UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 2005
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 33-2249-FW
MILLER PETROLEUM, INC.
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(Exact name of small business issuer as specified 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)
(423) 663-9457
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Issuer's telephone number
N/A
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 14, 2005, there were 9,396,856 shares of Common Stock issued
and outstanding.
Transitional Small Business Issuer Format Yes No X
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of Miller Petroleum, Inc., a Tennessee
corporation (the "Company"), required to be filed with this Quarterly Report
were prepared by management. In the opinion of management, the Financial
Statements fairly present the financial condition of the Registrant.
MILLER PETROLEUM, INC.
Consolidated Balance Sheets
July 31, April 30,
2005 2005
Unaudited
ASSETS
CURRENT ASSETS
Cash $ 989,446 $ 2,362
Accounts receivable 214,087 182,951
Participant receivable 231,223 -
Current portion of note receivable 42,000 47,000
Inventory 67,389 67,389
Deferred offering costs 88,842 88,842
Prepaid expenses 291,022 -
Loan Fees 402,710 -
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Total Current Assets 2,326,719 388,544
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FIXED ASSETS
Machinery and equipment 970,842 941,601
Vehicles 333,583 333,583
Buildings 313,335 313,335
Office Equipment 76,490 72,549
Less: accumulated depreciation (955,212) (939,579)
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Total Fixed assets 739,038 721,489
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OIL AND GAS PROPERTIES 3,111,013 2,941,832
(On the basis of successful ---------- ----------
efforts accounting)
PIPELINE FACILITIES 203,211 206,298
OTHER ASSETS
Land 496,500 496,500
Investments 500 500
Equipment held for sale 431,462 431,462
Cash - restricted 162,358 71,000
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Total Other Assets 1,090,820 999,462
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TOTAL ASSETS $7,470,801 $5,257,625
========== ==========
See notes to consolidated financial statements.
Consolidated Balance Sheets
July 31, April 30,
2005 2005
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 179,310 $ 330,620
Accrued expenses 112,944 224,306
Current portion of notes payable -
Other 4,172,290 0
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Total Current Liabilities 4,464,544 554,926
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LONG-TERM LIABILITIES
Notes payable-Related parties 0 1,673,693
Other 328,312 655,646
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Total Long-Term Liabilities 328,312 2,329,339
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Total Liabilities 4,792,856 2,884,265
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STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares
authorized at $0.0001 par value,
8,753,856 and 9,396,856 shares
issued and outstanding 939 939
Additional paid-in capital 4,865,890 4,495,498
Retained Earnings (2,188,884) (2,123,077)
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Total Stockholders' Equity 2,677,945 2,373,360
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TOTAL LIABILITIES AND
STOCKHOLDERS'S EQUITY $7,470,801 $5,257,625
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Consolidated Statements of Operations
(UNAUDITED)
For the three For the three
Months Ended Months Ended
July 31, July 31,
2005 2004
REVENUES
Oil and gas revenue $ 185,821 $ 226,944
Service and drilling revenue 1,344,616 31,813
Retail sales - 27,900
Other revenue 46 649
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Total Revenue 1,530,483 287,306
COSTS AND EXPENSES
Cost of oil and gas sales 903,007 42,151
Selling, general and
administrative 371,469 92,744
Salaries and wages 76,416 33,706
Depreciation, depletion and
amortization 74,218 41,056
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Total Costs and Expenses 1,425,110 209,657
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INCOME (LOSS) FROM OPERATIONS 105,373 77,649
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OTHER INCOME (EXPENSE)
Interest Income 51 59
Gain on sale of equipment 300 6,500
Interest expense (171,531) (45,930)
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Total Other Income (Expense) (171,180) (39,371)
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NET INCOME (LOSS) (65,807) 38,278
============ ============
NET EARNING (LOSS) PER SHARE (0.01) 0.01
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,396,856 8,753,856
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings Total
Restated balance,
April 30, 2004 9,396,856 $ 939 4,495,498 (2,123,077) 2,373,360
--------- ---- --------- ----------- ---------
Issuance of warrants 370,392 370,392
as prepayment of
financing costs
Net loss for the
three months ended
July 31, 2005 - - - (65,807) (65,807)
Restated balance, ---------- ---- ---------- ---------- -------
July 31, 2005 9,396,856 $939 $ 4,865,890 ($2,188,884)$2,677,945
========== ==== =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Consolidated Statement of Cash Flows
(UNAUDITED)
For the Three For the Three
Months Ended Months Ended
July 31, 2005 July 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (65,807) $ 38,278
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation, depletion and amortization 74,218 41,056
Gain on sale of equipment 300 0
Accretion of warrant costs 79,370 0
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (31,136) 7,685
Decrease (increase) in participant receivable (213,223) 0
Decrease (increase) in loan fees (402,710) 0
Decrease (increase) in prepaid expenses 0 25,175
Increase (decrease) in accounts payable (151,310) (57,242)
Increase (decrease) in accrued expenses (111,362) 138
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Net Cash Provided (Used) by Operating
Activities (839,660) 55,090
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (27,480) 0
Changes in oil and gas properties (230,681) (118,125)
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Net Cash Provided (Used) by Investing
Activities (258,161) (118,125)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (1,978,737) (23,628)
Proceeds from borrowing 4,150,000 31,388
Net proceeds from issuance of common stock 0 96,001
Increase in restricted cash (91,358) 0
Change in note receivable 5,000 0
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Net Cash Provided (Used) by Financing
Activities 2,084,905 103,761
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NET INCREASE (DECREASE) IN CASH 987,084 40,726
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,362 73,416
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 989,446 $ 114,142
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CASH PAID FOR
INTEREST $ (92,161) $ (45,930)
INCOME TAXES 0 0
The accompanying notes are an integral part of these consolidated financial
statements.
MILLER PETROLEUM, INC.
Notes to the Consolidated Financial Statements
(1) Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
Registrant's April 30, 2005 Annual Report on Form 1OKSB. The results of
operations for the period ended July 31, 2005 are not necessarily
indicative of operating results for the full year.
The consolidated financial statements and other information furnished
herein reflect all adjustment which are, in the opinion of management of
the Registrant, necessary for a fair presentation of the results of the
interim periods covered by this report.
(2) RELATED PARTY TRANSACTIONS
None
(3) Recent Accounting Pronouncements
In June 2003, the FASB approved SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity" SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. This Statement
is effective for financial instruments entered into or modified after May
31, 2003, and otherwise was effective at the beginning of the first
interim period beginning after June 15, 2003. SFAS 150 did not have
an effect on the Company's financial position.
In December 2003, the FASB issued a revised interpretation NO 46,
"Consolidation of Variable Interest Entities." The interpretation
clarifies the application of Accounting Research Bulletin No. 51, "
Consolidated Financial Statements," to certain types of entities.
Adoption did not have an impact on the Company's financial statements.
In March 2004, The Emerging Issues Task Force ("EITF") reached a
consensus that mineral rights, as defined in EITF Issue No. 04-02,
"Whether Mineral Rights are Tangible or Intangible Asset," are tangible
assets and that they should be removed as examples of intangibles assets
in SFAS Nos. 141 and 142. The FASB has recently ratified this consensus
and directed the FASB staff to amend SFAS Nos. 141 and 142 through the
issuance of FASB Staff Positions FSP FAS 141-1 and FSP FAS 142-1.
Historically the Company has included the cost of such mineral rights as
tangible assets, which is consistent with the EITF's consensus. As
such, EITF 04-02 is not expected to affect the Company's consolidated
financial statements.
In December 2004, The FASB issued SFAS No. 123R, "Share-Based Payment."
This statement is a revision to SFAS No. 123, "Accounting for Stock-
Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." This statement establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services, primarily focusing on the accounting
for transactions. Companies will be required to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award (with
limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service, the requisite
service period (usually the vesting period), in exchange for the award.
The grant date fair value of employee share options and similar
instruments will be estimated using option-pricing models.
If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of
the fair value of the modified award over the fair value of the original
award immediately before the modifications for small business issuers.
SFAS No. 123R will be effective for periods beginning after December 15,
2005. Accordingly, the Company will adopt SFAS No. 123R in its fourth
quarter of fiscal 2006. The Company is currently evaluating the
provisions of SFAS No. 123R and has not determined the impact that this
Statement will have on its results of operations or financial position.
In April 2005, the FASB issued Staff Interpretation No. 19-1 ("FSP FAS
19 1") "Accounting for Suspended Well Costs," which provides guidance on
the accounting for exploratory well costs and proposes an amendment to
FASB Statement No. 19 ("FASB 19"), "Financial Accounting and Reporting
By Oil and Gas Producing Companies." The guidance in FSP FAS 19-1
applies to enterprises that use the successful efforts method of
accounting as described in FASB 19. The guidance in FSP FAS 19-1 is not
expected to impact the consolidated financial position, result of
operations or cash flows.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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We have more than approximately 43,000 acres under lease in Tennessee.
About 90% of these leases are held by production. Most of our current oil and
gas production is from the Big Lime Formation. However, there are more than
160 development drilling locations that target the Devonian (Chattanooga
Shale) as well as the Big Lime Formation.
Currently, we are offering ten to twenty well drilling programs to
"accredited investors" or "sophisticated investors" to help spread the risk
associated with drilling projects and to facilitate investor returns. We will
sell up to a 70% working interest to investors while retaining a 30% working
interest. Each program will be made up of five to fifteen Chattanooga Shale
wells on its Koppers South acreage.
Miller completed the drilling and fracing of the first five wells on the
Koppers North and Carden Prospect in Campbell County, Tennessee. These are
the Koppers 6A and 7A and the Carden 1A, 2A and 3A. The wells have been
drilled to approximately 3000 feet in depth, to fully penetrate a thickened
Devonian Shale, with up to 828 feet of potential hydrocarbon entry. Average
open flows are 130 Mcfd of natural gas each. Gathering lines have been
installed to begin immediate gas sales.
Drilling and development on the Koppers North and Carden is in a joint
venture with Golden Triangle Energy (GTC), Inc., Houston, Texas and Norwest
Energy NL, Perth, Australia. Miller Petroleum, Inc. will serve as operator
and retain a twenty percent carried net revenue interest for the first twenty
wells and a twenty five percent working interest in the remaining wells
drilled by the joint venture.
In June 2001, we 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. Two wells were
drilled in June, 2005 the Lindsay #16 and #17. These wells fully penetrated
the Big Lime and Devonian Shale to depths of approximately 4700 feet. The
Lindsay #17 has been foam fraced in the Devonian Shale and will be fraced in
the Big Lime when testing is completed in the shale. There are at a minimum
twenty three additional drill sites on this 3,400 acres lease which is
situated near Caryville, Tennessee.
We are continuing our leasing efforts in the East Tennessee portion of
the Eastern Overthrust Belt, which runs from Eastern Canada through Appalachia
into Alabama. Acreage is being leased there in selected areas.
Liquidity and Capital Resources
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During the fiscal years ended April 30, 2004, and 2005, our principal
sources of liquidity were revenue from the production of oil and gas. Private
placements of our common stock have been our principal external sources of
liquidity. In physical year 2004 our access to funding depended upon
borrowing transactions with related parties and directors. In 2005 with the
increase in the volatility of markets for petroleum products our access to
sources of funds was enhanced. Accordingly subsequent to our year end, on May
9, 2005 we entered into a credit agreement with Prospect Energy Corporation,
Inc. and Petro Capital III, LP. Under the agreement, we received in aggregate
of $4,150,000 in debt financing under two convertible promissory notes with
Prospect and Petro, for $3,150,000 and $1,000,000, respectively. Proceeds
from this borrowing were used to satisfy all the obligations existing at the
balance sheet date, as disclosed in this Note. Remaining funds after
retirement of all debt was used to institute the drilling program. The note
is interest only accruing at 12% and is payable on June 30, 2006. The notes
are convertible into common stock at the lesser of $1.50 or the price at which
common stock will be issued to investors in a planned equity offering of the
company. Results of Operations
---------------------
The Company had revenues of $1,530,483 for the first quarter of fiscal
2005 as compared with $287,306 in revenues recognized during the first quarter
of fiscal 2004.
Oil and gas revenue for the current quarter was $185,821 as compared with
$226,944 in the first quarter of fiscal 2004. This decrease was due primarily
to a decrease in production.
Service and drilling revenue for the first quarter was $1,344,616 as
compared with $31,813 for the same quarter last year. This increase was due
to increased drilling activity.
During the current quarter, retail sales were $0 compared with $27,900
during the first quarter of fiscal 2004. This decrease was due to decreased
sales.
The Company's net loss for the current quarter was $65,807, as compared
with a net income of $38,278 for the same quarter of fiscal 2004. This
decrease was due primarily to increased interest expense.
Cost of oil and gas sales for the first quarter of fiscal 2005 was
$903,007 as compared with $42,151 in the same quarter of fiscal 2004, due
primarily
to increased drilling activities.
Selling, general and administrative expenses were $371,469 as compared
with $92,744 in the first quarter of fiscal 2004. This increase was primarily
due to increases in legal and professional expenses.
Salaries and wages for the current quarter were $76,416 as compared with
$33,706 in the first quarter of fiscal 2004.
Depreciation, depletion and amortization for the first quarter of
fiscal 2005 was $74,218 as compared with $41,056 in the first quarter of 2004.
This
increase was due to increases in depletion expense.
Item 3. Controls and Procedures
-----------------------
Within the 90-day period prior to the filing of this report, we carried
out an evaluation, under the supervision and with the participation of our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our principal executive officer and
principal 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 SEC reports. It should be noted that
the design of any system of controls is based on 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 II - OTHER INFORMATION
Item 6. Exhibits.
(a) Exhibits.
31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: September 14, 2005 MILLER PETROLEUM, INC.
By:/s/Deloy Miller
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Deloy Miller
Chief Executive Officer