U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1997
[ ] 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.
(Name of Small Business Issuer in its Charter)
TENNESSEE 75-2072206
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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, 1997 - $1,169,270.
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.
July 30, 1997 - $88.41. There are approximately 884,068 shares of common
voting stock of the Registrant held by non-affiliates. During the past five
years, there has been no "established public market" for shares of common
stock of the Registrant, so the Registrant has arbitrarily valued these shares
on the basis of par value per share.
(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:
July 30, 1997
6,055,000
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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
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Miller Petroleum, Inc. (the "Company") was founded in 1967 by
Deloy Miller, its President. In the beginning, the Company was involved with
shallow cable tool oil and gas drilling, but quickly became the industry
leader by adapting an Ingersoll-Rand T3 Drillmaster for deeper drilling,
thereby modernizing the drilling industry. The Company became the largest
drilling contractor in southern Appalachia.
By the 1980's, the Company was active throughout the Appalachian
basin with more than 18 drilling rigs working from southern New York to
northern Alabama. During this period, it drilled in excess of 4,000 wells
under the direction and control of Mr. Miller. The Company has drilled more
than 65% of the total wells drilled in the State of Tennessee.
During the 1990's, the Company concentrated on oil and gas
exploration and production. The Company has oil and gas production in five
Tennessee counties, Campbell, Fentress, Morgan, Overton and Scott; it has oil
production in all five of the counties, and gas production in Campbell and
Scott counties.
Currently, the Company has more than 40,000 acres under lease in
Tennessee and continues to seek the acquisition of additional strategic
acreage. Although it engages in a minimum of contract drilling, it has kept
drilling rigs, service rigs, trucks and bulldozers to drill, service and
maintain its own wells. Management of the Company is experienced and familiar
with all aspects of the oil and gas industry.
Today, the Company is focusing primarily on the development,
drilling and production of natural gas in eastern Tennessee and Kentucky.
Natural gas production in eastern Tennessee was difficult in the past due to
the lack of pipelines in the area. Recent activities by ALAMCO, Inc.
("ALAMCO") and the Citizens Gas Utility District have opened up the Campbell
County, Tennessee, area for development. ALAMCO has constructed an eight-inch
pipeline adjacent to the Company's leases in Campbell County, Tennessee and is
negotiating to purchase all of the gas that the Company may develop there.
The Company is also studying the feasibility of a pipeline extension to
connect to Citizens Gas Utility District's pipeline near Jellico, Tennessee.
The Company's operations include the operation of gas and oil
wells, acquisition and development of gas and oil leases, rebuilding and sales
of oil field equipment and the organization of joint venture drilling programs
with industry partners.
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 total acreage in this lease is 27,000 acres, more or less,
which 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. Oil wells on this southern tract hold the
entire lease by production.
The Company began a joint venture in 1993 with Delta Producers,
Inc. of Greenville, Mississippi ("Delta Producers"). Currently, the parties
are jointly producing six gas wells in the Jellico, Tennessee area northwest
of the Pine Mountain Thrust Fault. A seventh well, the Tommy Overton #1, was
put on line in July, 1997. It is believed that the leases that are held
jointly with Delta Producers contain a minimum of four more drilling
prospects, and three drilled wells, which are presently producing, will
benefit from well stimulation.
The Company has a Farmout Agreement with Mitchell Energy
Corporation of the Woodlands, Texas on 8,000 to 12,000 acres located in Clay,
Overton and Pickett Counties, Tennessee; some of the wells on this acreage are
productive. The Farmout Agreement requires the Company to drill or have
drilled four wells per year. Mitchell Energy Corporation has retained a 5%
overriding royalty interest and the landowner has a 12.5% royalty interest.
The Company drilled one well on this farmout acreage in 1997, which was a dry
hole. It will continue drilling wells in accordance with the Farmout
Agreement.
Effective May 1, 1996, Miller Services, Inc., a Tennessee
corporation ("Miller Services"), and Energy Cell, Inc., a Tennessee
corporation ("Energy Cell"), merged into the Company, with the Company being
the survivor.
Pursuant to an Agreement and Plan of Reorganization dated December
20, 1996 (the "Plan"), between the Company and Miller Petroleum,
Inc., a Tennessee corporation ("Miller Petroleum Tennessee"); and
the stockholders of Miller Petroleum Tennessee (sometimes collectively called
the "Miller Petroleum Tennessee Stockholders"), the Miller Petroleum Tennessee
Stockholders became the controlling stockholders of the Company in a
transaction viewed as a reverse acquisition, and Miller Petroleum Tennessee
became a wholly-owned subsidiary of the Company. In connection with the Plan,
the Company also changed its domicile by merging into Miller Petroleum
Tennessee and changed its name to "Miller Petroleum, Inc." The Company also
adopted the fiscal year of Miller Petroleum Tennessee, which is April 30, as
its own fiscal year. For a discussion of the Plan and the change of the
Company's fiscal year, see its Current Report on Form 8-K, which was filed
with the Securities and Exchange Commission on January 15, 1997, and its
Transition Report on Form 10-QSB for the transition period from October 1,
1996, to October 31, 1996, which was filed with the Securities and Exchange
Commission on May 7, 1997.
On April 16, 1997, Deloy Miller, the Company's sole incumbent
director, appointed Herbert J. White to the position of Vice President and
director, and appointed Lawrence L. LaRue and Herman Gettelfinger directors of
the Company, to serve until the next annual meetings of the Board of Directors
and the stockholders or until their prior death, resignation or termination
and the appointment and qualification of their successors.
Business
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The Company's operations include the operation of gas and oil
wells, acquisition and development of gas and oil leases, rebuilding and sales
of oil field equipment and the organization of joint venture drilling programs
with industry partners.
The Company's has acquired the following properties:
(i) a 100% working interest in one oil and gas lease on a total
of 27,000 acres, more or less, located in Campbell County, Tennessee (the
"Koppers" lease or the "ARCO\GULF Farmout"). This lease provides for a
landowner royalty of 12.5% and an overriding royalty interest of 7% with an
80% working interest. Currently, there are five producing oil wells on the
southern tract of this lease. This lease is being held by production. A
true and correct copy of the Koppers lease schedule is attached hereto and
incorporated herein by this reference. See the Exhibit Index, Item 13 of this
Report.
(ii) a 25% working interest in 12 oil and gas leases on a total
of 2,000 acres, more or less, located in Campbell County, Tennessee
(collectively, the "Delta leases"). Each of these leases is subject to a
12.5% landowner's royalty. A true and correct copy of the Delta leases
schedule is attached hereto and incorporated herein by this reference. See
the Exhibit Index, Item 13 of this Report.
(iii) a Farmout Agreement with the Mitchell Energy Corporation
of The Woodlands, Texas on 8,000 to 12,000 acres, more or less, located in
Overton, Pickett and Clay County, Tennessee (collectively, the "Farmout
Agreement"). The Farmout Agreement calls for the Company to drill four wells
per year. Currently, the Company has two producing oil wells on this
property. Mitchell Energy Corporation has reserved a 5% overriding royalty
interest and the landowner has a 12.5% royalty interest.
Substantial additional evaluation and remedial work will be necessary in
order to determine whether most of the Company's wells will be able to produce
oil and gas in paying quantities and to make them produce in such quantities.
The Company's ability to perform these operations will depend to a great
degree on its ability to raise substantial additional funding, as to which no
assurance can be given. Nor can any assurance be given that, if the Company
is able to obtain such funding, it will be able to produce oil and gas in
profitable quantities.
Principal Products or Services and Markets
The Company will drill, produce and market 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
South Kentucky Purchasing Company, a refinery located in Somerset, Kentucky,
and Bear Creek Oil Company in Burkesville, Kentucky.
Natural gas has multiple markets throughout the eastern United
States through gas transmission lines. Access to these markets is presently
provided by three companies in north central Tennessee. Delta Natural Gas
Company has purchased the Company's natural gas, to date. ALAMCO has recently
completed a new gas pipeline with connections to the major east-west gas
transmission lines and markets. Local markets are served by Citizens Gas
Utility District with surplus gas being placed in storage facilities or
transported to El Paso Natural Gas serving Tennessee and Virginia. Infinity
Gas, Inc. ("Infinity Gas") has reactivated the Overton County line connecting
to El Paso Natural Gas. If successful, this will also provide a market for
gas in that area.
Reserve Analyses
In July, 1997, Coburn Petroleum Engineering of Tulsa, Oklahoma
("Coburn") performed a reserve analysis on the Company's leases. This report
shows that, as of April 30, 1997, the Company's leases contained total proved
net oil and gas reserves of 158,474 barrels ("Bbls") and 4,266,881 thousand
cubic feet ("mcf"), respectively. Of these amounts, a total of 103,999 Bbls
of oil reserves, and 3,361,058 mcf of gas reserves were proved but
undeveloped. Net profit from all of the Company's reserves would be
$8,649,298, with a net present value, discounted at 10%, of $4,116,777.
In March, 1997, Coburn performed a reserve analysis of a thirty
well drilling program on the northern parcel of the Koppers lease in Campbell
County, Tennessee. Coburn's Report states that reserves are 33.6 net billion
cubic feet ("bcf") of natural gas which would generate a net profit of
$59,718,002 having a net present value of $16,708,103 discounted at 10%.
In November, 1995, Coburn also performed a reserve analysis on six
producing gas wells, 22 producing oil wells, two non-producing (behind pipe)
oil wells, one undrilled proved undeveloped oil well, one drilled
non-producing (shut in due to lack of pipeline) gas well and two undrilled gas
wells classified as proved undeveloped. Wells in this Report were not
included in the March, 1997 Report. The reserve analysis of November, 1995,
discounted the values by 10%, resulting a present value of $2,257,884.
Reserve analyses are at best speculative, especially when based
upon limited production and limited access to production records; no assurance
can be given that the reserves attributed to these leases exist or will be
economically recoverable. See the Risk Factor entitled "Uncertainty of
Reserve Estimates," herein.
R.W. Coburn, a Registered Petroleum Engineer who owns Coburn has
no interest in the Company, and performed these services for his standard
rates ($7,400 was billed and paid for the March, 1997 Report and the November,
1995 Report; Coburn has not yet billed the Company for the July, 1997 Report,
but management expects that the amount of the bill will be less than $5,000).
Distribution Methods of Products or Services.
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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 Delta Natural Gas Company, Inc.; ALAMCO; and Citizens Gas
Utility District. Crude oil purchasers are Bear Creek Oil Company and South
Kentucky Purchasing Company. 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.
The Company has a Farmout Agreement with Mitchell Energy
Corporation of the Woodlands, Texas. See the caption "Business" of this
Report.
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 contemplated oil and gas exploration activities in
the States of Kentucky and 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. Management believes, however, that the Company's
competitive position in the oil and gas industry in Tennessee will be
significant.
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 ALAMCO, Wiser Oil and Anderson Oil and
Gas. Given the Company's relatively large acreage holdings in the area and
the estimated proven undeveloped reserves, management believes that the
Company will become the second or third largest seller of hydrocarbons 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 its own drilling and service rigs with the
employees necessary to do all other services required to drill and produce gas
and oil wells.
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
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
five purchasers in the areas of the Company's operations are Citizens Gas
Utility District, Delta, ALAMCO, Bear Creek 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.
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
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 Gas and Oil Board. See the heading "Disclosure of Oil and Gas
Operations" of the caption "Description of Properties and Facilities," herein.
The State of Kentucky also requires oil and gas drillers to obtain
a permit for their activities and to post with the Division of Oil and Gas of
the Kentucky Department of Minerals and Mines (the "Kentucky Division") a bond
to ensure that each well is properly plugged when it is abandoned. These
bonds are based on $1 per foot. The Kentucky Division retains the bond until
the subject wells are plugged.
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 date of $7,400 for the Coburn
Reports, the Company has not expended any material amount in research and
development activities during the last two fiscal years. Research done in
conjunction with its exploration activities will consist primarily of running
radiometric surveys on the lease blocks and conducting geological research on
the surface. This work will fall under the job description of the geologist
to be hired for these activities and will not cost anything more than his or
her standard salary. See the caption "Number of Total Employees and Number of
Full-Time Employees," herein.
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 fourteen full-time employees and no
part-time employees. 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 17 to 20 full-time employees, including
officers, and no part-time employees.
Risk Factors
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Developmental Stage Company. Although the Company was organized
in 1985, it must be regarded as being in a formative stage due to its lack of
significant business operations during recent years. Its future success
depends upon its ability to profitably operate its existing wells and to
expand its operations through the acquisition of additional oil and gas
producing properties and/or the acquisition of additional oil and gas leases.
No assurance can be given that the Company will be successful in making such
acquisitions; nor will stockholders have the opportunity to participate in the
selection or evaluation of properties to be acquired. The Company is subject
to all of the risks inherent in attempting to expand a relatively new business
venture. These risks include, but are not limited to, possible inability to
profitably operate its existing properties or properties to be acquired in the
future, the existence of undisclosed actual or contingent liabilities, the
inability to fund the working capital requirements of such properties and the
inability to acquire additional properties that will have a positive effect on
the Company's operations. There can be no assurance that the Company will
achieve a level of profitability that will provide a return on invested
capital or that will result in an increase in the market value of the
Company's securities. See the caption "Market Price of and Dividends on the
Company's Common Equity and Other Stockholder Matters," herein.
Limited Market for Common Stock; Although the Company's common
stock is quoted on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. (the "NASD"), the market for such shares commenced
only recently, and is limited; there can be no assurance that it will continue
or be maintained. Any market price for shares of common stock of the Company
is likely to be very volatile, and factors such as success or lack thereof in
drilling, the ability or inability to acquire additional oil and gas producing
properties, competition, governmental regulation and fluctuations in operating
results may all have a significant effect. In addition, the stock markets
generally have experienced, and continue to experience, extreme price and
volume fluctuations which have affected the market price of many small capital
companies and which have often been unrelated to the operating performance of
these companies. These broad market fluctuations, as well as general economic
and political conditions, may adversely affect the market price of the
Company's common stock. There is no "established" market for the common
stock, and no assurance can be given that an "established" market will ever
develop therefor. See the caption "Market Price of and Dividends on the
Company's Common Equity and Other Stockholder Matters," herein.
Future Capital Requirements; Uncertainty of Future Funding. The
Company presently has limited operating capital. It will require substantial
additional funding in order to realize its goals of conducting oil and gas
exploration operations and acquiring additional oil and gas properties. The
Company will need to raise these funds through equity or debt financings,
which may be very difficult for such a highly speculative enterprise. There
can be no assurance that such additional funding will be made available to the
Company, or if made available, that the terms thereof will be satisfactory to
the Company. Furthermore, any equity funding will cause a substantial
decrease in the proportional ownership interests of existing stockholders. If
such funding is not made available to the Company, it is doubtful that the
Company will be able to conduct its planned business operations. See the
caption "Business" and the heading "Plan of Operation" of the caption
"Management's Discussion and Analysis or Plan of Operation," herein.
Substantial Capital Requirements. The Company intends to make
substantial capital expenditures for the acquisition, exploration, development
and production of its oil and gas reserves. If revenues were to decrease as a
result of lower oil and gas prices, decreased production or otherwise, the
Company may have limited ability to proceed with these plans, resulting in a
further decrease in production and revenues. If the Company's cash flow from
operations is not sufficient to satisfy its capital expenditure requirements,
there can be no assurance that additional debt or equity financing will be
available to meet these requirements.
Replacement of Reserves. The Company's future success will depend
upon its ability to find, acquire and develop additional oil and gas reserves
that are economically recoverable. The proved reserves of the Company will
generally decline as they are produced, except to the extent that the Company
conducts revitalization activities, or acquires properties containing proved
reserves, or both. To increase reserves and production, the Company must
continue its development drilling and recompletion programs, identify and
produce previously overlooked or bypassed zones in shut-in wells, acquire
additional properties or undertake other replacement activities. The
Company's current strategy is to increase its reserve base, production and
cash flow through the development of its existing oil and gas fields and
selective acquisitions of other promising properties where the Company can
utilize new, existing technology. The Company can give no assurance that its
planned revitalization, development and acquisition activities will result in
significant additional reserves or that the Company will have success in
discovering and producing reserves at economical exploration and development
costs. Furthermore, while the Company's revenues may increase if prevailing
oil and gas prices increase significantly, the Company's exploration costs for
additional reserves may also increase.
Uncertainty of Reserve Estimates. Oil and gas reserve estimates
and the present value estimates associated therewith are based on numerous
engineering, geological and operational assumptions that generally are derived
from limited data. Common assumptions include such matters as the extent and
average thickness of a particular reservoir, the average porosity and
permeability of the reservoir, 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 in subsequent periods 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.
Moreover, significant downward revisions of reserve estimates may adversely
affect the Company's ability to borrow funds in the future or have an adverse
impact on other financing arrangements.
In addition, any estimates of future net revenues and the present
value thereof are based on period ending prices and on cost assumptions made
by the Company which only represent its best estimate. If these estimates of
quantities, prices and costs prove inaccurate and the Company is unsuccessful
in expanding its oil and gas reserves base, and/or declines in and instability
of oil and gas prices occur, writedowns in the capitalized costs associated
with the Company's oil and gas assets may be required. The Company will also
rely to a substantial degree on reserve estimates in connection with the
acquisition of producing properties. If the Company overestimates the
potential oil and gas reserves of a property to be acquired, or if its
subsequent operations on the property are not successful, the acquisition of
the property could result in substantial losses to the Company.
Operating Hazards. Oil and gas operations involve a high degree
of risk. Natural hazards, such as excessive underground pressures, may cause
costly and dangerous blowouts or make further operations on a well financially
or physically impractical. Similarly, the testing and recompletion 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 the foregoing
hazards may result in substantial losses or liabilities to third parties,
including claims for bodily injuries, reservoir damage, loss of reserves,
environmental damage and other damages to persons or property.
Future Sales of Common Stock. Deloy Miller, CEO and Director,
beneficially owns 5,042,407 shares of the common stock of the Company or
approximately 83% of its outstanding voting securities. Of this amount,
115,932 shares may presently be sold under Rule 144 of the Securities and
Exchange Commission without a holding period. Effective December 20, 1997,
all of the remaining common stock owned by Mr. Miller will have been
beneficially owned for one year, and subject to compliance with the applicable
provisions of Rule 144 of the Securities and Exchange Commission, Mr. Miller
may then commence to sell his "restricted securities" in an amount equal to up
to 1% of the then outstanding securities of the Company, in any three month
period. Such sales could have a substantial adverse effect on any public
market that may then exist in the Company's common stock. Sales of any of
these shares by Mr. Miller could severely affect the ability of the Company to
secure the necessary debt or equity funding for the Company's proposed
business operations. Sales of restricted securities by others could also have
an adverse effect on any market in the common stock of the Company. See the
caption "Recent Sales of Unregistered Securities." For additional information
concerning the present market for shares of common stock of the Company, see
the caption "Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters," herein. For information regarding common stock
ownership of Mr. Miller, see the caption "Security Ownership of Certain
Beneficial Owners and Management," herein.
Voting Control. By virtue of Deloy Miller's ownership of
approximately 83% of the Company's outstanding voting securities, Mr. Miller
has the ability to elect all of the Company's directors, who in turn elect all
executive officers, without regard to the votes of other stockholders. Mr.
Miller may be deemed to have absolute control over the management and affairs
of the Company. See the caption "Security Ownership of Certain Beneficial
Owners and Management," of this Report.
Competition. The Company's oil and gas exploration activities are
centered in a highly competitive field. In seeking any other suitable oil and
gas properties for acquisition, or drilling rig operators and related
personnel and equipment, the Company will be competing with a number of other
companies, including large oil and gas companies and other independent
operators with greater financial resources. Management does not believe that
the Company's initial competitive position in the oil and gas industry will be
significant. See the caption "Competition" under the heading "Business,"
herein.
Dependence on Key Employees and Technical Personnel. The Company
is substantially dependent upon the continued services of Deloy Miller, its
President and Director, and Lawrence LaRue, its Secretary/Treasurer. These
individuals are in good health; however, their retirement, disability or death
would have a significant adverse impact on the Company's business operations.
To the extent that their services become unavailable, the Company will be
required to retain other qualified personnel; there can be no assurance that
it will be able to recruit and hire qualified persons upon acceptable terms.
See the caption "Directors, Executive Officers, Promoters and Control
Persons," herein.
Similarly, the oil and gas exploration industry requires the use
of personnel with substantial technical expertise. In the event that the
services of its current technical personnel become unavailable, the Company
will need to hire qualified personnel to take their place; no assurance can be
given that it will be able to recruit and hire such persons on mutually
acceptable terms.
Governmental Regulations. The Company is subject to numerous
state and federal regulations, environmental and otherwise, that may have a
substantial negative effect on its ability to operate at a profit. See the
captions "Effect of Existing or Probable Governmental Regulations on Business"
and "Costs and Effects of Compliance with Environmental Laws," herein.
General Economic Risks/Potential Volatility of Stock Price. The
Company's current and future business plans are dependent, in large part, on
the state of the general economy. Adverse changes in general and local
economic conditions may cause high volatility in the market price of the
Company's securities and may adversely affect an investment in these
securities. Oil and gas prices are extremely volatile and are subject to
substantial seasonal, political and other fluctuations, all of which are
beyond the Company's control.
Future Acquisitions. The Company intends to develop and expand
its business, principally by developing its existing oil and gas leases and
acquiring additional oil and gas producing properties and/or leases thereon.
See the caption "Management's Discussion and Analysis and Plan of Operation,"
herein. The Company has not selected any particular properties in connection
with its expansion plans.
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 leases an office and shop located on approximately 14
acres from Sharon Miller, the wife of Deloy Miller. Monthly rent on this
property is $806 per month. Management expects that the Board of Directors
will soon vote to purchase this property for approximately $500,000, payable
in five annual payments, with 7% per annum interest. It is expected that the
Company will execute a promissory note for this amount and that the property
will be mortgaged to secure the debt.
The Company's has also acquired the following properties:
(i) a 100% working interest in one oil and gas lease on a total
of 27,000 acres, more or less, located in Campbell County, Tennessee (the
"Koppers" lease or the "ARCO\GULF Farmout"). This lease provides for a
landowner royalty of 12.5% and an overriding royalty interest of 7% with an
80% working interest. Currently, there are five producing oil wells on the
southern tract of this lease. This lease is being held by production. See
the caption "Business" of this Report.
(ii) a 25% working interest in 12 oil and gas leases on a total
of 2,000 acres, more or less, located in Campbell County, Tennessee
(collectively, the "Delta leases"). Each of these leases is subject to a
12.5% landowner's royalty. See the caption "Business" of this Report.
(iii) a Farmout Agreement with the Mitchell Energy Corporation
of The Woodlands, Texas on 8,000 to 12,000 acres, more or less, located in
Overton, Pickett and Clay County, Tennessee (collectively, the "Farmout
Agreement"). The Farmout Agreement calls for the Company to drill four wells
per year. Currently, the Company has two producing oil wells on this
property. Mitchell Energy Corporation has reserved a 5% overriding royalty
interest and the landowner has a 12.5% royalty interest. See the caption
"Business" of this Report.
Substantial additional evaluation and remedial work will be necessary in
order to determine whether most of the Company's wells will be able to produce
oil and gas in paying quantities and to make them produce in such quantities.
The Company's ability to perform these operations will depend to a great
degree on its ability to raise substantial additional funding, as to which no
assurance can be given. Nor can any assurance be given that, if the Company
is able to obtain such funding, it will be able to produce oil and gas in
profitable quantities.
Item 3. Legal Proceedings.
- ---------------------------
On or about October 13, 1994, Charles Louis Neal et al. filed a
complaint against the Company, Miller Services, Inc. and Smithco Oil and Gas,
Inc., in the Circuit Court of Overton County, Tennessee, alleging that the
defendants were negligently operating oil and gas wells that exposed the
plaintiffs to noxious and harmful fumes and vapors. The plaintiffs have asked
that each be awarded $250,000 and that Charles Neal and Gladys Neal be awarded
$20,000 for the reduction in value of their life estate in certain real
property; that Christopher Neal be awarded $20,000 for the reduction in value
of real property; that Charles Ray Neal and Glenda Marie Neal be awarded
$50,000 for the reduction in value of their real property; that each of the
plaintiffs be awarded $5,000 for damages to their personal property; and that
the defendants be permanently enjoined from operating their oil and gas wells
and that they be taxed with the court costs. A mediation hearing was held on
this matter on May 19, 1997, which is after the period covered by this Report;
however, the parties made no progress toward a settlement. Following the
period covered by this Report, the plaintiffs named as additional defendants
approximately eight other oil and gas operators operating within a one-half
mile radius of the wells in question.
The Neal action is pending and the defendants believe that their
operations of oil and gas wells were safe, prudent and in compliance with all
applicable regulations. However, a judgment or judgments in favor of the
plaintiffs may have a substantial negative effect on the Company's operations,
particularly if it is enjoined from operating its oil and gas wells.
Arvil Reeder and Anna Sue Reeder filed their complaint against the
Company, Miller Services, Inc., and Smithco Oil and Gas, Inc., in the Circuit
Court of Overton County, Tennessee on or about March 21, 1995. The complaint
alleged that the defendants were negligently operating oil and gas wells that
exposed the plaintiffs to noxious and harmful fumes and vapors. The
plaintiffs have asked that each be awarded damages of $250,000 and that they
be awarded $52,000 for the reduction in value of their real property and that
the defendants be permanently enjoined from operating their oil and gas wells
and pipelines within such proximity to the plaintiffs and that the defendants
be taxed with the court costs and with the plaintiffs' discretionary costs.
On or about July 16, 1997, the plaintiffs filed in the Circuit Court of
Overton County a Notice of Non-suit in which they took a voluntary non-suit
with prejudice of any and all claims arising under this action.
On or about February 10, 1994, the Company filed a complaint
against Smithco Oil & Gas, Inc., et al., in the Chancery Court in and for
Overton County, Tennessee. The Company's complaint alleged that the
defendants drilled a well on its lease. The Chancery Court has ruled in favor
of the Company, granting title to the well to the Company, but awarding no
damages. In addition, the Company is required to pay the defendants $5,000
for work performed before receiving notice that the Company had a claim on the
lease. The defendants have appealed the decision.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the period covered by this report.
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 and only
commenced following the closing of the Plan between Miller Petroleum and the
Company in December, 1996. See the caption "Business Development" of this
Report. 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 was only recently quoted on the OTC
Bulletin Board on December 6,1996. The high and low bid prices for these
shares of common stock of the Company since that period are as follows:
Bid
Quarter ending: High Low
December 6, 1996, through
January 31, 1997 $0.25 $0.25
April 30, 1997 $2.875 $1.625
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 the
year ended April 30, 1997, was approximately 202; 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.
Item 6. Management's Discussion and Analysis or Plan of Operation.
- -------------------------------------------------------------------
Plan of Operation
- -----------------
In the next 12 months, the Company intends to commence full-scale
development of its oil and gas leases. The Company plans a fifteen well
drilling program on the northern portion of its "Koppers Lease" in Campbell
County, Tennessee. Industry partners have agreed to participate for a 25%
working interest, with the Company retaining a 75% working interest in the
wells. Drilling depth will be approximately 3,000 feet. In the opinion of
management, both the Big Lime and Chattanooga Shale formations have a high
potential of producing natural gas; however, there can be no assurance that
its drilling program will be successful. After drilling the first five wells,
the Company will evaluate the success of said wells and use the geological
information acquired in drilling said wells in choosing the locations of the
future wells.
Also, in Campbell County, the Company plans to continue its joint
venture with Delta Producers. Estimated activities with Delta Producers call
for recompleting two wells and possibly drilling at least one.
The Company will drill the four wells in Overton County, Tennessee
as called for in its Farmout Agreement with Mitchell Energy Corporation.
Industry partners have agreed to purchase 75% of the working interest, with
the Company retaining a 25% working interest. Potential pay zones for crude
oil that will be drilled are the Murfreesboro and the Knox formations.
Currently, the Company operates about 10 wells in this area producing crude
oil. The Company's past drilling experience here reveals that production from
the Murfreesboro formation is much greater than the Knox formation; however,
it is much more difficult to locate.
Scenario Number 1: Initial Production of 200 Thousand Cubic Feet
("MCF") Per Day Per Well. In the event that the first five wells drilled on
the Koppers Lease result in at least three of the wells producing a minimum of
200 MCF per day, the Company will continue to drill and develop the acreage.
Plans are to drill fifteen natural gas wells during the current year and
fifteen more wells next year.
Scenario Number 2: Initial Production of 200 MCF Per Day Per
Well. Should the first five wells result in all of the wells producing as
predicted in the reserve analysis, the Company will accelerate the drilling
rate to develop the property as rapidly as possible, given its status at the
time. It is possible that the Company may use the reserves in wells as
collateral to fund the drilling of more wells.
Scenario Number 3: Initial Production of 100 MCF Per Day Per
Well. In the event that the first five wells drilled average 100 MCF per day,
a reevaluation of the prospect would be in order. No additional wells would
be drilled until the data derived from the five wells can be incorporated into
the geologic picture to determine why the shortfall in the engineering
projections occurred. Geophysical and analytic devices would be utilized to
indicate if additional areas of the lease might be more productive.
Historically, ever rising natural gas prices would over time bring production
of this magnitude into the anticipated royalty owner interest.
The remaining funds allocated to drilling would be utilized in
developing both deep and shallow drilling prospects on the Company's other
earned acreage. Management believes that the large acreage and the potential
for both gas and oil production will allow the Company to quickly take
advantage of changes in demand for gas and oil.
Many variables relating to engineering and other matters can not
be ascertained at this time. These variables will affect the economics of
such a program; many factors, such as well rates, decline rates, best
completion techniques and use of collateral production will not be definable
until the development scenario is underway. Therefore, the economic aspects
of this scenario can not be predicted with any degree of certainty; however,
one can assume that the economics would be more attractive than under the
first development scenario, or the acceleration would not even be considered.
The Company will be the operator of all wells proposed on the leases under
this scenario.
These scenarios are based on "forward looking" information and the
Coburn Reports on the Company's leases, and all risk factors should be
considered. See the caption "Risk Factors," herein.
Other Significant Plans
The Company also intends to take advantage of opportunities to
purchase existing oil and gas production. Changes in management or economic
conditions often bring properties to market at a level below replacement
costs. These acquisitions may quickly enhance cash flow and earnings to the
Company at no risk. Prospective acquisitions will be fully evaluated, which
evaluations will include a reserve analysis of the properties in question.
In addition to an active drilling program, the Company intends to
continue strategically acquiring leases in promising areas in the States of
Tennessee and Kentucky during the first year of operation. No assurance can
be given that the Company will be able to identify or acquire any such leases
or that, if it does acquire any such leases, that they will be profitable.
Results of Operations
- ---------------------
For the fiscal year ended April 30, 1997, the Company received
total revenues of $1,169,270, of which $763,690 was derived from oil and gas
well servicing and drilling and $210,986 was oil and gas revenue. During this
period, the Company incurred costs and expenses totaling $1,100,279 and had
income from operations of $68,991. Net income for the fiscal year ended April
30, 1997, was $51,993, equaling $0.01 per share.
Liquidity
- ---------
The Company estimates that it will be able to adequately fund the
above-referenced development and production plans, with the exception of the
acquisition of additional properties, for the next 12 months. However, this
plan of operation is based upon many variables and estimates, all of which
may change or prove to be other than or different from information relied
upon.
Item 7. Financial Statements.
- ------------------------------
Consolidated Financial Statements for
the years ended April 30, 1997 and 1996
Report of Independent Certified Public
Accountants
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statements of Stockholders'
Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial
Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
Mantyla, McReynolds and Associates, CPA's, of Salt Lake City,
Utah, audited the financial statements of the Company for the calendar years
ended December 31, 1995 and 1994 (which accompanied its Form 10-KSB Annual
Report and amended Form 10-KSB Annual Report for the calendar year ended
December 31, 1995, filed with the Securities and Exchange Commission on August
7, 1996 and August 8, 1996, respectively). At that time, the Company was
known as "Single Chip Systems International, Inc."
Jones, Jensen & Company, also known as Stayner and Company,
Certified Public Accountants, of Salt Lake City, Utah, was engaged on or about
February 24, 1997, by the Board of Directors of the Company to audit the
financial statements of the Company for the fiscal years ended April 30, 1997
and 1996. These financial statements accompany this Report.
There were no disagreements between the Company and Mantyla,
McReynolds and Associates, whether resolved or not resolved, on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. This change of accountants was disclosed on the Company's Current
Report on Form 8-K-A1, which was filed with the Securities and Exchange
Commission on March 13, 1997, which is incorporated herein by reference.
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.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Designation
<S> <C> <C> <C>
Deloy Miller Director 12/96 *
815 South Lake Drive and President 12/96 *
Oneida, TN 37841
Lawrence L. LaRue Secretary/ 12/96 *
432 Brewstertown Road Treasurer 12/96 *
Sunbright, TN 37872 Director 4/97 *
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
</TABLE>
* 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 50 years of age. He has been involved
in the oil and gas industry for 30 years. He founded Miller Petroleum, Inc.
in 1967. The Company was initially involved with shallow cable tool
operations, but quickly became the industry leader in 1969 by adapting
Ingersoll-Rand T3 Drillmaster for deeper drilling, thereby modernizing the
drilling industry. Miller Petroleum became the largest drilling contractor in
southern Appalachia. By the 1980's, Miller Petroleum was active throughout
the Appalachian basin with drilling rigs and management teams working from
southern New York to northern Alabama. During this period, Miller Petroleum
drilled in excess of 2,700 wells under the direction and control of Mr.
Miller. Mr. Miller was the "Tennessee Oil Man of the Year" in 1978. He is
also a member of the Tennessee Oil & Gas Association and has served on its
Board of Directors and two terms as its President. Mr. Miller was appointed
by the Governor of Tennessee to serve as a member of the State Oil and Gas
Board from July 1, 1996 to June 30, 2000. The State Oil and Gas Board
regulates the oil and gas industry in Tennessee.
Lawrence L. LaRue. Mr. LaRue is 57 years of age. He is a
Certified Public Accountant (CPA) licensed to practice in the State of
Tennessee. He serves as Secretary/Treasurer of the Company. Mr. LaRue joined
the Miller organization in 1983 as an accountant. As Treasurer of the
Company, he prepares financial statements and budgets and supervises accounts
payable and receivable. He also coordinates the Company's data processing
operation. Mr. LaRue is a graduate of Tennessee Technological University with
a B.S. in Business Administration. He also served as a consultant in
accounting and data processing to K & S Tool Company and the Morgan County
E-911 Board.
Herbert J. White. Mr. White, age 70, is the Company's Development
Engineer and Vice President and is a member of its Board of Directors. He has
43 years' petroleum-related experience. After earning his B.S. 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 the southern
Appalachia basin. He also has experience in Devonian Shale production,
enhanced recovery and coal degasification.
Herman Gettelfinger. Mr. Gettelfinger, age 55, is the President
and a co-owner of Kelso Oil Company, based in Knoxville, Tennessee. Kelso is
one of east 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 25 years.
Committees
There are no established committees.
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
- -----------------
Deloy Miller is to be paid an annual salary of $120,000 as
compensation for service as President and Director of the Company.
Lawrence LaRue is to be paid an annual salary of $45,000 for his
service as Secretary/Treasurer of the Company.
The following table sets forth the aggregate cash compensation
paid by the Company for services rendered during the periods indicated to its
directors and executive officers:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Years or Other Restricted Option/ LTIP All
Principal Periods $ $ Annual Stock SAR's Payouts Other
Position Ended Salary Bonus Compen- Awards ($) (#) ($)
Compensa- April 30 sation($)
tion ($)
Deloy Miller, 1995 $120,000 -0- -0- -0- -0- -0- -0-
Director and 1996 120,000 -0- -0- -0- -0- -0- -0-
President 1997 120,000 -0- -0- -0- -0- -0- -0-
Lawrence L. 1995 45,000 -0- -0- -0- -0- -0- -0-
LaRue, Direc- 1996 45,000 -0- -0- -0- -0- -0- -0-
tor and Sec./ 1997 45,000 -0- -0- -0- -0- -0- -0-
Treasurer
Herbert J. 1995 -0- -0- -0- -0- -0- -0- -0-
White, VP and 1996 -0- -0- -0- -0- -0- -0- -0-
Director 1997 1 -0- -0- -0- -0- -0- -0-
Herman 1995 -0- -0- -0- -0- -0- -0- -0-
Gettelfinger, 1996 -0- -0- -0- -0- -0- -0- -0-
Director 1997 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
1 Mr. White is paid $100 per day for engineering services
provided to the Company. As of the date of this Report, Mr. White has been
paid a total of $_________ for these services.
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; not applicable.
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 6,055,000 shares of common stock being outstanding.
Directors and Executive Officers
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address 1 Title Beneficially Owned of Class
<S> <C> <C> <C>
Deloy Miller Director, 5,042,407 83%
815 South Lake Drive and President
Oneida, TN 37841
Lawrence L. LaRue Secretary/ 73,525 1%
432 Brewstertown Road Treasurer
Sunbright, TN 37872 Director
Herbert J. White Vice President/Director -0- -0-
P.O. Box 1868
Fairfield Glade, TN
38557
Herman Gettelfinger Director 55,0002 1%
641 Atlantic Ave.
Knoxville, TN 37917
</TABLE>
All executive officers and directors
as a group (4) 5,170,932 85%
1 Each of these persons presently serves in the capacities
indicated.
2 These shares are owned by Kelso Oil Company, of which Mr.
Gettelfinger is President and a co-owner.
Five Percent Stockholders
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Title Beneficially Owned of Class
<S> <C> <C> <C>
Deloy Miller Director 5,042,407 83%
815 South Lake Drive and President
Oneida, TN 37841
M. E. Ratliff Stockholder 390,801 6.5%
300 Heathermoore Dr.
Knoxville, Tennessee 37922
</TABLE>
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
On May 1, 1996, Deloy Miller executed an Installment Promissory
Note in the amount of $261,088.67, payable to Miller Services, Inc., a
predecessor of the Company (the "Note"). In May, 1996, Miller Services was
merged into the Company and the Note became an asset of the Company. The Note
provides for payment of the principal, together with interest at the rate of
7% per annum, in 10 annual installments of $37,178.90 each, commencing on May
1, 1997. The Note is fully payable upon demand of the holder in the event
that Mr. Miller becomes delinquent for 60 days in any payment thereunder. In
addition, Mr. Miller has agreed to pay all reasonable attorney's fees and
costs of collection of the Note to the extent permitted by law.
Other than the Note and the lease of its principal executive
offices from Ms. Sharon Miller, the wife of Deloy Miller, 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.
Certain Business Relationships
Other than the Note and the lease of its principal executive
offices from Ms. Sharon Miller, the wife of Deloy Miller, 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 Note and the lease of its principal executive
offices from Ms. Sharon Miller, the wife of Deloy Miller, 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*
- -------------------
Current Report on Form 8-K, filed January 15, 1997
Current Report on Form 8-K-A1, filed March 13, 1997
*These documents and related exhibits have previously been filed with the
Securities and Exchange Commission and are incorporated herein by this
reference.
Exhibit
Exhibits* Number
- -------- -------
(i)
Subsidiaries of the Company 21
Financial Data Schedule 27
Koppers Lease Schedule 99.1
Delta Leases Schedule 99.2
(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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MILLER PETROLEUM, INC.
Date: 7/30/97 By /s/ Deloy Miller
------------- ---------------------------
Deloy Miller, President and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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: 7/30/97 By /s/ Deloy Miller
-------------- ---------------------------
Deloy Miller, President and
Director
Date: 7/30/97 By /s/ Lawrence LaRue
-------------- ---------------------------
Lawrence L. LaRue, Secretary/
Treasurer and Director
Date: 7/30/97 By /s/ Herbert J. White
-------------- ---------------------------
Herbert J. White, Vice
President and Director
Supplemental information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Exchange Act By Non-reporting Issuers
No annual report covering the Registrant's last fiscal year or proxy
material with respect to any annual or other meeting of security holders has
been sent to security holders of the Registrant during the fiscal year covered
by this Report. If the Registrant furnishes such material to security holders
subsequent to the filing of this Report, the Registrant shall furnish copies
of such material to the Securities and Exchange Commission when it is sent to
security holders.
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Miller Petroleum, Inc.
(Formerly Triple Chip Systems, Inc.)
Huntsville, Tennessee
We have audited the accompanying consolidated balance sheet of Miller
Petroleum, Inc. and subsidiaries (formerly Triple Chip Systems, Inc.), as of
April 30, 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended April 30, 1997 and
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Miller Petroleum, Inc. and subsidiaries (formerly Triple Chip Systems,
Inc.), as of April 30, 1997 and the consolidated results of their operations
and their cash flows for the years ended April 30, 1997 and 1996 in conformity
with generally accepted accounting principles.
Jones, Jensen & Company
July 18, 1997<PAGE>
<TABLE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Balance Sheet
<CAPTION>
ASSETS
April 30,
1997
<S> <C>
CURRENT ASSETS
Cash $ 64,531
Accounts receivable - trade, net (Note 1) 149,459
Total Current Assets 213,990
FIXED ASSETS (Note 1)
Machinery and equipment 481,862
Vehicles 227,537
Buildings 173,375
Office equipment 27,272
Less: accumulated depreciation (466,819)
Total Fixed Assets 443,227
OIL AND GAS PROPERTIES (Notes 2 and 5) 275,500
OTHER ASSETS
Land 11,500
Investments 17,436
Inventory (Note 1) 354,163
Total Other Assets 383,099
TOTAL ASSETS $ 1,315,816
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 96,277
Accounts payable - related (Note 4) 16,090
Accrued expenses 16,963
Notes payable - current portion (Note 3) 254,449
Total Current Liabilities 383,779
LONG-TERM LIABILITIES
Notes payable (Note 3) 142,573
Total Long-Term Liabilities 142,573
Total Liabilities 526,352
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Common Stock: 500,000,000 shares authorized at
$0.0001 par value, 6,055,000 shares issued and
outstanding 606
Additional paid-in capital 684,532
Note receivable - shareholder (304,355)
Retained earnings 408,681
Total Stockholders' Equity 789,464
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,315,816 <PAGE>
</TABLE>
<TABLE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Statements of Operations
<CAPTION>
For the Years Ended
April 30,
1997 1996
<S> <C> <C>
REVENUES
Service and drilling revenue $ 763,690 $ 1,038,323
Oil and gas revenue 210,986 234,202
Retail sales 156,163 532,297
Other revenue 38,431 92,885
Total Revenue 1,169,270 1,897,707
COSTS AND EXPENSES
Cost of oil and gas sales 212,772 514,009
Selling, general and administrative 429,131 839,249
Salaries and wages 346,788 316,909
Depreciation, depletion and amortization 111,588 121,775
Total Costs and Expenses 1,100,279 1,791,942
INCOME FROM OPERATIONS 68,991 105,765
OTHER INCOME (EXPENSE)
Interest income 22,699 1,781
Interest expense (39,697) (31,493)
Total Other Income (Expense) (16,998) (29,712)
INCOME TAXES (Note 1) - -
NET INCOME $ 51,993 $ 76,053
NET LOSS PER SHARE $ 0.01 $ 0.02
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,565,873 3,501,197
</TABLE>
<TABLE>
<PAGE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Statements of Stockholders' Equity
<CAPTION>
Note
Additional Receivable
Common Shares Paid-in Retained From
Shares Amount Capital Earnings Stockholder Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
April 30,
1995 3,501,197 $ 350 $ 263,583 $ 280,635 $ - $ 544,568
Net income
for the
year ended
April 30,
1996 - - - 76,053 - 76,053
Balance,
April 30,
1996 3,501,197 350 263,583 356,688 - 620,621
Common stock
issued for
acquisition
of
subsidiary 2,081,338 208 314,990 - - 315,198
Recapitaliza-
tion 167,465 17 (17) - - -
Common stock
issued for
cash at
$1.83 per
share 55,000 6 100,644 - - 100,650
Common stock
issued for
services
rendered 250,000 25 5,332 - - 5,357
Payment for note
receivable from
stockholder - - - - (304,355) (304,355)
Net income for the
year ended
April 30, 1997 - - - 51,993 - 51,993
Balance,
April 30,
1997 6,055,000 $ 606 $ 684,532 $408,681 $(304,355) $789,464
/TABLE
<PAGE>
<TABLE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
April 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 51,993 $ 76,053
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation, depletion and amortization 111,588 121,775
Allowance for bad debt 35,235 -
Common stock issued for services 5,357 -
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (53,955) (58,453)
Decrease (increase) in inventory (126,411) (278,168)
Increase (decrease) in accounts payable 5,063 (78,911)
Increase (decrease) in accrued expenses 5,111 3,614
Net Cash Provided (Used) by Operating Activities 33,981 (214,090)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (8,305) (350)
Capital expenditures (3,553) (29,906)
Purchase of oil and gas properties (83,435) (13,919)
Net Cash Provided (Used) by Investing Activities (95,293) (44,175)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note receivable (304,355) (73,207)
Sale of common stock 100,650 -
Proceeds from borrowings 260,763 375,657
Net Cash Provided (Used) by Financing Activities $ 57,058 $ 302,450
NET INCREASE (DECREASE) IN CASH $ 4,254 $ 44,185
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 68,785 24,600
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 64,531 $ 68,785
CASH PAID FOR:
Interest $ 39,697 $ 31,493
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 5,357 $ -
Common stock issued for subsidiaries $291,334 $ -
</TABLE>
<PAGE>
MILLER PETROLEUM, INC.
(Formerly Triple Chip Systems, Inc.)
Notes to the Consolidated Financial Statements
April 30, 1997 and 1996
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 Company is
no longer considered a development stage company as defined by SFAS No.
7.
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 was no adjustment 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.
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 or nonproductive,
are capitalized. Capitalized costs related to proved properties and
estimated future costs to be incurred in the development of proved
reserves are 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 revenue
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. Income per Share of Common Stock
The income per share of common stock is based on the weighted average
number of shares issued and outstanding during the year.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiaries, Miller Petroleum, Inc.,
Miller Services, Inc., and Energy Cell, Inc. All significant
intercompany transactions have been eliminated.
f. 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 5-10
Vehicles 5-7
Office equipment 5
Depreciation expense for the years ended April 30, 1997 and 1996 was
$67,606 and $62,464, respectively.
g. 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 volumes of
gas actually received or delivered. These situations 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 than 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.
h. Accounts Receivable
Accounts receivable are presented at net realizable value. Accounts
receivable are net of an allowance for doubtful accounts of $35,235 at
April 30, 1997.
i. Inventory
Inventory consists of used equipment which is purchased by the Company
for resale. When purchases are made by the Company the cost is applied
only to the marketable portion of the equipment. The inventory turnover
is low, as such the inventory is carried as a non current asset. The
inventory balance was $354,163 at April 30, 1997.
j. 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 liabilities 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.
k. Reclassification
Certain April 30, 1996 balances have been reclassified to conform with
the April 30, 1997 financial statement presentation.
l. Income taxes
No provision for taxes has been made, due to operating loss carryovers
of approximately $102,000 which expire by 2010. The potential tax
benefits of the loss carryforwards are offset by a valuation allowance
of the same amount.
NOTE 2 - OIL AND GAS PROPERTIES
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 double declining balance method for 10 years. The
Company capitalized $83,435 of oil and gas properties for the year ended
April 30, 1997 and recorded $43,982 and $59,311 of amortization expense
for the years ended April 30, 1997 and 1996, respectively.
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at April 30, 1997:
April 30,
1997
Note payable to Toyota Motor Corporation secured by 1994
Landcruiser bearing interest at 9.99% and requiring monthly
principal and interest payments of $619 due July 26, 2001
$25,950
Note payable to First National Bank of Oneida secured by 1994
GMC Brigadier bearing interest at 9.6% and requiring monthly
principal and interest payments of $356 due March 1998
3,735
Note payable to First National Bank of Oneida secured by 1990
Ford Bronco bearing interest at 10%, balance due September 1997
4,000
Note payable to First National Bank of Oneida secured by real
estate bearing interest at 10.25%, balance due August 1998
35,018
Note payable to First National Bank of Oneida secured by
equipment bearing interest at 9.85%, balance due September 1997
12,000
Note payable to individual secured by a working interest in six
natural gas wells bearing interest at 10% with no stated
principal and interest payments due May 1997
59,350
Line of credit payable to First National Bank of the
Cumberlands secured by equipment and inventory bearing
interest at 10.50% due on demand
132,669
Line of credit payable to First National Bank of the
Cumberlands secured by pledged receivables bearing interest
at 10.50% due on demand
28,600
Note payable to First National Bank of the Cumberlands secured
by a 1995 Chevrolet truck bearing interest at 9.25% requiring
monthly principal and interest payments of $386
14,370
Note payable to First National Bank of the Cumberlands secured
by a copier bearing interest at 10% requiring monthly principal
and interest payments of $255
3,357
Notes payable to individuals secured by working interest in oil
wells bearing interest at 6.00% due May and June, 1997
2,973
Note payable to a company secured by a working interest in oil
wells bearing interest at 12% and due in May 1997
75,000
Total notes payable 397,022
Less current maturities (254,449)
Notes payable - long-term $ 142,573
Maturities of long-term debt are as follows:
Year Ending April 30, Amount
1997 $ 254,449
1998 115,357
1999 23,078
2000 4,138
2001 and thereafter -
Total $ 397,022
NOTE 4 - RELATED PARTY TRANSACTIONS
At April 30, 1997, there were related party accounts payable to the
Company's secretary/treasurer. The amount payable at April 30, 1997
totaled $16,090.
The Company has a note receivable from Deloy Miller (majority stockholder)
for $304,355 at April 30, 1997. The note is unsecured and bears interest
at 7% per annum and is due in annual installments of $37,178 beginning May
1, 1997. The May 1, 1997 has not been paid as of the date of this audit.
NOTE 5 - S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (Unaudited)
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
April 30,
1997
Proved oil and gas properties
and related lease equipment:
Developed $ 447,133
Non-developed 31,053
478,186
Accumulated depreciation and depletion (202,686)
Net Capitalized Costs $ 275,500
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the
Year Ended
April 30,
1997
Acquisition of Properties Proved and Unproved $ -
Exploration Costs -
Development Costs 83,435
(3) Results of Operations for
Producing Activities
April 30,
1997 1996
Production revenues $ 974,676 $1,272,525
Production costs 212,772 514,009
Depreciation and depletion 43,982 49,689
Results of operations for producing
activities (excluding corporate overhead
and interest costs) $ 717,922 $ 708,827
(4) Reserve Quantity Information
The following schedule presents estimates of 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 millions of cubic feet of natural gas
(Mmcf). 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 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.
Oil Gas
(Bbls) (Mmcf)
Proved developed reserves:
Balance, April 30, 1996 59,174 414
Quantity estimates made - 222
Production 4,699 -
Balance, April 30, 1997 54,475 636
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 by an
independent engineering consulting firm reflect additional proven
reserves equal to approximately 4 Bcf of natural gas for these
undeveloped properties. 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 1997. 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, 1997, nor are such undeveloped
reserves being considered in calculating depreciation, depletion and
amortization expense for the year. Accordingly, these amounts are
being calculated for the year based on the April 30, 1997
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, 1997 and 1996. Estimated
future cash flows were based on independent reserve data. Because the
standardized measure of future net cash flows was prepared using the
prevailing economic conditions existing at April 30, 1997 and 1996, 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 to operations.
Standardized measures of discounted future net cash flows:
April 30,
1997 1996
Future production revenues $2,224,400 $2,122,545
Less: future production costs 662,795 649,578
Future cash flows before
income taxes 1,561,605 1,472,967
Future income tax (benefits) 273,281 257,769
Future net cash flows 1,288,324 1,215,198
Effect of discounting future
annual net cash flows at 10% 597,694 491,605
Standardized measure of
discounted future net cash
flows $ 690,630 $ 723,593
SUBSIDIARIES OF THE COMPANY
Miller Petroleum, Inc., a Tennessee corporation
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000785968
<NAME> MILLER PETROLEUM, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 64,531
<SECURITIES> 0
<RECEIVABLES> 149,459
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 213,990
<PP&E> 910,046
<DEPRECIATION> 466,819
<TOTAL-ASSETS> 1,315,816
<CURRENT-LIABILITIES> 383,779
<BONDS> 0
0
0
<COMMON> 606
<OTHER-SE> 788,858
<TOTAL-LIABILITY-AND-EQUITY> 1,315,816
<SALES> 156,163
<TOTAL-REVENUES> 1,169,270
<CGS> 212,772
<TOTAL-COSTS> 1,100,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,697
<INCOME-PRETAX> 51,993
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,993
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
1. Oil and Gas lease from BWB of Tennessee dba LaFollette Mine Supply, 84
acres more or less, landowner has a 12.5 percent royalty interest,
recorded at Miscellaneous Book 35, Page 330, Campbell County, Tennessee
Records. This lease has one shut-in gas well on it. Said well was
completed in October of 1996 and is waiting to be put into a pipeline.
Our best estimate is that this well will produce approximately 40 MCF per
day. Miller has retained a 40 percent working interest in this well.
2. Oil and Gas lease from Warren R. Webster, et al., as Lessors to R. E.
Puckett, as Lessee, dated March 20, 1974, of record in Lease Book 11,
Page 246, Campbell County, Tennessee Records. Miller earned an 100
percent working interest or a 80 percent net revenue interest in this
27,000 acre lease through a Farmout Agreement with ARCO/Gulf. ARCO/Gulf
retained a 7.5 percent overriding royalty interest.
3. Oil and Gas lease from Bruce E. Franklin as Lessor to G.A.S. Company,
Inc., as Lessee, dated September 1, 1988, of record in Lease Book 42,
Page 171, Overton County, Tennessee Records. Landowner has retained an
18.75 percent royalty interest. This lease is held by production.
4 Oil and Gas lease from Cecil Thurman etux as Lessors to Miller Drilling
Co., as Lessee, dated December 22, 1981, of record in Lease Book 29, Page
161, Overton County, Tennessee Records, landowner has retained a 12.5
percent royalty interest, This lease is held by production.
5. Oil and Gas lease from Charles Fletcher etux as Lessors to Miller
Contract Drilling Co., as Lessee, dated July 2, 1982, of record in Lease
Book 31, Page 635, Overton County, Tennessee Records, landowner has
retained a 12.5 percent royalty interest, This lease is held by
production.
6. Oil and Gas lease from Don Wells etux as Lessors to Miller Contract
Drilling Co., as Lessee, dated July 9, 1982, of record in Lease Book 31,
Page 667, Overton County, Tennessee Records, landowner has retained a
12.5 percent royalty interest, This lease is held by production.
7. Oil and Gas lease from Kenneth Jackson et ux as Lessors to Miller
Contract Drilling Company, as Lessee, dated August 10, 1981, of record in
Lease Book 29, Page 210, Overton County, Tennessee Records, landowner has
retained a 12.5 percent royalty interest, This lease is held by
production.
8. Oil and Gas lease from Jack Windle as Lessor to Energy Cell, Inc., as
Lessee, dated June 14, 1991, of record in Lease Book 44, Page 77, Overton
County, Tennessee Records, landowner has retained a 20 percent royalty
interest. This lease has 3 producing oil wells.
9. Oil and Gas lease from Stanley Vaughn as Lessor to Miller Services,
Inc., as Lessee, dated August 5, 1993, of record in Lease Book 45, Page
627, Overton County, Tennessee Records, landowner has retained a 12.5
percent royalty interest, This lease is held by production.
10. Oil and Gas lease from Joan B. Parrish as Lessor to Miller Services,
Inc., as Lessee, dated August 5, 1993, of record in Lease Book 45, Page
621, Overton County, Tennessee Records, landowner has retained a 12.5
percent royalty interest, This lease is held by production.
11. Oil and Gas lease from Jim Sullivan as Lessor to Miller Services,
Inc., as Lessee, dated August 4, 1993, of record in Lease Book 4.5, Page
625, Overton County, Tennessee Records, landowner has retained a 12.5
percent royalty interest, This lease is held by production.
12. Oil and Gas lease from Terry Staggs as Lessor to Miller Services,
Inc., as Lessee, dated August 4, 1993, of record in Lease Book 45, Page
623, Overton County, Tennessee Records, landowner has retained a 12.5
percent royalty interest, This lease is held by production.
13. Oil and Gas lease from Klaryce M. Young, as Lessor to Miller
Petroleum, Inc., as Lessee, dated September 27, 1984, of record in Lease
Book 36, Page 620, Overton County, Tennessee Records, landowner has
retained a 12.5 percent royalty interest, This lease is held by
production.
14. Well location assigned from that certain Oil and Gas lease from the
Estate of Bruno Gernt, Inc., as Lessor, to East Tennessee Consultants,
dated February 29, 1984. The lease is not of record, but a Memorandum of
Lease is recorded in Lease Book 23, Page 326, Fentress County, Tennessee
Records.
15. Well location assigned from that certain Oil and Gas lease from P.S.
Smith et al, as Lessor, to Dixie Oil Company, as Lessee, dated November
15, 1997, of record in Lease Book 8, Page 635, Morgan County, Tennessee
Records.
16. Four well locations from that certain Oil and Gas lease from Frank J.
Blair et al, as Lessors, to Blenda Miller, as Lessee, dated April 12,
1978, of record in Misc. Book 51, Page 386, Scott County, Tennessee
Records.
17. Two partial well locations from that certain Oil and Gas lease from
Gayle Hicks et al, as Lessors, to Gaspro, Inc., as Lessee, dated August
14, 1978, of record in Misc. Book 52, Page 656, Scott County, Tennessee
Records.
18. Two partial well locations from that certain Oil and Gas lease from
G.C. Pemberton et al, as Lessor, to Edward W. Riley, as Lessee, dated
January 10, 1969, of record in Misc. Book 27, Page 24, Scott County,
Tennessee Records.
1. Johnny Kidd et al lease unto Delta Producers, Inc., landowner has
retained a 12.5 percent royalty interest, 73 acres more or less, recorded
in Miscellaneous Book 28, Page 208, Campbell County, Tennessee Records.
One well has been drilled and is waiting on completion.
2. Thomas Ray & Debra Dodson lease unto Delta Producers, Inc., landowner
has retained a 12.5 percent royalty interest, three parcels, recorded in
Miscellaneous Book 29, Page 61,. Campbell County, Tennessee Records. This
lease is being held by production from the Unit Well known as the J.C.
Bowlin Unit #1.
3. John Claiborne Bowlin etux lease unto Delta Producers, Inc., landowner
has retained a 12.5 percent royalty interest, 14 acres more or less,
recorded Miscellaneous Book 26, Page 730, Campbell County, Tennessee
Records. This lease is being held by production.
4. Ben Parrott etux lease unto Delta Producers, Inc., landowner has
retained a 12.5 percent royalty interest, recorded in Misc. Book 28, Page
154 Campbell County, Tennessee Records. This lease is being held by
production.
5. Wanda Cooper lease unto Delta Producers, Inc., landowner has retained
a 12.5 percent royalty interest, recorded in Misc. Book 26, Page 738,
Campbell County, Tennessee Records. This lease is being held by
production.
6. Mark Bowlin etux unto Delta Producers, Inc., landowner has retained a
12.5 percent royalty interest, recorded in Misc. Book 26, Page 700,
Campbell County, Tennessee Records. This lease is being held by
production.
7. Billy Gene Bowlin etux unto Delta Producers, Inc. of record in Misc.
Book 26, Page 724, Campbell County, Tennessee Records, landowner has
retained a 12.5 percent royalty interest.
8. C.H. Russell Jr. unto Delta Producers, Inc. of record in Misc. Book
27, Page 598, Campbell County, Tennessee Records, landowner has retained
a 12.5 percent royalty interest.
9. Virgie Marie Douglas unto Delta Producers, Inc. of record in Misc.
Book 27, Page 598, Campbell County, Tennessee Records, landowner retained
a 12.5 percent royalty interest.
10. Cliff Bullock and Earl Davis unto Delta Producers, Inc. of record in
Misc. Book 27, Page 584, Campbell County, Tennessee Records, landowners
have retained a 12.5 percent royalty interest.
11. Carlos Jones etux unto Delta Producers, Inc., of record in Misc. Book
27, Page 586, Campbell County, Tennessee Records, landowner has retained
a 12.5 percent royalty interest.
12. J. B. Gibson unto Delta Producers, Inc. of record in Misc. Book 27,
Page 582, Campbell County, Tennessee Records, landowner retains a 12.5
percent royalty interest.
13. Tommy Overton unto Delta Producers, Inc. of record in Misc. Book 26,
Page 734, Campbell County, Tennessee Records, landowner retains a 12.5
percent royalty interest.
14. Syl Bowlin unto Delta Producers, Inc., of record in Misc. Book 27,
Page 101, Campbell county, Tennessee Records, landowner retains a 12.5
percent royalty interest.
15. Roy Bowlin unto Delta Producers, Inc., of record in Misc. Book 26,
Page 716, Campbell County, Tennessee Records, landowner retains a 12.5
percent royalty interest.
