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 July 31, 2002
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File No. 33-2249-FW
MILLER PETROLEUM, INC.
----------------------
(Name of Small Business Issuer in its Charter)
TENNESSEE 62-1028629
--------- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3651 Baker Highway
Huntsville, Tennessee 37756
----------------------------
(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:
September 10, 2002
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
July 31, April 30,
2002 2002
Unaudited
CURRENT ASSETS
Cash $ 97,764 $ 76,394
Investments 78,328 78,328
Accounts receivable - trade-, net 257,756 311,253
Inventory 567,287 567,287
Prepaid expenses 24,551 30,312
---------- ----------
Total Current Assets 1,025,686 1,063,574
---------- ----------
FIXED ASSETS
Machinery and equipment 1,334,723 1,361,117
Vehicles 408,801 453,138
Buildings 313,335 313,335
Office Equipment 74,379 80,560
Less: accumulated depreciation (816,534) (840,768)
---------- ----------
Total Fixed assets 1,314,704 1,367,382
---------- ----------
OIL AND GAS PROPERTIES 2,141,816 2,152,460
(On the basis of successful ---------- ----------
efforts accounting)
PIPELINE FACILITIES 268,039 280,390
---------- ----------
OTHER ASSETS
Land 511,500 511,500
Investments 500 500
---------- ----------
Total Other Assets 512,000 512,000
---------- ----------
TOTAL ASSETS $5,262,245 $5,375,806
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 274,413 $ 386,631
Accrued expenses 71,402 76,853
Notes payable - current portion 638,486 501,633
---------- ----------
Total Current Liabilities 984,301 965,117
---------- ----------
LONG-TERM LIABILITIES
Notes payable - related 13,832 1,326
Notes payable 1,705,035 1,712,779
---------- ----------
Total Long-Term Liabilities 1,718,867 1,714,105
---------- ----------
Total Liabilities 2,703,168 2,679,222
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
8,328,856 and 8,328,856 shares
issued and outstanding 858 822
Additional paid-in capital 3,884,144 3,884,144
Retained Earnings (1,325,925) (1,188,418)
---------- ----------
Total Stockholders' Equity 2,559,077 2,696,584
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $5,262,245 $5,375,806
========== ==========
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
July 31,
2002 2001
REVENUES
Oil and gas revenue $ 184,631 $121,886
---------- --------
Service and drilling revenue 238,049 449,866
Retail sales 0 24,184
Other revenue 4,781 2,693
---------- --------
Total Revenue 427,461 598,629
---------- --------
COSTS AND EXPENSES
Cost of oil and gas sales 58,729 219,078
---------- --------
Selling, general and
administrative 155,328 218,964
Salaries and wages 216,333 179,512
Depreciation, depletion and
amortization 80,030 95,849
---------- --------
Total Costs and Expenses $ 510,420 $713,403
---------- --------
NET INCOME (LOSS) (82,959) (114,774)
---------- --------
Other Income (Expense)
Interest income 645 124
Interest expense (55,193) (50,010)
---------- --------
Total Other Income (Expense) (54,548) (49,886)
---------- --------
Income Taxes 0 0
---------- --------
NET INCOME (LOSS) $ (137,507) $(164,660)
========== ========
NET EARNING(LOSS) PER SHARE (0.02) (0.02)
===== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,578,856 8,273,656
========= =========
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, 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 monthes ended
April 30, 2002 ($507,757)($507,757)
Balance
April 30, 2002 8,578,656 $858 $3,884,144 ($1,188,418)$2,696,584
Net loss for the
three months ended
July 31, 2002 ($137,507) ($137,507)
Balance
July 31, 2002 $8,578,856 $858 $3,884,144 ($1,325,925)$2,559,077
The accompanying notes are an integral part of these consolidated financial
statements
MILLER PETROLEUM, INC.
Consolidated Statement of Cash Flows
(UNAUDITED)
Three Months Twelve Months
Ended
July 31,2002 April 30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(137,507) $(507,757)
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 80,030 273,653
Common stock issued for services 200
Common stock issued for inventory 150,000
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 53,497 832,047
Decrease (increase) in investments 0 (78,328)
Decrease (increase) in inventory 0 (128,174)
Decrease (increase) in organizational costs 0 119
Decrease (increase) in prepaid expenses 5,761 43,699
Increase (decrease) in accounts payable (112,218) 252,356
Increase (decrease) in accrued expenses (5,451) (15,057)
-------- ----------
Net Cash Provided (Used) by Operating
Activities (115,888) 822,758
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment 0 (317,943)
Purchase of oil and gas properties (4,356) (1,161,442)
-------- ----------
Net Cash Provided (Used) by Investing
Activities (4,356) (1,479,385)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable 28,574 (264,325)
Sale of common stock 0 167,500
Proceeds from borrowing 113,040 605,296
-------- ----------
Net Cash Provided (Used) by Financing
Activities $141,614 $ 508,471
-------- ----------
NET INCREASE IN CASH $ 21,370 ($ 148,156)
-------- ----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 76,394 224,550
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 97,764 $ 76,394
-------- ----------
CASH PAID FOR
Interest ($ 55,193) ($ 167,359)
Income taxes 0 0
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services 200
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, 2002 Annual Report on Form 1OKSB. The results of
operations for the period ended July 31, 2002 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 May 1, 2002, the Company executed a promissory note for $50,000
in favor of Herman Gettelfinger, a director. The note was for a period of one
month with an interest rate of eight percent and may be renewed on the same
terms at the option of the holder.
During the first quarter, Deloy Miller CEO and Chairman, advanced the
Company $12,506 that has an interest rate of eight percent.
(3) New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities,
"effective January 1, 2001. SFAS No. 133 (as amended by SFAS 137 AND
SFAS 138) requires a company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivatives is a fair
value hedge, changes in the fair value of the hedged assets,
liabilities or firm commitments are recognized through earnings. If
the derivative is a cash flow hedge the effective portion of changes in
the fair value of the derivative are recognized in other comprehensive
income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is
immediately recognized in earnings. The adoption of SFAS No. 133, as
amended, did not have a material impact on the Company's consolidated
financial statements.
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 the 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 would have been required to adopt SFAS No. 141 on July 1, 2001,
and to adopt SFAS 142 on a prospective basis as of January 1, 2002.
The Company has not effected a business combination and carries no
goodwill on its balance sheet; accordingly, the adoption of these
standards is not expected to have an effect on the Company's financial
position or results of operations.
In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 establishes accounting standards for the
recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets and requires recognition of a
liability for an asset retirement obligation in the period in which it
is incurred. The provisions of this statement are effective for
financial statements issued for financial statements issued for fiscal
years beginning after June 15, 2002. The adoption of this statement is
not expected to have a material impact on the Company's financial
position or results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, addresses accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS No. 144 establishes a single accounting
model for long-lived assets to be disposed of by sale and expands on
the guidance provided by SFAS No. 121 with respect to cash flow
estimations. SFAS No. 144 becomes effective for the Company's fiscal
year beginning January 1. 2002. There will be no current impact of
adoption on its financial position or results of operations.
Item 2. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Miller Petroleum has more than 50,000 acres under lease in Tennessee.
About 95% of these leases are held by production. 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.
Miller's current development drilling program is to drill 22 oil and gas
wells and 40 gas only wells on its Koppers South Tract and build a six mile
gathering system to a local pipeline. Plans call for completion of the program
in approximately two years. Miller along with an industry partner will invest
more than nine million dollars in the project which has a predicted internal
rate of return of above thirty percent.
All 50,000 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 4,000-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, and three additional locations
have been drilled. Two of the wells have been completed and began selling gas
in March of 2002. In the fall of 2002, the remaining two wells are scheduled
for completion.
The Company is also actively pursuing the acquisition of additional high
potential acreage in eastern Tennessee. As of September 12, 2002, the Company
has acquired more than 6,500 acres in the current leasing program.
Miller Petroleum's exploration effort is being concentrated in the East
Tennessee portion of the Eastern Overthrust Belt. Management has selected two
large structures and is actively leasing acreage on both of them. Knox
Dolomite wells in the overthrust have reserves in excess of two Bcf gas per
well.
Currently, Miller is drilling an oil prospect in Morgan County, Tennessee
(Medcalf #1, Tennessee Permit No. 9935) as an offset to the Elmer Howard-White
Unit #1 well. Pryor Oil drilled Elmer Howard-White Unit #1 in July of 2002.
During drilling operations, the well blew out at a rate of up to 12,000
barrels oil per day from the Trenton Limestone. According to the August 2002
Ky/Tenn Report "before it caught fire, it was flowing at a rate between 200 to
500 barrels an hour, or up to 12,000 barrels a day at flowing pressures
estimated at 1,700 psi". To date this is the largest recorded initial
production of any well ever reported in the state of Tennessee.
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 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
---------------------
The Company had revenues of $427,461 for the first quarter of its fiscal
year 2003, down from the $598,629 in revenues recognized during the first
quarter of fiscal year 2002.
Oil and gas revenue for the current quarter was $184,631 up from $121,886
in the first quarter of fiscal 2002. This increase was due primarily to
natural gas sales from the Lindsay Land Company.
Service and drilling revenue for the first quarter was $238,049 down from
$449,866 for the same quarter last year. This decrease was due to less
drilling activity.
During the current quarter, there were not any retail sales, compared to
$24,184 during the first quarter of fiscal 2002. This decrease was due to the
decline in oilfield activities.
Other revenue for the first quarter of fiscal 2003 was $4,781 up from
$2,693 during the same period last year.
The Company's net loss for the current quarter was $137,506, compared to
a net loss of $164,660 for the first quarter of fiscal 2002.
Cost of oil and gas sales for the first quarter of fiscal 2003 was
$58,729, down from $219,078 in the first quarter of fiscal 2002, due primarily
to the decrease in drilling activity.
Selling, general and administrative expenses were $155,327, down from
$218,964 in the first quarter of fiscal 2002. This decrease was primarily due
to decreases in legal and professional fees.
Salaries and wages for the current quarter were $216,333, up from
$179,512 in the first quarter of fiscal 2002 due to the increase in personnel
and overtime.
Depreciation, depletion and amortization for the first quarter of fiscal
2003 was $80,030 down from $95,849 in the first quarter of 2002. This
decrease was due to a reduction in drilling activities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
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 Company 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. On May 10, 2002, the Chancery Court of Hawkins County ruled in
favor of Miller Petroleum, Inc. and awarded damages of $97,716.21 plus
interest. Subsequently, Blue Ridge Group appealed the decision to the
Tennessee Supreme Court.
The Blue Ridge action is pending an 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.
On or about April 12, 2002, the Company filed a complaint against Nami
Resources Company, LLC in the Circuit Court for Scott County at Huntsville,
Tennessee asserting that Nami had failed to pay for natural gas received and
$16,456.12 is justly due and owing to Miller. On or about May 14, 2002, Nami
Resources Company, LLC filed a complaint against Miller Petroleum, Inc. in the
United States District Court, Eastern District of Kentucky, London Division,
Civil Action No. 02-255-DCR asserting that Miller had breached a contract for
the sale and transportation of natural gas asking for relief in the amount of
$400,000 plus court costs and attorney fees.
The Nami action is pending and the Company believes that it is justly
owed $16,456.12 and does not believe that a contract existed to be breached.
However, a decision for Nami would not have a material effect on Miller.
Item 2. Changes in Securities.
----------------------
None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
On September 10, 2002, the Company received a demand from the attorney of
Sherri Parker Lee to pay the entire balance of $250,000 plus interest on a
promissory note dated September 7, 2001 within ten days. An interest payment
made on September 3, 2002 that was due August 31, 2002 was rejected and the
note was declared in default and the note was accelerated. Our attorney has
advised the Company that, under the terms of the Loan Agreement and Promissory
Note, payment was made in a timely manner.
Item 6. Exhibits and Reports on Form 8-K.*
----------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
* A summary of any Exhibit is modified in its entirety by
reference to the actual Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Date: September 13, 2002 MILLER PETROLEUM, INC.
By: /s/Deloy Miller
Deloy Miller
Chief Executive Officer
By: /s/Lawrence L. LaRue
Lawrence L. LaRue,
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report of Miller Petroleum, Inc. (the
"Company") on Form 10-QSB for the period ending July 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), we,
Deloy Miller, Chief Executive Officer, and Lawrence L. LaRue, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of our knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Date: September 13, 2002 /s/Deloy Miller
Deloy Miller,
Chief Executive Officer
Date: September 13, 2002 /s/Lawrence L. LaRue
Lawrence L. LaRue,
Chief Financial Officer