U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 33-2249-FW
MILLER PETROLEUM, INC.
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(Name of Small Business Issuer in its Charter)
TENNESSEE 62-1028629
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3651 Baker Highway
Huntsville, Tennessee 37756
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (423) 663-9457
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
November 30, 2001
8,578,856
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of Miller Petroleum, Inc., a Tennessee
corporation (the "Company"), required to be filed with this Quarterly Report
were prepared by management and reviewed by Charles M. Stivers, Certified
Public Accountant of Manchester, Kentucky and commence on the following page,
together with related Notes. In the opinion of management, the Financial
Statements fairly present the financial condition of the Registrant.
MILLER PETROLEUM, INC.
Consolidated Balance Sheets
ASSETS
October 31, April 30,
2001 2001
Unaudited
CURRENT ASSETS
Cash $ 254,341 $ 224,550
Accounts receivable - trade-, net 903,702 1,143,300
Inventory 591,421 439,113
Prepaid expenses 41,832 74,011
Total Current Assets 1,791,296 1,880,974
FIXED ASSETS
Machinery and equipment 1,266,531 1,249,511
Vehicles 412,331 438,851
Buildings 313,335 313,335
Office Equipment 78,379 87,172
Less: accumulated depreciation (762,915) (881,690)
Total Fixed assets 1,307,661 1,207,179
OIL AND GAS PROPERTIES 1,665,883 1,050,687
(On the basis of successful
efforts accounting)
PIPELINE FACILITIES 305,091 336,635
OTHER ASSETS
Land 511,500 511,500
Investments 500 500
Organization Costs 0 119
Total Other Assets 512,000 512,119
TOTAL ASSETS $5,581,931 $4,987,594
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 227,711 $ 134,275
Accrued expenses 78,154 91,910
Notes payable - current portion 527,948 577,270
Total Current Liabilities 833,813 803,455
LONG-TERM LIABILITIES
Notes payable - related 0 89,968
Notes payable 1,690,375 1,207,530
Total Long-Term Liabilities 1,690,375 1,297,498
Total Liabilities 2,524,188 2,100,953
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
8,578,856 and 8,218,656 shares
issued and outstanding 858 822
Additional paid-in capital 3,884,144 3,566,480
Retained Earnings (827,259) (680,661)
Total Stockholders' Equity 3,057,743 2,886,641
TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $5,581,931 $4,987,594
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Consolidated Statements of Operations
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
October, 31 October, 31
2001 2000 2001 2000
REVENUES
Oil and gas revenue $1,244,982 $840,796 $1,843,735
$1,524,364
Sale of equipment and
oil and gas properties 125,404
Total Revenue 1,244,982 840,796 1,843,735 1,649,768
COSTS AND EXPENSES
Cost of oil and gas sales 789,156 345,484 1,008,234 599,111
Selling, general and
administrative 94,758 131,210 313,722 237,950
Salaries and wages 194,265 169,856 373,777 350,993
Depreciation, depletion and
amortization 120,996 78,443 216,845 174,946
Interest expense 27,745 54,533 77,755 152,386
Total Costs and Expenses $1,226,920 $779,526 $1,990,333 $1,515,386
NET INCOME (LOSS) 18,062 61,270 (146,598) 134,382
NET EARNING(LOSS) PER SHARE 0.00 0.01 (0.02) 0.02
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,343,856 7,392,124 8,318,856 7,116,191
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings Total
Balance
April 30, 2000 7,110,691 $711 $2,462,138 ($935,063) $1,527,786
Common stock
issued for cash at
$1.00 per share 1,077,600 108 1,077,492 - 1,077,600
Common stock
issued for cash at
$0.90 per share 50,000 5 44,995 - 45,000
Common stock
issued for services
at $1.00 per share 5,500 1 5,499 - 5,500
Common stock
issued for equipment
at $1.00 per share 23,000 2 22,998 - 23,000
Common stock
repurchased for
$2.00 per share (45,000) (5) (89,995) - (90,000)
Common stock
repurchased for
$1.60 per share (3,135) - (5,000) - (5,000)
Warrants (1,123,500)
issued for services 48,353 48,353
Net income for the
year ended
April 30, 2001 $254,402 $254,402
Balance
April 30, 2001 8,218,656 $822 $3,566,480 ($680,661) $2,886,641
Common stock
issued for cash at
$1.00 per share 110,000 11 109,989 - 110,000
Stock options
exercised at
$0.575 per share 100,000 10 57,490 - 57,500
Common stock
issued for equipment
at $1.00 per share 150,000 15 149,985 - 150,000
Common stock
issued for services
at $1.00 per share 200 200 200
Net loss for the
three months ended
October 31, 2001 ($146,598) ($146,598)
Balance
October 31, 2001 $8,578,856 $858 $3,884,144 ($827,259)$3,057,743
The accompanying notes are an integral part of these consolidated financial
statements
MILLER PETROLEUM, INC.
Consolidated Statement of Cash Flows
(UNAUDITED)
Six Months Six Months
Ended
October 31,2001 October 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(146,598) $134,382
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 216,845 174,946
Allowance for bad debts 17,233
Common stock issued for services 200 5,500
Common stock issued for inventory 150,000
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 239,598 263,480
Decrease (increase) in inventory (152,308) 3,000
Decrease (increase) in organizational costs 119 59
Decrease (increase) in prepaid expenses 32,179 27,988
Increase (decrease) in accounts payable 93,436 (142,051)
Increase (decrease) in accrued expenses (13,756) 8,197
Net Cash Provided (Used) by Operating
Activities 419,715 492,734
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (158,470) (211,211)
Sale of oil and gas properties 0 1,757,031
Purchase of oil and gas properties (725,036) (262,497)
Sale of equipment 0 97,470
Net Cash Provided (Used) by Investing
Activities (883,506) 1,380,793
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (173,828) (2,074,464)
Sale of common stock 167,500 595,000
Repurchase of common stock 0 (95,000)
Proceeds from borrowing 500,000 88,695
Net Cash Provided (Used) by Financing
Activities $ 493,672 (1,485,769)
NET INCREASE IN CASH $ 29,881 $ 387,758
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 224,550 39,556
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 254,431 $ 427,314
CASH PAID FOR
Interest ($77,755) ($152,386)
Income taxes - -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services 200 $ 5,500
Common stock issued for inventory 150,000
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
(1) Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
Registrant's April 30, 2001 Annual Report on Form 1OKSB. The results of
operations for the period ended October 31, 2001 are not necessarily
indicative of operating results for the full year.
The consolidated financial statements and other information furnished
herein reflect all adjustment which are, in the opinion of management of
the Registrant, necessary for a fair presentation of the results of the
interim periods covered by this report.
(2) RELATED PARTY TRANSACTIONS
On September 7, 2001, we executed two promissory notes, each for
$250,000. The notes are in favor of Sherri Ann Parker Lee and William
Parker Lee (a director), respectively. The notes are due September 7,
2003, and bear interest at the rate of 10% during the first year and 7%
during the second year. Each note is payable quarterly in arrears,
beginning November 31, 2001.
Any amounts not paid when due will bear interest after maturity at the
lesser of 20% per annum or the maximum rate allowable under applicable
law. The notes are secured by five gas wells in the Swan Creek field.
During the second quarter, Herman Gettelfinger, a director exercised a
stock option to purchase 100,000 shares of the Company's common stock.
In addition, Mr. Gettelfinger purchased working interests in oil and/or
gas wells totaling $72,496.
(3) SFAS No. 133. "Accounting for Derivative Instruments and Hedging
Activities," as amended, is effective for all fiscal years beginning
after June 15, 2000 (as amended by FAS 138). This statement requires
recognition of all derivative contracts as either assets or liabilities
in the balance sheet and the measurement of them at fair value. If
certain conditions are met, a derivative may be specifically designated
as a hedge, the objective of which is to match the timing of any gains
or losses on the hedge with the recognition of (i) the changes in the
fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For aderivative not designated as a hedging instrument,
the gain or loss is recognized in income in the period of change.
Historically, the Company has not entered into any material derivative
contracts either to hedge existing risks or for speculative purposes.
The adoption of the new standard on January 1, 2001 did not affect the
Company's financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition in Financial Statements" which outlines the
basic criteria that must be met to recognize revenue and provided
guidance for presentation of revenue and for disclosure related to
revenue recognition policies in financial statements filed with the SEC.
Adoption of SAB No. 101 did not have a material impact on the Company's
financial position or its results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations"
and SFAS No. 142. "Goodwill and Other Intangible Assets". SFAS No. 141
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination and SFAS No. 142
addresses this initial recognition and measurement of intangible assets
acquired outside of a business combination whether acquired individually
or with a group of other assets. These standards require all future
business combinations to be accounted for using the purchase method of
accounting. Goodwill will no longer be amortized but instead will be
subject to impairment tests at least annually. The Company is required
to adopt SFAS No. 141 and 142 on a prospective basis as of January 1,
2002, however, certain provisions of these new Standards may also apply
to any acquisitions concluded subsequent to June 30, 2001. Presently,
the adoption of these new standards is not expected to have a material
impact on the Company's financial condition or results of operations.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Miller Petroleum has more than 40,000 acres held by production in
Tennessee. This acreage is made up primarily of development drilling
locations. It produces both gas and oil, mainly from the Mississippian age Big
Lime Formation. The existing properties contain a minimum three-year
inventory of conventional drilling locations. The Company is also actively
pursuing the acquisition of additional high potential acreage in eastern
Tennessee. As of December 17, 2001, the Company has acquired more than 6,000
acres in the current leasing program. A recent "high volume" (Tennessee
Mining, Inc. #22B, drilled in August of 2000, has produced in excess of 10,400
barrels of oil through November 30, 2001) development oil well drilled on one
of these properties showed that the oil reservoir has not yet been pressure
depleted. The Koppers 26B, which was drilled in August of 2,001, had 22 feet
of oil pay at the base of the Big Lime Formation with an initial production
rate of 58 barrels per day. The Koppers 27B had 24 feet of oil pay at the
base of the Big Lime formation with an initial production rate of 70 barrels
oil per day. These wells strongly indicate that the oil field extends into an
adjacent 4,700-acre block of property, which the owners have agreed to lease
to Miller Petroleum. The company plans to begin development of this lease in
early 2002. The company also plans to drill an additional four to five oil
wells on its existing Koppers lease, as well as begin the exploitation of the
field's gas cap. About 40,000 Tennessee acres are presently being evaluated
for their CBM potential. A well drilled in June of 2001 by the company
encountered numerous coal seams below 750 feet depth on a 5,000-acre lease
that the Company has recently acquired. These coal seams reach a maximum
thickness of six feet and are presently being evaluated for their CBM
potential. In addition, this well has made a conventional Big Lime gas
discovery. As of the date of this report, Miller Petroleum has drilled four
successful development wells in this new field discovery. In addition, the
Company has installed or purchased more than three miles of 3 and 4 inch
gathering lines and we will begin selling gas from these wells to Powell-
Clinch Utility District before the end of the year. Management expects that
initial sales will be in the 750 to 800 Mcf/day. A portion of this acreage
where geological mapping indicates a second Big Lime gas field may be present.
The Company has drilled two CBM test wells on another 8,000-acre block of
Company leases, which are strategically located near an existing pipeline.
The second well has found an apparent commercial, conventional natural gas
discovery. Three locations have been staked offsetting this well, and Miller
Petroleum plans to begin a development-drilling program as soon as plans have
been finalized for a pipeline connection.
Miller Petroleum's exploration effort is continuing to be concentrated
in the East Tennessee portion of the Eastern Overthrust Belt. Management
feels that this area has tremendous potential for both oil and gas production,
as shown by the development of Swan Creek Field. Knox Dolomite wells in this
field have reserves in excess of two Bcf gas per well. Swan Creek Field is
also producing substantial amounts of oil from two separate shallower
reservoirs.
Miller Petroleum has obtained a 20-well farmout from Tengasco, Inc. in
the Swan Creek Field area. On this farmout, and the Swan Creek lease, Miller
has drilled four successful Knox Dolomite wells in Swan Creek Field proper,
and development drilling is continuing. A fifth Knox well drilled by Miller
has resulted in a new field discovery on a separate structure from Swan Creek.
The Dewey Sutton #1 was the first well that established oil production
for Miller Petroleum on the Swan Creek farmout. This well was drilled in
August of 2000 and is presently producing 12 BOPD. The initial offset to this
well has been successfully stimulated and is currently awaiting production
facilities. Four of the five Knox wells that the Company has drilled in Swan
Creek have encountered oil shows in the shallower Trenton and Stones River
Formations indicating an oil field extenting over this structure, and Miller
Petroleum plans to continue the development of its share of these reserves.
At this time Miller Petroleum management has identified 12 additional
large structures similar to Swan Creek Field in the Tennessee portion of the
Eastern Overthrust Belt. After completing a preliminary analysis of seismic
data, the Company is continuing to acquire leases on two of these features.
Both of these structures have been found to be associated with active
hydrocarbon seeps. Miller plans to test these structures as aggressively as
possible while continuing to identify additional targets in the Eastern
Overthrust Belt.
Liquidity and Capital Resources
-------------------------------
We estimate that we will be able to adequately fund our development and
production plans, with the exception of the acquisition of additional
properties, for the next 12 months. Sources of funds for us will be revenue
from operations, in particular sales of working interests in wells that we
drill; receipts from the private placement of our securities; and loans.
We also borrow funds to finance equipment purchases. On September 7,
2001, we executed two promissory notes, each for $250,000. The notes are in
favor of Sherri Ann Parker Lee and William Parker Lee, respectively. The notes
are due September 7, 2003, and bear interest at the rate of 10% during the
first year and 7% during the second year. Each note is payable quarterly in
arrears, beginning November 31, 2001. Any amounts not paid when due will bear
interest after maturity at the lesser of 20% per annum or the maximum rate
allowable under applicable law. The notes are secured by five gas wells in the
Swan Creek field.
We believe that our current cash flow will be sufficient to support our
cash requirements for development and production over the next 12 months.
Results of Operations
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The Company had revenues of $1,244,982 for the second quarter of its
fiscal year 2002, up from the $840,796 in revenues recognized during the
second quarter of fiscal year 2001.
The Company's net profit for the current quarter was $18,062, compared
to net income of $61,270 for the second quarter of fiscal 2002.
Cost of sales for the second quarter of fiscal 2002 was $789,156, up
from $345,484 in the second quarter of fiscal 2001, due primarily to the
increase in drilling activity.
Selling, general and administrative expenses were $94,758, down from
$131,210 in the second quarter of fiscal 2001. This decrease was primarily
due to decreases in legal and professional fees.
Depreciation, depletion and amortization for the second quarter of
fiscal 2002 was $120,996 up from $78,443 in the second quarter of 2001. This
increase was due to the increased number of wells put on production.
Interest expense was $27,745, down from the $54,533 reported for the
first quarter of fiscal 2001. This decrease was due to the payoff of Bank One
during fiscal 2001.
The Company had revenues of $1,843,735 for the six months ended October
31, 2001, up from the $1,649,768 in revenues recognized during six months
October 31, 2000.
The Company's net loss for the six months ended October 31, 2001 was
($146,598), compared to net income of $134,382 for the six months ended
October 31, 2000. The net loss was due primarily to equipment failure and
repairs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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On or about January 20, 2000, the Company filed a complaint against
Blue Ridge Group, Inc. in the Chancery Court of Hawkins County at Rogersville,
Tennessee, Case No. 13951, asserting that Blue Ridge had breached a Footage
Drilling Contract with the Company. Miller asserted that Blue Ridge had
breached the said contract by quitting the job without drilling to the
required depth, failing to drill a straight hole, and by damaging the well
bore by failing to conduct its operations in a good and workmanlike manner in
accordance with good industry practice. The plaintiff has asked that it be
awarded its initial payment of $37,000.00 to Blue Ridge, damages occasioned by
the improper deviation of the hole from the vertical plane; damages for the
cost of re-drilling and/or re-working the hole, damages allowed by the parties
contract, further and equitable relief to which it may be entitled, and to
assess the costs of this cause, including Miller's discretionary costs, to
Blue Ridge.
The Blue Ridge action is pending and the Company believes that its
contract with the plaintiff was breached. However, a decision for the
defendant would not have a material effect on the Company.
Item 2. Changes in Securities.
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None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At a special meeting of the stockholders on December 17, 2001, which
is subsequent to the period covered by this Report, a majority of the
stockholders resolved that William Parker Lee be appointed as a director
effective October 1, 2001; and further resolved that the Incentive Stock
Option Plan of Miller Petroleum, Inc. be extended to expire on January 29,
2005; and further resolved that Employee Stock Options granted to Gary G.
Bible, 40,000; Teresa A. Cotton, 10,000; Melvin C. Myers, 40,000; Steve W.
Letner, 20,000; Stephen R. Burchfield, 30,000; Roger Butler, 30,000; Lawrence
LaRue, 100,000; and Ernest F. Payne, 75,000; be adopted, ratified and
approved. These options have a term of eight years and a strike price of
$0.805.
Item 5. Other Information.
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On December 7, 2001, which is subsequent to the period covered by
this Report, the Securities and Exchange Commission declared effective our
Registration Statement on Form SB-2, as amended. The Registration Statement
covers a total of 2,761,152 shares of common stock that may be sold by certain
of our security holders. See the Exhibit Index, Item 6 below.
Item 6. Exhibits and Reports on Form 8-K.*
(a) Exhibits.
Registration Statement on Form SB-2 as amended.**
(b) Reports on Form 8-K.
None.
* A summary of any Exhibit is modified in its entirety by reference to the
actual Exhibit.
** This document has previously been filed with the Securities and Exchange
Commission and may be viewed on the Commission's web site: www.sec.gov.
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 PETROLEUM, INC.
Date: 12/17/01 By: /s/ Deloy Miller
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Deloy Miller, CEO and Director
Date: 12/17/01 By: /s/ Lawrence L. LaRue
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Lawrence L. LaRue, CFO and
Director
Date: 12/17/01 By: /s/ Herbert J. White
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Herbert J. White Vice President
and Director