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 January 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:
March 11, 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
January 31, April 30,
2002 2001
Unaudited
CURRENT ASSETS
Cash $ 118,054 $ 224,550
Accounts receivable - trade-, net 863,454 1,143,300
Inventory 596,142 439,113
Prepaid expenses 36,072 74,011
Total Current Assets 1,613,722 1,880,974
FIXED ASSETS
Machinery and equipment 1,341,965 1,249,511
Vehicles 446,596 438,851
Buildings 313,335 313,335
Office Equipment 80,560 87,172
Less: accumulated depreciation (803,191) (881,690)
Total Fixed assets 1,379,265 1,207,179
OIL AND GAS PROPERTIES 1,884,115 1,050,687
(On the basis of successful
efforts accounting)
PIPELINE FACILITIES 292,740 336,635
OTHER ASSETS
Land 511,500 511,500
Investments 500 500
Organization Costs 0 119
Total Other Assets 512,000 512,119
TOTAL ASSETS $5,681,842 $4,987,594
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 235,609 $ 134,275
Accrued expenses 62,849 91,910
Notes payable - current portion 516,343 577,270
Total Current Liabilities 814,801 803,455
LONG-TERM LIABILITIES
Notes payable - related 11,945 89,968
Notes payable 1,720,032 1,207,530
Total Long-Term Liabilities 1,731,977 1,297,498
Total Liabilities 2,546,778 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 (749,938) (680,661)
Total Stockholders' Equity 3,135,064 2,886,641
TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $5,681,842 $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
January, 31 January, 31
2002 2001 2002 2001
REVENUES
Oil and gas revenue $ 937,593 $595,642 $2,781,328
$2,117,434
Sale of equipment and
oil and gas properties 127,976
Total Revenue 937,593 595,642 2,781,328 2,245,410
COSTS AND EXPENSES
Cost of oil and gas sales 345,587 216,704 1,353,821 815,815
Selling, general and
administrative 140,428 211,829 454,151 449,779
Salaries and wages 213,267 148,661 587,044 499,654
Depreciation, depletion and
amortization 116,541 103,369 333,386 278,315
Interest expense 44,448 38,798 122,203 191,184
Total Costs and Expenses $ 860,271 $719,361 $2,850,605 $2,234,747
NET INCOME (LOSS) 77,322 (123,719) (69,277) 10,663
NET EARNING(LOSS) PER SHARE 0.01 (0.02) (0.01) 0.00
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,578,856 7,836,456 8,405,523 7,347,805
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
nine months ended
January 31, 2002 ($69,277) ($69,277)
Balance
January 31, 2002 $8,578,856 $858 $3,884,144 ($749,938)$3,135,064
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
January 31,2002 January 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (69,277) $ 10,663
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 333,386 278,315
Allowance for bad debts 17,233
Common stock issued for services 200 5,500
Common stock issued for inventory 150,000
Gain on sale of equipment and oil and
gas properties (123,904)
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable 279,846 (317,862)
Decrease (increase) in inventory (157,029) 3,000
Decrease (increase) in organizational costs 119 59
Decrease (increase) in prepaid expenses 37,939 27,988
Increase (decrease) in accounts payable 101,334 (188,087)
Increase (decrease) in accrued expenses (29,061) 15,052
Net Cash Provided (Used) by Operating
Activities 647,457 (272,043)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (292,249) (266,507)
Sale of oil and gas properties 0 1,874,423
Purchase of oil and gas properties (1,002,756) (429,901)
Sale of equipment 0 103,982
Net Cash Provided (Used) by Investing
Activities (1,295,005) 1,281,997
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (184,587) (2,085,902)
Sale of common stock 167,500 1,122,601
Repurchase of common stock 0 (95,000)
Proceeds from borrowing 558,139 144,620
Net Cash Provided (Used) by Financing
Activities $ 541,052 (913,681)
NET INCREASE IN CASH $(106,496) $ 96,273
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 224,550 39,556
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 118,054 $ 135,829
CASH PAID FOR
Interest ($122,203) ($191,184)
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 January 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 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 a derivative 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.
----------------------------------------------------------
Miller Petroleum has more than 45,000 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 March 18, 2002, the Company has
acquired more than 6,000 acres in the current leasing program.
A well drilled recently (Tennessee Mining, Inc. (Koppers) #22B)has
produced in excess of 11,500 barrels of oil through February 28, 2002. The
Tennessee Mining, Inc. #22B showed that the oil reservoir has not yet been
pressure depleted. The Kopper's 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 4,400-acre block of property, which was leased by the Company
in March of 2002. The Company plans to begin development of this lease
immediately. Three locations are being surveyed as of the date of this report.
The Company also plans to drill twelve or thirteen additional oil wells on
it's existing Kopper's lease, as well as drilling three natural gas wells on
the field's "substantial" gas cap.
During the fourth quarter, Miller plans on completing four wells on the
Koppers South tract which were drilled during the third and fourth quarter of
the current fiscal years.
About 45,000 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. 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 is selling gas from these
wells through the Powell-Clinch Utility District to Woodward Marketing.
Initial sales were in the 300 to 500 Mcf/day range. On a portion of this
acreage, geological mapping indicates a second Big Lime gas field may be
present.
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.
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
---------------------
The Company had revenues of $937,593 for the third quarter of its fiscal
year 2002, up from the $595,642 in revenues recognized during the third
quarter of fiscal year 2001.
The Company's net profit for the current quarter was $77,322, compared
to a net loss of $123,719 for the third quarter of fiscal 2001.
Cost of oil and gas sales for the third quarter of fiscal 2002 was
$345,587, up from $216,704 in the third quarter of fiscal 2001, due primarily
to the increase in drilling activity.
Selling, general and administrative expenses were $140,428, down from
$211,829 in the third quarter of fiscal 2001. This decrease was primarily due
to decreases in legal and professional fees.
Salaries and wages for the current quarter were $213,267, up from
$148,661 in the third quarter of fiscal 2001 due to the increase in drilling
activity.
Depreciation, depletion and amortization for the third quarter of fiscal
2002 was $116,541 up from $103,369 in the third quarter of 2001. This
increase was due to the increased number of wells put on production.
The Company had revenues of $2,781,328 for the nine months ended January
31, 2002, up from the $2,117,434 in revenues recognized during the nine months
ended January 31, 2001. Again, this increase was primarily due to increased
drilling activity.
The Company's net loss for the nine months ended January 31, 2002 was
($69,277), compared to net income of $10,663 for the nine months ended January
31, 2001. The net loss was due primarily to equipment failure and repairs.
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 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.
----------------------
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 September 26, 2001, a
majority of the stockholders 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, Teresa A.
Cotton, Melvin C. Myers, Steve W. Letner, Stephen R. Burchfield, Roger Butler,
Lawrence LaRue and Ernest F. Payne be adopted, ratified and approved.
Item 5. Other Information.
None; not applicable.
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 has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLER PETROLEUM, INC.
Date: March 18, 2002 By: /s/ Deloy Miller
----------------- -----------------------------
Deloy Miller, CEO and Director
Date: March 18, 2002 By: /s/ Lawrence L. LaRue
----------------- -----------------------------
Lawrence L. LaRue, CFO and
Director
Date: March 18, 2002 By: /s/ Herbert J. White
----------------- ------------------------------
Herbert J. White Vice President
and Director