. There were no changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of our
evaluation.
13
PART II OTHER INFORMATION
Items 1 through 6 - None.
Item 6 Exhibits and reports on form 8-K:
a) Exhibits
Exhibit 99.1 - Certification pursuant to Section 906 for
principal executive officer and principal financial officer.
b) Reports on Form 8-K
None filed.
14
CERTIFICATION FOR PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, James E. Miller, Principal Executive Officer and Principal Financial Officer
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Miller Diversified
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and have:
a) designed such disclosure controls and procedures, to ensure that
material information relating to the Registrant, including its consolidated
subsidiary, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the Registrant's
auditors and the Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 21, 2003
/s/ JAMES E. MILLER
- -----------------------------
James E. Miller
Principal Executive Officer
and Principal Financial Officer
15
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 21, 2003
- ----------------------------- Executive Officer
James E. Miller Principal Financial
Officer, and Director
/s/ Clark A. Miller Secretary-Treasurer July 21, 2003
- ----------------------------- Principal Marketing
Clark A. Miller Officer
/s/ Norman M. Dean
- ----------------------------- Chairman of the July 21, 2003
Norman M. Dean Board and Director
17