U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB/A-1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2004
[ ] 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. 033-02249-FW
MILLER PETROLEUM, INC.
(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
N/A
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(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None.
Securities Registered under Section 12(g) of the Exchange Act: None.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- --- --- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year:
April 30, 2004 - $1,966,795.
State the aggregate market value of the common voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days.
February 15, 2005 - $1,731,598. There are approximately 4,947,422 shares of
common voting stock of the Registrant held by non-affiliates. On February 15,
2005 the average bid and asked price was $0.35.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not Applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
February 15, 2005
9,466,856
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DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in Item 13
of this Report.
Transitional Small Business Issuer Format Yes X No
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PART I
Item 1. Description of Business.
Business Development
--------------------
The predecessor of Miller Petroleum, Inc. (the "Company") was
founded in 1967 by Deloy Miller, as a sole proprietorship. On January 22,
1978, the Company was incorporated under the laws of the State of Tennessee.
For the Company's early business development, see Form 10KSB for the fiscal
year ended April 30, 2000, which was filed with the Securities and Exchange
Commission on August 14, 2001, and subsequently amended. These filings are
available on the Commission's web site: www.sec.gov.
During the past seven years, the Company concentrated on oil and gas
development, exploration and production. The Company has oil and/or gas
production in six Tennessee counties: Campbell, Fentress, Hancock, Morgan,
Overton and Scott.
Pursuant to a Purchase and Sale Agreement that we entered into with
NAMI Resources Company, LLC, a Kentucky limited liability company, on August
31, 2000, we sold to NAMI resources our interest in certain oil and gas wells,
leases covering about 40,000 acres in Kentucky, inventory and related
equipment located in Kentucky. The sale closed on September 6, 2000. NAMI
Resources Company, LLC paid the Company $2,000,000 and assumed a production
payment to Cabot Oil and Gas, Inc. of $102,237 and received our interest in
certain oil and gas wells, oil and gas leases, inventory and related equipment
plus a production receivable from Southern Gas of $123,832. The net to the
Company was $1,978,405.
We sold these assets because they were located approximately two to
three hours from our present principal operations in East Tennessee. Our
Board of Directors believed that the cost, expense and manpower involved in
managing the assets at this distance was too high and interfered with our
principal focus in East Tennessee.
We had previously sold to NAMI Resources gas that was produced from
oil and gas wells that were among these assets. NAMI Resources had no other
material relationship with us, and the NAMI Resources agreement was negotiated
at "arms length."
We used about $1,780,000 of the purchase price to pay a note that we
owed to Bank One. The remaining amount has been allocated to working capital.
Currently, the Company has more than 42,000 acres under lease in
Tennessee and continues to seek the acquisition of additional strategic
acreage. Miller uses the latest technology, utilizing computer graphics,
seismic and other analytical tools for geologic exploration, drilling and
development. In addition to geology, engineering and lease inventory, Miller
has the equipment to take a program from site development to completion. The
company has work over rigs for completions, dozers for site development,
roustabout crews and equipment to set pumping units and tanks as well as lay
flow lines, winch trucks and trailers for traveling support as well as
backhoes, ditchers, fusion machines and welders for pipeline and compression
installation. This attribute keeps jobs on schedule with quality control and
without dependence on other contractors.
The Company objective is to focus on the development, drilling and
production of natural gas and crude oil in east Tennessee's Appalachian Basin.
The Company is currently developing both its "Koppers North and South Fields"
with a recent addition of the Carden Tract to form a 32,000 acre block in
Campbell County, Tennessee with more than one hundred and fifty possible
developmental locations. Additionally, the company is continuing to develop
the Lindsay Field with an additional twenty five possible developmental
locations. Miller's Harriman Prospect has recently been defined by a seismic
study and Miller plans to drill at least one well on this prospect this year.
All officers and directors were reappointed for the fiscal year that
began May 1, 2003 with the exception of Mr. Lawrence LaRue, the Company's CFO.
Mr. LaRue passed away in October 2003. Mr. LaRue has been replaced by Mr.
Charles M. Stivers.
Business
--------
The Company's operations include the operation of oil and gas
wells, acquisition and development of oil and gas leases, rebuilding and sales
of oil field equipment and the organization of joint venture drilling programs
with industry partners.
Miller's current drilling program calls for 50 developmental
Devonian(Chattanooga)Shale gas wells in the Koppers North Field, five only
wells in the Koppers South Field, ten developmental in the Lindsay Field and
one exploratory well on the Harriman Prospect.
The Company has acquired and operates the following properties:
(1)Koppers Lease or "ARCO/GULF Farmout".
The largest acreage block owned by the Company is in Campbell
County, Tennessee. This acreage was acquired through a farmout agreement with
ARCO/Gulf. The Company owns a 100% working interest of 27,000 acres, more or
less. This lease provides for a landowner royalty of 12.5% and an overriding
royalty interest of 7.5% with an 80% net royalty interest. The lease is split
into two parcels. An 8,000 acre northern parcel borders the Kentucky state
line and a 19,000 acre parcel has its southern edge under the city of
LaFollette, Tennessee. Currently, there are eleven producing oil wells on
the southern tract of this lease. The eleven wells have produced 153,899
barrels of oil from the Big Lime Formation through April 30, 2004. This lease
is being held by production.
The Company has leased and is currently leasing smaller tracts of 50
to 1,000 acres adjacent to or near the its southern Koppers acreage.
(2) Carden Et Al
This lease includes 4,200 acres in which the company has 100% working
interest of a 81.25% net royalty interest. This tract joins the Koppers North
parcel of 8,000 acres to form a 12,200 contiguous block in the North. This
lease is proven by previous drilling and production by others.
(3) Delta Producers, Inc. joint venture.
The Company continues its joint venture with Delta Producers, Inc.
of Greenville, Mississippi ("Delta Producers"). Currently, the parties are
jointly producing twelve gas wells in the Jellico, Tennessee area northwest of
the Pine Mountain Thrust Fault. Miller Petroleum has a 25% working interest in
the above gas wells. The twelve wells are located upon several oil and gas
leases consisting of 2,000 acres more or less (collectively the "Delta
leases"). All of these leases are subject to a 12.5% landowner's royalty.
As of April 30, 2004, Miller Petroleum and Delta Producers have
drilled seven wells , the Lindsay Land Company #9, #10, #11, #12, #13, #14 and
#15 on the 4,000 acre Lindsay Land Company lease in Campbell County, Tennessee
near Caryville, Tennessee. The #11 is awaiting completion and the remaining
wells are producing and selling gas into the Powell Clinch Utility. Miller
and Delta purchased and built more than four miles of three-inch and four-inch
gathering lines to carry the gas to market. They began selling natural gas
from the #9 and #12 wells in March of 2002 and the #10 well began selling gas
in January of 2003. The Lindsay #13 and #14 began selling in August of 2003
and the #15 began selling in November of 2003. As of April 30 of 2004, the
Lindsay #9 has sold 62,949 Mcf, the Lindsay #10 has sold 12,842 Mcf, the
Lindsay #12 has sold 163,117 Mcf, the Lindsay #13 has sold 21,986 Mcf, Lindsay
#14 has sold 11,864 Mcf and #15 has sold 8,242 Mcf. This production is from
the Big Lime Formation. Shut-in pressure for the field is approximately 780
psi. Miller has a 50% working interest in the Lindsay Land Company lease. This
lease provides for a landowner's royalty of 12.5%.
(4)Harriman Prospect, joint venture.
This prospect contains several small leases in Roane County,
Tennessee to total 3500 acres. The net royalty interest is 87.5% with the
landowners receiving a 12.5% royalty. Miller has a 50% working interest in the
parcels. Wells are being planned here on a large structure that has been
confirmed by seismic. The Trenton, Stones River, and upper Knox formations
will be tested. Knox wells in the Overthrust have reserves in excess of two
Bcf gas per well.
(5) Miscellaneous oil and gas leases and wells.
The Company has several small leases in Campbell, Fentress, Morgan
and Overton Counties, Tennessee totaling approximately 2,500 acres. Each of
these leases is subject to a 12.5% to 20% landowner's royalty. There are
eight producing oil wells and thirteen producing natural gas wells on these
miscellaneous leases.
(6) Tengasco Farmout and nearby area.
The Company acquired a farmout from Tengasco, Inc. in September of
1999. The farmout locations are adjacent to or in the much-publicized Swan
Creek field in Hancock County, Tennessee.
The Company has drilled three successful Knox Dolomite wells in the
Swan Creek field proper. A fourth Knox well drilled on this farmout by Miller
has resulted in a new field discovery on a separate structure from Swan Creek.
In August of 2000, Miller Petroleum, Inc. drilled its first oil well
under the Tengasco Farmout. The Dewey Sutton #1 well has sold more than 14
thousand barrels and is currently producing about 200 barrels of oil per month
from the Trenton Formation. The R.D. Helton #2, Jeff Johnson #3 had good
shows of oil in the Stones River Formation and are scheduled for completion.
Tengasco completed its pipeline and began buying natural gas on March
8, 2001. Miller's first sales to Tengasco were from the Worlie Purkey #1 well
in April of 2001. In May, the Worlie Purkey #3 began selling to Tengasco.
During the latter part of June, we began selling from the Jeff Johnson #1
well.
Principal Products or Services and Markets
------------------------------------------
The Company drills, produces and markets natural gas and oil.
The demand for these products continues to increase as population and industry
conversions expand. Direct statewide purchasers of oil at the well site are
by South Kentucky Purchasing Company, a refinery located in Somerset,
Kentucky.
Natural gas has multiple markets throughout the eastern United
States through gas transmission lines. Access to these markets is presently
provided by four companies in north eastern Tennessee. Cumberland Valley
Resources, of Lexington, Kentucky, purchases the Company's natural gas that is
produced from the "Delta Leases". Nami Resources Company, of London,
Kentucky, purchases our gas from our Jellico field. Local markets are served
by Citizens Gas Utility District and Powell-Clinch Utility District with
surplus gas being placed in storage facilities or transported to East
Tennessee Natural Gas serving Tennessee and Virginia.
Reserve Analysis
Glover Petroleum Consultants of Crossville, Tennessee performed
a reserve analysis on the Company's leases as of April 30, 2004. Based on the
data and parameters provided, the wells evaluated should recover approximately
612,711 barrels ("Bbls") of oil and 14,774,736 thousand cubic feet ("Mcf") of
natural gas. Of this gross production, the interests appraised will recover
350,937 Bbls of oil and 8,696,519 Mcf of natural gas. Of these amounts, a
total of 7,596,069 Mcf of natural gas reserves were proved but undeveloped.
The net reserves should yield an undiscounted future net income of $57,596,176
after royalties, operating costs, development costs and severance and
advalorem taxes, but before Federal and State income taxes. The present value
of this future net income is $33,550,647 when discounted 10%. The reserves
presented in this report were evaluated according to the standards recommended
by the Securities and Exchange Commission. The report assumes constant oil
and gas pricing and the use of a 10% discount factor to estimate present value
of the future net income.
Reserve analysis are at best speculative, especially when based upon
limited production and limited access to production records; no assurance can
be given that the reserves attribute to these leases exist or will be
economically recoverable. See the Risk Factor entitled "Uncertainty of
Reserve Estimates," herein.
It is the opinion of Glover that the above-described reserve and
revenue estimates are in the aggregate reasonable and were prepared in
accordance with generally accepted petroleum engineering and evaluation
principles. Glover does not own any direct or indirect financial interest in
Miller Petroleum, Inc. and its oil and gas properties and interest. Glover's
fee is not contingent upon its work or report.
Distribution Methods of Products or Services.
--------------------------------------------
Crude oil is contained in tanks at the well site until the
purchaser retrieves it by truck. Natural gas is delivered to the purchaser
via gathering lines into the main gas transmission line. Gas purchasers in
the area include Tengasco, Inc.; Delta Natural Gas Company, Inc.; NAMI
Resources Company, LLC; Powell-Clinch Utility District; CNR and Citizens Gas
Utility District. Crude oil is purchased by South Kentucky Purchasing Company
of Somerset, Kentucky. Management anticipates that the Company's products
will be sold to one of these companies, however, no assurance can be given
that the Company will be able to make such sales or that if it does, it will
be able to receive a price that is sufficient to make its operations
profitable.
Status of Any Publicly Announced New Product or Service
-------------------------------------------------------
The Company does not have any publicly announced new product or
service; nor does it anticipate any in the foreseeable future.
Competitive Business Conditions, Competitive Position in the Industry and
Methods of Competition
-----------------------
The Company's oil and gas exploration activities in the State of
Tennessee will be undertaken in a highly competitive and speculative business.
In seeking any other suitable oil and gas properties for acquisition, the
Company will be competing with a number of other companies located in the
State of Tennessee and elsewhere, including large oil and gas companies and
other independent operators with greater financial resources.
At the local level, the Company has several competitors in the
area of its acreage blocks in the State of Tennessee, three of which may be
deemed to be significant. These are Consol Energy, Inc., CNR, Champ Oil, John
Henry Oil and Tengasco, Inc. Given the Company's relatively large acreage
holdings in the area and the estimated proven undeveloped reserves, management
believes that the Company could increase substantially the amount of
hydrocarbons it sells in the immediate area; however, the Company's operations
will be subject to numerous risk factors and no assurance of this can be
given. See the caption "Risk Factors" of this Report.
Management does not foresee any difficulties in procuring logging,
cementing and well treatment services in the area of its operations. The
experience of management has been that, in most instances, logging equipment
will be available with less than a one-day waiting period. Cementing services
generally have the same waiting period. Well treatment services may have a
waiting period of 7 to fourteen days. However, several factors, including
increased competition in the area, may limit the availability of logging
equipment, cementing and well treatment services; such an event may have a
significant adverse impact on the profitability of the Company's operations.
The company has work over rigs for completions, dozers for site
development, roustabout crews and equipment to set pumping units and tanks as
well as lay flow lines, winch trucks and trailers for traveling support as
well as backhoes, ditchers, fusion machines and welders for pipeline and
compression installation. This attribute keeps jobs on schedule with quality
control and without dependence on other contractors.
The prices of the Company's products are controlled by the world
oil market and the United States natural gas market; thus, competitive pricing
behaviors in this regard are considered unlikely; however, competition in the
oil and gas exploration industry exists in the form of competition to acquire
the most promising acreage blocks and obtaining the most favorable prices for
transporting the product. Management believes that the Company is well
positioned in these areas because of the transmission lines that run through
and adjacent to the properties that it leases and because it holds relatively
large acreage blocks in what management believes are promising areas.
Sources and Availability of Raw Materials and Names of Principal Suppliers
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The Company's operations are not dependent on the acquisition of
any raw materials. See the caption "Competitive Business Conditions,
Competitive Position in the Industry and Methods of Competition," above.
Dependence on One or a Few Major Customers
------------------------------------------
The Company will be dependent on local purchasers of hydrocarbons
in the areas where its properties are located for sales of its products. The
eight purchasers in the areas of the Company's operations are Citizens Gas
Utility District, Cumberland Valley Resources, Powell-Clinch Utility District,
Delta Natural Gas, CNR, NAMI Resources, Tengasco and South Kentucky. The loss
of one or more purchasers with whom the Company may contract may have a
substantial adverse impact on the Company's sales and on its ability to
operate profitably.
Currently, we are selling natural gas to the following purchasers:
(1) Citizens Gas Utility District is purchasing natural gas from Miller's
wells in Scott County, Tennessee. Citizens is paying the Inside FERC Tn Zone
1 (Louisiana) monthly index less transportation costs. Sales to Citizens are
less than 1% of our total natural gas sales.
(2) Nami Resources Company is purchasing our gas from the Jellico Field. The
sales price is $4.02 per Mcf. Sales to Nami Resources Company at the present
time are approximately 25% of total natural gas sales.
(3) Tengasco, Inc. purchases natural gas from wells in the Swan Creek Field.
Tengasco, Inc. is paying the New York Mercantile Exchange first of the month
posting plus $0.05 less transportation charges. Sales to Tengasco are about 10
% of total natural gas sales.
(4) Cumberland Valley Resources purchases the gas produced from the joint
venture with Delta Producers, Inc near Jellico, Tennessee. The sales price is
Appalachian Index minus Columbia transportation and fuel. Cumberland Valley
Resources purchases approximately 20% of total natural gas sales.
(5) Powell-Clinch Utility District purchases the gas from the Lindsay Land
Company lease which is another joint venture with Delta Producers. The sales
price is Inside FERC Tn Zone 1 (Louisiana) monthly index less transportation
costs. About 44% of our gas sales are to the Powell-Clinch Utility District.
The Company sells all of its crude oil to South Kentucky Purchasing
Company of Somerset, Kentucky. South Kentucky's purchase price is based on
postings for the Illinois Basin.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts, including Duration
Royalty agreements relating to oil and gas production are standard
in the industry. The amount of the Company's royalty payments varies from
lease to lease. See the caption "Business," above. The amounts of the
royalties on each of the Company's leases are listed on the attached Lease
Schedules. See the Exhibit Index, Item 13 of this Report.
Need for Governmental Approval of Principal Products or Services
----------------------------------------------------------------
None of the principal products or services offered by the Company
require governmental approval; however, permits are required for drilling oil
or gas wells. See the caption "Effect of Existing or Probable Governmental
Regulations on Business," below.
Effect of Existing or Probable Governmental Regulations on Business
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Exploration and production activities relating to oil and gas
leases are subject to numerous environmental laws, rules and regulations. The
federal Clean Water Act requires the Company to construct a fresh water
containment barrier between the surface of each drilling site and the
underlying water table. This involves the insertion of a seven-inch diameter
steel casing into each well, with cement on the outside of the casing. The
cost of compliance with this environmental regulation is approximately $10,000
per well.
The State of Tennessee also requires oil and gas drillers to
obtain a permit for their activities and to post with the Tennessee Gas and
Oil Board bonds to ensure that each well is reclaimed and properly plugged
when it is abandoned. The Reclamation Bonds cost $1,500 per well. Cost for
the Plugging Bonds are $2,000 per well or $10,000 for ten wells. Currently,
the Company has several of the $10,000 plugging bonds. For most of the
reclamation bonds, the Company has deposited a $1,500 Certificate of Deposit
with the Oil and Gas Board.
The Company's operations are also subject to laws and regulations
requiring removal and cleanup of environmental damages under certain
circumstances. Laws and regulations protecting the environment have generally
become more stringent in recent years, and may in certain circumstances impose
"strict liability," rendering a corporation liable for environmental damages
without regard to negligence or fault on the part of such corporation. Such
laws and regulations may expose the Company to liability for the conduct of
operations or conditions caused by others, or for acts of the Company which
were in compliance with all applicable laws at the time such acts were
performed. The modification of existing laws or regulations or the adoption
of new laws or regulations relating to environmental matters could have a
material adverse effect on the Company's operations. In addition, the
Company's existing and proposed operations could result in liability for
fires, blowouts, oil spills, discharge of hazardous materials into surface and
subsurface aquifers and other environmental damage, any one of which could
result in personal injury, loss of life, property damage or destruction or
suspension of operations.
The Company has in place an Emergency Action and Environmental
Response Policy Program. This program details the appropriate response to any
emergency that management believes to be possible in the Company's area of
operations.
The Company believes it is presently in compliance with all
applicable federal, state and local environmental laws, rules and regulations;
however, continued compliance (or failure to comply) and future legislation
may have an adverse impact on the Company's present and contemplated business
operations.
The foregoing is only a brief summary of some of the existing
environmental laws, rules and regulations to which the Company's business
operations are subject, and there are many others, the effects of which could
have an adverse impact on the Company. Future legislation in this area will
no doubt be enacted and revisions will be made in current laws. No assurance
can be given as to what effect these present and future laws, rules and
regulations will have on the Company's current future operations.
Research and Development
------------------------
With the exception of the payment to Glover Petroleum Consultants
for its engineering study, the Company has not expended any material amount
in research and development activities during the last fiscal year. Research
done in conjunction with its exploration activities consists primarily of
conducting geological research. This work falls under the job description of
the Company's geologist and will not cost anything more than his standard
salary.
Cost and Effects of Compliance with Environmental Laws
------------------------------------------------------
See the caption "Effect of Existing or Probable Governmental
Regulations on Business" of this Report.
Number of Total Employees and Number of Full-Time Employees
-----------------------------------------------------------
The Company presently has 8 full-time employees and 1 part-time
employee. When it commences its full-scale drilling program as discussed
under the heading "Management's Discussion and Analysis or Plan of Operation,"
the Company plans to have up to 24 full-time employees, including officers,
and 1 part-time employee.
Risk Factors
------------
Our present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of losing
their entire investment should consider buying our shares. You should
consider and be aware of the following risks:
General Risks Related To Our Business.
--------------------------------------
It will be harder for us to develop oil and gas reserves if we do not
raise additional money.
-----------------------
We will require additional funding to realize our future goals of
conducting the oil and gas exploration operations on properties under lease
and acquiring additional oil and gas properties for development. Our
additional funding will come from the sale of fractional working interests to
investors participating in our oil and gas partnerships and to raise funding
through equity or debt financing, which may be very difficult for our highly
speculative enterprise. We can not assure you that any additional funding will
be available to us, or if it is available, that the terms of the funding will
be satisfactory to us. If we fail in these efforts, our business may also
fail.
Our business may fail if we do not succeed in our efforts to develop and
replace oil and gas reserves.
-----------------------------
Management believes that our future success will depend upon our ability
to find, acquire and develop additional economically recoverable oil and gas
reserves. Our proved reserves will generally decline as they are produced,
except to the extent that we conduct revitalization activities, or acquire
properties containing proved reserves, or both. To increase reserves and
production, we must continue our development drilling and re-completion
programs, identify and produce previously overlooked or bypassed zones in
shut-in wells, acquire additional properties or undertake other replacement
activities. Our current strategy is to increase our reserve base, production
and cash flow through the development of our existing oil and gas fields and
selective acquisitions of other promising properties where we can use new,
existing technology. Despite our efforts, our planned revitalization,
development and acquisition activities may not result in significant
additional reserves, and we may not be able to discover and produce reserves
at economical exploration and development costs.
Our revenues may be less than expected if our oil and gas reserve
estimates are inaccurate.
-------------------------
Oil and gas reserve estimates and the present values attributed to these
estimates are based on many engineering, geological characteristics and
operational assumptions that generally are derived from limited data. Common
assumptions include such matters as the anticipated future production from
existing and future wells, future development and production costs and the
ultimate hydrocarbon recovery percentage. As a result, oil and gas reserve
estimates and present value estimates are frequently revised to reflect
production data obtained after the date of the original estimate. If reserve
estimates are inaccurate, production rates may decline more rapidly than
anticipated, and future production revenues may be less than estimated. In
addition, significant downward revisions of reserve estimates may hinder our
ability to borrow funds in the future, or may hinder other financing
arrangements that we may consider.
In addition, any estimates of future net revenues and their present
value are based on period ending prices and on cost assumptions that only
represent our best estimate. If these estimates of quantities, prices and
costs prove inaccurate and we are unsuccessful in expanding our oil and gas
reserves base, or if oil and gas prices decline or become unstable, we may
have to write down the capitalized costs associated with our oil and gas
assets. We will also largely rely on reserve estimates when we acquire
producing properties. If we overestimate the potential oil and gas reserves
of a property to be acquired, or if our subsequent operations on the property
are not successful, the acquisition of the property could result in
substantial losses.
Our future success will depend on the price of oil and gas.
-----------------------------------------------------------
Our revenues come from the sale of oil and gas. If oil and gas prices go
below our costs and expenses of operating our company, we will lose money.
Sustained financial losses would probably force us to cease operations.
Oil and gas operations involve many physical hazards.
-----------------------------------------------------
Natural hazards, such as excessive underground pressures, may cause
costly and dangerous blowouts or make further operations on a particular well
financially or physically impractical. Similarly, the testing and re-
completion of oil and gas wells involves a high degree of risk arising from
operational failures, such as blowouts, fires, pollution, collapsed casing,
loss of equipment and numerous other mechanical and technical problems. Any
of these hazards may result in substantial losses to us or liabilities to
third parties. These could include claims for bodily injuries, reservoir
damage, loss of reserves, environmental damage and other damages to people or
property. Any successful claim against us would probably require us to spend
large amounts on legal fees and any successful claim may make us liable for
substantial damages.
Our dependence on outside equipment and service providers may hurt our
profitability.
--------------
We need to obtain logging equipment and cementing and well treatment
services in the area of our operations. Several factors, including increased
competition in the area, may limit their availability. Longer waits and
higher prices for equipment and services may reduce our profitability.
You will not be able to elect our directors or officers.
--------------------------------------------------------
Deloy Miller, our President and CEO, currently owns 48% of our
outstanding common stock. He can effectively elect all of our directors,
who in turn elect all of our executive officers, without regard to the votes
of other stockholders. If the warrant holders exercise all of the outstanding
warrants and retain voting control of the shares underlying these warrants,
Mr. Miller would own about 39% of the then-outstanding shares. Although he
would not have absolute voting control, he would still be in a position to
exert substantial influence on the election of all directors, who in turn
elect all of the officers. You will have little or no ability to influence
the direction of Miller Petroleum.
The intense competition in our industry will make it harder for us to
succeed.
--------
Our oil and gas exploration activities are centered in a highly
competitive industry. We will be competing in every facet of our intended
business with other companies that may include multinational oil and gas
companies and other large independent operators with much greater financial
resources than we have. Management does not believe that our competitive
position in the oil and gas industry will be significant.
If we lose the services of Deloy Miller, our operations may suffer.
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We are substantially dependent upon the continued services of Deloy
Miller, our CEO and a director. Mr. Miller has been with us since our
inception. The relationships that he has formed in our industry
and in the local area where our principal operations are conducted are
invaluable, and could be lost to us without his services. Mr. Miller is in
good health; however, his retirement, disability or death would
seriously hurt our business operations. If his services become unavailable,
we will have to retain other qualified personnel. We may not be able to
recruit and hire another qualified person on acceptable terms. We do not have
an employment contract with Mr. Miller.
Similarly, the oil and gas exploration industry requires the use
of personnel with substantial technical expertise. If our current technical
personnel become unavailable, we will need to hire qualified personnel to take
their place. If we are not able to recruit and hire new people on mutually
acceptable terms, our operations will suffer.
Compliance with governmental regulations can be costly and can limit our
planned operations.
-------------------
We face many state and federal laws, rules and regulations covering the
safety of our operations, environmental conditions and other facets of our
business. These laws, rules and regulations can be expensive and may
seriously limit our ability to conduct our intended business operations. See
the heading "Effect of Existing or Probable Governmental Regulations on
Business" under the caption "Description of Business."
Risks Related To Our Common Stock.
----------------------------------
The sale of already outstanding shares of our common stock could hurt our
common stock market price.
--------------------------
All of our outstanding common stock is eligible for public sale under
Rule 144 of the Securities Act of 1933. On January 17, 2001, the Company
filed Form SB2 with the Securities and Exchange Commission, (subsequently
amended on June 19, 2001) to register 2,761,152 previously issued common
shares and shares underlying warrants. The selling stockholders may sale the
shares of common stock being registered for resale under our prospectus. Any
of these sales could significantly decrease the market price of our common
stock. These sales could also severely limit our ability to obtain the
necessary debt or equity funding for our current and intended business
operations.
The limited trading volume in our common stock, and general market
volatility, may depress our stock price.
----------------------------------------
The public market and trading volume for our common stock are limited and
volatile. Where the volume is limited, any unusual increase in the volume is
likely to decrease the market price of our common stock. The common stock
that we are registering and that the selling stockholders will offer and sell
under our prospectus will greatly increase the number of shares available for
public trading. This alone could significantly decrease the current market
price for our common stock.
In addition, the stock markets have had extreme price and volume
fluctuations. These broad market fluctuations, as well as general economic and
political conditions, may also reduce the market price of our common stock.
Indemnification of Directors, Officers, Employees and Agents.
Section 48-18-502 of the Tennessee Business Corporation Act allows a
corporation to indemnify any director in any civil or criminal proceeding
(other than a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or any other proceeding in
which he or she was adjudged liable on the basis that he or she improperly
received a personal benefit) by reason of service as a director if the person
to be indemnified conducted himself or herself in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. Section 48-18-507
extends certain indemnification rights to officers, employees and agents of a
corporation as well. The foregoing is only a brief summary of the right of
indemnification allowed a corporation under the Tennessee Business Corporation
Act, and is modified in its entirety by this reference. The Board of
Directors of the Company has adopted these provisions to indemnify its
directors, executive officers and agents.
Item 2. Description of Property.
---------------------------------
The Company owns an office and yard on 14 acres situated in
Huntsville, Tennessee. An additional 1,600 square feet of office space was
added during 1998.
For a description of the Company's oil and gas leases, see the section
captioned "Business".
Item 3. Legal Proceedings.
---------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
On March 19, 2004, a majority of the Company's security holders
voted to retain the present directors for another year and to retain the
present auditor, Butch Grubb CPA of London, Kentucky.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
------------------
The Company's common stock is traded on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. ("NASD"); however, the
market for shares of the Company's common stock is extremely limited. No
assurance can be given that the present market for the Company's common stock
will continue or will be maintained, and the sale of the Company's
unregistered" and "restricted" common stock pursuant to Rule 144 as outlined
under the caption "Recent Sales of Unregistered Securities" of this Report may
have a substantial adverse impact on any such public market. See the Risk
Factor entitled "Future Sales of Common Stock," herein.
The Company's common stock is quoted on the OTC Bulletin Board. The
high and low bid prices for these shares of common stock of the Company during
the past three years are as follows:
Bid
Quarter ending: High Low
July 31, 2001 $1.75 $0.90
October 31, 2001 $1.05 $0.65
January 31, 2002 $1.01 $0.75
April 30, 2002 $0.75 $0.38
July 31, 2002 $0.35 $0.35
October 31, 2002 $0.35 $0.35
January 31, 2003 $0.24 $0.24
April 30, 2003 $0.35 $0.35
July 31, 2003 $0.55 $0.55
October 31, 2003 $0.68 $0.45
January 31, 2004 $0.45 $0.35
April 30, 2004 $0.91 $0.59
These bid prices were obtained from the National Quotation Bureau,
Inc. ("NQB") and do not necessarily reflect actual transactions, retail
markups, mark downs or commissions.
Holders
-------
The number of record holders of the Company's common stock as of
April 30, 2004, was 282; this number does not include an indeterminate number
of stockholders whose shares are held by brokers in street name.
Dividends
---------
There are no present material restrictions that limit the ability of
the Company to pay dividends on common stock or that are likely to do so in
the future. The Company has not paid any dividends with respect to its common
stock, and does not intend to pay dividends in the foreseeable future.
Recent Sales of Unregistered Securities.
----------------------------------------
We have sold the following "restricted securities" since May 1,
2002:
Common Stock.
-------------
Aggregate
Name or Group Number of Shares Date Consideration
------------- ---------------- ---- -------------
Ratliff Farms, Inc. 200,000 04/02/04 $50,000.00
(1) Issued on various dates during our fiscal year ended April 30, 1998.
(2) The Company issued warrants to purchase up to 903,084 shares of
common stock, as partial consideration for a loan in the amount of
$860,000. See the caption "Certain Relationships and Related
Transactions."
(3) Issued on various dates during our fiscal year ended April 30, 1999.
(4) Our Board of Director's consent accepting subscriptions was signed
December 12, 2000, but the Subscription Agreements were signed over a
period of three months.
We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
relationship to us, education, business acumen, experience or other factors,
were fully capable of evaluating the risks and merits of an investment in our
company; and each had prior access to all material information about us. We
believe that the offer and sale of these securities was exempt from the
registration requirements of the Securities Act of 1933, pursuant to Sections
4(2) and 4(6) thereof, and Regulation D thereof and from various similar state
exemptions.
We have taken the following factors into account in determining the
valuations of these shares: (i) the fact that the shares are "restricted";
(ii) the limited market for our common stock on the OTC Bulletin Board of the
NASD; (iii) the low book value per share ($0.91 at April 30, 2004); and
(iv) our history of financial losses ($46,160 and ($424,429) during the fiscal
years ended April 30, 2004, and 2003, respectively).
Warrants.
---------
Herman Gettelfinger 50,495 12/2/98 (1)
Basic Investors, Inc. 100,000 12/08/00 (2)
Sherri Ann Parker Lee 1,110,000 08/13/03 (3)
William Parker Lee 250,000 08/13/03 (3)
(1) These warrants were granted to Mr. Gettelfinger as partial
consideration for a subordinated loan of $50,000. These warrants are
exercisable at a price of $1.25 per share, and expire on December 2, 2005.
The number of shares that can be purchased is variable due to a provision in
the Warrant Agreement that allows Mr. Gettelfinger to purchase up to 0.47
percent of the shares of common stock outstanding.
(2) Granted to Basic Investors for its service as a business consultant
from December 8, 2000, until February 1, 2001. The warrants are exercisable
for a period of three years, commencing December 8, 2000, at a price of $2.00
per share and may be called if Miller Petroleum's common stock trades at 150%
of the exercise price for five consecutive days.
(3) These warrants were granted to Sherri Ann Parker Lee and William
Parker Lee as partial consideration for a subordinated loan of $1,360,000.
These warrants are exercisable at a price of $0.80 per share, and expire on
January 1, 2005.
We issued all of these securities to persons who were either
"accredited investors," or "sophisticated investors" who, by reason of
relationship to us, education, business acumen, experience or other factors,
were fully capable of evaluating the risks and merits of an investment in our
company; and each had prior access to all material information about us. We
believe that the offer and sale of these securities was exempt from the
registration requirements of the Securities Act of 1933, pursuant to Sections
4(2) and 4(6) thereof, and Regulation D of the Securities Exchange Act of 1934
and from various similar state exemptions.
Options.
---------
Roy Greenwood 50,000 01/29/97 (1)
Lawrence LaRue 100,000 01/29/97 (1)
Deloy Miller 100,000 01/29/97 (1)
Teresa Cotton 20,000 01/29/97 (1)
Herbert J. White 100,000 01/29/97 (1)
Gary Bible 40,000 09/15/97 (2)
Lawrence LaRue 20,177 07/30/97 (3)
Roger Butler 30,000 09/24/01 (4)
Gary Bible 40,000 09/24/01 (4)
Teresa Cotton 10,000 09/24/01 (4)
Lawrence LaRue 100,000 09/24/01 (4)
Ernest F. Payne 75,000 09/24/01 (4)
David Wright 25,000 01/21/02 (5)
Teresa Cotton 15,000 03/20/02 (6)
Ernest F. Payne 50,000 03/20/02 (6)
Lawrence LaRue 50,000 03/20/02 (6)
Charles M. Stivers 100,000 03/19/04 (7)
(1) These options were granted pursuant to an Incentive Stock Option Plan
for employees and directors with an effective date of January 29, 1997. These
options are exercisable at a price of $0.575 per share, and expire on January
29, 2005.
(2) These options were granted to Dr. Gary G. Bible pursuant to an
Employee Stock Option dated September 15, 1997. These options are exercisable
at a price of $1.75 per share, and expire on September 15, 2005.
(3) These options were granted to Lawrence L. LaRue pursuant to an
Employee Stock Option dated July 30, 1997. These options are exercisable at a
price of $1.50 per share, and expire on July 30, 2005.
(4) These options were granted to five employees pursuant to an Employee
Stock Option dated September 24, 2001. These options are exercisable at a
price of $0.805 per share, and expire on September 24, 2009.
(5) These options were granted to David Wright pursuant to an Employee
Stock Option dated 01/21/02. These Options are exercisable at a price of
$0.8625, and expire on January 21, 2010.
(6) These options were granted to three employees pursuant to an Employee
Stock Option dated March 20, 2002. These options are exercisable at a price
of $0.46, and expire on March 20, 2010.
(7) These options were granted to Charles M. Stivers pursuant to an
Employee Stock Option dated March 19, 2004. These options are exercisable at
a price of $0.50 and expire on March 19, 2006.
Item 6. Management's Discussion and Analysis or Plan of Operation.
-------------------------------------------------------------------
Miller Petroleum has more than 45,000 acres under lease in Tennessee.
About 90% of these leases are held by production. Most of its current oil and
gas production is from the Big Lime Formation. However, there are more than
100 development drilling locations that target the Devonian (Chattanooga
Shale) as well as the Big Lime Formation.
Currently, Miller is offering ten to twenty well drilling programs to
"accredited investors" or "sophisticated investors" to spread the risk and
facilitate investor returns. The Company will sell up to a 75% working
interest to investors while retaining a 25% working interest. Each program
will be made up of eight to fifteen Chattanooga Shale wells on its Koppers
North acreage, three to 5 wells on its Koppers South gas cap and one
exploratory well on the Harriman Prospect.
In June of 2001, the Company made a conventional Big Lime gas discovery,
on the Lindsay Land Company lease jointly owned by Delta Producers, Inc. and
Miller. Currently there are six producing wells on the property. There are at
a minimum twenty five additional drill sites on this 4,000 acres lease which
is situated near Caryville, Tennessee.
Miller is continuing its leasing efforts in the East Tennessee portion
of the Eastern Overthrust Belt. Acreage is being leased on selected large
structures.
Results of Operations
---------------------
In fiscal 2004, Miller Petroleum increased its capitalized costs of oil
and gas properties from $2,116,026 to $2,638,005. Its development costs for
oil and gas properties increased from $61,007 to $565,779.
Proved reserves of oil decreased from 364,587 barrels to 350,937 and
proved reserves of natural gas decreased from 9,114,831 Mcf to 8,696,519 Mcf.
Proved developed producing reserves of oil decreased to 62,106 barrels from
75,756 barrels and proved developed producing reserves of natural gas
increased to 1,035,850 Mcf from 918,930 Mcf.
During fiscal 2004, future cash flows discounted 10% after income taxes
from proved reserves increased from $13,165,412 to $23,149,947. Management
believes that this increase was significant.
Our oil and gas revenue was $773,033 for fiscal 2004, up from $741,212
for fiscal 2003. Volatile changes in the price of natural gas brought about
this increase.
During fiscal 2004, service and drilling revenue was $1,186,823, up
from $1,099,079 due to an increase in drilling activity.
Retail sales decreased from $10,200 in fiscal 2003, to $6,939 in fiscal
2004 primarily due to the decline in drilling activities in this section of
the oilfield.
In fiscal 2004, the Company sold equipment for a gain of $42,897 down
from $73,703 in fiscal 2003.
Gross revenue for fiscal 2004 was $1,966,795, compared to $1,850,491 in
fiscal 2003. The increase was due to the Company's service and drilling
activity.
Costs for oil and gas sales increased in fiscal 2004 from $415,435 to
$457,436 due to an increase in production costs.
Selling, general and administrative expenses were $591,870, up from
$529,775 in fiscal 2003. The reason for this increase was increased costs.
Salaries and wages decreased from $784,281 to $511,786 for fiscal 2003.
The decrease was due to cost savings by management.
Depreciation, depletion and amortization decreased from $360,706 to
$265,950. Depletion of oil and gas properties was the major component of this
decrease.
Income from operations for fiscal 2004 was $139,753, up from a loss of
($239,706) in fiscal 2003 because of the above stated reasons.
Interest expense increased from $194,528 in fiscal 2003 to $195,919 in
the current year. The primary reason for the increase was additional borrowing
during the current year.
Miller's Net loss was ($11,351), up from a net loss of ($424,429) in
fiscal 2003. The reason was management's savings on salaries and decreases in
Depreciation, Depletion and Amortization.
During fiscal 2003, Miller Petroleum produced 98,149 million British
Thermal Units of natural gas, with an average price of $3.001 per million
BTU's. Production decreased to 48,880 million BTU's in fiscal 2004, and the
average price per million BTU's was $6.25. The following tables reflect our
production figures for the fiscal years ended April 30, 2002, 2003 and 2004:
AVERAGE NET AVERAGE
FISCAL YEAR NET MBTU/GAS SALES PRICE BARRELS/OIL PRICE OIL
----------- ----------- ----------- ----------- ----------
2002 79,983 $2.55/MMBTU 11,667 $20.08
2003 98,149 $3.81/MMBTU 10,414 $24.85
2004 48,880 $6.25/MMBTU 10,400 $32.75
Average production cost per barrel of oil for 2002 was $4.80, $4.85 for
2003, and $4.87 for 2004. The average production cost per MCF was $0.67 for
2002, $0.65 for 2003 and $0.68 for 2004
2002 2003 2004
---- ---- ----
Net Productive Wells 39.40 22.60 20.20
Developed Acreage 1,989 1,480 1,480
Undeveloped Acreage 46,524 49,601 40,520
Net Productive Exploratory Wells 0 0 0
Net Dry Exploratory Wells 0.48 0.24 .30
Net Productive Developmental Wells 5.28625 1.408 1.20
Net Dry Developmental Wells 0 0 0
Liquidity.
----------
During the fiscal years ended April 30, 2003, and 2004, our principal
sources of liquidity were revenue from the production of oil and gas and the
sale of approximately 50% of the working interests in the wells we drill.
Private placements of our common stock have been our principal external
sources of liquidity.
On August 13, 2003, we executed two promissory notes, for $1,110,000 and
$250,000. The notes are in favor of Sherri Ann Parker Lee and William Parker
Lee, respectively. The notes are due December 1, 2004, and bear interest at
the rate of 9%. Interest only is paid quarterly, beginning September 1, 2003
with the entire principal becoming due December 1, 2004. 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, twelve oil wells in the Koppers field, and
one gas well in the Lindsay field.
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.
Cash and cash equivalents at April 30, 2004, was $2,416 down from
$3,364 in fiscal 2003.
We believe that our current cash flow will be sufficient to support our
cash requirements for development and production over the next 12 months.
Item 7. Financial Statements.
------------------------------
MILLER PETROLEUM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2004 and 2003
INDEPENDENT AUDITORS' REPORT
Board of Directors
Miller Petroleum, Inc.
Huntsville, Tennessee
We have audited the accompanying consolidated balance sheet of Miller
Petroleum, Inc. and Subsidiaries as of April 30, 2004 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial
statements of Miller Petroleum, Inc. as of and for the year ended April 30,
2003 (as restated see Note 2) were audited by other auditors whose report
dated August 12, 2003 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Miller
Petroleum, Inc. and Subsidiaries as of April 30, 2004, and the consolidated
results of their operations and cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
/s/Rodefer Moss & Co, PLLC
Knoxville, Tennessee
February 3, 2005
Miller Petroleum, Inc.
Consolidated Balance Sheets
As Restated As Restated
April 30 April 30
2004 2003
ASSETS
CURRENT ASSETS
Cash $ 2,416 $ 3,364
Investments - 12,812
Accounts receivable 117,167 108,273
Current portion of note receivable 18,875 14,201
Inventory 50,911 37,819
Deferred offering costs 88,842 -
Prepaid expenses 66,590 29,410
----------- -----------
Total Current Assets 344,801 205,879
----------- -----------
FIXED ASSETS
Machines and Equipment 1,036,802 1,416,709
Vehicles 385,465 408,801
Buildings 313,335 313,335
Office equipment 72,549 74,379
Less:accumulated depreciation (905,531) (954,163)
----------- -----------
Total Fixed Assets 902,620 1,259,061
----------- -----------
OIL AND GAS PROPERTIES 2,638,005 2,116,026
(On the basis of successful ----------- -----------
efforts accounting)
PIPELINE FACILITIES 218,637 235,104
----------- -----------
OTHER ASSETS
Land 511,500 511,500
Investments 500 500
Equipment held for sale 443,942 496,441
Long-term notes receivable - Meyers 56,338 75,213
Cash - restricted 71,000 74,000
----------- -----------
Total Other Assets 1,083,280 1,157,654
----------- -----------
TOTAL ASSETS $ 5,187,343 $ 4,973,724
=========== ===========
See notes to consolidated financial statements.
Miller Petroleum, Inc.
Consolidated Balance Sheets
As Restated As Restated
April 30 April 30
2004 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 335,556 $ 464,515
Accrued expenses 116,011 84,191
Current portion of notes payable -
Related parties 1,360,000 9,087
Other 176,624 511,824
----------- ------------
Total Current Liabilities 1,988,191 1,069,617
----------- ------------
LONG-TERM LIABILITIES
Notes payable-Related parties 269,230 1,375,230
Other 616,739 377,478
----------- ------------
Total Long-Term Liabilities 885,969 1,752,708
----------- ------------
Total Liabilities 2,874,160 2,822,325
----------- ------------
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000
shares authorized at
0.0001 par value,
8,378,856 and 8,293,856
shares issued and outstanding 838 830
Additional paid-in capital 4,173,998 4,000,871
Retained earnings (1,861,653) (1,850,302)
----------- ------------
Total Stockholders' Equity 2,313,183 2,151,399
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,187,343 $ 4,973,724
=========== ============
See notes to consolidated financial statements
MILLER PETROLEUM, INC.
Consolidated Statements of Operations
As restated
For the For the
Years Ended Years Ended
April 30, April 30,
2004 2003
REVENUES
Oil and gas revenue $ 773,033 $ 741,212
Service and
drilling revenue 1,186,823 1,099,079
Retail sales 6,939 10,200
----------- ------------
Total Revenue 1,966,795 1,850,491
----------- ------------
COSTS AND EXPENSES
Cost of oil and gas sales 457,436 415,435
Selling, general and administrative 591,870 529,775
Salaries and wages 511,786 784,281
Depreciation, depletion
and amortization 265,950 360,706
----------- ------------
Total Costs and Expenses 1,827,042 2,090,197
----------- ------------
INCOME (LOSS)
FROM OPERATIONS 139,753 (239,706)
----------- ------------
OTHER INCOME (EXPENSE)
Interest income 1,918 1,618
Gain on Sale of Equipment 42,897 73,703
Interest expense (195,919) (194,528)
Unrealized stock loss - (65,516)
----------- ------------
Total Other Income
(Expense) (151,104) (184,723)
INCOME TAXES - -
----------- ------------
NET LOSS $ (11,351) $ (424,429)
=========== ============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (0.00) $ (0.05)
=========== ============
BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,350,048 8,217,261
=========== ============
See notes to consolidated financial statements
MILLER PETROLEUM, INC.
Consolidated Statements of Stockholders' Equity
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings Total
Balance, April 30,2002
as previously stated 8,578,856 $858 $3,884,144 $(1,188,418) $ 2,696,584
Effect of restatement (450,000) (45) (237,455) (237,500)
--------- ---- ---------- ----------- -----------
Restated balance,
April 30, 2002 8,128,856 813 3,884,144 (1,425,873) 2,459,084
Issuance of shares for
cash 85,000 9 47,491 - 47,500
Issuance of shares for
consulting 80,000 8 69,236 - 69,244
Net loss for the year
ended April 30, 2003 - - - (424,429) (424,429)
Restated balance,
April 30, 2003 8,293,856 830 4,000,871 (1,850,302) 2,151,399
--------- ---- ---------- ----------- -----------
Issuance of shares in
connection with deferred
offering 85,000 8 88,834 - 88,842
Issuance of warrants as
prepayment of financing
costs - - 59,293 - 59,293
Issuance of options
for services - - 25,000 - 25,000
Net income for the year
ended April 30, 2004 - - - (11,351) (11,351)
Restated balance,
April 30, 2004 8,378,856 $ 838 $4,173,998 $(1,861,653) $ 2,313,183
========= ===== ========== =========== ===========
See notes to consolidated financial statements
Miller Petroleum, Inc.
Consolidated Statements of Cash Flows
As Restated
April 30 April 30
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss) $ (11,351) $ (424,429)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Depreciation, depletion and amortization 265,950 360,706
Write down of investments - 65,516
Gain on sale of equipment (42,897) (73,703)
Common stock issued in exchange for services - 69,244
Options issued in exchange for services 25,000 -
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (8,894) (34,520)
Decrease (increase) in inventory (13,092) 4,262
Decrease (increase) in equipment held for sale 52,499 28,765
Decrease (increase) in prepaid expenses (10,398) 902
Increase (decrease) in accounts payable 121,729 77,884
Increase (decrease) in accrued expenses 31,820 7,338
----------- ------------
Net Cash Provided by Operating Activities 410,366 81,965
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 12,812 -
Purchase of equipment (113,834) (209,160)
Purchase of oil and gas properties (565,779) (61,007)
Proceeds from sale of equipment 340,000 173,203
Decrease in restricted cash 3,000 (2,000)
Lending on note receivable - (89,414)
Collection of note receivable 14,201 -
----------- ------------
Net Cash Used by Investing Activities (309,600) (188,378)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares for cash - 47,500
Payments on Notes Payables (502,376) (371,165)
Proceeds from borrowings 400,662 429,048
----------- ------------
Net Cash Provided (Used) by Financing Activities (101,714) 105,383
----------- ------------
NET INCREASE (DECREASE) IN CASH (948) (1,030)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,364 4,394
----------- ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 2,416 $ 3,364
=========== ============
See notes to consolidated financial statements.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Miller Petroleum, Inc.
(formerly Triple Chip Systems, Inc.) (the Company). The Company was
incorporated in the State of Delaware on November 12, 1985 for the purpose of
searching out a business acquisition. On January 10, 1997, Triple Chip
Systems, Inc. changed its name to Miller Petroleum, Inc. in conjunction with
the merger with Miller Petroleum, Inc.
The Subsidiaries
Miller Petroleum, Inc. (pre-merger) (Miller) was incorporated under the laws
of the State of Tennessee on January 24, 1978, for the purpose of acquiring
gas and oil contracts.
Miller Services, Inc. (Services) was incorporated under the laws of the State
of Tennessee on October 16, 1987, for the purpose of drilling and servicing
oil and gas wells.
Energy Cell, Inc. (Cell) was incorporated under the laws of the State of
Tennessee on October 20, 1987, for the purpose of searching out and acquiring
or participating in a business or business opportunity.
On May 1, 1996, Services and Cell were merged into Miller in a business
combination accounted for as a pooling of interests.
On January 10, 1997, Triple Chip Systems, Inc. and Miller Petroleum completed
an Agreement and Plan of Reorganization whereby the Company issued 5,582,535
shares of its common stock in exchange for all of the outstanding common stock
of Miller. Immediately prior to the Agreement and Plan of Reorganization, the
Company had 167,465 shares of common stock issued and outstanding.
The acquisition was accounted for as a recapitalization of Miller because the
shareholders of Miller controlled the Company after the acquisition.
Therefore, Miller is treated as the acquiring entity. There were no
adjustments to the carrying value of the assets or liabilities of Miller in
the exchange. The Company is the acquiring entity for legal purposes and
Miller is the surviving entity for accounting purposes. On May 6, 1996, the
shareholders of the Company authorized a reverse stock split of 1 for 200.
All references to shares of common stock have been retroactively restated.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The successful efforts method of accounting is used for oil and
gas property acquisitions, exploration and production activities as defined by
the Securities and Exchange Commission, whereby all costs incurred in
connection with the properties, productive, are capitalized. Capitalized costs
related to proved properties and estimated future costs to be incurred in the
development of proved reserves is amortized using the unit-of- production
method. Capitalized costs are annually subjected to a test of recoverability
by comparison to the present value of future net revenues from proved
reserves. Any capitalized costs in excess of the present value of future net
revenues from proved reserves, adjusted for the cost of certain unproved
properties, are expensed in the year in which such an excess occurs. The
Company has elected an April 30 year end.
c. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
Management believes that none of its long-lived assets are impaired, and the
accompanying financial statements reflect no charges or allowances for
impairment.
d. Earnings Per Share.
Basic earnings per common share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per common share include the dilutive effect of
stock warrants using the treasury stock method. Due to the nominal earnings
and the fractional nature of per share amounts, basis and diluted earnings per
share are presented as the same amount for the year ended April 30,2004.
Potentially dilutive shares for the year ended December 31, 2003, were not
included in the diluted per share calculation because their effect would be
anti-dilutive.
e. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
f. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiaries, Miller Petroleum, Inc., Miller Services, Inc.,
Energy Cell, Inc., and MPC, Inc. All significant intercompany transactions
have been eliminated.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
g. Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. The estimated useful lives are as
follows:
Lives
Class (Years)
----------------------- --------
Building 40
Machinery and equipment 5-20
Vehicles 5-7
Office equipment 5
Depreciation expense for the years ended April 30, 2004 and 2003 was $182,047
and $263,266 respectively.
h. Revenue Recognition
Revenues are recognized when the gas products are delivered to customers. In
the movement of natural gas, it is common for differences to arise between
volumes of gas contracted or nominated, and volume of gas actually received
or delivered. These solutions are the result of certain attributes of the
natural gas commodity and the industry itself. Consequently, the credit given
to the Company by a pipeline for volumes received from producers may be
different from volumes actually delivered by a pipeline. When all necessary
information, such as the final pipeline statement for receipts and deliveries
are available, these differences are resolved by the Company.
The Company records imbalances based on amounts received and classifies the
imbalances as adjustments to the trade accounts receivable or trade accounts
payable, as appropriate.
i. Accounts receivable -
Accounts receivable arise from sales of gas and oil, equipment and services.
Credit is extended based on the evaluation of the customer's creditworthiness,
and generally collateral is not required. Accounts receivable more than 45
days old are considered past due. The Company does not accrue late fees or
interest income on past due accounts. Management uses the aging of accounts
receivable to establish an allowance for doubtful accounts. Credit losses are
written off to the allowance at the time they are deemed not to be
collectible. Credit losses have historically been minimal and within
management's expectations. The allowance for doubtful accounts was $8,684 at
April 30, 2004 and 2003. Accounts receivable more than 90 days old were
$22,722 at April 30, 2004 and $ 19,350 at April 30, 2003.
i. Investment securities
Investment securities available for sale are reported at fair value, with
unrealized gains and losses, when material, reported as a gain or loss on the
statement of operations for the year.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
j. Inventory
Inventory consists primarily of crude oil in tanks and is carried at market
value.
k. Equipment Held for Sale
Used equipment is acquired by the Company for resale. When used equipment is
acquired by the Company in basket purchases, the cost is applied only to the
marketable portion of the equipment.
l. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liability at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
m. Reclassifications
Certain amounts and balances pertaining to the April 30, 2003 financial
statements have been reclassified to conform with the April 30, 2004 financial
statement presentations.
n. Stock Warrants
The Company measures its equity transactions with non-employees using the fair
value based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123. The Company continues to use the intrinsic value
approach as prescribed by APB Opinion No. 25 in measuring equity transactions
with employees. Accordingly, no compensation cost has been recognized for the
stock option plan with employees.
o. Income Taxes
The Company accounts for income taxes using the "asset and liability method."
Accordingly, deferred tax liabilities and assets are determined based on the
temporary differences between the financial reporting and tax bases of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets arise primarily from
net operating loss carryforwards. Management evaluates the likelihood of
realization of such assets at year-end reserving any such amounts not likely
to be recovered in future periods.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
p. 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 2001, the Financial Accounting Standards Board approved the issuance of
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. This statement requires companies to record the present
value of obligations associated with the retirement of tangible long-lived
assets in the period in which it is incurred. The liability is capitalized as
part of the related long-lived asset's carrying amount. Over time, accretion
of the liability is recognized as an operating expense and the capitalized
cost is depreciated over the expected useful life of the related asset. The
Company's asset retirement obligations relate primarily to the plugging,
dismantlement, removal, site reclamation and similar activities of its oil and
gas properties. Prior to adoption of this statement, such obligations were
accrued ratably over the productive lives of the assets through its liability
for such amounts. The Company adopted SFAS 143 beginning on May 1, 2003 and
recorded a cumulative loss from adoption of this statement of approximately
($7,592). During 2003 the Company recorded $395 in accretion cost (using a 12%
accretion factor) on the asset retirement obligation. These accretion costs
are included in interest expense at April 30, 2004.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
p. New Accounting Pronouncements (Cont.)
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, 2003. There will be no current
impact of adoption on its financial position or results of operations. The
FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections, on April
30, 2002. SFAS No. 145 will be effective for fiscal years beginning after May
15, 2002. This statement rescinds SFAS No. 4, Reporting Gains and Losses From
Extinguishment of Debt, and requires that all gains and losses from
extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in APB No. 30. Applying APB No. 30 will distinguish
transactions that are part of an entity's recurring operations from those that
are unusual or infrequent or that meet the criteria for classification as an
extraordinary item. Any gain or loss on extinguishment of debt that was
classified, as an extraordinary item in prior periods presented that does not
meet the criteria in APB No. 30 for classification as an extraordinary item
must be reclassified. There is no current impact of adoption on the Company's
financial position or result of operations.
The FASB issued Statement No. 146. Accounting for Costs Associated with Exit
or Disposal Activities, in June 2002. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs incurred in a Restructuring). SFAS No. 146 applies to
costs incurred in an "exit activity", which includes, but is not limited to, a
restructuring, or a "disposal activity" covered by SFAS No. 144. SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Previously, under Issue
94-3, a liability for an exit cost was recognized at the date of an entity's
commitment to an exit plan. Statement No. 146 also establishes that fair value
is the objective for initial measurement of the liability. The provisions of
SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002. Management does not expect that adoption of this
standard will have a material effect on the Company's financial position or
results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirement for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
p. New Accounting Pronouncements (Cont.)
The interpretation also clarifies that a guarantor is required to recognize,
at inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The Company has not guaranteed the debts of others, therefore, this
interpretation is not expected to have a material effect on the financial
statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock- Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements. Management has adopted certain of the disclosure
modifications required for fiscal years ending after December 15, 2002.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51. Interpretation No. 46 requires a company to consolidate a variable
interest entity if the company has a variable interest (or combination of
variable interests) that will absorb a majority of the entity's expected
losses if they occur, or both. A direct or indirect ability to make decisions
that significantly affect the results of the activities of a variable interest
entity is a strong indication that a company has one or both of the
characteristics that would require consolidation of the variable interest
entity. Interpretation no. 46 also requires additional disclosures regarding
variable interest entities. The new interpretation is effective immediately
for variable interest entities created after January 31, 2003, and is
effective in the first interim or annual period beginning after June 15, 2003,
for variable interest entities in which a company holds a variable interest
that it acquired before February 1, 2003. Management does not expect that
adoption of the interpretation will have a material effect on the Company's
financial position or results of operations.
q. Major Customers
Miller Petroleum Inc. depends upon local purchasers of hydrocarbon in the
areas where their properties are located. They have three major customers. The
loss of one or more purchasers may substantially reduce their sales and
ability to operate profitably. These major customers are:
Delta Producers, Inc. accounted for $420,298 of Miller's total
revenue which was 20.9136% of Miller's total revenue.
Nami Resources, LLC accounted for $237,962 of Miller's total
revenue which was 11.8407% of Miller's total revenue.
South Kentucky Purchasing Co. - South Kentucky accounted for
$230,415 of Miller's total revenue which was 11.4652% of Miller's
total revenue. South Kentucky purchases all of Miller's crude oil.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 2 RESTATEMENT OF FINANCIAL STATEMENTS
The Company previously issued its financial statements as of and for the year
ended April 30, 2004, which were included in its Form 10KSB filed on July 29,
2004. The filing included a report, dated July 20, 2004, which expressed an
unqualified opinion on those statements by independent accountants who had not
registered with the Public Companies Accounting Oversight Board (PCAOB).
Additionally, the report, failed to note the conduct of the audit in
accordance with the standards of the PCAOB. Because of these failures, the
Company's financial reporting was not in compliance with rules established by
the Securities Exchange Commission, and accordingly, the Company engaged other
auditors to conduct a PCAOB-compliant audit of its April 30, 2004 financial
statements.
In connection with the PCAOB-compliant audit of the 2004 financial statements,
management identified errors in amounts previously reported in the Company's
financial statements for the years ended April 30, 2002, 2003 and 2004. The
Company made an error in failing to record, in total, bad debt expense of
approximately $237,500 in relation to the non-payment of a stockholder
receivable in 2002, resulting in a misstatement of retained earnings in 2002,
2003 and 2004. In 2004 the Company's previously issued financial statements
failed to include compensation and interest expense of approximately $57,000
in connection with issuances of options and warrants. The Company, therefore,
is restating its financial statements beginning with financial position at
April 30, 2002 and including its annual financial statements for 2003 and
2004.
NOTE 3 STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
CASH PAID FOR:
Interest $(195,919) $(194,528)
Income Taxes - -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ - $ 69,244
Financing costs from issuance of warrants 59,293 -
Common stock issued for deferred offering costs 88,842 -
Options issued for services 25,000 -
Conversion of account to note payable 250,689 -
NOTE 4 DEFERRED OFFERING COST
Through April 30, 2004, the Company issued 85,000 shares of its common stock
valued at approximately $89,000 in connection with a proposed public offering
of its common stock. In June, 2004, the Company postponed its proposed public
offering due to market conditions. If the proposed offering were to be
permanently abandoned, the costs incurred would be charged to expense in the
period the decision is made. If the proposed offering is successful, the
contribution to shareholders' equity will be reduced by these costs.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 5 - OIL AND GAS PROPERTIES - PIPELINE FACILITIES
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs carrying and retaining unproved properties are expensed. The
Company amortizes the oil and gas properties using the unit-of-production
method based on total proved reserves. The Company capitalized $565,779 of oil
and gas properties for the year ended April 30, 2004 and recorded $43,800 and
$97,440 of amortization expense for the years ended April 30, 2004 and 2003,
respectively.
NOTE 6 - LONG-TERM DEBT
The Company had the following debt obligations at April 30, 2004:
Note payable to Home Federal Bank secured by equipment
bearing interest at 9.75% due in monthly payments with
final payment due in August 2005. $ 7,001
Note payable to First National Bank of Oneida secured by
stock and equipment bearing interests at 7.00% due on
January 14, 2005. 136,650
Note payable to American Fidelity Bank secured by
equipment bearing interest at 4.00% due in monthly
payments of $2,272 with final payment due in
August 2008. 366,724
Note payable to General Motors Acceptance Corporation secured
by a pickup bearing 0.00% interest due in monthly payments of
$721 with final payment due in October 2004. 5,768
Note payable to General Motors Acceptance Corporation secured
by a Suburban bearing 0.00% interest due in monthly payments of
$894 with final payment due in October 2004. 7,152
Line of credit payable to First National Bank of the Cumberlands
secured by equipment and accounts receivable bearing interest at
7.934% due on demand on August 12, 2004. 19,380
Note payable to supplier. Secured by assignment of royalty
income from five gas wells in Campbell County, Tennessee.
Interest at prime. 250,688
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 6 - LONG-TERM DEBT (Continued)
Note payable to related party unsecured at 7.00% with
payments due yearly with the principle due
in May of 2005. $ 15,230
Note payable to related party secured by twelve oil
and gas wells bearing interest at 9.00%
and requiring interest payments quarterly with
Principle due in December 2004. 1,110,000
Note payable to related party bearing interest at 8.00%
with principle due in December 2005. 254,000
Note payable to related party secured by twelve oil and gas
wells bearing interest at 9.00% and requiring interest payments
quarterly with principle due in December 2004. 250,000
----------
Total notes payable 2,422,593
Less current maturities 1,536,624
----------
Notes payable - long-term $ 885,969
==========
Year Ending April 30, Amount
2005 $1,536,624
2006 419,867
2007 130,868
2008 33,613
2009 and thereafter 301,621
----------
$2,422,593
==========
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has a note payable to Sharon Miller (wife of Deloy Miller, a
majority stockholder) for $15,230 at April 30, 2004. The note is payable with
a principle payment of $15,230 due in May 2005. The note is the balance
remaining on the original purchase of the property that houses the offices.
The Company issued a note payable of $1,110,000 and $250,000 on August 13,
2003 at 9% with a one year term to Sherri Ann Parker Lee and William Parker
Lee respectively. This note payable was issued to raise working capital. The
related party notes are due to members of the Company's board of directors or
their immediate families.
NOTE 8 - ASSET RETIREMENT OBLIGATION
Effective May 1, 2003, the Company implemented the requirements of SFAS 143.
Among other things, SFAS 143 requires entities to record a liability and
corresponding increase in long-lived assets for the present value of material
obligations associated with the retirement of tangible long-lived assets. Over
the passage of time, accretion of the liability is recognized as an operation
expense and the capitalized cost is depleted over the estimated useful life of
the related asset. Additionally, SFAS No. 143 requires that upon initial
application of these standards, the Company must recognize a cumulative effect
of a change in accounting principle corresponding to the accumulated accretion
and depletion expense that would have been recognized had this standard been
applied at the time the long-lived assets were acquired or constructed. The
Company's asset retirement obligations relate primarily to the plugging,
dismantling and removal of wells drilled to date.
Using a credit-adjusted risk fee rate of 12%, an estimated useful life of
wells ranging from 20-40 years, and estimated plugging and abandonment cost of
$1,000 per well. Oil and gas properties were increased by $7,479, which
represents the present value of all future obligations to retire the wells at
January 1, 2003, net of accumulated depletion on this cost through that date.
A corresponding obligation totaling $13,216 has also been recorded as of
January 1, 2003.
For the period ended April 30, 2004, the Company recorded accretion and
depletion expenses of $395 associated with this liability and its
corresponding asset. These expenses are included in interest expense in the
consolidated statements of loss.
NOTE 10 - INCOME TAXES
The Company provides deferred income tax assets and liabilities using the
liability method for temporary differences between book and taxable income.
A reconciliation of the statutory U. S. Federal income tax and the income tax
provision included in the accompanying consolidated statements of loss is as
follows:
April 30, 2004 2003
Statutory rate 34% 34%
Tax benefit at statutory rate (13,000) (91,000)
State income tax benefit (2,800) (19,000)
Other
------- --------
Increase in deferred tax asset and
valuation allowance $15,800 $110,000
======= ========
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
April 30, 2004 2003
Net operating loss carryforward 4,007,000 3,960,000
---------- ----------
4,007,000 3,960,000
---------- ----------
Valuation allowance -4,007,000 -3,960,000
---------- ----------
Net deferred taxes 0 0
---------- ----------
The Company recorded a valuation allowance at April 30, 2004, and 2003 equal
to the excess of deferred tax assets over deferred tax liabilities, as
management is unable to determine that these tax benefits are more likely than
not to be realized.
The Company had available, to offset taxable income, cumulative net operating
loss carryforwards arising from the periods since the year ended April 30,
1989 of approximately $ 4,000,000 at April 30, 2004. The carryforwards begin
expiring in 2005.
NOTE 11 STOCKHOLDERS' EQUITY
During the year ended April 30, 2003, the Company issued 85,000 shares of its
common stock for total proceeds of $47,500 and issued 80,000 shares of common
stock in exchange for consulting services valued at $69,244.
During the year ended April 30, 2003, the Company issued 85,000 shares for
services in connection with a planned offering. The Company recorded $88,842
in deferred offering costs on its balance sheet in connection with the
transaction.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
NOTE 11 STOCKHOLDERS' EQUITY (Continued)
In August 2003, Company issued 1,110,000 warrants to Sherri Ann Parker Lee and
250,000 warrants to William Parker Lee. The warrants were issued along with
the note payable to them dated August 13, 2003 and can be exercised for $0.80
per share, and expire on January 1, 2005. The warrants were recorded as
$59,293 of prepaid financing costs and will be amortized to interest expense
over the term of the loan. Interest expense connected with the warrants was
$32,511 for the year ended April 30, 2004
In March 2004, the Company issued 100,000 options in exchange for services.
The warrants can be exercised for $0.50 per share, and expire in March, 2006.
In connection with the transaction the Company recorded an expense of $25,000.
Additionally, the Company has warrants and options outstanding from prior
periods. All warrants must be adjusted in the event of any forward or reverse
split of outstanding common stock. The warrants have no voting rights or
liquidation preferences, unless exercised in accordance with the particular
warrant.
Information regarding the warrants for 2004 and 2003 is as follows:
2004 2003
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
Options outstanding,
beginning of year 1,902,256 $ 1.06 1,787,256 $ 1.09
Options canceled 926,584 1.24 - n/a
Options exercised - n/a - n/a
Options granted 1,460,000 0.78 115,000 $ 0.46
--------- ------ --------- ------
Options outstanding,
end of year 2,435,672 $ 0.80 1,902,256 $ 1.06
========= ====== ========= ======
Options exercisable,
end of year 2,435,672 $ 0.80 1,902,256 $ 1.06
========= ====== ========= ======
Option price range,
end of year $0.46 to 1.25 $0.46 to 2.00
Option price range,
exercised shares n/a n/a
Options available for
grant at end of year 0 0
Weighted average fair
value of options
granted during
the year $0.05 $0.06
NOTE 12 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
Capitalized Costs Relating to
Oil and Gas Producing Activities
April 30,
2004 2003
Proved oil and gas properties
and related lease equipment
Developed $ 3,362,316 $ 2,825,277
Non-developed 31,053 31,053
----------- -----------
3,393,369 2,856,330
Accumulated depreciation and depletion (755,364) (740,304)
----------- -----------
Net Capitalized Costs $ 2,638,005 $ 2,116,026
=========== =========== (1)
NOTE 12 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
April 30,
2004 2003
Acquisition of Properties Proved and Unproved $ 0 $ 0
Exploration Costs - -
Development Costs 565,779 61,007
---------- ----------
Total $ 565,779 $ 61,007
========== ==========
(3) Results of Operations for
Producing Activities
April 30,
2004 2003
Production revenues $1,959,856 $1,840,291
Production costs 799,978 819,507
Depreciation and depletion 43,800 97,440
--------- ----------
Results of operations for producing activities
(excluding corporate overhead and interest costs) $1,116,078 $ 923,344
========= ==========
(4) Reserve Quantity Information
The following schedule estimates proved oil and natural gas reserves
attributable to the Company. Proved reserves are estimated quantities of oil
and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved - developed reserves
are those which are expected to be recovered through existing wells with
existing equipment and operating methods. Reserves are stated in barrels of
oil (Bbls) and thousands of cubic feet of natural gas (Mcf). Geological and
engineering estimates of proved oil and natural gas reserves at one point in
time are highly interpretive, inherently imprecise and subject to ongoing
revisions that may be substantial in an amount. Although every reasonable
effort is made to ensure that the reserve estimates reported represent the
most accurate assessments possible, these estimates are by their nature
generally less precise that other estimates presented in connection with
financial statement disclosures.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
Oil (Bbls) Gas (Mcf)
Proved reserves
Balance, April 30, 2002 593,231 9,391,325
Discoveries and extensions 2,196 16,792
Revisions of previous estimates (220,426) (195,137)
Productions (10,414) (98,149)
---------- -----------
Balance, April 30, 2003 364,587 9,114,831
Discoveries and extensions 120,300 1,220,100
Revisions of previous estimates 138,224 4,488,685
Production (10,400) (48,880)
---------- -----------
Balance, April 30, 2004 612,711 14,774,736
Proved developed producing
reserves at April 30, 2004 62,106 1,035,850
---------- -----------
Proved developed producing
reserves at April 30, 2003 75,756 918,930
========== ===========
In addition to the proved developed producing oil and gas reserves reported in
the geological and engineering reports, the Company holds ownership interests
in various proved - undeveloped properties. The reserve and engineering
reports performed for the Company were by Glover Petroleum Consultants of
Crossville, Tennessee for the year ended April 30, 2004 and April 30, 2003.
Although wells have been drilled and completed in each of these four
properties, certain production and pipeline facilities must be installed
before actual gas production will be able to commence. The most recent
development plan for these properties indicates that facilities installation
and commencement of production will be in the summer of 2005. However, such
timing as well as the actual financing arrangements that will be secured by
the Company are uncertain at this time. Therefore, these proven undeveloped
reserves are not being included in the presentation of the oil and gas
reserves at April 30, 2004, nor are such reserves being considered in
calculating depreciation, depletion and amortization expense for the year
based on the April 30, 2004 balance of the proven developed producing reserves
set forth above.
The following schedule presents the standardized measure of estimated
discounted future net cash flows from the Company's proved developed reserves
for the years ended April 30, 2004 and 2003. Estimated future cash flows were
based on independent reserves evaluation from Glover Petroleum Consultants for
the years ended April 30, 2004 and April 30, 2003, respectively. Because the
standardized measure of future net cash flows was prepared using the
prevailing economic conditions existing at April 30, 2004 and 2003, it should
be emphasized that such conditions continually change. Accordingly, such
information should not serve as a basis in making any judgment on the
potential value of the Company's recoverable reserves or in estimating future
results of operations.
Estimated future net cash flows represent an estimate of future net revenues
from the production of proved reserves using current sales prices, along with
estimates of the operating costs, production taxes and future development and
abandonment costs (less salvage value) necessary to produce such reserves. The
average prices used at April 30, 2004 and 2003 were $32.75 and $21.00 per
barrel of oil and $6.25 and $5.24 per Mcf gas, respectively. No deduction has
been made for depreciation, depletion or any indirect costs such as general
corporate overhead or interest expense.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
April 30, 2004 and 2003
Operating costs and production taxes are estimated based on current costs with
respect to producing gas properties. Future development costs are based on
the best estimate of such costs assuming current economic and operating
conditions.
Income tax expense is computed based on applying the appropriate statutory tax
rate to the excess of future cash inflows less future production and
development costs over the current tax basis of the properties involved, less
applicable carry forwards, for both regular and alternative minimum tax.
The future net revenue information assumes no escalation of costs or prices,
except for gas sales made under terms of contracts which include fixed and
determinable escalation. Future costs and prices could significantly vary
from current amounts and, accordingly, revisions in the future could be
significant.
Standardized measures of discounted future net cash flows:
April 30,
2004 2003
Future cash flows $ 65,105,641 $ 47,595,637
Future production costs and taxes (2,769,464) (2,259,240)
Future development costs (4,740,000) (4,740,000)
Future income tax expense (17,854,815) (12,584,883)
------------ ------------
Future cash flows before
income taxes 39,741,362 28,011,514
Discount at 10% for timing of
cash flows (16,591,415) (14,846,102)
------------ ------------
Discounted future net cash flows
from proved reserves $ 23,149,947 $ 13,165,412
============ ============
Of the Company's total proved reserves as of April 30, 2004 and 2003,
approximately 7% and 12%, respectively, were classified as proved developed
producing, 4% and 4%, respectively, were classified as proved developed non-
producing and 89% and 84%, respectively, were classified as proved
undeveloped. All of the Company's reserves are located in the continental
United States.
The following table sets forth the changes in the standardized measure of
discounted future net cash flows from proved reserves for April 30, 2004 and
2003.
April 30,
2004 2003
Balance, beginning of year $13,165,412 $15,812,991
Sales, Net of production costs
and taxes 16,999,780 (4,650)
Discoveries and extensions 14,596 1,860
Changes in prices and production
costs 2,027,173 4,216,240
Revisions of quantity estimates (4,350,461) (4,460,402)
Development costs incurred 565,779 61,007
Net changes in income taxes (5,269,932) (729,234)
Changes in future development
costs 0 (1,730,000)
Changes in production rates and other (2,400) (2,400)
---------- ----------
Balances, end of year $23,149,947 $13,165,412
========== ==========
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
---------------------
Butch Grubb, Certified Public Accountant, of London,
Kentucky, was engaged on or about March 19, 2004, by the Board of
Directors of the Company to audit the financial statements of the Company.
Item 8(a). Controls and Procedures.
------------------------------------
As of the end of the 90 day period at the end of this Annual Report,
we carried out an evaluation, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic reports that are filed with the Securities and
Exchange Commission. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless
of how remote. In addition, we reviewed our internal controls, and there have
been no significant changes in our internal controls or in other factors that
could significantly affect those controls subsequent to the date of their last
evaluation.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers
--------------------------------------------------
The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the
next annual meeting of stockholders (to be held at such time as the Board of
Directors shall determine) or until their successors are elected or appointed
and qualified, or their prior resignation or termination.
Date of Date of
Positions Election or Termination
Name Held Designation or Designation
Deloy Miller Director, 12/96 *
815 Southlake Drive President 12/99 *
Oneida, TN 37841 CEO 12/97 *
Charles M. Stivers CFO 3/04 *
420 Richmond Road
Manchester, KY 40962
Herbert J. White Director and 4/97 *
P.O. Box 1868 Vice President 4/97 *
Fairfield Glade, TN 38557
Herman Gettelfinger Director 4/97 *
641 Atlantic Ave.
Knoxville, TN 37917
Gary G. Bible Vice President 9/97 *
232 West Seneca Circle
Oneida, TN 37841
Ernest F. Payne Vice President 5/01 8/03
446 Southlake Drive President 3/03 *
Oneida, TN 37841
Teresa Cotton Secretary and 12/01 *
1228 Cherry Fork Treasurer
Helenwood, TN 37755
Wm. Parker Lee Director 12/01 *
3024 Duncan Road
Lenoir City, TN 37772
* These persons presently serve in the capacities indicated opposite
their respective names.
Term of Office
--------------
The term of office of the current directors shall continue until the
annual meeting of stockholders, which is to be held at such time as the Board
of Directors shall determine. The annual meeting of the Board of Directors
immediately follows the annual meeting of stockholders, at which officers for
the coming year are elected.
Business Experience
-------------------
Deloy Miller. Mr. Miller is 56 years of age. Mr. Miller, Chairman
and CEO, is a seasoned gas and oil professional with more than 30 years of
experience in the drilling and production business in the Appalachian basin.
During his years as a drilling contractor, he acquired extensive geological
knowledge of Tennessee and Kentucky and received training in the reading of
well logs. A native Tennessean, Miller is credited with being the leader in
converting the Appalachian Basin from cable tool drilling to air drilling,
using the Ingersoll-Rand T3 Drillmaster rigs. The introduction of air
drilling sparked the 1969 drilling boom and Miller soon became a successful
drilling contractor in the southern Appalachian basin. He served two terms
as president of the Tennessee Oil & Gas Association and in 1978 the
organization named Miller the Tennessee Oil Man of the Year. He continues to
serve on the board of that organization. Mr. Miller was appointed by the
Governor of Tennessee to be the petroleum industry's representative on the
Tennessee Oil & Gas Board, the state agency that regulates gas and oil
operations in the state.
Charles M. Stivers. Mr. Stivers has over 18 years accounting
experience and over 12 years of experience within the energy industry. He
owns and operates Charles M. Stivers, C.P.A., which specializes in the oil and
gas industry and has clients located in eight different states. His
responsibilities include all forms of SEC audit work, SEC quarterly financial
statement filings, oil and gas consulting work, and income tax work. Mr.
Stivers served as Treasurer and CFO for Clay Resource Company and Senior Tax
and Audit Specialist for Gallaher and Company. He received a Bachelor of
Science degree in accounting from Eastern Kentucky University.
Herbert J. White. Mr. White, age 77, is Development Engineer for
the company has 44 years of petroleum related experience. After earning his
BS degree from North Texas University, he became an engineer with Halliburton,
handling Louisiana Gulf Coast and offshore operations and serving in
Australia. In 1975 he joined Petroleum Development Corporation, a West
Virginia-based public company, supervising engineering and operations in
Southern Appalachian basin. He also has experience in Devonian Shale
production, enhanced recovery and coal degasification. Miller Petroleum and
its predecessor corporation have employed Mr. White as a Petroleum Engineer
since July of 1985. In April, 1997, he became a director and Vice President of
Development Engineering for Miller Petroleum.
Herman Gettelfinger. Mr. Gettelfinger, age 70, is member of our
Board of Directors, Herman Gettelfinger is a co-owner of Kelso Oil Company,
Knoxville Tennessee and has been the President of Kelso since 1960. Kelso is
one of eastern Tennessee's largest distributors of motor oils, fuels and
lubricants to the industrial and commercial market. Mr. Gettelfinger has been
active in the gas and oil drilling and exploration business for more than 35
years and has been associated with Miller Petroleum for more than 25 years.
Dr. Gary Bible was appointed Vice President of Geology on September
15, 1997. Dr. Bible is 53 years of age. Dr. Bible came from Alamco, where he
had served since May of 1991 as Manager of Geology and Senior Geologist. Dr.
Bible earned his BS Degree in Geology from Kent State University and his MSc.
and PhD. Degrees in Geology from Iowa State University. He is a proven
hydrocarbon finder who drilled his first successful wildcat as a Trainee
Geologist. Dr. Bible brings to the Company 20 years experience as a Petroleum
Geologist. In addition, Dr. Bible has spent more than 10 years in the
Appalachian Basin in the exploration and development of reserves in the Big
Lime, Devonian Shale and in deeper horizons. He is credited with managing a
drilling program at Alamco that kept its finding cost the lowest in the
nation.
Ernest F. Payne. Mr. Payne, age 56, was appointed Vice President of
Field Operations on May 21, 2001. Mr. Payne rejoined the Miller Team after
serving as Project Manager and Superintendent for Youngquist Brothers of Fort
Myers, Florida from early 1994 through May of 2001. Mr. Payne has 20 years
experience in oil and gas well design and stimulations as well as supervising
the operation of drilling and workover rigs. He earned a B.S. in engineering
at Tennessee Technological University. He originally joined Miller in the
early 70's and was the general manager for 17 years. He directed the
operation of 18 drilling and workover rigs. In the mid 1980's he formed his
own company and managed large drilling jobs in Florida and Puerto Rico until
joining Youngquist.
Teresa Cotton, Ms. Cotton, age 40, joined the Miller Team in
August, 1996. She was appointed Secretary/Treasurer on December 1, 2001. Prior
to joining the Miller Team, she was employed by Halliburton Services. Teresa
has more than twenty years experience in the oil and gas industry. Mrs.
Cotton, a Tennessee native, earned a A.S. in Business Administration at Roane
State Community College in Huntsville, Tennessee and is now pursuing her B.S.
in Business Administration.
Wm. Parker Lee, Mr. Lee, age 29, is a member of the Board of
Directors. For the past three years, Parker has managed Lee Investments, which
has holding in various corporations. He graduated from Montana State
University in May of 1997. During 1998, prior to attending law school, Parker
worked with the family business in Knoxville, Tennessee. In May of 2001, W.
Parker Lee earned a J. D. degree from Willamette University. Mr. Lee is a
native of Knoxville, Tennessee
Committees
The Company does have an Audit Committee.
Code of Ethics
We have adopted a Code of Ethics and it is attached to this Report
as Exhibit 14. See Part III, Item 13.
Family Relationships
There are no family relationships between any director or
executive officer of the Company or any person nominated to become such.
Involvement in Certain Legal Proceedings
----------------------------------------
Except as indicated below and to the knowledge of management, during
the past five years, no present or former director, person nominated to become
a director, executive officer, promoter or control person of the Company:
(1) Was a general partner or executive officer of any business
by or against which any bankruptcy petition was filed, whether at the time of
such filing or two years prior thereto;
(2) Was convicted in a criminal proceeding or named the subject
of a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant,
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state
securities laws or federal commodities laws;
(4) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described above under this Item, or to
be associated with persons engaged in any such activity;
(5) Was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the Securities and Exchange Commission has not been subsequently
reversed, suspended, or vacated; or
(6) Was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by
the Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The Company has no securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); it files
reports under Section 15(d) thereof. Accordingly, the Company's directors,
executive officers and 10% stockholders are not required to file statements of
beneficial ownership of securities under Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
Cash Compensation
-----------------
The following table sets forth a summary of all compensation awarded to,
earned or paid to, the Company's Chief Executive Officer during fiscal years
ended April 30, 2004, April 30, 2003 and April 30, 2002. None of the Company's
other executive officers earned compensation in excess of $100,000 per annum
for services rendered to the Company in any capacity during those periods.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year Other Rest- Under- LTIP Other
Principal Ended Salary Bonus Annual rictedlying Pay- Comp-
Position April 30 ($) ($) Compen-Stock Optionsouts ensat'n
-----------------------------------------------------------------
Deloy Miller
Chief
Executive 2002 155,769 0 0 0 0 0 0
Officer 2003 180,000 0 0 0 0 0 0
2004 183,462 0 0 0 0 0 0
Compensation of Directors
The Board of Directors has resolved to compensate the members of
the Board of Directors for attendance at meetings at the rate of $500 per day.
Employment Contracts
There are presently no employment contracts relating to any member
of management; however, depending upon the Company's operations and
requirements, the Company may offer long term contracts to directors,
executive officers or key employees in the future.
Termination of Employment and Change of Control Arrangement
None.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following tables set forth the share holdings of the Company's
directors and executive officers and those persons who own more than 5% of the
Company's common stock as of the date hereof, with these computations being
based upon 8,578,856 shares of common stock being outstanding.
Directors and Executive Officers
Number of Shares Percent
Name and Address(1) Title Beneficially Owned of Class
Deloy Miller Director, 4,090,343 (1) 48%
815 South Lake Drive and CEO
Oneida, TN 37841
The Estate of CFO, Director 84,438 (2) 1%
LaRue L. LaRue
432 Brewstertown Road
Sunbright, TN 37872
Herbert J. White Vice President/Director 300 (3) -0-
P.O. Box 1868
Fairfield Glade, TN
38557
Herman Gettelfinger Director 306,537 4%
641 Atlantic Ave.
Knoxville, TN 37917
Gary Bible Vice President 6,516 (4) -0-
323 Seneca Circle
Oneida, TN 37841
Teresa Cotton Secretary/Treasurer 1,300 (5) -0-
Ernest F. Payne Vice President 30,000 (6) -0-
All executive officers and directors
as a group 4,519,434 53%
(1) Does not include options for 100,000 shares.
(2) Does not include options for 270,177 shares and warrants for 12,500
shares.
(3) Does not include options for 100,000 shares.
(4) Does not include options for 80,000 shares and warrants for 6,000 shares.
(5) Does not include options for 45,000 shares and warrants for 5,000 shares
(6) Does not include options for 125,000 shares.
Each of these persons presently serves in the capacities indicated.
Five Percent Stockholders
Number of Shares Percent
Name and Address Title Beneficially Owned of Class
Deloy Miller Director 4,090,343 (1) 48%
815 South Lake Drive and CEO
Oneida, TN 37841
(1) Does not include options for 100,000 shares.
(2) Does not include warrants for 1,000,000 shares.
Changes in Control
------------------
Except as indicated below, to the knowledge of the Company's
management, there are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company. See the
foregoing tables regarding "Directors and Executive Officers" and "Five
Percent Stockholders."
Item 12. Certain Relationships and Related Transactions.
--------------------------------------------------------
Transactions with Management and Others
---------------------------------------
The Company has a note payable to Sharon Miller (Deloy Miller's wife a
majority stockholder), for $15,230 at April 30, 200. The note is payable
with interest in May 2005.
The note is the balance remaining on the original purchase of the property
that houses the offices.
The Company issued a note receivable of $1,110,000 on August 13, 2003 at
9% with a one year term to Sherri Ann Parker Lee, of Knoxville, Tennessee.
The Company issued a note receivable of $250,000 on August 13, 2003 at 9%
with a one year term to William Parker Lee, a member of the Board of
Directors.
Certain Business Relationships
------------------------------
Other than the transactions disclosed in the previous section, there
have been no material transactions, series of similar transactions or
currently proposed transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director or executive officer or any security holder
who is known to the Company to own of record or beneficially more than 5% of
the Company's common stock, or any member of the immediate family of any of
the foregoing persons, had a material interest.
Indebtedness of Management
--------------------------
Other than the transactions disclosed in the previous section, there
have been no material transactions, series of similar transactions or
currently proposed transactions, to which the Company or any of its
subsidiaries was or is to be a party, in which the amount involved exceeds
$60,000 and in which any director or executive officer or any security holder
who is known to the Company to own of record or beneficially more than 5%of
the Company's common stock, or any member of the immediate family of any of
the foregoing persons, had a material interest.
Parents of the Issuer
---------------------
Except to the extent that Deloy Miller may be deemed to be a
parent of the Company by virtue of his ownership of a majority of its issued
and outstanding shares, the Company has no parents.
Transactions with Promoters
---------------------------
Other than the Note, there have been no material transactions,
series of similar transactions, currently proposed transactions, or series of
similar transactions, to which the Company or any of its subsidiaries was or
is to be a party, in which the amount involved exceeds $60,000 and in which
any promoter or founder or any member of the immediate family of any of the
foregoing persons, had a material interest.
Item 13. Exhibits and Reports on Form 8-K.
Reports on Form 8-K*
-------------------
None.
Exhibit
Exhibits* Number
-------- -------
(i)
Subsidiaries of the Company **
Koppers Lease Schedule **
Delta Leases Schedule **
Code of Ethics 14
302 Certification of Deloy Miller 31.1
302 Certification of Lawrence LaRue 31.2
906 Certification 32
(ii) Where Incorporated
In This Report
------------------
None.
*A summary of any Exhibit is modified in its entirety by reference to the
actual Exhibit.
**These documents and related exhibits have previously been filed with the
Securities and Exchange Commission and are incorporated herein by this
reference.
Item 14. Principal Accountant Fees and Services
The following is a summary of the fees billed to Miller by it principal
accountants during the fiscal years ended March 31, 2004, and March 31, 2003:
Fee category 2004 2003
------------ ---- ----
Audit fees $10,000 $12,000
Audit-related fees $ 0 $ 0
Tax fees $ $ 1,910
All other fees $ 0 $ 0
Total fees $10,000 $13,910
Audit fees. Consists of fees for professional services rendered by
our principal accountants for the audit of our annual financial statements
and the review of financial statements included in our Forms 10-QSB or
services that are normally provided by our principal accountants in connection
with statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees for assurance and related services
by our principal accountants that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under
"Audit fees."
Tax fees. Consists of fees for professional services rendered by our
principal accountants for tax compliance, tax advice and tax planning.
All other fees. Consists of fees for products and services provided by
our principal accountants, other than the services reported under "Audit
fees," "Audit-related fees" and "Tax fees" above. The fees disclosed in this
category include due diligence, preparation of pro forma financial statements
as a discussion piece for a Board member, and preparation of letters in
connection with the filing of Current Reports on Form 8-K.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MILLER PETROLEUM, INC.
Date: 2/15/05 By/s/Deloy Miller
-------- ---------------------------
Deloy Miller, CEO and
Director
In accordance with the Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
MILLER PETROLEUM, INC.
Date: 2/15/05 By/s/Deloy Miller
-------- ---------------------------
Deloy Miller, CEO and
Director
Date: 2/15/05 By/s/Charles M. Stivers
-------- ---------------------------
Charles M. Stivers, CFO and
Director
Date: 2/15/05 By/s/Herman Gettelfinger
-------- ---------------------------
Herman Gettelfinger, Director